<PAGE>




                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549



                                   FORM 10-K
  (Mark One)
  ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
        EXCHANGE ACT OF 1934 [FEE REQUIRED]

                                      OR

  (   ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                     For the year ended  December 31, 1997

                         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 ID No.)
  incorporation or organization)

      2 Corporate Plaza, Suite 125
        Newport Beach, California                       92660 
  (Address of Principal Executive Office)            (Zip Code)

       Registrant's telephone number, including area code (714) 719-1234


          Securities registered pursuant to Section 12(b) of the Act:

                                                Name of each exchange
           Title of each class                   on which registered
                  None                                    None

          Securities registered pursuant to Section 12(g) of the Act:

                        Common Stock -- $.10 Par Value
                               (Title of Class)



            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   (   )
  <PAGE>



       Indicate by check mark if disclosure of delinquent filers pursuant to
  Item  405  of  Regulation  S-K  is  not  contained herein, and will not be
  contained,  to  the best of registrant's knowledge, in definitive proxy or
  information  statements incorporated by reference in Part III of this Form
  10-K or any amendment to this Form 10-K.   ( X )
  
       The aggregate market value of the Common Stock held by non-affiliates
  of  the  registrant  on March 17, 1998 was approximately $36,076000, based
  upon  the  average  of  the  bid  and asked prices of the Common Stock, as
  reported on the Nasdaq Small Cap Market.

            The  number  of  shares  of  the  Common Stock of the registrant
  outstanding as of March 17, 1998 was 30,063,870. 

       Documents incorporated by reference:

            Portions  of  the Company's Proxy Statement to be filed with the
  Securities  and  Exchange Commission in connection with the Company's 1998
  Annual Meeting of Stockholders are incorporated by reference into Part III
  hereof.<PAGE>



                                    PART I

       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    and    Business , are, or may be deemed to be,  forward-
  looking  statements    within the meaning of Section 27A of the Securities
  Act  of  1933,  as  amended (the  Securities Act ), and Section 21E of the
  Securities  Exchange  Act  of  1934  (the   Exchange Act ).  Such forward-
  l o o king  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-K.    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-K  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.

  ITEM 1.  BUSINESS

  (a)  General Development of Business

            Mexican Industrial Waste Treatment and Disposal Business.  Since
  November  1991,  the Company has been actively involved in the development
  of  integrated  industrial  waste  treatment  and  disposal  facilities in
  various  states  in  the Republic of Mexico.  The business is comprised of
  three   major  components:    industrial  waste  services,  treatment  and
  disposal, and development.

       Industrial waste services are conducted by Administracion de Residuos
  Industriales,  S.A. de C.V. ( ARI ).  ARI s business is comprised of waste
  collection,  placement and servicing of parts-washing machines, recycling,
  fuels  blending  and  transportation.    ARI  currently operates through a
  n e twork  of  branch  offices,  strategically  located  in  Mexico  City,
  Guadalajara,  Puebla,  Tampico,  Monterrey,  Guanajuato,  San Luis Potosi,
  Veracruz  and Coatzacoalcos.  In addition, it operates a fuel blending and
  recycling facility in Tenango and has its headquarters in Mexico City.

          Treatment and disposal operations remain in the development stage,
  with the Company s completed landfill and treatment facility, known as  El
  Confin  ,  located  in the State of San Luis Potosi unable to open and now
  the  subject  of  the  Company s claim under the North American Free Trade
  Agreement  (  NAFTA ).  See  Item 3 - Legal Proceedings  and Note 3 of the
  Financial Statements (Item 14).




                                       1<PAGE>



        Development activities are conducted by Ecosistemas Nacionales, S.A.
  de  C.V.  (  ECONSA  ).   ECONSA s primary business is the development and
  permitting  of  industrial  waste  treatment  and  landfill  facilities in
  strategic  locations in Mexico.  It currently has several facilities under
  development,  with  construction  at  one  having  commenced  in the first
  quarter of 1998. 

         Insulation and Asbestos Abatement Contracting. Metalclad Insulation
  Corporation  is  one  of  the  largest  and  most respected insulation and
  asbestos  abatement  contractors  on the West Coast.  The Company provides
  labor  and  material  supply  services  to  a wide range of industrial and
  commercial  clients.  Insulation services include the installation of high
  and  low  temperature  insulation  on  pipe, ducts, furnaces, boilers, and
  other types of industrial equipment and commercial applications.  Asbestos
  abatement  services  include  removal  and disposal of asbestos-containing
  products  in similar applications.  The Company fabricates specialty items
  for  the insulation industry and sells insulation material and accessories
  incident  to  its  services  business  to  its  customers as well as other
  contractors.   A diverse list of clientele includes refineries, utilities,
  c h e m i c a l / petrochemical    plants,    manufacturing    facilities,
  c o m m ercial/manufacturing  installations  and  buildings,  and  various
  government facilities.

       Corporate Structure.  The Company, incorporated originally in 1947 as
  an  Arizona  corporation,  was  reincorporated in Delaware on November 24,
  1993.   The Company's wholly-owned United States subsidiaries include Eco-
  Metalclad,  Inc.  ("ECO-MTLC"),  a  Utah corporation, Metalclad Insulation
  Corporation ("MIC"), a California corporation, and Metalclad Environmental
  Contractors ("MEC"), a California corporation.  

          The Company's Mexican subsidiaries include Ecosistemas Nacionales,
  S.A.  de  C.V.  (ECONSA),  Ecosistemas  del Potosi, S.A. de C.V., formerly
  known  as Eco Administracion, S.A. de C.V. ("ECOPSA"), Quimica Omega, S.A.
  de  C.V.  ("QUIMICA  OMEGA"),  Consultoria  Ambiental  Total, S.A. de C.V.
  ("CATSA"),  Confinamiento  Tecnico  de Residues Industriales, S.A. de C.V.
  ("COTERIN"),  Administracion  de Residuos Industriales, S.A. de C.V. (ARI)
  and  Ecosistemas  El  Llano, S.A. de C.V. ( Llano ).   Each of the Mexican
  subsidiaries  is  a  corporation  of variable capital (sociedad anonima de
  capital variable).

          Unless otherwise indicated, the term "Company" refers to Metalclad
  C o rporation,  its  United  States  and  Mexican  subsidiaries,  and  its
  predecessors.  

        The Company's principal executive offices are located at 2 Corporate
  Plaza, Suite 125, Newport Beach, California  92660, United States, and its
  telephone  number  is  (714) 719-1234.  MIC and MEC serve their insulation
  contracting  customers  from  their  headquarters  in Anaheim, California.
  ECO-MTLC's  offices  are  in  Newport Beach, California, and the Company's
  Mexican  subsidiaries' offices are located in Mexico City, the City of San
  Luis Potosi and the City of Aguascalientes.

  (b)  Subsequent Events





                                       2<PAGE>



           1.  The Company began working on an industrial waste landfill and
  hazardous  waste  treatment  facility  in the State of Aguascalientes more
  than two years ago.  The Company attempted to make the project a model for
  cooperation  between  the  federal, state and local units of government in
  Mexico  as  a  result  of  the Company s experience in San Luis Potosi and
  because  of  the  Company  s  knowledge of governmental sensitivity to the
  potential  problems  of  such a project.  The Company s developmental team
  w o r ked  with  governmental  officials  at  all  levels,  together  with
  environmental  organizations, non-governmental organizations and virtually
  any  other  party  that  showed  any  kind  of an interest in the project.
  Company  employees  experienced  in this area attempted to be sensitive to
  every  legal  requirement  as  well as every cultural nuance.  As a way of
  strengthening  the  public profile of the project, the Company applied for
  financing  with  Banco  Nacional  De  Obras  Y  Servicios Publicos, S.N.C.
  (BANOBRAS).    Because Aguascalientes is a state bordering San Luis Potosi
  and  knowledge  of  the  Company s negative experience in the state of San
  Luis  Potosi proceeded our development activities in Aguascalientes, state
  and  local  officials were supportive of an open, transparent and mutually
  supportive  relationship  from  the beginning. The Company always believed
  there  would  be  no  linkage  between  the fact of our claim in the NAFTA
  Tribunal (which primarily targeted the former governor of San Luis Potosi)
  and  the  development of additional projects in the Country of Mexico and,
  t h e r efore,  had  no  hesitation  about  moving  forward  with  several
  developmental projects there.

  On  February  25,  1998,  the  Company  expected  approval  for  long-term
  financing  for  its  Aguascalientes  project  from  BANOBRAS.  The Company
  believed  this  based  upon  the  fact  that  the  Board  of BANOBRAS gave
  authority  for  this  kind of financing approximately a year ago, that the
  bank  gave  specific  conceptual  approval  for  the project more than six
  months  before,  that  the  entire  financial submission was complete, and
  representations  of  bank  officials  given prior to the February 25, 1998
  meeting of the Credit Committee of the bank.

  As  of  the  date  of this filing, BANOBRAS has still not yet approved the
  long-term  financing  for  the Aguascalientes project and has indicated to
  the  Company  that  the  project  is still under review.  Regrettably, the
  Company  has  reason to believe that there is, indeed, linkage between the
  Federal agency defending Mexico before the NAFTA Tribunal and BANOBRAS and
  the  Company  believes that the project will either remain under review or
  be  ultimately rejected by the bank.  Consequently, the Company has had to
  reevaluate  the project with a view towards finding other alternatives for
  long-term  financing.    In  addition,  it  was important that the Company
  determine  whether  the hostility shown by those defending the NAFTA claim
  had  any  possibility of having a negative impact on the future success of
  the  Aguascalientes  project.   At this writing, the Company has confirmed
  that  it  has  both  the legal and political support necessary to make the
  project  a  success.   The Company also believes it will be able to obtain
  the  long-term  financing  necessary  to  ensure successful completion and
  operation  of  the  project.  The contractor on the project has offered to
  participate  with  the  Company in construction financing in order to meet
  the  completion  deadline  of August 1998, but the Company intends to pace
  the construction consistent with its own resources as it pursues long-term
  project  financing consistent with its overall objectives.  The Company is




                                       3<PAGE>



  currently  pursuing  a proposal for long-term financing and if successful,
  which  it  believes  it will be, will enable an on-time completion of this
  project.

       2.  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.  The Company now expects
  that  there  will  be required a reply brief from the Company, a rejoinder
  brief  from  Mexico and then a hearing prior to the final determination of
  the  case.  It is believed that this process could take six months or more
  to complete.

       3.  In March 1998, the Company continued its warrant exchange
  program, initiated in August 1997.  The exchange program involves the
  exercise of currently held warrants at an exercise price of $1.25 per
  share of common stock.  The Company is replacing each warrant exercised
  with a new warrant, expiring in five years, with an exercise price of
  $1.25.  The effect of this financing program reduces the exercise price of
  most of the company s outstanding warrants to $1.25, effective March 20,
  1998. 

       4.   As disclosed in Item 7, Liquidity and Capital Resources, the
  Company entered into a transaction in December 1997, the effect of which
  was to make a secured convertible loan for approximately $1,500,000.  In
  order for the debt to be convertible, the agreement provided that
  Metalclad stock had to trade above $1.50 for a period of 10 consecutive
  days.  The reason this provision was negotiated was to protect the Company
  from the impact of the anti-dilution provisions of outstanding warrants
  that require a ratchet effect if any subsequent equity sales are made
  below the current exercise price of the warrant (the effect is to lower
  the outstanding warrant exercise price to the price of the equity sale or
  the existing market price of the stock, whichever is lower).  At the date
  of this writing, that condition has now been fulfilled and the debt is
  fully convertible into equity at an exchange rate of $1.50 per share.  In
  addition, the note holder now has the right to 1,500,000 warrants
  exercisable at $1.50.

  (c)  Financial Information About Industry Segments

       The Company, through MIC and MEC, is engaged in insulation services,
  asbestos abatement services, and insulation material sales, such
  activities constituting one industry segment.  The development and
  operation of the industrial waste treatment business, commenced in
  November 1991 through ECO-MTLC and now conducted by the Company s Mexican
  subsidiaries, has been reported as a separate industry segment for 1995,
  1996 and 1997.  Financial information concerning the Company's business
  segments is included and incorporated by reference in Part II and Part IV
  of this Form 10-K.  

  (d)  Narrative Description of Business

  Introduction





                                       4<PAGE>



       Business in Mexico. 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.

       In May 1994, the Company acquired QUIMICA OMEGA, a ten-year old
  Mexican company engaged in the business of industrial waste collection,
  recycling, blending, the production of fuel by-products for sale to the
  cement kilns and disposal at licensed facilities.

       In April 1996, the Company formed a joint venture in Mexico with BFI-
  Mexico.  The joint venture, which was named BFI-OMEGA, became effective
  for accounting purposes on March 10, 1996, expanded operations in Mexico
  to eight branches, all of which include collection, transportation,
  treatment, and disposal of industrial wastes.

       In January 1997, QUIMICA OMEGA and BFI-Mexico reached agreement for
  QUIMICA OMEGA to acquire BFI-Mexico s 50% interest in the joint venture
  and the Company renamed this entity Administracion de Residuos
  Industriales, S.A. de C.V. ( ARI ).

       With the acquisition of BFI-OMEGA, Metalclad now owns all of its
  operations in Mexico, which are split into two primary divisions:  (i) the
  business conducted by ECONSA which involves development, ownership and
  operation of landfill and treatment facilities; and (ii) the operating
  activities of ARI which include primarily the collection, transportation
  and treatment of certain hazardous and industrial waste, as well as the
  placement and servicing of parts-washing machines.

       Business in the United States. Metalclad Insulation Corporation is
  one of the largest and most respected insulation and asbestos abatement
  contractors on the West Coast.  The Company provides labor and material
  supply services to a wide range of industrial and commercial clients. 
  Insulation services include the installation of high and low temperature
  insulation on pipe, ducts, furnaces, boilers, and other types of
  industrial equipment and commercial applications.  Asbestos abatement
  services include removal and disposal of asbestos-containing products in
  similar applications.  The Company fabricates specialty items for the
  insulation industry and sells insulation material and accessories incident
  to its services business to its customers as well to as other contractors. 
  A diverse list of clientele includes refineries, utilities, chemical/
  petrochemical plants, manufacturing facilities, commercial/manufacturing
  installations and buildings, and various government facilities.

  Mexican Business

       ECONSA.  ECONSA s role for the Company in Mexico is to develop
  facilities for the treatment, storage, and disposal of industrial waste. 
  ECONSA, through subsidiaries, will own these facilities after development
  is completed.  All management and operation will be performed by a new
  subsidiary under terms of operating agreements which will be in place for
  each facility.

       ECONSA, through a subsidiary, owns a completed hazardous waste




                                       5<PAGE>



  landfill and treatment facility in the State of San Luis Potosi.  The
  landfill is located in the remote area of La Pedrera, Guadalcazar and is
  known by its trade name,  El Confin .  It comprises 2,200 acres of land,
  has a permitted capacity of 360,000 tons of waste per year and is designed
  presently to handle approximately 160,000 tons per year when fully
  operational.

       El Confin is presently not in operation because of political
  opposition to its opening.  The Company has not been able to overcome this
  opposition despite repeated promises of support from the highest levels of
  the Mexican government.  Consequently, on October 2, 1996, the Company
  filed a Notice of Intent to File Claim Under the North American Free Trade
  Agreement ( NAFTA ).

       Following the procedure outlined by NAFTA, the Company filed its
  Notice of Claim on January 2, 1997.  The Claim was filed with the
  International Centre for Settlement of Investment Disputes ( ICSID ) in
  Washington, D.C.  On January 13, 1997, the Secretary General of ICSID
  registered the Company s claim and notified both the United States and
  Mexican governments of the registration.  

       The rules governing these kinds of claims allow each party to choose
  one arbitrator with those two to choose a third.  This tribunal has been
  impaneled and an initial hearing was held in July 1997 to set rules for
  discovery, time periods for submissions, and other administrative
  processes.

       On October 13, 1997, the Company filed its detailed memorial, or
  claim.  On February 17, 1998, Mexico filed its counter-memorial, or
  response.  The Company now expects that there will be required a reply
  brief from the Company, a rejoinder brief from Mexico and then a hearing
  prior to the final determination of the case.  It is believed that this
  process could take six months or more to complete.

       The Company s claim is one under the category of claims identified in 
  NAFTA referred to as  Likened to Expropriation  wherein the Company,
  having been denied the right to operate its constructed and permitted
  facility, claims its property has therefore been, as a practical matter,
  expropriated, entitling the Company to the fair market value of the
  facility as damages.

       Although the Company remains confident in its position, no assurances
  can be given that it will be successful in this arbitration process.

       ECONSA is also active in development of additional projects in
  Mexico.  It is presently pursuing development opportunities near the heart
  of industrial Mexico.  These opportunities include industrial waste
  landfill facilities and hazardous waste treatment facilities which will
  include neutralization, solidification and evaporation processes to handle
  a variety of waste streams.  These development activities include siting,
  permitting, social and political support, and community awareness.  The
  development process typically can take up to two years to obtain the
  necessary support and permitting to build a facility.  The actual
  construction time necessary to complete these facilities is approximately




                                       6<PAGE>



  six months.  However, there can be no assurances that the Company will be
  successful in these efforts.

       ARI.  In 1996, the Company undertook significant expansion of the ARI
  operations in Mexico.  Branches now exist in Mexico City, Guadalajara,
  Puebla, Tampico, Monterrey, Guanajuato, San Luis Potosi, Veracruz and
  Coatzacoalcos. The Company intends to expand the number of branches as
  necessary to serve as collection and transportation facilities, as well as
  the marketing arm for any treatment and disposal facilities opened by the
  Company.  

       The goal of the Company is to expand the existing business of ARI to
  include fully-integrated services which will be able to satisfy all of the
  requirements of industrial waste producers.

       By following this business plan, ARI anticipates capturing a
  significant share of the newly-developing market for environmental
  services in the industrial heart of Mexico.  The Company has developed a
  new technology for the disposing of industrial solid hazardous waste.  The
  material has been successfully used as an alternate fuel at two cement
  plants.  Steps are continually being taken to expand relationships at both
  the Cruz Azul Cement Company and the Apasco Cement Company so that
  additional liquid and solid fuel can be sent to their facilities.

       Mexican Governmental Regulations and Permits.  The Company's proposed
  business in Mexico is highly regulated and is subject to Mexican
  environmental law.  Development of each proposed industrial waste
  treatment facility cannot be commenced until the Company receives a
  separate unconditional permit to construct (a "Construction Permit") from
  the applicable local, state, and federal agencies of the Mexican
  government.  A completed facility cannot be opened until the Company has
  received a permit to operate (an "Operating Permit") the facility from
  such agencies.

       The Secretariat of Environment, National Resources and Fishing,
  ( SEMARNAP ) is the Mexican federal government agency charged with
  environmental policy formulation and enforcement of such policy under the
  General Law of Ecological Equilibrium and Environmental Protection which
  was enacted in 1988 (the "General Ecology Law").  Under the General
  Ecology Law, regulations have been adopted which require, among other
  things, the permit for construction and operation of facilities which
  treat, store, or dispose of hazardous wastes.  SEMARNAP has divided its
  environmental functions between two autonomous agencies:  Instituto
  Nacional de Ecologia (the National Institute of Ecology or "INE"), which
  is responsible for regulation and permitting, and Procuraduria Federal de
  Proteccion al Ambiente (the Office of the Federal Attorney for the
  Protection of the Environment or "PROFEPA"), which is responsible for
  inspection, compliance, and enforcement.  A Construction Permit from INE
  cannot be obtained until the site for the facility has acquired zoning and
  land use permits from local and state agencies and INE approves
  feasibility studies, risk analysis, and environmental impact studies.  The
  commencement of operations of each facility is contingent upon receipt of
  an Operating Permit from INE.  Operation of each facility and compliance
  with the regulations of INE will be monitored by PROFEPA on a continuous




                                       7<PAGE>



  basis.   

       Insurance.  The Company's Mexican operations are covered by a general
  liability insurance policy, which provides base coverage of $1,000,000 per
  occurrence and in the aggregate.  The Company believes that its current
  insurance arrangements are adequate for the Company s current needs and
  that coverage will be available at reasonable prices for anticipated
  future needs.

       Market.  The Company has conducted a comprehensive evaluation of the
  industrial waste market in Mexico.  Various organizations participated in
  specific aspects of the evaluation and the study included numerous direct
  interviews with waste generators.  The study identifies the  distribution
  of waste types by industry segment, estimates the quantity of hazardous
  wastes generated in Mexico, identifies specific pricing structure for
  current waste handling activities, and identifies existing and possible
  future competitors.  As a result of this study, the Company estimates that
  the total industrial waste generated annually is approximately 150 million
  tons, of which approximately 8 million tons are hazardous and likely to be
  processed at commercial facilities.  The remaining waste will most likely
  be processed in-house by industry.  The Company's conclusions are
  consistent with reports from SEMARNAP and the United States Department of
  Commerce relative to hazardous waste generated.

       Each of the Company's proposed landfill facilities, with a design
  capacity of 90,000 - 360,000 tons per year, will be able to process
  approximately 2% of the estimated 8 million tons of hazardous waste
  generated in Mexico annually.

       Competition.   The Company believes it will build and operate the
  first fully-integrated waste treatment facility in Mexico, having the
  capability to treat, store or recycle all forms of waste, operating to
  international standards.  Existing facilities do not typically offer
  either a high level of technology or a high degree of integration with
  regard to the processing of waste.  As a fully-integrated industrial waste
  management facility, the Company has no known, commercially active
  competitors.  The Company believes that it will encounter limited
  competition from small companies operating in various niches of the waste
  treatment industry; however, companies with substantially greater
  financial, technical, marketing, and other resources than the Company may
  enter the market and compete with the Company's anticipated business.

       The only substantial hazardous waste disposal operation currently
  operating in Mexico is a landfill located near Monterrey which is 60%-
  owned by Waste Management.  This landfill receives wastes from plants
  throughout Mexico and has had significant growth during the last few years
  as a result of the increased enforcement activities of PROFEPA.  Although
  this landfill will be a competitor, the Company believes that in many
  cases the technologies offered at the Company's proposed facilities will
  be both preferred because of the design and treatment strategies
  incorporated into the Company s landfill and competitively priced as a
  result of transportation cost savings.  See  Transportation. 

        Although the Company believes the hazardous waste treatment market




                                       8<PAGE>



  in Mexico is substantial and growing, to the extent potential competitors
  establish facilities in Mexico and offer comparable services at lower
  prices or more cost-effective waste disposal alternatives, the Company's
  ability to compete effectively could be adversely affected.   No such
  competition is yet evident in Mexico and the impact of the Company s NAFTA
  claim may slow entry of other U.S. firms evaluating Mexico.

       Transportation.  The Company believes that its single most
  competitive short and long-term advantage in the Mexican marketplace is
  due to the location of El Confin and other ARI facilities.  The El Confin
  site is centrally located in Mexico and situated near the intersection of
  the major north/south transportation route (Highway 57) and the major
  east/west transportation route (Highway 70), both of which are well-
  maintained and conveniently traveled.  The central location of the site
  will minimize the freight element of waste-handling costs to industries
  located in many of the major Mexican industrial zones.  The distances from
  major cities in Mexico to El Confin are approximately as follows:

   San Luis Potosi   100 km  (65 miles)    Durango        81 km (300 miles)
   Aguascalientes    203 km (125 miles)    Monterrey     537 km (335 miles)
   Guadalajara       348 km (215 miles)    Veracruz      758 km (470 miles)
   Mexico City       413 km (260 miles)    Oaxaca        950 km (590 miles)
   Tampico           418 km (260 miles)    Chihuahua   1,050 km (650 miles)

            Employees.  As of December 31, 1997, the Company had a full-time
  staff  of  approximately  165 employees working in its Mexican operations,
  including 14 management personnel and 15 clerical workers.

  Insulation Contracting Services 

          Background.  The Company's insulation contracting services include
  the  installation  of  high and low temperature insulation on pipe, ducts,
  furnaces,  boilers,  and  various  other  types  of equipment.  Insulation
  services  are  provided  for  new construction and maintenance of existing
  facilities.    The  Company is a licensed general contractor and typically
  provides   project  management,  labor,  tools,  equipment  and  materials
  necessary to complete the installation.

         The Company usually performs substantially all of the work required
  to   complete  its  contracts,  generally  subcontracting  to  others  the
  scaffolding  and  painting.  In a typical insulation contract, the Company
  obtains  plans  and  specifications prepared by the owner of a facility or
  its  agent.   In projects where the customer is the owner of the facility,
  the  Company  acts as the general contractor.  The Company also works as a
  subcontractor for other general contractors.  Insulation contracts for new
  construction  may  require  one  or  more  years to complete.  Maintenance
  contracts typically extend over a period of one or more years.

            The  Company's  insulation contracting business has historically
  included,  among  other  things,  maintenance,  removal,  repair,  and re-
  installation  of  insulation  on existing facilities and equipment.  These
  activities  included  asbestos removal services in most cases in which the
  insulation  at  such  facilities has included asbestos-containing material
  ("ACM").




                                       9<PAGE>



            The  Company  removes  all forms of ACM after first treating the
  asbestos  with  water  and a wetting agent to minimize fiber release.  Dry
  removal  is  conducted  in  special  cases  where wetting is not feasible,
  provided  Environmental  Protection  Agency  ("EPA") approval is obtained.
  The  Company's workers also remove pipe insulation by cutting the wrapping
  into  sections  in  an  enclosed  containment  area  or  utilizing special
  " g lovebags"  which  provide  containment  around  the  section  of  pipe
  insulation  being  removed.    In  some  instances,  the  Company performs
  asbestos  removal and provides related re-insulation contracting services,
  including  insulation material sales; in other cases, the Company performs
  only  asbestos removal services.  The Company believes that the removal of
  ACM  provides  the best and most cost-effective solution for most asbestos
  abatement projects.

            Insulation  Contracts.    The  Company  obtains contracts, which
  ordinarily  fall  within one of the types set forth below, on the basis of
  either competitive bids or direct negotiations: 

            Cost-plus.   These contracts, sometimes referred to as "time and
  materials"   contracts,  generally  provide  for  reimbursement  of  costs
  incurred  by the Company and the payment of a fee equal to a percentage of
  the  cost  of  construction.   They generally provide for monthly payments
  covering  both  reimbursement  for costs incurred to date and a portion of
  the  fee  based  upon the amount of work performed and are customarily not
  subject to retention of fees or costs.

            Fixed-price.    These contracts generally require the Company to
  perform  all  work  for  an  agreed upon price, often by a specified date.
  Such  contracts usually provide for increases in the contract price if the
  Company's  construction  costs increase due to changes in or delays of the
  project  initiated  or  caused  by  the customer or owner or by escalating
  project  labor  rates.    However, absent causes resulting in increases in
  contract prices, the Company takes certain risks associated with its fixed
  prices.    Under  these  types  of contracts the Company receives periodic
  payments  based  on  the  work performed to date, less certain retentions.
  The  amounts retained are held by the customer pending either satisfactory
  completion of the Company's work or in some cases, satisfactory completion
  of the entire project.

       In accordance with industry practice, most of the Company's contracts
  are subject to termination or modification by the customer, with provision
  for  the  recovery  of  costs incurred and the payment to the Company of a
  proportionate  part  of its fees, in the case of a cost-plus contract, and
  overhead  and  profit,  in the case of a fixed price contract.  At various
  times,  contracts  which  the  Company  has  with  its customers have been
  terminated  or modified.  However, such termination or modification occurs
  in the regular course of the Company's business due to changes in the work
  to  be  performed as determined by the customer.  No single termination or
  modification  has  had or is expected to have a material adverse impact on
  the Company's business.

          Operations and Employee Safety.  All contract work is performed by
  trained  Company  personnel and supervised by project managers trained and
  experienced  in  construction  and  asbestos  abatement.    Each  employee




                                      10<PAGE>



  involved in asbestos abatement must complete a general training and safety
  program  conducted  by the Company.  Training topics include approved work
  procedures,  instruction  on  protective  equipment  and  personal safety,
  dangers of asbestos, methods for controlling friable asbestos and asbestos
  transportation  and  handling  procedures.    In  addition,  all full-time
  employees  engaged in asbestos abatement activities are required to attend
  a  minimum four-day course approved by EPA and the Occupational Safety and
  Health  Administration  ("OSHA") and all supervisors of abatement projects
  are  required  to  attend  a  nine-hour first aid/CPR/safety course and an
  eight-hour  EPA/AHERA  refresher  course  annually.   Six of the Company's
  full-time  employees  and  43  hourly  employees  have  been  trained  and
  certified as "competent individuals" under EPA regulations relating to the
  training of asbestos abatement workers.  All employees are issued detailed
  training  materials  and  the  Company  typically  conducts  a  job safety
  analysis in the job bidding stage.

           The Company requires the use of protective equipment and sponsors
  periodic  medical  examination  of  all  field  employees.  During removal
  procedures,  ACM  is  generally  wetted  to  minimize  fiber  release  and
  filtration   devices  are  used  to  reduce  contamination  levels.    Air
  monitoring  to  determine asbestos fiber contamination levels is conducted
  on  all abatement projects involving the removal of friable asbestos.  The
  Company  has  a comprehensive policy and procedure manual which covers all
  a c t i v i ties  of  an  asbestos  abatement  project  and  the  specific
  responsibilities  and implementation of Company procedures and policies to
  be  followed  on  each  project.    The manual is reviewed periodically by
  management and updated to insure compliance with federal, state, and local
  r e gulations,  to  include  information  from  in-house  project  reviews
  findings, and to include updated information regarding industry practices.
  To  separate  its  responsibilities  and  to  limit liability, the Company
  utilizes  third  party,  unaffiliated  laboratories  for asbestos sampling
  analysis and licensed independent waste haulers for the transportation and
  disposal of asbestos waste from its projects.

           Materials and Supplies.  The Company purchases its insulating and
  asbestos  abatement  materials  and  supplies  from  a  number of national
  manufacturers and the Company is not dependent on any one source for these
  materials  and  accessories  used  in its insulation services and asbestos
  abatement business.

       Marketing and Sales

        Insulation Contracting Services.  The Company currently obtains most
  of  its  insulation  contracting  business  from  existing  customers  and
  referrals  by  customers,  engineers,  architects, and construction firms.
  Additional  business  is  obtained  by  referrals  obtained through labor,
  industry, and trade association affiliations.

        Projects are also awarded through competitive bidding although major
  companies  frequently  rely  on selected bidders chosen by them based on a
  variety  of  criteria such as adequate capitalization, bonding capability,
  insurance  carried,  and experience.  The Company is frequently invited in
  this  manner  to  bid  on projects and obtains a significant amount of its
  contracts  through  the competitive bidding process.  The Company believes




                                      11<PAGE>



  that  its bids are competitively priced and anticipates that in the future
  its  bids  will continue to be competitively priced with bids submitted by
  others.

         The Company's marketing and sales effort emphasizes its experience,
  reputation  for  timely  performance,  and knowledge of the insulation and
  asbestos  abatement  industry.    The  Company  is a member of the Western
  Insulation  Contractors  Association,  the National Insulation Contractors
  Association, and various local business associations. 

        Curtom-Metalclad Joint Venture.  In 1989, the Company entered into a
  j o i nt  venture  with  a  minority  service  firm  which  qualifies  for
  preferential contract bidding because of minority status, with the Company
  owning  a 49% interest in this joint venture.  The joint venture, known as
  "Curtom-Metalclad,"  submits  bids  for  insulation and asbestos abatement
  services.    When contracts are obtained by the joint venture, the Company
  performs  the  work  specified  in  the contract as a subcontractor to the
  joint  venture.    The  Company  also  receives  an interest in 49% of the
  profits or losses of the joint venture.

         Insulation Material Sales.  The current emphasis in this area is to
  primarily  warehouse  and supply material for projects where other Company
  services  are  provided.  The warehoused material is based on economics of
  bulk  purchases  of  the most commonly used products or projected needs on
  future known projects, to handle emergencies, and to supply material sales
  direct to other users as available and when solicited.

           Customers.  The Company's insulation customers are categorized as
  Industrial  or  Commercial.    The  industrial customers are predominately
  public utilities (power, natural gas and water/water treatment), major oil
  companies  for  oil refineries and petrochemical plants, chemical and food
  p r ocessors,  other  heavy  manufacturers,  and  engineering/construction
  c o m p a n ies.    The  Commercial  customers  are  primarily  government
  i n stallations,   schools,   hospitals,   institutions,   an   array   of
  m a nufacturing/commercial  facilities,  and  the  General  or  mechanical
  construction  contractors.    The  Company  anticipates that a significant
  portion  of  its  revenues in 1998 will continue to be from work performed
  for Southern California Edison, ARCO, and Texaco.

            Competition.  Competition in the insulation contracting services
  business  is  intense and is expected to remain intense in the foreseeable
  future.   Competition includes a few national and regional companies which
  provide  integrated  services  and many regional and local companies which
  provide  insulation and asbestos abatement specialty contracting services.
  Most  of  the  national  and  regional  competitors  providing  integrated
  services  are  well  established and have substantially greater marketing,
  financial, and technological resources than the Company.  The regional and
  local  specialty  contracting  companies  which  compete  with the Company
  either  provide  one  service  or  they  provide  integrated  services  by
  subcontracting  part  of  their  services to other companies.  The Company
  believes  that  the  primary competitive factors in these areas are price,
  technical performance, and reliability.  The Company obtains a significant
  number of its insulation service contracts through the competitive bidding
  process.   The Company believes that its bids are competitively priced and




                                      12<PAGE>



  anticipates  that in the future its bids will continue to be competitively
  priced with bids submitted by others.

        Insurance and Bonding.  The Company's asbestos and general liability
  insurance  policy  provides base coverage of $1,000,000 per occurrence and
  e x cess  liability  coverage  of  $10,000,000.    The  Company's  current
  insulation  and  asbestos  abatement  services  customers do not generally
  require  performance  bonds.    The  Company  believes,  however, that its
  current  bonding  arrangements  are adequate for the Company's anticipated
  future needs.

       Government Regulation

       Insulation Services and Material Sales Regulation.  The Company, as a
  general  contractor  and  insulation  specialty  contractor, is subject to
  regulation  requiring  it  to  obtain  licenses  from  several  state  and
  municipal  agencies.    Other  than  licensing,  the  Company's industrial
  insulation services and material sales business is not subject to material
  or significant regulation.

           Asbestos Abatement Regulation.  Asbestos abatement operations are
  s u b ject  to  regulation  by  federal,  state,  and  local  governmental
  authorities, including OSHA and the EPA.  In general, OSHA regulations set
  maximum asbestos fiber exposure levels applicable to employees and the EPA
  regulations  provide  asbestos  fiber emission control standards.  The EPA
  requires  use of accredited persons for both inspection and abatement.  In
  addition,  a  number  of states have promulgated regulations setting forth
  such  requirements  as  registration  or  licensing  of asbestos abatement
  contractors,  training  courses  for  workers,  notification  of intent to
  u n dertake  abatement  projects  and  various  types  of  approvals  from
  designated  entities.    Transportation  and  disposal activities are also
  regulated.    The Company believes that similar legislation may be adopted
  in other states and in local building codes.

         OSHA has promulgated regulations specifying airborne asbestos fiber
  exposure  standards  for  asbestos workers, engineering and administrative
  controls,   workplace  practices,  and  medical  surveillance  and  worker
  protection  requirements.  OSHA's construction standards require companies
  removing  asbestos  on  construction  sites  to  utilize specified control
  methods to limit employee exposure to airborne asbestos fibers, to conduct
  air  monitoring,  to  provide  decontamination  units and to appropriately
  supervise  operations.   EPA regulations restrict the use of spray applied
  ACM  and asbestos insulation, establish procedures for handling ACM during
  demolition and renovations, and prohibit visible emissions during removal,
  transportation and disposal of ACM.

        The Company believes that it is substantially in compliance with all
  regulations  relating  to its asbestos abatement operations, and currently
  h a s  all  material  government  permits,  licenses,  qualifications  and
  approvals required for its operations.

         Backlog.  The Company's backlog for insulation services at December
  3 1 ,   1997,  and  December  31,  1996  was  $5,500,000  and  $4,050,000,
  respectively.    Backlog  is  calculated in terms of estimated revenues on




                                      13<PAGE>



  fixed-price and cost-plus projects in progress or for which contracts have
  been  executed.    The Company believes that backlog as of any date is not
  necessarily indicative of future revenues.  The Company estimates that its
  entire  backlog  as of December 31, 1997 will be completed during the next
  twelve months.  The majority of the Company's present business is on cost-
  plus  contracts  for  which  backlog  is  estimated.  The Company fulfills
  product  and  supply  orders  promptly,  and  there  is  no backlog in the
  material sales business.

            Employees.  As of December 31, 1997, the Company had a full-time
  staff  of 10 salaried employees, including two executive officers, project
  managers/estimators, purchasing, accounting, and office staff.

            As  of December 31, 1997, the Company employed approximately 105
  hourly  employees  for insulation contracting services, nearly all of whom
  are  members of the International Association of Heat and Frost Insulators
  and  Asbestos  Workers  ("AFL-CIO").  The Company is a party to agreements
  with various local chapters of various trade unions.  The number of hourly
  employees employed by the Company fluctuates depending upon the number and
  size  of  projects  which  the  Company  has  under  construction  at  any
  particular  time.    It  has  been  the  Company's  experience that hourly
  employees  are  generally  available for its projects, and the Company has
  continuously  employed  a  number  of  them  on  various  projects over an
  extended  period  of  time.   The Company considers its relations with its
  hourly  employees  and  the  unions  representing  them to be good and has
  experienced  no  major  work  stoppages  due to strikes by such employees.
  Additionally,  the  trade  union agreements the Company is a party to also
  include no strike, no work stoppage premiums.

  Directors and Executive Officers of the Company

            The  names,  ages,  and positions of the Company's directors and
  executive  officers  (including  certain significant executive officers of
  the Company's principal subsidiaries) are listed below:
























                                      14<PAGE>




                              Director or Officer

  Name                   Age  Since  Current Position with the Company
  -------------------------------------------------------------------------
  Jose Akle Fierro        53  1997   Director
  Anthony C. Dabbene      46  1996   Chief Financial Officer, Director
  David Duclett           47  1989   Vice President-Marketing & Sales,
                                       MIC/MEC
  Javier Guerra Cisneros  51  1994   Director, Vice President-Mexican
                                       Operations
  Bruce H. Haglund        46  1983   Secretary-General Counsel
  Grant S. Kesler         54  1991   President, Chief Executive Officer,
                                       Director
  Juan B. Morales         46  1997   Director
  Donald K. Yamano        53  1997   President, Chief Executive Officer,
                                       MIC/MEC

         Jose Akle Fierro has been a Director of the Company since May 1997.
  Mr.  Akle  has  spent  most  of  his  professional career in the financial
  sector,  during  which  he  worked for Citicorp for seven years.  His last
  position  there was Investment Banking Head for Mexico.  Dr. Akle has been
  involved  in  venture  capital in Mexico since 1986, as a fund manager and
  investor.    At  present, he is the largest shareholder and President of a
  telecommunications  venture  in  Peru,  a  software development company in
  Mexico  and  an  investment  advisory  services corporation.  He is on the
  Board of several processed food companies and a venture capital fund.  Dr.
  Akle  s  academic  background  includes  two  engineering  degrees, one in
  communications  in  Mexico and another in systems from France.  He holds a
  Doctor of Engineering from the Universite De Grenoble, Grenoble, France.

            Anthony  C. Dabbene has been the Chief Financial Officer for the
  Company  since  January  1996 and a Director since May 1997.  Prior to his
  employment  with  the  Company,  Mr. Dabbene was employed by LG & E Energy
  Corp.  for 10 years, including service as Vice President and Controller to
  the  Energy  Services Group.  From 1973 to 1985, he was employed by EBASCO
  Services  Incorporated,  where he was Manager - Finance and Administration
  for  the Western region from 1981 to 1985.  He received a B.B.A. degree in
  Accounting  from St. Francis College and an M.B.A. degree from Long Island
  University, New York.

           David Duclett has been employed by the Company since 1977 and has
  been  Vice  President  of  Marketing and Sales of Metalclad Insulation and
  Metalclad  Environmental  since 1989.  Mr. Duclett s main responsibilities
  are  to  implement  and achieve the marketing strategies and objectives of
  the   Company   while   establishing   and   building   long-term   client
  relationships.     He  has  negotiated  and  managed  contracts  for  both
  industrial and commercial work, with concentration on refinery and utility
  maintenance work and hi-rise commercial buildings.  Mr. Duclett received a
  B.A. degree in communications from California State University, Fullerton.

         Javier Guerra Cisneros has been a Director of the Company since May
  1994  and  the  Director  General  of QUIMICA OMEGA since its formation in
  1981.    He  also  founded  and  was  the  President  of  the Institute on




                                      15<PAGE>



  Industrial Hazardous Waste, a non-profit organization that promotes public
  awareness of the Mexican environmental regulations through its publication
  DIP.    Since 1990, Mr. Guerra, through QUIMICA OMEGA, has been one of the
  pioneers  in  the implementation in Mexico of the program to use hazardous
  wastes as supplemental fuel in cement kilns.  He has more than 10 years of
  experience  on  environmental regulations and handling of hazardous wastes
  in  Mexico  and  the United States as well as in the compliance of Mexican
  environmental legislation.  He has participated in multiple conferences on
  ecological  matters,  including seminars sponsored by the EPA and SEDESOL.
  Mr.  Guerra  is  a  business  administration graduate from the Universidad
  Iberoamericana  in Mexico City, with studies in international marketing at
  the  St.  Gallen  University in Switzerland.  He has also made specialized
  engineering studies in the areas of combustion equipment and chemicals.  

            Bruce  H. Haglund has served as Secretary-General Counsel of the
  Company  since  1983  and served as a Director of the Company from 1983 to
  July  1991.  Since April 1994, Mr. Haglund has been a principal in the law
  firm  of Gibson, Haglund & Johnson.  From February 1991 to April 1994, Mr.
  Haglund  was  a  principal  in the law firm of Phillips, Haglund, Haddan &
  Jeffers.   From 1984 to February 1991, he was a partner in the law firm of
  Gibson  & Haglund.  Mr. Haglund is also a member of the Board of Directors
  of  GB  Foods  Corporation,  the  Secretary  and  a member of the Board of
  Directors of Aviation Distributors, Inc., and the Secretary of Renaissance
  Golf  Products,  Inc.,  companies whose stock is publicly traded.  He is a
  graduate of the University of Utah College of Law.  

            Grant  S.  Kesler  has served as a Director of the Company since
  February  1991  and has been Chief Executive Officer since May 1991.  From
  1982  to May 1991, he was employed by Paradigm Securities, Inc., a company
  he  formed  in  1982.    In  1975,  he  was General Counsel to Development
  Associates,  a  real  estate development firm.  Earlier, he was engaged in
  the  private  practice of law, served as an assistant attorney general for
  the  State  of  Utah,  and served as an intern to the chief justice of the
  Utah  Supreme  Court.  Mr. Kesler is a graduate  of the University of Utah
  College of Law  and a member of the Utah State Bar Association.

           Juan B. Morales, Jr. has been a Director of the Company since May
  1997.    Mr.  Morales  spent  4 years working in various divisions of Alfa
  Group  from 1976 through 1980.  He represented Ferrostaal and Thyssen from
  Germany,  negotiating for both government and private industry until 1980.
  Mr.  Morales then entered the private sector, owning and directing his own
  steel  scrap  processing  and wine distribution businesses in Mexico.  Mr.
  Morales   academic background includes a BS in economics, from the Wharton
  School of Business and an MBA from IMEDE in Laussane, Switzerland.

         Donald K. Yamano has been the President and Chief Executive Officer
  for   Metalclad  Insulation  since  June,  1997.    His  prior  experience
  encompasses  Engineering,  Design  and Construction operational management
  p o s i t i ons   in   the   power,   petrochemical,   natural   gas   and
  environmental/process  industries.    The last 15 years has been in Senior
  Management  for  LG&E  Power,  serving  as President and CEO of LG&E Power
  Engineers  and  Constructors, Inc. since 1992.  He received a BS degree in
  Mechanical Engineering from California State Polytechnic University and is
  a Registered Licensed Professional Engineer in California and Texas.




                                      16<PAGE>




  ITEM 2.  PROPERTIES

           The Company leases space for its offices and warehouse facilities
  under leases of varying terms at rentals aggregating approximately $15,500
  per  month.  The Company's executive offices are located in Newport Beach,
  California  which  consists of approximately 3,000 square feet leased at a
  current  rate  of  $5,572  per  month.  The Newport Beach lease expires in
  September  2002.    Facilities  in  Anaheim, California house the Southern
  California  industrial  insulation  services  and  the insulation material
  sales  operations.  The Anaheim facility consists of 26,000 square feet of
  office  and  warehouse space which is leased at the current rate of $8,800
  per month.  The Anaheim lease expires in April, 1999.

         The Company owns approximately 145 acres of unimproved land located
  in  Tulare  County, California which is not related to the business of the
  Company and is being held for sale.

           ECOPSA owns an approximately 92-hectare parcel (approximately 227
  acres) of land in Santa Maria del Rio near San Luis Potosi, Mexico.

       COTERIN owns approximately 2,200 acres of land near La Pedrera in the
  Mexican state of San Luis Potosi on which El Confin is located.

          QUIMICA OMEGA owns approximately 1.25 acres of land in Tenango del
  Valle, Mexico and a 6,940 square foot lot in Tenango del Valle on which an
  office building and a manufacturing plant are located.

           ECONSA and ARI maintain their corporate offices in Bosques de las
  L o m as,  in  the  Federal  District  of  Mexico.    They  jointly  lease
  approximately  2,200  square  feet at the rate of $2,800 per month.  Their
  lease is for one year, expiring in October 1998.

          ARI also maintains its branch offices in various cities throughout
  Mexico.   All leases aggregate to a total of $10,000 per month and are for
  a period of one year.


  ITEM 3.  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 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.

  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




                                      17<PAGE>



  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 February 17, 1998, the United Mexican States ( Mexico ) responded
  to the Company s claim to the Tribunal. The Company now expects that there
  will  be  required  a reply brief from the Company, a rejoinder brief from
  Mexico  and  then  a hearing prior to the final determination of the case.
  It  is  believed  that  this  process  could  take  six  months or more to
  complete.

        It is now expected that the Tribunal will make rulings narrowing the
  issues between the parties, determining the limits of further discovery on
  both  sides  and  requesting  further  pleadings on certain issues, all of
  which  to  lead  to  a  final  hearing  and  ultimate determination by the
  Tribunal.    Because this is the first claim before the Tribunal under the
  Treaty, there is a certain amount of uncertainty about the outcome and the
  length  of  time  it  will  take  to  achieve  it.  The Company reasonably
  believes  that  the arbitration will be concluded during the calendar year
  1998.


  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       None.

















                                      18<PAGE>



                                    PART II

  ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS

         The Company's Common Stock is traded on the Nasdaq Small Cap Market
  under  the  symbol  "MTLC." The following table sets forth, for the fiscal
  periods  indicated,  the high and low sales prices for the Common Stock as
  reported by Nasdaq:

                                                     Sales Price
                                                   High        Low
  Fiscal Year Ended May 31, 1996
  1st Fiscal Quarter Ended August 31, 1995       3  5/16     2 15/16
  2nd Fiscal Quarter Ended November 30, 1995     3 13/16     3  1/8
  3rd Fiscal Quarter Ended February 29, 1996     5  5/8      5  1/4
  4th Fiscal Quarter Ended May 31, 1996          3  1/4      3  1/32

  Seven Months Ended December 31, 1996
  1st Fiscal Quarter Ended August 31, 1996       3  3/8      2  5/8
  2nd Fiscal Quarter Ended November 30, 1996     3  1/4      1  1/2
  One month period ended December 31, 1996       1 15/16     1  3/8

  Fiscal Year Ended December 31, 1997
  1st Fiscal Quarter Ended March 31, 1997        1  5/8      1  3/32
  2nd Fiscal Quarter Ended June 30, 1997         2           1  3/32
  3rd Fiscal Quarter Ended September 30, 1997    1 17/32     1  3/16
  4th Fiscal Quarter Ended December 31, 1997     1  9/32       15/16

       The Company has not paid any cash dividends on its Common Stock since
  its incorporation and anticipates that, for the foreseeable future,
  earnings, if any, will continue to be retained for use in its business. 
  As of March 17, 1998, the approximate number of record holders of the
  Company's Common Stock was 1740. 


  ITEM 6.  SELECTED FINANCIAL DATA

       The following selected financial data is derived from the
  consolidated financial statements of the Company and should be read in
  conjunction with the consolidated financial statements, related notes and
  other financial information included herein.
















                                      19<PAGE>



   <TABLE><S>                                <C>       <C>          <C>          <C>          <C>       <C>
                                               Year     7 Months      Year         Year         Year     5 Months
                                               Ended      Ended       Ended        Ended        Ended      Ended
                                              Dec 31,    Dec 31,     May 31,      May 31,      May 31,    May 31,
                                               1997       1996        1996         1995         1994       1993
                                               ----       ----        ----         ----         ----       ----
                                                          (in thousands, except per share amounts)
   Statement of Operations Data
   ----------------------------
   Revenues                                   $11,885    $ 6,150     $14,902      $17,952      $16,453     $7,294
   Operating income (loss) - Insulation           107        (21)       (854)         257          327       (552)
   Operating loss-Waste Management (1)         (2,217)    (1,282)       (560)      (9,111)      (3,443)    (2,816)
   Operating loss                              (4,578)    (3,243)     (5,091)     (13,628)      (4,049)    (3,368)
   Net loss                                    (4,610)    (3,280)     (6,780)     (15,399)      (4,892)    (3,643)

   Earnings per share:
     Net loss per common share - basic and
       diluted                                  (.16)      (.11)       (.30)       (1.13)        (.56)      (.46)

   Balance Sheet Data
   ------------------
   Total assets                                13,216     14,931      17,702       10,710       18,311      5,469
   Long-term debt                               1,500          -           -        2,050        2,662         19
   Convertible subordinated debentures (2)         20        229         239        8,636        8,755      4,733

   --------------------------

   (1) Includes $6,378,000 write off in May 1995 of the goodwill associated with the May
  1994 purchase of QUIMICA OMEGA.  See Item 7,  Management s Discussion and Analysis of
  Financial Conditions and Results of Operations  
  (2)  During the year ended May 31, 1996 a substantial portion of the convertible
  subordinated debentures were converted into shares of common stock.  Additionally,
  $2,100,000 of the Company s long term debt was converted into equity.  See Item 7,
   Management s Discussion and Analysis of Financial Conditions and Results of
  Operations .
  </TABLE>


       No dividends were paid or declared during the year ended December 31,
  1997,  the seven months ended December 31, 1996, or the fiscal years ended
  May 31, 1996, 1995 or 1994.


  ITEM 7  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS

            This discussion and analysis contains forward-looking statements
  within the meaning of Section 27A of the Securities Act and Section 21E of
  the  Exchange Act, which are subject to the  safe harbor  created by those
  sections.    The  Company  s actual future results could differ materially
  from  those  projected  in  the  forward-looking  statements.  The Company
  assumes  no  obligation  to  update the forward-looking statements or such
  factors.





                                      20<PAGE>



  Presentation of Financial Statements

       In December 1994, the Mexican government adopted a free market policy
  toward  the  valuation  of the Mexican peso.  During the month of December
  1994,  the  value of the peso declined approximately 44%, falling from 3.4
  Mexican  pesos to the U.S. dollar in November 1994 to 4.9 Mexican pesos to
  the  U.S.  dollar  at  December  31,  1994.  The value of the Mexican peso
  continued to decline throughout 1995.  At the close of business on May 31,
  1995,  May 31, 1996, December 31, 1996 and December 31, 1997, the value of
  the peso was 6.15, 7.4, 7.8 and 8.07, respectively.  The adverse impact on
  the  economy of Mexico as a result of the decline in the relative value of
  its  currency  has  been  dramatic.    The  Company had a foreign currency
  translation  adjustment of $(2,140,110) at December 31, 1997, reflected in
  the equity section of the balance sheet.

        In May 1994, the Company acquired QUIMICA OMEGA for a purchase price
  of  $6,300,000.   The purchase price was based on management's estimate of
  the  fair  value of the Company's common stock issued to the QUIMICA OMEGA
  stockholders.    The  purchase  resulted  in costs in excess of net assets
  a c q uired  of  approximately  $7,300,000.  The  recession  and  economic
  uncertainty  in  Mexico resulting from the devaluation and other political
  changes  caused  the  Company to reevaluate its business plan and strategy
  for  QUIMICA  OMEGA.    As a result, the Company determined in May 1995 to
  write  off  the  balance  of  the  capitalized  goodwill  of $6,378,000 in
  accordance with generally accepted accounting principles.

           In April 1996, QUIMICA OMEGA entered into the agreement with BFI-
  MEXICO  to  form BFI-OMEGA, a 50%-50% owned joint venture corporation, for
  the  purpose  of  providing  a  full range of industrial waste collection,
  transportation,  treatment  and  disposal services (excluding ownership of
  hazardous  waste  landfills) within the Republic of Mexico.  The Company s
  investment  in  this  joint  venture  was  accounted  for under the equity
  method.  (See Note D.)

            In  January 1997, QUIMICA OMEGA and BFI-MEXICO completed QUIMICA
  OMEGA  s  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 BFI-OMEGA joint venture was
  subsequently renamed Administracion de Residuos Industriales ( ARI ).  For
  the  first  six  months  of  1997,  the  Company  pursued  a  strategy  of
  identifying  a  new  partner  to  acquire  50%  of  ARI.   Because of this
  strategy,  the Company maintained the equity method of accounting for ARI.
  In  August  1997, the Board of Directors decided to maintain ARI as a 100%
  owned subsidiary and not continue the pursuit of a partner.  This decision
  was  based  upon the increasing value of ARI relative to the Company s on-
  going  development activities.  Consequently, the Company is consolidating
  ARI, effective July 1, 1997.

  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




                                      21<PAGE>



  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  development  stage.    The  Company  s  results of
  operations  include  the  costs of development of all such waste treatment
  facilities in Mexico. 

       Twelve Months Ended December 31, 1997 Compared to Twelve
       Months Ended December 31, 1996.

        Insulation Business.  Total revenues for the year ended December 31,
  1997  were $8,971,000 compared to $10,144,000 for the same period in 1996,
  a  decline  of  12%.   This decrease can be attributed to lower volumes of
  work  performed  under  the  Company  s various maintenance agreements and
  under  subcontracts  with  Curtom-Metalclad  for  work  at  various Edison
  plants.    In  addition,  demand  for asbestos abatement services has also
  declined.

         Operating costs and expenses were $7,686,000 compared to $9,463,000
  for  the same period in 1996, a decline of 19%.  This decrease is directly
  associated  with  the  decline  in revenues.  Additionally, 1996 contained
  costs associated with overruns on two fixed price projects.

       Selling, general and administrative expenses were $1,177,000 compared
  to  $1,600,000  for  the  same  period  in  1996, a decrease of 26%.  This
  decline  in expenses is the direct result of steps taken by the Company to
  reduce  its  cost  structure,  including  the elimination of certain staff
  positions.

           Waste Management.  Total revenues for the year ended December 31,
  1997  were  $2,914,000 compared to $2,320,000 for the same period in 1996,
  an  increase  of 26%.  However, because of differing accounting methods in
  the  periods,  comparisons cannot be accurately reflected.  If the Company
  had  consolidated 100% of the revenues of ARI for the years ended December
  31,  1997  and  1996,  revenues would have been $4,964,000 and $3,192,000,
  respectively, an increase of 55%.

            Operating  costs  and  expenses  were  $4,317,000 as compared to
  $3,552,000  an  increase  of  22%, attributed to costs associated with the
  increase  in  revenues  and  an increase in the Company s costs associated
  with development.

       Goodwill of $71,000 associated with BFI-OMEGA s acquisition of one of
  its  branches,  was  written  off  as  the Company has fully absorbed this
  branch  into  ARI.    There  is  no  comparison  figure for the year ended
  December 31, 1996.

        Equity in earnings (losses) of BFI-OMEGA/ARI was $(743,000) compared
  to  $(686,000)  for  the same period in 1996.  The year ended December 31,




                                      22<PAGE>



  1997  loss  reflects  100% of the losses of BFI-OMEGA/ARI through June 30,
  1997,  while 1996 reflects only 50% of the losses reflecting the Company s
  ownership level in each comparison period.

       Corporate Expense.  Corporate expense for the year ended December 31,
  1997  was $2,469,000 compared to $3,828,000 for the same period in 1996, a
  decrease of 36%.

            Interest Expense.  Interest expense was $(30,000) as compared to
  $(163,000) for the same period in 1996.

         Consolidated Results.  The net loss for the year ended December 31,
  1997  was  $(4,610,000) as compared to $(6,783,000) for the same period in
  1996,  a  decrease of 32%.  This improved performance can be attributed to
  an  overall  reduction in the Company s cost structure as well as improved
  performance in the insulation business.

       Seven Months Ended December 31, 1996 Compared to Seven
       Months Ended December 31, 1995

            Insulation  Business.  Total revenues for the seven months ended
  December  31,  1996  was  $5,519,000  compared  to $6,910,000 for the same
  period  in  1995,  a  decrease of 20%.  This decrease is attributable to a
  decline  in  the  overall  volume  of  work  performed under the Company s
  various  maintenance  agreements  as  well  as a decline in the demand for
  asbestos  abatement  services.    Income  from  the Curtom-Metalclad joint
  venture  was  $45,000 compared to $0.00 for the same period in 1995 due to
  the increase in Edison work contracted through the joint venture. 

         Operating costs and expenses were $4,816,000 compared to $5,685,000
  for the same period in 1995, a decrease of 15% associated with the decline
  in  revenues.   Selling, general and administrative expenses were $769,000
  compared  to  $1,226,000  representing a decrease of 37% attributed to the
  Company s efforts to control overhead costs.

       Waste Management.  Total revenues for the seven months ended December
  31,  1996  were  $632,000  versus $1,450,000 for the same period in fiscal
  1996.  The revenue decline is due to the transition of continuing revenues
  to  BFI-OMEGA which is accounted for under the equity method.  If revenues
  of the joint venture were included and reflected on a peso basis, revenues
  for  the  seven  months  would have been 12,823,000 pesos versus 9,255,000
  pesos, an increase of 39% over the same period in fiscal 1996.

            Operating  costs  and  expenses  were  $1,115,000 as compared to
  $1,575,000  for  the  same  period in fiscal 1996.  This reduction is also
  attributed  to  the transition of operations to BFI-OMEGA.  Landfill costs
  were  $256,000  for  the  seven  months  compared to $117,000 for the same
  period  in  fiscal 1996.  This increase reflects the costs associated with
  the Company s on-going development activities in Mexico.

       Equity in earnings (Losses) of BFI-OMEGA was ($542,000) for the seven
  months, with no comparison period.  This loss is attributed to the initial
  costs  associated  with the development of infrastructure and the start up
  of new districts and sub-districts.




                                      23<PAGE>



            Corporate Expense.  Corporate expense for the seven months ended
  December 31, 1996 was $1,940,000 as compared to $1,790,000, an increase of
  8%.   This increase is attributed to (a) the initial costs of pursuing the
  Company  s  claim under NAFTA and (b) a reserve established by the Company
  for certain ongoing litigation.

       Interest Expense.  Interest expense, net, was $(37,000) for the seven
  months  ended December 31, 1996 compared to $(834,000) for the same period
  in  fiscal  1996.    This  reduction is due to the conversions of both the
  Company s debt and convertible subordinated debentures to shares of common
  stock.

        Other Expense.  Other expense was $0 as compared to $729,000 for the
  same  period  in  fiscal  1996.    In  1996, other expense represented the
  discount given to debenture holders to induce conversion into common stock
  of the Company.

            Consolidated  Results.   The net loss for the seven months ended
  D e c ember  31,  1996  was  ($3,280,000)  as  compared  to  ($3,277,000),
  representing  no change.  This comparable performance was achieved despite
  the  start-up  costs  of  BFI-OMEGA, NAFTA litigation costs and litigation
  reserves  included  in the current seven months  net loss, while the seven
  months  ended  December 31, 1995 contained a one-time gain of $317,000 for
  donated equipment.

       Fiscal Year Ended May 31, 1996 Compared to Fiscal Year 
       Ended May 31, 1995

          Insulation Business.  Total revenues and joint venture income from
  the  insulation  business for the year ended May 31, 1996 were $11,536,000
  as compared to $15,804,000 for the same period in 1995, a decrease of 27%.
  The portion attributable almost entirely to a decline in contract revenues
  for  the  period. Income from the Curtom-Metalclad joint venture increased
  14%  to $91,000 from $80,000 for the same period in 1995.  The decrease in
  contract revenues can be primarily attributed to an overall decline in the
  volume of work performed under the Company s various maintenance contracts
  with industrial and utility plant clients.

           Operating costs and expenses for the year declined to $12,390,000
  from  $15,547,000  for  fiscal  year  1995,  a decrease of 20%.  Operating
  margins, before selling, general and administrative expenses, decreased to
  $1,202,000  from  $2,454,000 for 1995, a decline of 51%.  This decline can
  be attributed to (a) a decrease in revenues which affects operating costs,
  (b) cost overruns on three fixed-price contracts, and (c) lower margins in
  the  marketplace  due to the competitive nature of the business.  Selling,
  general  and  administrative  expenses  were  $2,055,000  as  compared  to
  $2,198,000 for fiscal 1995, a decrease of 7%.

            Mexican Business.  Waste management revenues, primarily from the
  operations  of QUIMICA OMEGA, for the fiscal year ended May 31, 1996, were
  $3,457,000  as  compared  to  $2,228,000  for  the same period in 1995, an
  increase  of  55%.    The  increase  in  revenues  reflects  the continued
  expansion  of  operations  as  well  as  increased  revenues from existing
  branches.    Loss  from  joint  venture  operations,  representing QUIMICA




                                      24<PAGE>



  OMEGA  s  50%  ownership  in  BFI-OMEGA, was $(143,000) with no comparison
  period for this new venture.  The joint venture loss represents the period
  from  March  10,  1996  through May 31, 1996 and incorporates the expenses
  relating  to the commencement of, the transition to, and expansion of BFI-
  OMEGA s operations.

          Waste collection costs for the fiscal year ended May 31, 1996 were
  $3,719,000  as  compared  to  $4,286,000  for  the  same period in 1995, a
  decrease  of 13%.  The cost reductions are attributed to a streamlining of
  operations  and  efficiencies  inherent  in  higher volumes and additional
  experience in the market.

            The  landfill  costs were $154,000 in fiscal 1996 as compared to
  $676,000  for  fiscal  1995,  a decrease of 77%.  Landfill costs are those
  costs  associated  with  the  development and maintenance of facilities in
  Mexico. 

       Corporate Expense.  Corporate expense for fiscal 1996 were $3,677,000
  compared to $4,773,000, a decrease of 23%.
   
         Interest Expense.  Interest expense for fiscal 1996 was $960,000 as
  compared  to  $1,771,000 in fiscal 1995.  The decline is attributed to (a)
  the  conversion  of  a  substantial  amount of the 8% and 9% debentures in
  August  1995,  and  (b)  the  conversion of all remaining debt in February
  1996.

            Other  Expense.    Other  expense  for  fiscal 1996 was $728,644
  representing  the value of the inducement provided to debenture holders to
  convert  into  common  stock.   There are no comparative numbers for prior
  periods.

            Consolidated  Results.    The  Company experienced a net loss of
  $6,780,000  for  the  year  ended  May  31, 1996 compared to a net loss of
  $15,399,000  in  fiscal  1995,  a  decrease  of 56%.  The fiscal 1995 loss
  included  $6,377,000  associated with the write-off of goodwill related to
  the  acquisition  of  QUIMICA OMEGA.  Comparing the results, excluding the
  write-off  of  goodwill,  the Company s net loss for fiscal 1996 decreased
  from  fiscal  1995  by 25%, attributed to a reduction in interest costs as
  well  as  a  reduction in general and administrative costs associated with
  the landfill and other development activities for its Mexican business.

  Liquidity and Capital Resources

            In  November 1991, the Company completed the acquisition of Eco-
  Metalclad,  Inc.  ("ECO-MTLC"), commenced the development of the hazardous
  waste treatment business in Mexico and began advancing cash to its Mexican
  subsidiaries  for use in the Mexican business.  Funding the development of
  the  Company's  Mexican business has required and will continue to require
  substantial  capital.   To obtain capital for the continued development of
  the  business  of  the  Company  in  Mexico,  the Company has made private
  placements of its common stock and convertible subordinated debentures and
  has obtained loans from financial institutions.

            In  February  1996, the Company completed a private placement of




                                      25<PAGE>



  1,650,000  shares of its common stock at a price of $4.00 per share, along
  with  2,600,000 warrants to purchase common stock at $5.00 per share.  The
  Company    realized  net  proceeds  from  its placement of common stock of
  $5,875,000.

         The totals for the fiscal year ended May 31, 1996, inclusive of the
  private  placement in February 1996, include the issuance of approximately
  2,400,000  shares  at prices ranging from $1.05 to $4.00 with net proceeds
  of  approximately  $8,800,000.  Shares totaling 4,000,000 were issued upon
  the  exercise  of  options  and  warrants at prices ranging from $1.375 to
  $2.25,  generating  net  proceeds  of  approximately  $6,800,000 including
  $2,000,000  from  the  Kesler, Neveau, and Guerra option exercise.  Shares
  totaling 3,500,000 were issued in exchange for approximately $8,600,000 in
  outstanding 8% and 9% debentures.

          In February 1996, CVD Financial, a lender to the Company exercised
  its  option  to convert 100% of the outstanding loan balance of $1,924,797
  into 1,210,564 shares of the Company s common stock at the conversion rate
  of $1.59 per share.

           In August 1997, the Company initiated a warrant exchange program,
  wherein  investors  who  exercised  their  existing  warrants were granted
  additional  replacement  warrants.    Between  August  and October 910,626
  warrants were exercised at $1.50, netting the Company $1,365,939.

       In December 1997, the Company issued $2,200,000 Five Year Zero Coupon
  S e cured  Notes,  netting  the  Company  $1,500,000.    These  notes  are
  convertible  into  1,000,000 shares of common stock and 1,500,000 warrants
  of  the  Company  upon  certain  events  related to the common stock price
  performance  of  the Company.  Additionally, the notes are callable at the
  option  of  the  holder,  any  time after April 15, 1999.  These notes are
  secured by 100% of the stock of Metalclad Insulation Corporation.

       The issuances of common stock have been utilized for working capital,
  equipment, and fixed asset purchases in connection with QUIMICA OMEGA, the
  expansion capital for ARI joint venture, and for the continued development
  activities  of  the  Company; however, the Company will require additional
  capital  to  develop,  construct  and  subsequently  open   the additional
  facilities it is pursuing.

            Working  capital at December 31, 1997 was $1,702,000 compared to
  $2,719,000  at  December  31,  1996.    The  Company  had  cash  and  cash
  equivalents  at December 31, 1997 of $1,644,000 and $3,074,000 at December
  31,  1996.    Additionally,  the  Company  had restricted cash deposits of
  $770,000  at  December  31,  1996.  Cash used in operations for the twelve
  months  ended  December 31, 1997 was ($3,939,000) compared to ($2,801,000)
  for  the seven months ended December 31, 1996.  Cash used in operations in
  the twelve months ended December 31, 1997 was funded primarily by cash and
  cash  equivalents  on  hand at the beginning of the fiscal year as well as
  debt financing and warrant exercises during the year.

            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




                                      26<PAGE>



  substantial   additional  financing  to  develop,  construct  and  operate
  additional waste treatment facilities in Mexico.  Furthermore, the Company
  is  continuing  to  expend  additional  efforts to pursue its NAFTA claim,
  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 investment banker and project finance sources
  to  meet  its  on  going  needs  through  December  31, 1998.  The Company
  believes  it  will  obtain  the  necessary  funds  to continue its planned
  operations throughout 1998.

  Impact of Inflation

            The  Company reflects price escalations in its quotations to its
  insulation  customers  and  in  its  estimation of costs for materials and
  labor.    For  construction  contracts  based  on a cost-plus or time-and-
  materials  basis,  the  effect  of inflation on the Company is negligible.
  For projects on a fixed-price basis, the effect of inflation may result in
  reduced profit margin or a loss as a result of higher costs to the Company
  as  the  contracts  are  completed; however, the majority of the Company's
  contracts  are  completed  within  12 months of their commencement and the
  Company  believes  that  the  impact  of  inflation  on  such contracts is
  insignificant.

            Although  inflation has been a significant factor in the Mexican
  economy  in general since the devaluation, the Company does not anticipate
  that it will have a material impact on its current or proposed operations.

  Recent Accounting Pronouncements

       Effective in 1998, the Company will be required to adopt SFAS No. 130
    Reporting  Comprehensive  Income    and  SFAS  No. 131  Disclosure About
  Segments  of  an  Enterprise  and  Related  Information  .   The impact of
  adopting  these  pronouncements  is  not  expected  to  be material to the
  Company s financial position or results of operations.

  Year 2000 Issues

           During fiscal 1997, the Company initiated a plan to implement new
  business  information  systems,  which  will address all year 2000 issues.
  This  implementation will not require any significant capital expenditures
  during fiscal 1998 and 1999.  In the event that this implementation is not
  completed  prior  to  the  year  2000, the Company has a contingency plan,
  pursuant  to  which,  existing  systems  will  be  modified  to  eliminate
  remaining year 2000 issues.  Expenditures related to this contingency plan
  will  be  expensed  as  incurred  and  are not expected to have a material
  impact  on  the  Company  s results of operations and all costs associated
  with  the  modifications  will  be  expensed.   The Company believes these
  expenditures will not be material.


  ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           The consolidated financial statements and schedules listed in the
  accompanying  Index  to  Consolidated  Financial  Statements  are attached




                                      27<PAGE>



  hereto and filed as a part of this Report under Item 14.


  ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
           FINANCIAL DISCLOSURE

           None.

                                   PART III

  ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by Item 401 of Regulation S-K is set forth
  in  the  Company's 1997 Annual Meeting Proxy Statement which will be filed
  with  the Securities and Exchange Commission not later than 120 days after
  December  31,  1997.    The Company's 1998 Annual Meeting Proxy Statement,
  exclusive  of  the information set forth under the captions "Report of the
  Compensation Committee" and "Company Performance," are incorporated herein
  by this reference.  


  ITEM 11.  EXECUTIVE COMPENSATION

         The information required by Item 402 of Regulation S-K is set forth
  in  the  Company's 1998 Annual Meeting Proxy Statement which will be filed
  with  the Securities and Exchange Commission not later than 120 days after
  December  31,  1997.    The Company's 1997 Annual Meeting Proxy Statement,
  exclusive  of  the information set forth under the captions "Report of the
  Compensation Committee" and "Company Performance," are incorporated herein
  by this reference.  


  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 403 of Regulation S-K is set forth
  in  the  Company's 1998 Annual Meeting Proxy Statement which will be filed
  with  the Securities and Exchange Commission not later than 120 days after
  December  31,  1997.    The Company's 1998 Annual Meeting Proxy Statement,
  exclusive  of  the information set forth under the captions "Report of the
  Compensation Committee" and "Company Performance," are incorporated herein
  by this reference.  


  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In October 1994, in consideration of extraordinary contributions to
  the  Company, including but not limited to the pledge of 755,000 shares of
  common  stock  of  the  Company  owned  by  them  to  facilitate necessary
  financings  for  the  Company,  the  Board of Directors approved a loan of
  $370,000 to each of Mr. Kesler and Mr. Neveau.  Such borrowings are due 30
  days  after  demand and bear Annual interest at the prime rate of interest
  plus  7%.    The  borrowings  are secured by a pledge of 300,000 shares of
  common  stock  from  each borrower.    In February 1996 Messrs. Kesler and
  Neveau each repaid $150,000 to the Company.  In March 1996, the notes were




                                      28<PAGE>



  amended  to modify the loan principal between Messrs. Kesler and Neveau as
  well  as  to  adjust  the  interest  rates,  effective  March 1, 1996 to a
  variable  rate  based  upon  the Company s quarterly investment rate.  The
  Board  of  Directors  has extended repayment of these notes until December
  31, 1998.

        In June 1996, Mr. Neveau, Chairman of the Board of Directors, Senior
  Vice  President,  and  a  Director  of  the Company, resigned his position
  effective  the  next  shareholders  meeting.  As a result, the Company and
  Mr.  Neveau renegotiated the terms of his employment agreement relative to
  compensation, benefits and stock options.  Since May 1997, the Company has
  been  offsetting  payments  due  Mr.  Neveau  against his outstanding loan
  balance to the Company.

            During  the  year  ended May 31, 1996, the Company agreed to pay
  consulting  fees  of  $47,000  to  Mr.  Liddle,  a  former director of the
  Company.    These  fees  were  for  services in connection with management
  oversight  and  consulting  to the insulation business.  Additionally, the
  Company  entered  into a 19-month consulting agreement with Mr. Liddle for
  on-going  consulting services at a rate of $5,000 per month, which expired
  December 31, 1997.

         During the fiscal year ended May 31, 1996, the Company entered into
  an agreement with The Chesapeake Group, whose Managing Director is Douglas
  S.  Land,  a  former  director  of  the  Company.    The agreement engaged
  Chesapeake  as a financial consultant to the Company in matters pertaining
  to  its  Mexican  waste  operations.   Additionally, the Company agreed to
  certain transaction fees associated with new business ventures, mergers or
  acquisitions in Mexico.  During the period ended May 31, 1996, the Company
  agreed  to  pay  to  Chesapeake  $100,000 for consulting services rendered
  during  calendar  year  1995  and $8,000 per month for on-going consulting
  services.    In  addition, the Company agreed to pay a transaction fee for
  the  successful  closing  of  the  BFI-OMEGA joint venture of $325,000 and
  granted  250,000  options  for the purchase of common stock of the Company
  exercisable  at  $3.00  per  share.  In May 1997, the Company negotiated a
  termination  of  the  Chesapeake  agreement in exchange for payment of all
  outstanding earned fees and expenses.

          During the twelve months ended December 31, 1997, the Company paid
  legal  fees  of  $54,000  to the law firm of Gibson, Haglund & Johnson, of
  which Bruce H. Haglund, general counsel and Secretary of the Company, is a
  principal.

          During  December,  1996, the Company loaned $150,000 to Mr. Javier
  Guerra Cisneros, a Director and Vice President of Mexico operations.  This
  loan is evidenced by a promissory note bearing interest at 10% and secured
  by  a  pledge  of  future salary and 300,000 shares of common stock in the
  Company.  In February, 1997, Mr. Guerra repaid $120,000 of this loan. 


                                    PART IV

  ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 
           FORM 8-K.




                                      29<PAGE>



  (a)  The following documents are filed as part of this report on Form 10-
  K:

       1. Financial Statements
          Report of Independent Public Accountants
          Consolidated Balance Sheets
          Consolidated Statements of Operations
          Consolidated Statements of Shareholders' Equity (Deficit)
          Consolidated Statements of Cash Flows
          Notes to Consolidated Financial Statements

       2. Schedules to Financial Statements
          Schedule II - Valuation and Qualifying Accounts

          All schedules, other than those listed above, are omitted, as the
  information is not required, is not material or is otherwise furnished.

       3. Exhibits

       The following exhibits are being filed with this Annual Report on
  Form 10-K and/or are incorporated by reference therein in accordance with
  the designated footnote references:

        4. Restated and Amended Certificate of Incorporation and Bylaws of
  the Company, and all amendments thereto

            3.1  Form of Certificate for Common Stock (3)

           10.1  Warrant to Purchase Common Stock dated November 30, 1991
  issued to F.N. Wolf & Co., Inc. (1)

           10.2  Warrant to Purchase Common Stock dated February 6, 1992
  issued to T. Marshall Swartwood (2)

           10.3  Warrant to Purchase Common Stock dated February 6, 1992
  issued to Glenn Cushman (2)

           10.4  Employment Agreement, as amended, between the Company and
  Grant S. Kesler dated March 7, 1995 (6)

           10.5  Employment Agreement, as amended, between the Company and
  T. Daniel Neveau dated March 7, 1995 (6)

           10.6  Modification Agreement, as amended, between the Company and
  T. Daniel Neveau dated July 15, 1996

           10.7  Employment Agreement between the Company and Anthony C.
  Dabbene dated July 10, 1996 (7)

           10.8  Non-Qualified Stock Option Agreement between the Company
  and Bruce H. Haglund dated October 17, 1991 (1)

           10.9  Non-Qualified Stock Option Agreement between the Company
  and T. Daniel Neveau dated October 17, 1991 (1)




                                      30<PAGE>



           10.10 Non-Qualified Stock Option Agreement between the Company
  and Gordon M. Liddle dated October 17, 1991 (1)

           10.11  Nonstatutory Stock Option Agreement between the Company
  and Grant S. Kesler dated March 7, 1995 (6)

           10.12  Nonstatutory Stock Option Agreement between the Company
  and T. Daniel Neveau dated March 7, 1995 (6)

           10.13  Nonstatutory Stock Option Agreement between the Company
  and Javier Guerra Cisneros dated March 7, 1995 (6)

           10.14  Nonstatutory Stock Option Agreement between the Company
  and Bruce H. Haglund dated March 7, 1995 (6)

           10.15  Nonstatutory Stock Option Agreement between the Company
  and Douglas S. Land dated June 25, 1996

           10.16  Lease dated June 17, 1992 pertaining to the Company s
  facilities at 3737 Birch Street, Suite 300, Newport Beach, California
  92660 (2)

           10.17  Lease dated June 4, 1987 pertaining to the Company s
  facilities at 2198 South Dupont Drive, Anaheim, California 92803 (3)

           10.18  Third Amendment to Lease dated May 12, 1994 pertaining to
  the Company s facilities at 2198 South Dupont Drive, Anaheim, California
  92803 (7)

           10.19  Form of 1993 Omnibus Stock Option and Incentive Plan (4)

           10.20  Agreement between Confinamiento Tecnico de Residuos
  Industriales, S.A. de C.V. and Eco-Metalclad, Inc. Dated April 23, 1993
  and amendment dated September 9, 1993 (5)

           10.21  Consulting Agreement between Chesapeake Group, Inc. and
  the Company dated January 16, 1996

           10.22  Consulting Agreement between Gordon M. Liddle and the
  Company dated June 25, 1996

           10.23  Amendment dated July 22 1997 to Employment Agreement
  between Anthony C. Dabbene and the Company dated January 23, 1996.

           10.23  Amendment dated July 22, 1997 to Employment Agreement
  between the Company and Anthony C. Dabbene dated July 10, 1996

           10.24  Nonstatutory Stock Option Agreement between the Company
  and Grant S. Kesler dated January 2, 1997

           10.25  Nonstatutory Stock Option Agreement between the Company
  and Jose Akle Fierro dated May 15, 1997

           10.26  Nonstatutory Stock Option Agreement between the Company




                                      31<PAGE>



  and Juan B. Morales dated May 15, 1997

           10.27  Nonstatutory Stock Option Agreement between the Company
  and Anthony C. Dabbene dated May 15, 1997

           22.    List of Subsidiaries of the Registrant

           23.    Consents of Experts and Counsel
  ----------------------------

       (1) Filed with the Company s Annual Report on Form 10-K for the year
  ended December 31, 1991 and incorporated herein by this reference.
       (2) Filed with the Company s Annual Report on Form 10-K for the year
  ended December 31, 1992 and incorporated herein by this reference.
       (3) Filed with the Company s Registration Statement on Form S-1 dated
  December 15, 1987 and incorporated by reference.
       (4) Filed with the Company s Transition Report on Form 10-K for the
  five months ended May 31, 1993 and incorporated herein by this reference.
       (5) Filed with the Company s Annual Report on Form 10-K for the year
  ended May 31, 1994
       (6) Filed with the Company s Annual Report on Form 10-K for the year
  ended May 31, 1995
       (7) Filed with the Company s Annual Report on Form 10-K for the year
  ended May 31, 1996

  (b)  Reports on Form 8-K

       None.
                           SUPPLEMENTAL INFORMATION

  An  annual report and a proxy statement shall be furnished to the security
  holders  of  the  Company subsequent to the filing of this Form 10-K.  The
  Company  shall furnish copies of the annual report to security holders and
  the  proxy  statement to the Securities and Exchange Commission when it is
  sent to the security holder. 























                                      32<PAGE>



                                  SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) 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

                                   By:    /s/Anthony C. Dabbene
                                       ---------------------------------
                                       Anthony C. Dabbene
                                       Chief Financial Officer 
                                       Date: April 15, 1998


        Pursuant to the requirements of the Securities Exchange Act of 1934,
  this  report  has  been signed below by the following persons on behalf of
  the registrant and in the capacities and on the dates indicated.

  Signatures                         Title                         Date

  /s/Grant S. Kesler         Chief Executive Officer and Director  4/15/98
  ------------------------    (Principal Executive Officer)
  Grant S. Kesler            


  /s/Javier Guerra Cisneros  Director                              4/15/98
  ------------------------
  Javier Guerra Cisneros


  /s/Jose Akle Fierro        Director                              4/15/98
  ------------------------
  Jose Akle Fierro


  /s/Juan B. Morales         Director                              4/15/98
  ------------------------
  Juan B. Morales




















                                      33<PAGE>



  ITEM 14(A)(1) and (2)


                    METALCLAD CORPORATION AND SUBSIDIARIES

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


  The following Consolidated Financial Statements of Metalclad Corporation
  and subsidiaries are included in Item 8:


  Reports of Independent Public Accountants on Consolidated Financial
  Statements:

    Report of Arthur Andersen  LLP......................................F1

    Report of Grant Thornton LLP........................................F3


  Financial Statements:

    Consolidated Balance Sheets - December 31, 1997 and 1996............F4

    Consolidated Statements of Operations - the Year Ended 
    December 31, 1997, Seven Months Ended December 31, 1996  and 
    the Years Ended May 31, 1996 and 1995...............................F6

    Consolidated Statements of Shareholders' Equity (Deficit) - the 
    Year Ended December 31, 1997, Seven Months Ended December 31, 
    1996  and the Years Ended May 31, 1996 and 1995.....................F7

    Consolidated Statements of Cash Flows - the Year Ended 
    December 31, 1997, Seven Months Ended December 31, 1996  
    and the Years Ended May 31, 1996 and 1995...........................F9

  Notes to Consolidated Financial Statements...........................F11


  Supplementary Financial Statement Schedules:

    Schedule II - Valuation and Qualifying Accounts....................F31
















                                      34<PAGE>






                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


  The Board of Directors and Shareholders of 
  Metalclad Corporation:


  We  have audited the accompanying consolidated balance sheets of Metalclad
  Corporation  (a  Delaware Corporation) and subsidiaries as of December 31,
  1997  and  1996  and  the  related  consolidated statements of operations,
  shareholders   equity and cash flows for year ended December 31, 1997, the
  seven  months  ended  December  31,  1996 and the year ended May 31, 1996.
  These  financial  statements  are  the  responsibility  of  the  Company s
  management.    Our  responsibility  is  to  express  an  opinion  on these
  financial statements based on our audits.

  We  conducted  our  audits  in accordance with generally accepted auditing
  standards.   Those standards require that we plan and perform the audit to
  obtain  reasonable  assurance  about  whether the financial statements are
  free  of  material  misstatement.   An audit includes examining, on a test
  basis,  evidence  supporting  the amounts and disclosures in the financial
  statements.    An  audit also includes assessing the accounting principles
  used  and  significant estimates made by management, as well as evaluating
  the  overall financial statement presentation.  We believe that our audits
  provide a reasonable basis for our opinion.

  The accompanying financial statements have been prepared assuming that the
  Company  will  continue as a going concern.  As discussed in Note A to the
  financial  statements,  the  Company  has  suffered  recurring losses from
  operations  and  has  a  large accumulated deficit that raises substantial
  doubt  about  its  ability  to  continue as a going concern.  Management s
  plans  in  regard  to  these  matters  are  also described in Note A.  The
  financial  statements  do  not  include  any  adjustments  relating to the
  recoverability  and classification of asset carrying amounts or the amount
  and  classification of liabilities that might result should the Company be
  unable to continue as a going concern.

  In our opinion, the financial statements referred to above present fairly,
  in  all material respects, the financial position of Metalclad Corporation
  and  subsidiaries  as  of  December  31, 1997 and 1996, and the results of
  their  operations  and  their  cash  flows for the year ended December 31,
  1997,  the seven months ended December 31, 1996 and the year ended May 31,
  1996 in conformity with generally accepted accounting principles.

  Our  audits  were  made for the purpose of forming an opinion on the basic
  financial  statements  taken as a whole.  The schedule listed in the index
  of  financial  statements  is presented for purposes of complying with the
  Securities  and  Exchange  Commission s rules and is not part of the basic
  financial  statements.  The data for the year ended December 31, 1997, the
  seven  months ended December 31, 1996 and the year ended May 31, 1996 have
  been  subjected  to  the  auditing procedures applied in the audits of the
  basic  financial  statements  and,  in  our  opinion, fairly states in all



                                      F1<PAGE>






  material  respects  the financial data required to be set forth therein in
  relation to the basic financial statements taken as a whole.



                                                    ARTHUR ANDERSEN LLP

  Orange County, California
  April 15, 1998














































                                      F2<PAGE>






              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


  The Board of Directors and Shareholders
  Metalclad Corporation

  We  have  audited  the accompanying consolidated statements of operations,
  shareholders  equity (deficit) and cash flows of Metalclad Corporation and
  Subsidiaries  for  the  year  ended  May  31,  1995.    These consolidated
  financial  statements  are the responsibility of the Company s management.
  Our  responsibility is to express an opinion on these financial statements
  based on our audit.

  We  conducted  our  audit  in  accordance with generally accepted auditing
  standards.   Those standards require that we plan and perform the audit to
  obtain  reasonable  assurance  about  whether the financial statements are
  free  of  material  misstatement.   An audit includes examining, on a test
  basis,  evidence  supporting  the amounts and disclosures in the financial
  statements.    An  audit also includes assessing the accounting principles
  used  and  significant estimates made by management, as well as evaluating
  the  overall  financial statement presentation.  We believe that our audit
  provides a reasonable basis for our opinion 

  In our opinion, the financial statements referred to above present fairly,
  in  all  material  respects,  the  consolidated  results of operations and
  consolidated  cash flows of Metalclad Corporation and Subsidiaries for the
  year  ended May 31, 1995, in conformity with generally accepted accounting
  principles.

  We have also audited Schedule II of Metalclad Corporation and Subsidiaries
  for  the  year ended May 31, 1995.  In our opinion, this schedule presents
  fairly, in all material respects, the information required to be set forth
  therein.



                                                 GRANT THORNTON LLP

  Irvine, California
  August 31, 1995















                                      F3<PAGE>






                    Metalclad Corporation and Subsidiaries
                          CONSOLIDATED BALANCE SHEETS
  <TABLE><S>                                                                                     <C>             <C>
                                                                                                           December 31,
                                                                                                       1997           1996
                                                                                                       ----           -----
   Current assets:
     Cash and cash equivalents                                                                    $ 1,643,521     $3,074,395
     Accounts receivable, less allowance for doubtful accounts of $82,026 at December 1997,
      and $67,972 at December 1996                                                                  2,890,681      2,478,528
     Costs and estimated earnings in excess of billings on uncompleted contracts                      232,073        174,768
     Inventories                                                                                      181,172        314,157
     Prepaid expenses and other current assets                                                        159,581        253,059
     Receivables from related parties                                                                 131,825        240,379
                                                                                                   ----------     ----------
              Total current assets                                                                  5,238,853      6,535,286
   Property, plant and equipment, net                                                               6,106,938      5,319,409
   Investment and capitalized costs in unconsolidated affiliate                                       613,601      1,516,878
   Deposits and other assets, including restricted certificates of deposit of
     $769,500 at December 1996                                                                        432,087        837,516
   Goodwill, less accumulated amortization of $232,354 at December 1997 and $115,390 at
      December 1996                                                                                   799,094        697,363
   Real estate held for sale                                                                           25,000         25,000
                                                                                                   ----------     ----------
                                                                                                  $13,215,573    $14,931,452
                                                                                                   ==========     ==========





























                                                                 F4<PAGE>






                                                                                                           December 31,
                                                                                                       1997           1996
                                                                                                       ----           -----
   LIABILITIES AND SHAREHOLDERS  EQUITY
   Current liabilities:
     Accounts payable                                                                              $1,932,997    $ 1,665,475
     Accrued payroll, property and  other taxes                                                       622,379        493,751
     Accrued expenses                                                                                 940,511      1,381,972
     Billings in excess of costs and estimated earnings on uncompleted contracts                       20,727         45,468
     Current portion of convertible subordinated debentures                                            19,533        229,533
                                                                                                    ---------      ---------
            Total current liabilities                                                               3,536,147      3,816,199
                                                                                                    ---------      ---------
   Convertible long-term debt                                                                       1,500,000              -
                                                                                                    ---------      ---------
   Shareholders  equity:
     Preferred stock, par value $10; 1,500,000 shares authorized; none issued                               -              -
     Common stock, par value $.10; 80,000,000 shares authorized; 30,063,870 and 29,123,239 
       issued and outstanding at December 1997 and 1996, respectively                               3,006,387      2,912,324
     Additional paid-in capital                                                                    56,962,689     55,582,063
     Accumulated deficit                                                                          (49,129,377)   (44,643,578)
   Officers  receivable collateralized by stock                                                      (520,163)      (576,640)
   Cumulative foreign currency translation adjustment                                              (2,140,110)    (2,158,916)
                                                                                                    ---------      ---------
                                                                                                    8,179,426     11,115,253
                                                                                                    ---------      ---------
                                                                                                  $13,215,573    $14,931,452
                                                                                                   ==========     ==========
   </TABLE>


























                                                                 F5<PAGE>






                                  Metalclad Corporation and Subsidiaries
                     CONSOLIDATED STATEMENTS OF OPERATIONS
  <TABLE><S>                                           <C>              <C>                  <C>               <C>
                                                          Year Ended      Seven Months Ended            Year Ended
                                                         December 31,        December 31,                 May 31,
                                                             1997                1996              1996             1995
                                                         ------------     ------------------  ------------      ------------
   Revenues-Insulation
     Contract revenues                                    $8,533,425          $ 5,380,297      $11,208,360       $15,404,952
     Material sales                                          201,976              138,309          230,336           272,627
     Other                                                   235,702                    -            6,390            46,336
                                                           ---------           ----------       ----------        ----------
                                                           8,971,103            5,518,606       11,445,086        15,723,915
   Operating costs and expenses - Insulation
     Contract costs and expenses                           7,525,047            4,703,458       10,160,868        13,148,231
     Cost of material sales                                  161,297              112,299          173,911           200,588
     Selling, general and administrative expenses          1,177,047              768,631        2,055,043         2,197,814
                                                           ---------            ---------       ----------        ----------
                                                           8,863,391            5,584,388       12,389,822        15,546,633
   Equity in earnings of unconsolidated affiliate                  -               44,915           90,817            80,013
                                                           ---------            ---------       ----------        ----------
     Operating income (loss) - Insulation                    107,712              (20,867)        (853,919)          257,295
                                                           ---------            ---------       ----------        ----------
   Revenues - Waste Management
     Collection, recycling and destruction                 2,913,720              631,884        3,456,680         1,910,863
     Landfill                                                      -                    -                -                 -
     Other                                                         -                    -                -           317,306
                                                           ---------            ---------       ----------        ----------
                                                           2,913,720              631,884        3,456,680         2,228,169
                                                           ---------            ---------       ----------        ----------
   Operating costs and expenses - Waste Management
     Collection, recycling and destruction                 3,911,719            1,115,121        3,719,137         4,286,178
     Landfill                                                404,994              256,049          154,210           675,997
     Write-off of goodwill                                    70,926                    -                -         6,377,716
                                                           ---------            ---------       ----------        ----------
                                                           4,387,639            1,371,170        3,873,347        11,339,891
   Equity in earnings of unconsolidated affiliate           (742,845)            (542,461)        (143,415)                -
                                                           ---------            ---------       ----------        ----------
     Operating loss - Waste Management                    (2,216,764)          (1,281,747)        (560,082)       (9,111,722)
                                                           ---------            ---------       ----------        ----------
   Corporate expense                                      (2,468,973)           1,940,147)      (3,676,907)       (4,773,292)
                                                           ---------            ---------       ----------        ----------
   Operating loss                                         (4,578,025)          (3,242,761)      (5,090,908)      (13,627,719)
   Interest expense                                           29,695               37,054          960,220         1,771,394
   Other expense                                               2,413                    -          728,644                 -
                                                           ---------            ---------       ----------        ----------
                       Net loss                          $(4,539,207)         $(3,279,815)     $(6,779,772)     $(15,399,113)
                                                          ==========           ==========       ==========       ===========
   Weighted average number of common shares               29,438,062           28,910,449       22,770,516        13,682,800
                                                          ==========           ==========       ==========        ==========
   Loss per share of common stock - basic and diluted       $(.16)               $(.11)           $(.30)           $(1.13)
                                                             =====                =====            =====            ======



                                                                 F6<PAGE>






   </TABLE>
                                  Metalclad Corporation and Subsidiaries

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS  EQUITY (DEFICIT)
     The Year Ended December 31, 1997, the Seven Months Ended December 31,
                1996, and the Years Ended May 31, 1996 and 1995


  <TABLE><S>                    <C>             <C>        <C>         <C>            <C>          <C>          <C>
                                                                                                      Foreign        Total
                                                            Additional                               Currency    Shareholders 
                                          Common Stock       Paid-in     Accumulated    Officers     Translation    Equity
                                     Shares       Amounts    Capital       Deficit      Receivable   Adjustment   (Deficit)
                                  -----------    ---------  ----------   ------------   ----------  -----------  -----------
   Balance at May 31, 1994        11,691,372    $1,169,138 $20,643,750 $(19,184,878)   $        -    $ (18,391)  $2,609,619
   Issuance of common stock        4,119,216       411,921   8,118,061            -             -            -    8,529,982
   Common stock issued under
     stock option plans and 
     warrants                         30,000         3,000      62,313            -             -            -       65,313
   Conversion of debentures to 
     common stock                     45,040         4,504     175,656            -             -            -      180,160
   Donated capital                         -             -      44,405            -             -            -       44,405
   Advances to officers, 
     collateralized by stock               -             -           -            -      (740,000)           -     (740,000)
   Translation adjustment                  -             -           -            -             -   (1,463,689)  (1,463,689)
   Net loss                                -             -           -  (15,399,113)            -            -  (15,399,113)
                                  ----------     ---------   ---------  -----------    ----------   ----------  -----------

   Balance at May 31, 1995        15,885,628     1,588,563  29,044,185  (34,583,991)     (740,000)  (1,482,080)  (6,173,323)
   Issuance of common stock        4,044,986       404,498   9,297,372            -             -            -    9,701,870
   Common stock issued under
     stock option plans and 
     warrants                      3,951,836       395,184   6,448,386            -             -            -    6,843,570
   Conversion of debentures to 
     common stock                  3,525,581       352,558   8,270,869            -             -            -    8,623,427
   Officers  loans; interest
     & repayments                          -             -           -            -       180,808            -      180,808
   Debt conversions                1,325,198       132,520   1,974,545            -             -            -    2,107,065
   Donated capital                         -             -     (44,405)           -             -            -      (44,405)
   Translation adjustment                  -             -           -            -             -     (393,450)    (393,450)
   Net loss                                -             -           -   (6,779,772)            -            -   (6,779,772)
                                  ----------     ---------   ---------  -----------    ----------   ----------   ----------













                                                                 F7<PAGE>






   Balance at May 31, 1996        28,733,229     2,873,323  54,990,952  (41,363,763)     (559,192)  (1,875,530)  14,065,790
   Issuance of common stock           15,010         1,501      52,874            -             -            -       54,375
   Common stock issued under 
     stock option plans and 
     warrants                        371,000        37,100     528,637            -             -            -      565,737
   Conversion of debentures to
     common stock                      4,000           400       9,600            -             -            -       10,000
   Officers  loans; interest 
     & repayments                          -             -           -            -       (17,448)           -      (17,448)
   Translation adjustment                  -             -           -            -             -     (283,386)    (283,386)
   Net loss                                -             -           -   (3,279,815)            -            -   (3,279,815)
                                  ----------     ---------   ---------  -----------    ----------   ----------   ----------


   Balance at December 31, 1996   29,123,239     2,912,324  55,582,063  (44,643,578)     (576,640)  (2,158,916)  11,115,253
   Issuance of common stock                5             -           -            -             -            -            -
   Common stock issued under 
     stock option plans and 
     warrants                        910,626        91,063   1,274,876            -             -            -    1,365,939
   Officers  loans; interest 
     & repayments                          -             -           -            -        56,477            -       56,477
   Stock issued under bonus plans     30,000         3,000     105,750            -             -            -      108,750
   Other                                   -             -           -      124,334             -            -      124,334
   Translation adjustment                                -           -            -             -       18,806       18,806
   Net loss                                -             -           -   (4,610,133)            -            -   (4,610,133)
                                  ----------     ---------   ---------  -----------    ----------   ----------   ----------

   Balance at December 31, 1997   30,063,870    $3,006,387 $56,962,689 $(49,129,377)  $  (520,163) $(2,140,110) $ 8,179,426
                                  ==========     =========  ==========  ===========    ==========   ==========   ==========
   </TABLE>

























                                                                 F8<PAGE>






                    Metalclad Corporation and Subsidiaries
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
  <TABLE><S>                                            <C>                 <C>               <C>              <C>
                                                          Year Ended      Seven Months Ended              Year Ended
                                                          December 31,        December 31,                  May 31,
                                                         -------------    ------------------   ------------------------------
                                                              1997                1996              1996             1995
                                                              ----                ----              ----             ----
   Cash flows from operating activities:
   Net loss                                                $(4,610,133)       $(3,279,815)      $(6,779,772)     $(15,399,113)
     Adjustments to reconcile net loss to 
     net cash used in operating activities:
       Depreciation and amortization                           518,706            282,568           359,642         1,255,116
       Write-off of goodwill                                    70,926                  -                 -         6,377,716
       Other                                                         -                  -          (276,095)                -
       Provision for losses on accounts receivable             (13,335)             3,410            24,373                 -
       Issuance of stock for services and interest on
         convertible subordinated debentures                   108,750                  -           399,608                 -
       Issuance of debentures for services                           -                  -            39,323                 -
       Debenture conversion expense                                  -                  -           728,644                 -
       Write down of real estate held for sale                       -                  -           130,415                 -
       Loss on sale of assets                                        -                  -                 -            45,553
       (Earnings) losses from unconsolidated affiliates        742,845            497,546                 -                 -
       Earnings in excess of distributions from 
         Curtom-Metalclad                                       12,588             88,530            27,412           (27,093)
       Changes in operating assets and liabilities:
       (Increase) decrease in accounts receivable              568,983           (249,632)          (82,641)           97,841
       (Increase) decrease in unbilled receivables             (57,305)          (118,396)          287,033            83,921
       (Increase) decrease in inventories                      151,362             11,482            46,839            (9,442)
       (Increase) decrease in prepaid expenses and 
         other assets                                           33,157           (170,123)          629,952           623,212
       (Increase) decrease in receivables from related 
         parties                                               108,554           (117,458)           97,914            (7,704)
       (Decrease) increase in accounts payables and 
         accrued expenses                                   (1,548,980)           274,797        (1,411,379)        1,127,241
       (Decrease) increase in billings over costs              (24,741)           (24,289)          (44,060)          101,097
                                                            ----------         ----------        ----------        ----------
   Net cash provided by (used in) operating activities      (3,938,623)        (2,801,380)       (5,822,792)       (5,731,655)
                                                            ----------         ----------        ----------        ----------
   Cash flows from investing activities:
     Purchases of property, plant and equipment               (104,113)          (211,111)         (735,780)       (3,411,080)
     Investments and capitalized costs in 
       unconsolidated affiliates                              (741,694)        (1,024,995)       (1,353,972)                -
     Restricted cash                                           769,500           (769,500)                -                 -
     Cash from ARI consolidation                               175,546                  -                 -                 -
     Goodwill - ARI                                           (218,696)                 -                 -                 -
     Other                                                     (62,538)                 -                 -                 -
                                                            ----------         ----------        ----------        ----------
   Net cash used in investing activities                      (181,995)        (2,005,606)       (2,089,752)       (3,411,080)
                                                            ----------         ----------        ----------        ----------





                                                                 F9<PAGE>






   Cash flows from financing activities:
     Proceeds from revolving line of credit and 
       long-term borrowings                                  1,500,000                  -            11,154           797,297
     Payments on revolving line of credit and
       long-term borrowings                                          -                  -          (906,456)         (517,144)
     Payments on Officers  receivable collateralized 
       by stock (net)                                           56,477                  -           180,808          (740,000)
     Sale of common stock                                            -                  -         8,864,862         8,529,982
     Issuance of common stock under stock option 
       plans and warrants                                    1,365,939            620,112         6,843,570            65,313
     Issuance of convertible subordinated debentures, 
       net of offering costs                                         -                  -                 -            61,000
     Payments of convertible subordinated debentures          (210,000)                 -                 -           (38,368)
                                                            ----------         ----------        ----------        ----------
   Net cash provided by financing activities                 2,712,416            620,112        14,993,938         8,158,080
                                                            ----------         ----------        ----------        ----------
     Effect of exchange rates on cash                          (22,672)           (83,088)         (118,443)          219,570
                                                            ----------         ----------        ----------        ----------
     Increase (decrease) in cash and cash  equivalents      (1,430,874)        (4,269,962)        6,962,951          (765,085)
                                                            ----------         ----------        ----------        ----------
   Cash and cash equivalents at beginning of period          3,074,395          7,344,357           381,406         1,146,491
                                                            ----------         ----------        ----------        ----------
   Cash and cash equivalents at end of period              $ 1,643,521        $ 3,074,395       $ 7,344,357        $  381,406
                                                            ==========         ==========        ==========         =========

   Supplemental disclosures of cash flow information:
     Cash paid for interest                                $   114,820       $    211,537       $   951,968        $1,260,373
                                                            ==========         ==========        ==========         =========
   </TABLE>
   Supplemental schedule of noncash investing and financing activities:

  During fiscal year ended May 31, 1996, 125,000 shares of common stock were
  issued  at $3.50 per share as additional consideration for the acquisition
  of COTERIN (see Note C).

  During  fiscal  year  ended  May  31,  1996, approximately $8.6 million in
  convertible  subordinated  debentures  converted  into common stock of the
  Company  at  the  induced  conversion  rate of $2.50 per share.  Debenture
  conversion  rate  at  the  time  of the offer by the Company was $2.82 per
  share.

  During  fiscal year ended May 31, 1996, approximately $2.1 million in debt
  converted  into  common  stock  of the Company at the conversation rate of
  $1.59 per share.




       The accompanying notes are an integral part of these consolidated
                                 statements. 





                                      F10<PAGE>






  NOTE A - SIGNIFICANT ACCOUNTING POLICIES

  Description of Business

  Metalclad  Corporation  (the  Company ) is engaged in insulation services,
  including  asbestos  abatement  services and insulation material sales, to
  customers  primarily  in  California  (the    Insulation  Business ).  The
  Company  is  also  engaged in the development of hazardous waste treatment
  facilities  and  the  collection  and  recycling  of  hazardous  waste for
  disposition  to  landfills  or  cement  kilns  in  Mexico  (the    Mexican
  Business ).  (See Note C.)

  On  October  13,  1997,  the Company filed a claim for arbitration against
  Mexico  under  provisions  of  the  North  American  Free  Trade Agreement
  (NAFTA).    The  claim  alleges  the  Company has been denied the right to
  operate  its  constructed  and permitted landfill facility thereby causing
  the  facility  to  be,  as  a practical matter, expropriated.  The Company
  believes  it  is  entitled  to  the  fair  market value of the facility as
  damages.   The Company cannot currently predict when the NAFTA arbitration
  process  will  be completed.  The results of the NAFTA arbitration process
  could be material to the Company s business and operations.

  The  accompanying  financial  statements  have  been prepared assuming the
  Company  will  continue  as  a  going  concern.  As shown in the financial
  statements,  the Company has incurred recurring losses from operations and
  has  a  large  accumulated deficit.  Additionally, the Company may require
  substantial  additional financing to develop, construct, and operate waste
  treatment facilities in Mexico.  Furthermore, the Company is continuing to
  expend  funds to pursue its NAFTA claim as well as to fund ongoing general
  and  administrative  expenses  without  sufficient revenue.  These matters
  raise substantial doubt about the Company s ability to continue as a going
  concern.    The  Company  has implemented various measures, the results of
  which  are  an expected improvement in operations and reduction in general
  and  administrative  expenses  in  1998.    Additionally,  the  Company is
  actively  pursuing  additional equity financing through a warrant exchange
  program.  The financial statements do not include any adjustments relating
  to  the  recoverability  of  asset  carrying  amounts  or  the  amount and
  classification  of  liabilities  that  might  result should the Company be
  unable to continue as a going concern.

  Principles of Consolidation/Investments

  The  consolidated financial statements include the accounts of the Company
  and  its  wholly-owned  subsidiaries.   Investments in other companies and
  joint  venture  corporations  which  are  20-50% owned are reported on the
  equity  method.  Significant  intercompany  accounts and transactions have
  been  eliminated  in  consolidation.    Costs  incurred  relating  to  the
  acquisition  or  formation  of  an equity method investment are considered
  part of the investment and are amortized over five years.

  Contracts in Process




                                      F11<PAGE>






  Fixed  price  insulation installation and asbestos abatement contracts are
  accounted  for  by  the  percentage-of-completion method wherein costs and
  estimated  earnings are included in revenues as the work is performed.  If
  a  loss  on  a fixed price contract is indicated, the entire amount of the
  estimated  loss  is  accrued  when known.  Time and material contracts are
  accounted  for under a cost plus fee basis.  Retentions by customers under
  contract terms are due at contract completion.

  Waste Collection Revenue

  Revenues  pertaining  to  the  collection of industrial waste products are
  recognized  when  waste is collected.  Estimated costs of reprocessing and
  disposal  are  accrued  when  revenues  are  recognized.    Certain of the
  collected  wastes  are  blended  and  subsequently  sold as fuel to cement
  kilns.    Revenues  from  fuel  sales  are recognized upon delivery to the
  customers  and revenues and costs for remediation contracts are recognized
  under the contract accounting guidelines.

  Inventories

  Inventories,  which consist principally of insulation products and related
  materials,  are  stated  at the lower of cost (determined on the first-in,
  first-out method) or market.

  Hazardous Waste Treatment Facilities

  During  fiscal 1994, the Company acquired COTERIN (see Note C), which owns
  a  landfill  site that had been operated as a waste transfer station prior
  to  the  acquisition.  Management of the Company is continuing its efforts
  to  obtain  public  support  from  state and local government officials to
  assure  safe  and uninterrupted operations of an expanded modern landfill.
  Capitalized  costs  consist  of  acquisition, development and construction
  costs,   including   engineering,   consulting,   environmental   studies,
  permitting  and  legal  costs associated with the landfill.  Additionally,
  development  costs  associated  with  the  site  selection, permitting and
  environmental studies for the Company s second landfill facility have been
  capitalized in 1997.  (See Note B.)

  Depreciation and Amortization

  Property, plant and equipment is stated at cost.  Depreciation is computed
  using  the straight-line method over the estimated useful lives of related
  assets  which  range  from  between  five  to  seven  years for machinery,
  equipment  and  leasehold  improvements  to  25  years for hazardous waste
  treatment facilities.

  Goodwill

  Goodwill  represents the cost of purchasing COTERIN over the fair value of
  its  net  assets and the costs of purchasing BFI-MEXICO s interest in BFI-
  OMEGA.    (See  Note  C.)   The Company is amortizing its goodwill over 10
  years.



                                      F12<PAGE>







  Cash Equivalents

  The   Company  considers  all  highly  liquid  investments  with  original
  maturities  of  three months or less to be cash equivalents.  The carrying
  amount  approximates  fair  value  because  of the short maturity of those
  instruments.

  Restricted Cash

  Restricted  cash  as  of  December  31,  1996  in  the  amount of $769,500
  represented  funds  held  as  collateral  for an appeal bond posted by the
  Company  associated  with  litigation.  This litigation was settled in May
  1997 and all restricted cash was released to the Company at that time.

  Loss Per Share

  Loss per share has been computed based upon the weighted average number of
  common  shares  outstanding during the period.  Stock options and warrants
  are  anti-dilutive  and  have  been  excluded  from  the  computation.  In
  February  1997,  the FASB issued SFAS No. 128,  Earnings per Share .  This
  statement  requires  that  primary earnings per share (EPS) be replaced by
  basic  EPS.  The primary difference between the two methods is that common
  stock  equivalents  are  not  included  in  the  basic  earnings per share
  calculation thereby reducing the denominator in the calculation.

  The  Company  has adopted SFAS 128,  Earnings Per Share,  and applied this
  pronouncement  to  all  periods  presented.    This statement requires the
  presentation  of  both  basic  and diluted net income (loss) per share for
  financial  statement  purposes.    Basic  net  income  (loss) Per share is
  computed by dividing income (loss) available to common stockholders by the
  weighted  average number of common shares outstanding.  Diluted net income
  (loss)  per share includes the effect of the potential shares outstanding,
  including  dilutive  stock  options  and warrants using the treasury stock
  method.    Because  the  impact  of options and warrants are antidilutive,
  there  is  no  difference  between the loss per share amounts computed for
  basic and diluted purposes.  Also, the adoption of SFAS 128 resulted in no
  change in amounts previously reported.

  Stock Based Compensation

  Effective  January  1, 1996, the Company adopted the disclosure provisions
  of  SFAS No. 123,  Accounting for Stock-Based Compensation .  SFAS No. 123
  requires  the  Company  to  disclose pro forma net income and earnings per
  share  as  if  the  fair value based accounting method of SFAS No. 123 had
  been  used to account for stock based compensation.  These disclosures are
  included in Note J.

  Income Taxes

  The  Company  accounts  for  income  taxes  using  the liability method as
  prescribed  by  Financial  Accounting  Standards  No. 109,  Accounting for



                                      F13<PAGE>






  Income Taxes . 

  Foreign Currency Translation

  Through  December  31,  1996,  all  assets  and liabilities of the Mexican
  subsidiaries were translated at the current exchange rate as of the end of
  the  accounting  period.    Items  in  the  statements  of operations were
  translated  at  average currency exchange rates.  The value of the Mexican
  Peso  relative  to the U.S. Dollar declined from approximately 3.4 Mexican
  Pesos  in June 1994 to approximately 8.07 Mexican Pesos to the U.S. Dollar
  at December 31, 1997.  The resulting translation adjustments were recorded
  as a separate component of shareholders  equity (deficit).

  As  of  January  1,  1997,  Mexico  has  been deemed a highly inflationary
  economy.  This results in the U.S. dollar being the functional currency of
  the  Company  s  Mexican  entities  and  the  net  exchange gain or losses
  resulting  from  the  translation of assets and liabilities of the Mexican
  entities  now being included in income, except for the effects of exchange
  rate  changes  on  intercompany  transactions  of  a  long-term investment
  nature,  which  are still recorded as a separate component of shareholders
  equity.

  Reclassifications

  Certain  reclassifications  have  been  made  to prior period consolidated
  financial statements to conform with the current year presentation.

  Use of Estimates

  The  preparation  of  financial  statements  in  conformity with generally
  accepted  accounting  principles requires management to make estimates and
  assumptions that affect the reported amounts of assets and liabilities and
  disclosure  of  contingent  assets  and  liabilities  at  the  date of the
  financial  statements  and  the  reported amounts of revenues and expenses
  during  the  reporting  period.    Actual  results could differ from those
  estimates.


  NOTE B - REALIZATION OF ASSETS

  Effective  June  1,  1996,  the  Company  has  implemented  the  Financial
  Accounting  Standards  Board  (FASB) Statement No. 121  Accounting for the
  Impairment  of Long- Lived Assets and for Long-Lived Assets to be Disposed
  of  .    This  statement  requires  that  long-lived  assets  and  certain
  identifiable  intangibles  to  be held and used be reviewed for impairment
  whenever  events  or  changes  in circumstances indicate that the carrying
  value  of an asset may not be recoverable.  The Company has conducted this
  review  and  believes  that no impairment currently exists and no material
  adjustments are necessary to the valuation of its assets.

  El Confin




                                      F14<PAGE>






  Included  in  property,  plant  and  equipment  at  December  31,  1997 is
  approximately  $4,018,000  representing  the  Company  s investment in its
  completed  hazardous  waste  treatment  facility  in the State of San Luis
  Potosi,  Mexico,  known  as    El  Confin .  Additionally, the Company has
  unamortized  goodwill  of  approximately  $602,000  associated  with  this
  facility.  The Company has been granted all necessary federal governmental
  authorizations  to  open  and  operate  the  facility but, as yet, has not
  received the support of the state and local governments.  Consequently, on
  October  2, 1996, the Company filed a Notice of Intent to File Claim Under
  the  North  American  Free Trade Agreement ( NAFTA ).  The Claim was filed
  with  the  International  Centre  for  Settlement  of  Investment Disputes
  (  ICSID ) in Washington, D.C.  On January 13, 1997, the Secretary General
  of  ICSID  registered  the  Company  s  claim and notified both the United
  States  and Mexican governments of the registration.  On October 13, 1997,
  the  Company  filed  its  detailed memorial, or claim, and on February 17,
  1998,  Mexico  filed  its  counter-memorial, or response.  The Company now
  awaits  certain  administrative rulings and procedural direction as to the
  next steps in the process.  These steps could include hearings, additional
  filings by the parties, expert testimony, etc., with the Company having no
  ability  to  predict a date upon which the process will be completed.  The
  Company  s  claim  is  one under the category of  Likened to Expropriation
  wherein  the  Company,  having  been  denied  the  right  to  operate  its
  constructed  and  permitted  facility,  claims  its property has therefore
  been,  as  a  practical matter, expropriated, entitling the Company to the
  fair  market  value  of  the  facility  as  damages.  Although the Company
  remains confident in its position, no assurances can be given that it will
  be  successful  in  this  arbitration  process.    The  realization of the
  capitalized  landfill  costs  and  goodwill  associated  with El Confin is
  dependent  upon  a  successful  resolution  or settlement of the Company s
  NAFTA arbitration process.

  Aguascalientes

  As  of  December  31,  1997, the Company has capitalized costs of $244,000
  associated with the development of this project.  The realization of these
  costs  is  dependent  upon  the  Company  obtaining  any remaining permits
  necessary  for  construction  and  operation,  as  well  as  the financing
  necessary to successfully complete and operate the facility.


  NOTE C - WASTE MANAGEMENT BUSINESS

  During  the  year ended May 31, 1994, the Company formed a Mexican holding
  company, Ecosistemas Nacionales, S.A. de C.V. (ECONSA), to ultimately hold
  the  common  stock  of  Ecosistemas  del  Potosi,  S.A.  de C.V. (ECOPSA),
  Confinamiento  Tecnico  de  Residuos Industriales, S.A. de C.V. (COTERIN),
  Consultoria  Ambiental Total, S.A. de C.V. (CATSA), Quimica Omega, S.A. de
  C.V.  (QUIMICA  OMEGA),  Administracion  de Residuos Industriales, S.A. de
  C.V. ( ARI ) and Ecosistemas El Llano, S.A. de C.V. (Llano ).

  COTERIN




                                      F15<PAGE>






  In September 1993, the Company entered into an agreement to acquire 94% of
  COTERIN  which  owns  a  permitted  landfill which was operated as a waste
  transfer  station prior to the acquisition.  In January, 1996 the original
  agreement  was  amended whereby the Company paid an additional $200,000 in
  cash  plus 125,000 shares of common stock in the Company in exchange for a
  reduction  in  certain  future  contingent  payments based on the landfill
  opening  to $300,000 and a reduction in the royalty payment to 1% of gross
  revenues.    In  addition,  the  Company  acquired the remaining shares of
  COTERIN  that it did not own, essentially vesting 100% of the ownership of
  the  landfill to the Company.  The Company has the obligation to remediate
  the  landfill due to its prior use as a transfer station, conditional upon
  the  landfill  opening.   The agreement with the sellers jointly obligates
  them  to  compensate  COTERIN  for  the  costs of remediation in excess of
  $500,000  in total or $100,000 annually.  This obligation can be offset by
  any  royalties  that  may be due the sellers from the Company.  COTERIN is
  the  owner  of  the  landfill  site  which is presently the subject of the
  Company s claim under NAFTA.

  QUIMICA OMEGA

  On  May  5,  1994,  the Company acquired all of the issued and outstanding
  common  and  preferred  stock  of  QUIMICA OMEGA in exchange for 2,800,000
  restricted   shares  of  the  Company  s  common  stock.    QUIMICA  OMEGA
  specializes  in  the  collection  of  hazardous  waste  for  recycling and
  disposal  at  landfills  or  cement  kilns,  which  supplement  their fuel
  requirements  with  fuels reblended by QUIMICA OMEGA.  The transaction has
  been  accounted  for  as a purchase.  The purchase price of $6,300,000 was
  based upon management s estimate of the fair value of the Company s common
  stock  issued to the Quimica shareholders.  In May 1995, the Company wrote
  off goodwill in the amount of $6,377,000 associated with this transaction.

  On  April  9, 1996, the Company and BFI-MEXICO, formed BFI-OMEGA as a 50%-
  50%  owned joint venture corporation.  Effective with this agreement, BFI-
  OMEGA  assumed  management of QUIMICA OMEGA S operations and implemented a
  transition to BFI-OMEGA.  The joint venture commenced operations under the
  BFI-OMEGA  name  in  July, 1996.  As of December 31, 1996, the Company had
  capitalized  organizational costs of $516,000 representing direct costs of
  forming  the  joint  venture.    These costs are being amortized over five
  years commencing July, 1996.

  In  January  1997,  QUIMICA  OMEGA  and  BFI-MEXICO  reached agreement for
  QUIMICA OMEGA to acquire BFI s 50% interest in the joint venture.  As part
  o f   this  transaction,  BFI  contributed  certain  waste  transportation
  equipment to QUIMICA OMEGA.


  NOTE D - INVESTMENTS IN UNCONSOLIDATED AFFILIATES

  BFI-OMEGA

  In  April 1996, the Company, through its Mexican subsidiary QUIMICA OMEGA,
  formed  a  50%-50% jointly owned company with BFI-MEXICO to provide a full



                                      F16<PAGE>






  range of industrial waste collection, transportation, recycling, treatment
  and  disposal  services  in  Mexico.   The Company, known as BFI-OMEGA was
  accounted  for  under the equity method.  In July, 1996, the joint venture
  commenced operations as BFI-OMEGA.

  In  January  1997,  QUIMICA  OMEGA  and  BFI-Mexico  reached agreement for
  QUIMICA   OMEGA  to  acquire  BFI-MEXICO  s  50%  interest  in  BFI-OMEGA.
  Therefore,  effective  January 1, 1997, the Company controlled 100% of the
  outstanding  stock  of  BFI-OMEGA  and  assumed  management control of its
  operations.     The  BFI-OMEGA  joint  venture  was  subsequently  renamed
  Administracion de Residuos Industriales ( ARI ).  For the first six months
  of  1997,  the  Company pursued a strategy of identifying a new partner to
  acquire  50% of ARI.  Because of this strategy, the Company maintained the
  equity  method  of  accounting  for  ARI.    In  August 1997, the Board of
  Directors  decided  to  maintain  ARI  as  a 100% owned subsidiary and not
  continue  the  pursuit  of  a  partner.    Consequently,  the  Company has
  consolidated ARI effective July 1, 1997.

  The following is unaudited summarized financial information for BFI-OMEGA,
  presented in U.S. dollars:

                                Balance Sheets
                                  (Unaudited)

                                             June 30, 1997     December 31,
  1996
                                             -------------     -----------
  Cash                                        $  181,571       $  261,520
  Accounts receivable                          1,037,313          639,113
  Prepaid expenses                                66,256           13,363
  Other assets                                   149,768          228,228
  Property, plant and equipment                1,019,024          549,078
                                               ---------        ---------
  Total assets                                $2,453,932       $1,691,302
                                               =========        =========
  Accounts payable and accrued expenses       $1,671,180       $  682,843
  Common stock                                 3,045,139        2,332,085
  Accumulated deficit                         (2,262,387)      (1,323,626)
                                               ---------        ---------
  Total liabilities and equity                $2,453,932       $1,691,302
                                               =========        =========



                           Statements of Operations
                                  (Unaudited)

                           Six Months       Seven Months           Year
                             Ended              Ended              Ended
                          June 30, 1997   December 31, 1996    May 31, 1996
                          -------------   -----------------    ------------
  Revenues                  $2,049,799     $    872,427         $        -



                                      F17<PAGE>






  Cost of Sales             (1,890,266)        (872,674)                 -
  Expenses                    (902,378)      (1,084,675)          (238,704)
                             ---------        ---------           ---------

  Loss from operations      $ (742,845)     $(1,084,922)        $ (238,704)
                             =========       ==========          =========


  Curtom-Metalclad

  In  1989, the Company entered into a joint venture with a minority service
  firm  ( Curtom-Metalclad ) to perform industrial insulation and industrial
  asbestos  abatement  services  similar  to those performed by the Company.
  When contracts are obtained by the joint venture, the Company performs the
  work specified in the contract as a subcontractor to the joint venture.  

  The  following  is  unaudited summarized financial information for Curtom-
  Metalclad:

                                Balance Sheets
                                  (Unaudited)

                                             December 31,    December 31,
                                             ------------    -----------
                                                 1997            1996
                                                 ----            ----
  Cash                                        $   3,651      $   7,207
  Accounts receivable                           375,083        717,648
                                               --------       --------
  Total assets                                $ 378,734      $ 724,855
                                               ========       ========

  Accounts payable                            $ 363,553      $ 691,332
  Curtom-equity                                   7,741         17,097
  Metalclad-equity                                7,440         16,426
                                               --------       --------
  Total liabilities and partners  
  capital                                     $ 378,734      $ 724,855
                                               ========       ========



                           Statements of Operations
                                  (Unaudited)


                       Year          Seven Months            Year
                       Ended            Ended                Ended
                     December 31,    December 31,           May 31,
                     ------------    ------------  ------------------------
                         1997            1996          1996         1995
                         ----            ----          ----         ----



                                      F18<PAGE>






  Revenue             $3,679,907     $3,427,699    $1,417,601   $2,505,697
  Costs of sales      (3,684,288)    (3,335,786)   (1,231,613)  (2,341,019)
  Expenses                (1,255)          (904)         (646)      (1,386)
                       ---------      ---------     ---------    ---------
  Income from 
    operations        $   (5,636)    $   91,009    $  185,342   $  163,292
                       =========      =========     =========    =========









  NOTE E - PROPERTY, PLANT AND EQUIPMENT

  Property, plant and equipment consists of the following:

                                              December 31,    December 31,
                                                  1997             1996
                                               -----------     -----------
  Buildings                                    $  177,060      $   93,690
  Land                                            248,235         239,955
  Machinery and equipment                       2,218,719       1,524,616
  Automotive equipment                            718,238         505,667
  Leasehold improvements                            1,039           4,454
                                                ---------       ---------
                                                3,363,291       2,368,382
  Less accumulated depreciation 
    and amortization                           (1,274,096)       (924,614)
                                                ---------       ---------
                                                2,089,195       1,443,768
  Hazardous waste treatment facilities          4,017,743       3,875,641
                                                ---------       ---------
                                               $6,106,938      $5,319,409
                                                =========       =========

  NOTE F - REAL ESTATE HELD FOR SALE

  Real  estate  held  for sale was acquired in 1986 as settlement on amounts
  owing  from  an affiliate.  The real estate is carried at the lower of the
  cost  or  fair  value less estimated costs to sell.  During the year ended
  May  31,  1996  the  Company  wrote down the value of this property.  This
  property  was  collateral  on the Company s note payable to supplier (Note
  G).    During  the  year  ended  May  31,  1996, this note was paid in its
  entirety.


  NOTE G - DEBT




                                      F19<PAGE>






  Long-term debt consists of the following:

                                             December 31,
                                                1997
                                              ----------
  Zero Coupon Convertible Notes               $1,500,000
                                              ==========

  In September 1993, the Company obtained a loan in the amount of $2,500,000
  from  a  financial  institution pursuant to the terms of a promissory note
  due  on  September 1, 1995.  The note bore interest at the prime rate plus
  7%  and  was collateralized by all of the assets of the Company, including
  its shares of certain subsidiaries.  In connection with this financing the
  Company  issued  the financial institution a five-year warrant to purchase
  375,000 shares of common stock at a price of $4.50.  

  In September 1994, the Company obtained a short-term loan in the amount of
  $525,000  from  the  same financial institution pursuant to the terms of a
  promissory  note  due  on November 30, 1994.  The note accrued interest at
  the  prime  rate  plus  7%.  In connection with this financing the Company
  issued  the  financial  institution a five-year warrant to purchase 75,000
  shares of common stock at a price of $2.625 per share.

  In  May  1995,  the  Company  re-negotiated  the  terms  of this financing
  agreement  and  extended  the  maturity  date  of  previous borrowings and
  accrued  interest  totaling approximately $2,800,000 to June 30, 1996.  In
  connection  with  this  re-negotiation, the Company issued the institution
  87,578  shares of common stock, issued the institution a five-year warrant
  to purchase 600,000 shares of common stock at a price of $1.908 per share,
  and  lowered the exercise price on all previously issued warrants to $1.59
  per  share,  which  approximated  or exceeded the fair market value of the
  Company s common stock as of the measurement date.  The agreement with the
  financial  institution contained covenants which gave the lender the right
  to  convert  the debt into shares of common stock at the rate of $1.59 per
  share.  The  Company  paid  the  institution an additional $100,000 for an
  extension of the payment date for the loan.

  In  February  1996, the lender exercised its option to convert 100% of the
  outstanding  loan  balance  of  $1,924,797  into  1,210,564  shares of the
  Company s common stock at the conversion rate of $1.59 per share.

  In  December  1997,  the  Company  issued $2,200,000 Five Year Zero Coupon
  Secured  Convertible  Notes,  netting the Company $1,500,000.  These notes
  are  convertible  into  1,000,000  shares  of  common  stock and 1,500,000
  warrants  of  the  Company upon certain events related to the common stock
  price performance of the Company.  Additionally, the notes are callable at
  the  option of the holder, any time after April 15, 1999.  These notes are
  secured by 100% of the stock of Metalclad Insulation Corporation. 


  NOTE H - CONVERTIBLE SUBORDINATED DEBENTURES




                                      F20<PAGE>






  I n    N ovember  1993,  the  Company  issued  $3,840,000  of  convertible
  subordinated  debentures  due  in  60  months,  bearing interest at 9% and
  convertible  into  shares  of  common stock at the rate of $5.50 per share
  subject  to  certain adjustments.  During the year ended May 31, 1994, the
  Company also issued an additional $732,359 principal amount of convertible
  subordinated  debentures  due  in  60  months, bearing interest at 8%, and
  convertible  into  shares  of common stock at the rates of $4.00 and $5.00
  per share subject to certain adjustments.

  In August 1995,  the Company offered to convert all outstanding debentures
  into  shares  of common stock at a conversion price below the stated price
  on  the debentures.  As of May 31, 1996, approximately $8,600,000 of these
  debentures  converted  at  the  rate  of  $2.50  per share and the Company
  recognized  a  charge of $729,000 due to the lower conversion price offer.
  As  of December 31, 1997 the remaining debentures outstanding, all bearing
  interest at 8% per annum, were $19,533.  All such amounts are due in 1998.


  NOTE I - INCOME TAXES

  There  was  no provision for income taxes for the periods presented due to
  losses  incurred.    The  major  deferred  tax  asset (liability) items at
  December 31, 1997 and  May 31, 1996 are as follows:

                                             December 31,   December 31,
                                                 1997           1996
                                             -----------    -----------
  Assets:
    Allowances established against 
     realization of certain assets           $    12,000    $   12,000
    Net operating loss carryforwards           8,630,200     7,331,000
    Accrued liabilities and other                139,200       259,000
                                              ----------     ---------

                                               8,781,400     7,602,000
  Valuation allowance                         (8,781,400)   (7,602,000)
                                              ----------     ---------
                                             $         0    $        0
                                              ==========     =========

  The  difference  between the actual income tax benefit and the tax benefit
  computed by applying the statutory Federal income tax rate to the net loss
  before  income  taxes  is  attributable  to  the  inability  to  recognize
  currently the future benefit of net operating loss carryforwards.

  At  December  31,  1997,  the  Company  has available for U.S. Federal and
  California  income  tax  purposes  net  operating  loss  carryforwards  of
  approximately   $17,086,000   and   $7,212,000,   respectively.      These
  carryforward  amounts  expire  in  the  years  2000  through 2012 and 1998
  through  2002,  respectfully.    At  December  31,  1997,  the Company has
  available  investment  credits  of  approximately $32,300 to offset future
  U.S.  Federal  income  tax  liability. The ultimate utilization of the net



                                      F21<PAGE>






  operating  loss  and  investment credit carryforwards may be restricted in
  the  future  due  to changes in the ownership of the Company.  The Company
  also  has  Mexican  net  operating  loss  carryforwards  of  approximately
  $6,669,000  which  may  be  utilized to offset future taxable income.  The
  Mexican  losses  are  subject  to  a  ten-year tax carryforward period and
  expire in the years 2002 through 2007.  

  The  Company  has  recorded  a valuation allowance for that portion of the
  deferred tax asset that the Company does not believe to be realizable.


  NOTE J - SHAREHOLDERS  EQUITY

  Stock Options

  In  1988,  the  Company  adopted  an  incentive stock option plan (300,000
  shares authorized).  Under the incentive stock option plan, options may be
  granted  to  employees  at a price which is not less than 100% of the fair
  market  value  on  the date of grant.  Options granted under the incentive
  stock option plan vest over a three-year period commencing six months from
  the  date  of  grant  and  are exercisable for five years from the date of
  grant.   At December 31, 1997, there were no options outstanding under the
  incentive  stock option plan, and 134,500 options are available for grant.
  The  incentive  stock  option  plan  will expire 10 years from the date of
  adoption.

  On  August 18, 1992, the Company adopted an omnibus stock option plan (the
   1992 Plan ) which authorized the issuance of 1,600,000 options to acquire
  the  Company  s  common  stock.   At December 31, 1997, there were options
  outstanding  under the 1992 Plan for 826,000 shares (of which 756,000 were
  vested),  and  62,500  options  available  for  grant.  These options will
  expire 10 years from the date of grant.

  On  March  24, 1993, the Company adopted an omnibus stock option plan (the
   1993 Plan ) which authorized the issuance of 1,000,000 options to acquire
  the  Company  s  common stock.  The terms of the 1993 Plan are the same as
  the 1992 Plan.  At December 31, 1997, there were options outstanding under
  the  1993  Plan  for 380,000 shares (of which 326,000 shares were vested),
  and  295,000  options  available for grant.  These options expire 10 years
  from the date of the grant.

  During  fiscal  1995, the Board of Directors approved the grant to various
  officers,  directors,  and  employees of the Company of nonstatutory stock
  options to purchase an aggregate of 2,412,500 shares of common stock.  The
  options  were  granted  at  exercise prices equal to or exceeding the fair
  market value of the Company s common stock on the measurement date, expire
  10 years from the date of grant, and have various vesting schedules.

  During  fiscal  1996, the Board of Directors approved the grant to various
  officers,  directors  and  employees of the Company of non-statutory stock
  options to purchase an aggregate of 5,040,000 shares of common stock.  The
  options  were  granted  at  exercise prices equal to or exceeding the fair



                                      F22<PAGE>






  market value of the Company s common stock on the measurement date, expire
  10  years  from  the date of grant and have various vesting schedules.  In
  December,  1996,  the Company rescinded its granting of 3,195,000 of these
  options  and  deferred  issuance  of  1,300,000  of  these options pending
  shareholder  approval,  which  was  subsequently denied.  During the seven
  months  ended  December  31, 1996, the Company granted options to purchase
  300,000 shares of common stock, inclusive of options for 250,000 shares at
  $3.00 associated with the BFI-OMEGA transaction.

  On  May  15,  1997,  the Company adopted an omnibus stock option plan (the
   1997 Plan ) which authorized the issuance of 6,000,000 options to acquire
  the  Company  s  common stock.  At December 31, 1997 there were no options
  outstanding under this plan.

  During  the  year ended December 31, 1997, the Board of Directors approved
  the  grant  to various officers, directors and employees of the Company of
  options  to  purchase an aggregate of 890,000 shares of common stock.  The
  options  were  granted  at  exercise prices equal to or exceeding the fair
  market value of the Company s common stock on the measurement date, expire
  10 years from the date of grant and have various vesting schedules.

  The following is a summary of options granted:

  <TABLE><S>             <C>                   <C>                      <C>
                             Year ended         Seven months ended        Year ended
                          December 31, 1997     December 31, 1996        May 31, 1995
                          -----------------     ------------------       ------------
                             Weighted               Weighted                Weighted
                              Average                Average                 Average
                              Exercise               Exercise                Exercise
                         Shares     Price       Shares       Price       Shares     Price
                         ------    --------     ------      --------     ------    -------
  Options outstanding
  at beginning of the
  year                  4,848,250   $2.75      7,904,250     $3.07      4,487,500   $2.17
     Granted              890,000    1.47        300,000      3.00      5,040,000    3.56
     Exercised                  -       -       (161,000)     1.38     (1,547,000)   2.10
     Canceled          (1,815,250)   3.25     (3,195,000)     3.63        (76,250)   2.25
                       ----------    ----     ----------      ----     ----------    ----
  Options outstanding
  at end of the year    3,923,000   $2.23      4,848,250     $2.75      7,904,250   $3.07

  Options Exercisable   3,699,000              2,982,000                2,855,750
  </TABLE>

  Of  the 300,000 options granted during the seven months ended December 31,
  1996,  50,000  were  issued  at  fair market value and 250,000 were issued
  below  fair  market value, with the Company recording a charge of $125,000
  representing the discount.

  The  following significant assumptions were utilized to calculate the fair
  value  information  presented  utilizing the Black-Scholes Multiple Option



                                      F23<PAGE>






  Approach:


                            December, 1997  December, 1996  May, 1996
                            --------------  --------------  ---------
  Risk Free interest rate         6.00%          6.10%        6.10%
  Expected life                1.31 years      1.2 years    4.7 years
  Expected volatility            .9877           1.05         1.05
  Expected dividends               -              -            -
  Weighted average fair 
    value of options granted      .615           3.36         3.54





  <TABLE><S><C>              <C>             <C>           <C>               <C>            <C>
                                  OPTIONS OUTSTANDING                            OPTIONS EXERCISABLE
          ------------------------------------------------------------        -------------------------

                                               Weighted
                                                average       Weighted                        Weighted
                                Number         remaining       average           Number        average
              Range of       outstanding    contractual life  exercise        exercisable     exercise
          exercise prices   as of 12/31/97     in years        price        as of 12/31/97      price
          ---------------   --------------  ----------------  --------      --------------    --------

          $1.250 - $1.625       890,000          9.10         $1.4716           820,000        $1.4848
          $2.250 - $2.250      2,313,000         6.33         $2.2500         2,159,000        $2.2500
          $2.500 - $2.500        200,000         8.37         $2.5000           200,000        $2.5000
          $3.000 - $3.000        380,000         8.62         $3.0000           380,000        $3.0000
          $3.625 - $3.625         50,000         8.01         $3.6250            50,000        $3.6250
          $4.500 - $4.500         90,000         8.01         $4.5000            90,000        $4.5000
                               ---------         ----          ------         ---------         ------
          $1.250 - $4.500      3,923,000         7.34         $2.2279         3,699,000        $2.2443
                               =========         ====          ======         =========         ======
   </TABLE>
   As  the  Company  has adopted the disclosure requirements of SFAS 123, the
  following table shows pro forma net loss and loss per share as if the fair
  value  based  accounting  method  had been used to account for stock based
  compensation cost.
  <TABLE><S>                         <C>                  <C>                     <C>
                                           Year ended       Seven months ended       Year ended 
                                       December 31, 1997    December 31, 1996       May 31, 1996
                                      -----------------    ------------------      ------------
   Net Loss                              $(4,610,133)         $(3,280,000)         $(6,780,000)
   Pro forma compensation expense           (547,000)            (355,000)          (1,023,000)
                                          ----------           ----------           ----------
   Pro forma net loss                    $(5,157,133)         $(3,635,000)         $(7,803,000)
                                          ==========           ==========           ==========
   Pro forma loss per share                 $(.17)              $(.13)                $(.34)
                                             =====               =====                 =====



                                                                F24<PAGE>






   </TABLE>


   The effects of applying FASB 123 in this pro forma disclosure are not
  indicative of future amounts.

  Stock Purchase Warrants

  In connection with various debt offerings, stock placements and services
  provided, the Company has issued various stock purchase warrants.  All
  such warrants were issued at prices which approximated or exceeded fair
  market value of the Company s common stock at the date of grant and are
  exercisable at dates varying from one to five years.

  Summarized information for stock purchase warrants follows:

  <TABLE><S>                                     <C>                <C>
                                                    Number             Price
                                                 of Warrants         Per Share
                                                 -----------         ---------
  Warrants outstanding at May 31, 1995            5,229,585         $1.51-2.25
    Issued                                        4,690,636          1.91-5.00
    Exercised                                    (2,554,836)         1.51-2.25
                                                  ---------          ---------
  Warrants outstanding at May 31, 1996            7,365,385          1.59-5.00
    Issued                                                -                  -
    Exercised                                      (210,000)         1.51-2.00
                                                  ---------          ---------
  Warrants outstanding at December 31, 1996       7,155,385          1.51-5.00
    Issued                                        1,110,626             1.50
    Exercised                                      (910,626)            1.50
    Expired                                        (693,500)         2.00-2.25
                                                  ---------          ---------

  Warrants outstanding at December 31, 1997       6,661,885            $1.50
                                                  =========             ====
  </TABLE>

  Common Stock

  During  the  fiscal  year ended May 31, 1996, the Company issued 3,525,000
  shares  in  conversion  of  approximately  $8,600,000  of  its  8%  and 9%
  debentures (see Note H).  In addition, the Company issued 1,500,000 shares
  as  the  result  of  the exercise of stock options, at prices ranging from
  $1.375  to  $2.25  per  share.    Shares totaling 4,044,000 were issued in
  private  placements  at  prices  ranging  from  $1.05  to $4.00 per share.
  Approximately  2,450,000 shares were issued as a result of the exercise of
  warrants,  at  prices  ranging  from  $1.51  to  $2.25.    Shares totaling
  1,210,564  were  issued  in  conversion  of the CVD debt (see Note G) at a
  conversion price of $1.59 per share.

  T h e   Company  realized  net  cash  proceeds  of  $16,500,000  from  the



                                      F25<PAGE>






  aforementioned  year  ended  May  1996  transactions.   Additionally, debt
  totaling $10,700,000, representing debentures, was converted into equity.

  During  the  seven  months  ended  December 31, 1996, the Company issued a
  total  of  390,000  shares,  with  161,000  being  the  result  of  option
  exercises,  210,000  being  the  result of warrants being exercised, 4,000
  from  a  debenture  conversion and 15,000 from a previously accrued award.
  The Company realized net proceeds of $620,000 from these transactions.

  During  the  year  ended  December 31, 1997, the Company issued a total of
  940,600  shares,  with  910,600  being the result of warrant exercises and
  30,000  issued  as  stock bonuses previously accrued in 1996.  The Company
  realized net proceeds of $1,366,000 from these transactions.




  NOTE K - EMPLOYEE BENEFIT PLANS

  Effective  January  1, 1990, the Company established a contributory profit
  sharing  and  thrift  plan  for  all  salaried  employees.   Discretionary
  matching  contributions  are  made  by  the Company based upon participant
  contributions,  within  limits provided for in the plan.  No contributions
  were  made  in  the  year  ended December 31, 1997, the seven months ended
  December 31, 1996 or the years ended May 31, 1996 and 1995, respectively.

  Additionally,  the  Company  participates in several multi-employer plans,
  which  provide  defined  benefits  to union employees of its participating
  companies.   The Company makes contributions determined in accordance with
  the  provisions  of  negotiated  labor  contracts.  The contributions were
  $257,000,  $127,000, $296,000 and $320,000 for the year ended December 31,
  1997,  the  seven  months ended December 31, 1996 and for the fiscal years
  ended May 31, 1996 and 1995, respectively.


  NOTE L - SIGNIFICANT CUSTOMERS

  Sales  for  the  twelve months ended December 31, 1997 to Curtom-Metalclad
  were  approximately  $3,573,000,  including $3,533,000 performed at Edison
  plants under the strategic alliance program.

  The  Company  had  trade  accounts  receivable  of  $355,000  from Curtom-
  Metalclad as of December 31, 1997.  Additionally, the Company had sales of
  $1,455,000  and  $1,557,000 to Texaco and Arco, respectively, during 1997.
  Accounts  receivable  from these two customers were $128,000 and $489,000,
  respectively, as of December 31, 1997.

  Sales  for  the  seven  months ended December 31, 1996 to Curtom-Metalclad
  were  approximately  $3,445,000,  including $3,345,000 performed at Edison
  plants. 

  S a l e s    to  Southern  California  Edison  and  Curtom-Metalclad  were



                                      F26<PAGE>






  approximately  $2,417,000  and $1,267,000, respectively, in the year ended
  May 31, 1996. 

  Sales  to  Brown & Root and Curtom-Metalclad were approximately $3,894,000
  and  $2,296,000, respectively in the year ended May 31, 1995.  The Company
  had  trade  accounts  receivable from Brown & Root and Curtom-Metalclad of
  approximately $194,000 and $408,000, respectively, as of May 31, 1995.


  NOTE M - COMMITMENTS AND CONTINGENT LIABILITIES

  The  Company has employment agreements with its executive officers.  These
  agreements  continue  until terminated by the executive or the Company and
  provide for minimum salary levels, as adjusted for cost of living changes.
  These agreements include incentive bonuses based upon specified management
  goals, and a covenant against competition with the Company extending for a
  period of time after termination.

  The  Company  leases  its  facilities under non-cancelable operating lease
  agreements which expire at various dates through 2002.  Total rent expense
  under  operating  leases was $307,839, $168,722, $404,647 and $373,371 for
  the year ended December 31, 1997, seven months ended December 31, 1996 and
  for  the  years ended May 31, 1996 and 1995, respectively.  Future minimum
  non-cancelable lease commitments are as follows:

       Year ending December 31, 1998     $380,805
                                1999      150,117
                                2000      106,605
                                2001      102,055
                                2002       63,917
                                         --------
                                         $803,499
                                         ========


  In  the  ordinary  course of its insulation business, certain parties have
  filed  a  substantial  number of claims against the Company for actual and
  punitive  damages.    Throughout  its  history, the Company has maintained
  insurance  policies  that typically respond to these claims.  Based on the
  opinion  of  counsel,  it  is  management  s  opinion  that these actions,
  individually  and  in  the  aggregate, will not have a significant adverse
  impact on the Company s financial position or results of operations.


  NOTE N - RELATED PARTY TRANSACTIONS 

  Receivables from related parties are comprised of the following:

                                            December 31,   December 31,
                                               1997            1996
                                            ------------   ------------
  Parc-Metalclad                              $ 12,644      $      -



                                      F27<PAGE>






  Metalclad Pacific - other                          -        10,000
  Loans to executive officers, directors 
    and employees                              119,181       230,379
                                               -------       -------
                                              $131,825      $240,379
                                               =======       =======


  Loans  to  executive  officers, directors and employees are represented by
  promissory notes, due on demand and bear interest at 6%.

  An  officer  of  the Company is a partner in a law firm which has received
  payments  for  legal  fees of approximately $47,000, $54,000, $283,000 and
  $280,000  for  the  year  ended  December 31, 1997, the seven months ended
  December 31, 1996 and years ended May 31, 1996 and 1995, respectively.

  During fiscal 1995 the Company loaned $370,000 each to Grant S. Kesler and
  T. Daniel Neveau, officers of the Company.  Each loan is collateralized by
  300,000  shares  of  Company stock.  The loans accrued interest at 7% over
  prime  which was 9% at May 31, 1995.  In February 1996, Messrs. Kesler and
  Neveau each repaid $150,000 to the Company.  In March 1996, the notes were
  amended  to modify the loan principal between Messrs. Kesler and Neveau as
  well  as  to  adjust  the interest rates, effective March 1, to a variable
  rate  based  upon  the Company s quarterly investment rate.  The amendment
  also  stipulated  that the notes be re-paid by May 31, 1997.  The Board of
  Directors has extended repayment of these notes until March 31, 1998.

  In  June  1996,  Mr. Neveau, Chairman of the Board, Senior Vice President,
  and  a  Director of the Company, resigned his positions.  As a result, the
  Company  and Mr. Neveau renegotiated the terms of his employment agreement
  relative to compensation, benefits and stock options.  As of May 31, 1996,
  the  Company  accrued  $275,000,  representing  the  Company  s  remaining
  obligation  to  Mr.  Neveau.    As of December 31, 1996, $175,000 remained
  accrued  by  the Company.  Since May 1997, the Company has been offsetting
  payments  due  Mr.  Neveau  against  his  outstanding  loan balance to the
  Company.  As of December 31, 1997, the Company s remaining receivable from
  Mr. Neveau was $151,400.

  During  the  fiscal  year  ended  May  31, 1996, the Company agreed to pay
  consulting  fees  of $51,000 to Gordon M. Liddle, a former director of the
  Company.    These  fees  are  for  services  in connection with management
  oversight and other  consulting to the Company.  Additionally, the Company
  has  entered into an 18-month consulting agreement with Mr. Liddle for on-
  going  consulting  services  at  a rate of $5,000 per month.  Mr. Liddle s
  consulting agreement expired on December 31, 1997.

  During  the  fiscal  year  ended May 31, 1996, the Company entered into an
  agreement with The Chesapeake Group, whose Managing Director is Douglas S.
  Land,  a former director of the Company.  The agreement engages Chesapeake
  as  a  financial  consultant  to  the Company in matters pertaining to its
  Mexican  waste  operations.    During  the  period ended May 31, 1996, the
  Company  agreed  to  pay  to  Chesapeake  $100,000 for consulting services



                                      F28<PAGE>






  rendered  during  calendar  year  1995  and  $8,000 per month for on-going
  consulting services.  In addition, the Company agreed to pay a transaction
  fee for the successful closing of the BFI-OMEGA joint venture, of $325,000
  plus  the  granting of 250,000 options for the purchase of common stock of
  the  Company  exercisable at $3.00 per share.  In May 1997, the consulting
  agreement with Chesapeake was terminated by mutual consent.

  In  December,  1996,  the  Company  loaned  $150,000  to Mr. Javier Guerra
  Cisneros, a Director and Vice President of Mexico Operations.  The loan is
  collateralized   by  300,000  shares  of  stock  of  the  Company  and  is
  represented  by  a  promissory note bearing interest at 10%.  In February,
  Mr.  Guerra  repaid  $120,000  of  this  note.  The Board of Directors has
  extended repayment of the remaining balance until March 31, 1998.




  NOTE O - SEGMENT INFORMATION

  The  following  segment  information  is  provided  for  the Company s two
  primary  segments:    commercial insulation (located in the United States)
  and waste management (located in Mexico).

  Segments of Business by Industry

  <TABLE><S>                        <C>            <C>              <C>            <C>
                                         Year        Seven Months                Year
                                         Ended          Ended                    Ended
                                      December 31,   December 31,               May 31,
                                      ------------   ------------      --------------------------
                                          1997           1996             1996           1995
                                          ----           ----             ----           ----
   Gross sales
     Insulation                      $ 8,971,103     $5,518,606       $11,445,086    $15,723,915
     Waste management                  2,913,720        631,884         3,456,680      2,228,169
                                      ----------      ---------        ----------     ----------
          Total                       11,884,823      6,150,490        14,901,766     17,952,084
                                      ==========      =========        ==========     ==========
   Operating profit (loss)
     Insulation                          107,712        (20,867)         (853,919)       257,295
     Waste management                 (2,216,764)    (1,281,747)         (560,082)    (9,111,722)
     Corporate expense                (2,468,973)    (1,940,147)       (3,676,907)    (4,773,292)
                                      ----------      ---------        ----------     ----------
   Total                              (4,578,025)    (3,242,761)       (5,090,908)   (13,627,719)
   Interest expense, net                 (29,695)       (37,054)         (960,220)    (1,771,394)
   Other expense                          (2,413)             -                 -       (728,644)
                                      ----------      ---------        ----------     ----------
          Net Loss                   $(4,610,133)   $(3,279,815)      $(6,779,772)  $(15,399,113)
                                      ==========      =========        ==========     ==========
   Identifiable assets
     Insulation                      $ 2,247,331    $ 3,321,304       $ 3,264,649    $ 4,572,010
     Waste management                  8,436,379      6,899,214         6,962,264      4,808,400



                                                                F29<PAGE>






     Corporate                         2,501,863      4,710,934         7,475,120      1,329,807
                                      ----------      ---------        ----------     ----------
          Total                      $13,215,573    $14,931,452       $17,702,033    $10,710,217
                                      ==========      =========        ==========     ==========
   Capital expenditures
     Insulation                      $         -    $    31,028       $    29,792    $   489,915
     Waste management                    104,113        180,083           705,988      2,921,165
                                      ----------      ---------        ----------     ----------
          Total                      $   104,113    $   211,111       $   735,780    $ 3,411,080
                                      ==========      =========        ==========     ==========
   Depreciation and amortization
     Insulation                      $   235,045    $   132,026       $   154,555    $ 1,032,011
     Waste management                    283,661        150,542           205,087        223,105
                                      ----------      ---------        ----------     ----------
          Total                      $   518,706    $   282,568       $   359,642    $ 1,255,116
                                      ==========      =========        ==========     ==========
   </TABLE>


   NOTE P - UNAUDITED INTERIM INFORMATION

  The following condensed financial information for the twelve month and
  seven month periods ended December 31, 1997 and 1996 is unaudited and is
  being presented for comparative purposes.

  <TABLE><S>                                <C>         <C>             <C>           <C>
                                                 Twelve Months Ended          Seven Months Ended
                                                    December 31,                  December 31,
                                               -------------------------    ----------------------
                                                 1997          1996           1996          1995
                                                 ----          ----           ----          ----

   Revenues - Insulation Business            $8,971,103   $10,144,474     $5,518,606    $6,910,000
   Revenues - Waste Management                2,913,720     2,320,398        631,884     1,450,860

   Operating Loss - Insulation Business         107,712      (873,517)       (20,867)       (1,269)
   Operating Loss - Waste Management         (2,216,764)   (1,917,915)    (1,281,747)       76,086

   Corporate Expense                          2,468,973     3,828,047      1,940,147     1,789,007
   Interest Expense                              29,695       163,123         37,054       834,149
   Other Expense                                  2,413             -              -       728,644
                                             ----------    ----------     ----------    ----------
   Net Loss                                 $(4,610,133)  $(6,782,602)   $(3,279,815)   (3,276,983)
                                             ==========    ==========     ==========    ==========

   Net Loss Per Share - Basic and Diluted      $(.16)        $(.24)         $(.11)        $(.17)
                                                =====         =====          =====         =====
   </TABLE>







                                                                F30<PAGE>






                       SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


  <TABLE><S>                                    <C>          <C>          <C>         <C>           <C>            <C>
                                                                             Additions
                                                  Balance at   Charged to   Charged to                               Balance at
                                                  Beginning    Costs and      Other                                    End of
           Description                            Of period    Expenses     Accounts    Deductions      Other         Period
   ----------------------------------------      ----------    ----------   ----------   ----------   ------------   -----------

   Year ended December 31, 1997
   Deducted from asset accounts:
     Allowance for doubtful accounts               $67,972      $8,340      $38,018      $(31,416)     $ (888)(A)       $82,026
     Allowance for excess and 
       obsolete inventory                           25,289           0            0        (9,280)          0            16,009

   Seven months ended December 31, 1996
   Deducted from asset accounts:
     Allowance for doubtful accounts                66,566       4,044            0             0      (2,638)(A)        67,972
     Allowance for excess and 
       obsolete inventory                           25,000         289            0             0           0            25,289

   Year ended May 31, 1996
   Deducted from asset accounts:
     Allowance for doubtful accounts                44,480      30,894            0         6,521      (2,287)(A)        66,566
     Allowance for excess and 
       obsolete inventory                           25,000           0            0             0           0            25,000

   Year ended May 31, 1995
   Deducted from asset accounts:
     Allowance for doubtful accounts                72,983           0            0             0     (28,503)(B)        44,480
     Allowance for excess and 
       obsolete inventory                           25,000           0            0             0           0            25,000

   ------------------------------------

   (A) Exchange rate effect
   (B) Represents net change in valuation account

   </TABLE>