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, 1998

                          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 (949) 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)

                          -----------------------------
<PAGE>






             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   (   )

        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 15, 1999 was approximately $9,544,900, based
   upon  the  average  of  the  bid  and asked prices of the Common Stock, as
   reported on The Nasdaq Stock Market .

             The  number  of  shares  of  the  Common Stock of the registrant
   outstanding as of March 15, 1999 was 33,727,522. 

        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 1999
   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 profitably dispose of the Company s businesses
   in  Mexico,  the  outcome of the Company s NAFTA claim for damages against
   Mexico,  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 differ 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
   and  operation  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. ARI s headquarters are in Mexico City.

             Treatment and disposal operations have not progressed beyond the
   development   stage.  The  Company  s  completed  landfill  and  treatment
   facility,  known  as   El Confin , located in the State of San Luis Potosi
   has  not  been  allowed  by  the Mexican government to open and now is the

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   subject  of  the  Company  s  claim  under  the  North American Free Trade
   Agreement  (  NAFTA ).  See  Item 3 - Legal Proceedings  and Note C of the
   Financial Statements.

          Since 1997, the Company has been developing another waste treatment
   and  disposal facility in the State of Aguascalientes.  Construction began
   in  February  1998 but was interrupted in September 1998 by protestors and
   r e m a i n ed  inactive  through  year-end.    The  state  government  of
   Aguascalientes has been alternately willing and unwilling to enforce their
   laws and protect the Company s investment.  On October 1, 1998 the Company
   announced  that it would suspend further investment in Mexico and it would
   stop  further attempts to develop and construct the Aguascalientes project
   until  the  settlement  of  the  Company s NAFTA claim and until the state
   government  of  Aguascalientes demonstrated a willingness to enforce their
   laws and protect the Company s investment.  The project as of this writing
   is approximately 90% complete. 

             Another  expression  of  the  opposition  of the Mexican Federal
   Government  to  the  Company  and  its  projects  is  demonstrated  by the
   unwillingness  of  the federal development bank, Banco Nacional De Obras Y
   Servicios  Publicos,  S.N.C.  (BANOBRAS),  to  approve  financing  for the
   Company  s  project  in  Aguascalientes.   The Company received conceptual
   approval  for  financing in August 1997 and had expected final approval on
   February 25, 1998.  Because of a request made by a senior Mexican official
   the  bank  has  indicated  it would have to  review  our loan application.
   During  the  remainder  of  the  1998 the Company had no further word from
   BANOBRAS,  and has concluded that the bank has no serious interest in ever
   giving final approval to the Company s request for financing.

             Because  of these most recent experiences in Aguascalientes, and
   because  the  Mexican  Government has not shown any serious willingness to
   settle the Company s NAFTA claim short of final arbitration, on October 1,
   1998  the management of the Company committed to a plan to discontinue its
   Mexican  operations  and  to  seek  to  identify  potential buyers for its
   Mexican  business.    The  Company  s  Mexican  operations  are  now being
   classified  as  discontinued  operations,  held  for  sale.    The Company
   believes it will be able to complete a sale of its Mexican business during
   the  next  twelve months.  The Company is also considering the filing of a
   second  NAFTA claim concerning the Aguascalientes project, but has not yet
   determined a final course of action.

        Development activities in the past have been 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.    The  Company believes
   ECONSA  s  development activities have value to another company willing to
   complete the projects identified by ECONSA. 

          Insulation and Asbestos Abatement Contracting. Metalclad Insulation
   Corporation  provides  insulation  and  asbestos  abatement  services to a
   largely  industrial  clientele,  primarily on the West Coast.  The Company
   provides  labor and material supply services to a wide range of industrial

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   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 to other contractors.  A diverse list of clientele includes refineries,
   u t i lities,  chemical/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. ( El 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  (949) 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

           1.  Since the Company s decision to sell its businesses in Mexico,
   made  in  the  fourth  quarter  of  1998,  the Company has pursued several
   opportunities  and is currently negotiating with parties interested in the
   Company  s  businesses  in  Mexico.   The Company believes that it will be
   successful  in  concluding  its  activities  in Mexico in such a way as to
   obtain return of its investment and still not diminish the potential claim
   the  Company may have against Mexico for its interference in the Company s
   businesses there.   However, no assurances can be given that these efforts
   will be successful.

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            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 by filing a
    Counter-Memorial .  The Company filed a  Reply  brief on August 21, 1998.
   Mexico  must  now file its final brief known as a  Rejoinder  by April 19,
   1999.    The  Company  was  notified  on  March 5, 1999 that a pre-hearing
   conference  has  now  been  scheduled in Washington, D.C. for July 6, 1999
   with  the  final hearing on the case scheduled to take place on August 30,
   1999.    A  final  decision  by the tribunal is expected to follow shortly
   after the final hearing.

             3.  In March 1999 the Company accepted the resignations of three
   Directors  of  the Company, Messrs. Guerra, Morales, and Akle.  There were
   no  disputes  with  any of the resigning Directors but each felt unable to
   m a ke  further  contributions  to  the  Company  given  the  decision  to
   discontinue any further investments in Mexico.  Mr. Guerra will retain his
   position as the Director General of all Mexican operations.  

         4.  Three new Directors were appointed to the Board, effective March
   22,  1999, and all three, plus the two remaining directors, Messrs. Kesler
   and  Dabbene, have agreed to stand for election at the next annual meeting
   tentatively scheduled for June 2, 1999.  The three new directors are:

                   Raymond J. Pacini, President and CEO of California Coastal
   Committee.

            J. Thomas Talbot, owner of the Talbot Company.

             Bruce H. Haglund has previously served as a Director the Company
   and also serves as the Company s Secretary and General Counsel.

        5.  In December 1998, the Company made an offer to all holders of its
   warrants  containing anti-dilution provisions, including the provision for
   adjustment  of the number of underlying shares in the event of a reduction
   in  the  exercise price of its warrants.  The offer made was to freeze the
   number  of  underlying  shares  per warrant, calculated on the basis of an
   exercise  price  of  $1.25,  which  was  the  then current exercise price.
   Additionally,  the  Company  offered  to  reduce the exercise price of the
   resultant  number of underlying shares to $.35.  Lastly, for those holders
   of  warrants who chose to exercise their warrants by January 31, 1999, the
   Company  would  reduce  the  exercise  price  to $.25 and issue additional
   warrants equal to the number of shares acquired by exercise.  In exchange,
   the  anti-dilution  provisions  of the warrants were eliminated related to
   both  price  and  quantity  of  the  underlying shares going forward.  The
   Company  has  received acceptances from over 95% of the warrant holders to
   date.    The  results  of  this transaction are reflected in Note J to the
   accompanying financial statements.

   (c)  Financial Information About Industry Segments

         The Company, through MIC and MEC, is engaged in insulation services,

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   a s b estos  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,  had previously been reported as a separate industry segment
   for  1995,  1996  and  1997  and  is  now  being  reported as discontinued
   operations. 

   (d)  Narrative Description of Business

   Introduction

             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.

           During the fourth quarter of 1998, the Company determined that its
   efforts  at  building  its  business  in  Mexico  would  not be allowed to
   succeed.    The  Company  s  investment  in  El  Confin has resulted in an
   arbitration  under  the NAFTA treaty, its investment in Aguascalientes has
   been  blocked  just  prior  to  the  project  s  completion, and its other
   business  has  been  impacted  due  to  the loss of these projects and the
   synergy   they  would  have  provided.    Consequently,  the  Company  has
   determined  that  its  Mexican  businesses must be sold to minimize future
   losses  and  that  any further investment in Mexico should be halted.  The
   Company  will  retain  its investment in El Confin, with the operations of
   ARI and El Llano and the development activities of ECONSA held for sale as
   discontinued operations.

             Business  in the United States. Metalclad Insulation Corporation
   specializes in insulation and asbestos abatement services primarily 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  to  other  contractors.    A diverse list of
   clientele  includes  refineries, utilities, chemical/petrochemical plants,
   m a nufacturing  facilities,  commercial/manufacturing  installations  and
   buildings, and various government facilities.









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   Mexican Business

         Due to the Company s decision to discontinue its Mexican development
   and  operational businesses, the Company has no ongoing business in Mexico
   other  than the business being conducted by ARI.  It will continue to hold
   its  investment  in  the  subsidiaries  associated  with El Confin pending
   conclusion  of  the  ongoing NAFTA arbitration proceedings.  Its remaining
   businesses are being held for sale.

   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").

             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

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   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  that  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
   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

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   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 that 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
   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 int  venture  with  a  minority  service  firm,  which  qualifies  for

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   preferential contract bidding because of minority status, with the Company
   owning  a  49% interest in the 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 1999 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 that
   provide  integrated  services  and  many regional and local companies that
   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
   anticipates  that in the future its bids will continue to be competitively
   priced with bids submitted by others.

            Insurance and Bonding.  The Company's general liability insurance
   policy  provides  base  coverage  of  $1,000,000 per occurrence and excess
   liability  coverage  of  $10,000,000.  Additionally, the Company maintains
   separate  policies  for  contractor  pollution  coverage  in the amount 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

   <PAGE>                                    9
<PAGE>






   adequate  for  the  Company's  anticipated  future needs.  The Company has
   always  carried  insurance  for  liability  associated  with  the  sale of
   asbestos  bearing materials.  Because of the age of the Company there have
   been  several  different  insurance  carriers.  As  claims  are  made  for
   liability associated with asbestos those claims are managed by counsel for
   the Company and submitted to the appropriate insurance carrier for defense
   depending  upon  the  date the claim originated.  It has been more than 25
   years  since  the  Company  sold any asbestos bearing material.  Since the
   Company  has not yet exhausted more than 50% of the available coverage the
   Company  believes  that  there is adequate coverage and the Company has no
   material exposure to any future claims.

       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.


   <PAGE>                                    10
<PAGE>






          Backlog.  The Company's backlog for insulation services at December
   3 1 ,   1998,  and  December  31,  1997  was  $7,200,000  and  $5,500,000,
   respectively.    Backlog  is  calculated in terms of estimated revenues on
   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, 1998 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, 1998, the Company had a full-time
   staff  of  14 salaried employees, including one executive officer, project
   managers/estimators, purchasing, accounting, and office staff.

             As  of December 31, 1998, the Company employed approximately 104
   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 that 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 recent work
   stoppages due to strikes by such employees.  Additionally, the trade union
   agreements  the  Company is a party to include no strike, no work stoppage
   provisions.

   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:

   <TABLE><S>              <C>  <C>          <C>
                                 Director
                                or Officer
   Name                    Age     Since     Current Position with the Company
   ----                    ---  ----------   ----------------------------------------------
   Anthony C. Dabbene       47     1996      Chief Financial Officer, Director
   David Duclett            48     1989      President -  MIC/MEC
   Bruce H. Haglund         47     1983      Secretary, General Counsel, Director
   Grant S. Kesler          55     1991      President, Chief Executive Officer, Director
   Raymond J. Pacini        43     1999      Director 
   J. Thomas Talbot         63     1999      Director 
   Javier Guerra Cisneros   52     1994      Director General, Mexican Companies
   </TABLE>


   <PAGE>                                    11
<PAGE>






             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.

            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.  He  was appointed President in May
   1998. Mr. Duclett s main responsibility is to lead the Company and further
   the  objectives  of  the  Board  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.

             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  and again in 1999.  Mr. Haglund is a principal in the law firm
   of  Gibson,  Haglund  &  Johnson in Orange County, California where he has
   been  engaged  in  the  private  practice of law since 1980.  He is also a
   member  of  the  Boards  of  Directors  of  Aviation  Distributors,  Inc.,
   HydroMaid  International,  Inc.,  Renaissance  Golf  Products, Inc., Santa
   Barbara Restaurant Group, and VitriSeal, Inc.  

             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. 

           Raymond J. Pacini is the President, Chief Executive Officer, and a
   Director  of  California  Coastal  Communities,  Inc.  (formerly Koll Real
   Estate Group, Inc.), where he has been since 1990.

   J.  Thomas  Talbot  is  the owner of The Talbot company, an investment and
   asset management company.  Mr. Talbot has been the Chief Executive Officer
   of  HAL,  Inc.,  the  parent  company  of Hawaiian Airlines, and currently
   serves  on  the  boards of directors of The Hallwood Group, Inc., Fidelity
   National  Financial,  Inc.,  California Coastal Communities, Inc., and The
   Pacific Club.

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

   <PAGE>                                    12
<PAGE>






   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.  

   ITEM 2.  PROPERTIES

            The Company leases space for its offices and warehouse facilities
   under leases of varying terms at rentals aggregating approximately $14,650
   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  $5,850  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 that is leased at the current rate of $9,212
   per  month.    The  Anaheim  lease  expires  in  April and is currently in
   negotiations for renewal.

          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.

   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 300, the Company believes it has adequate
   insurance  in  place  and  had  adequate  insurance  in prior years and is
   vigorously  defending all claims.  The Company does not believe that these
   claims,  individually  or  in  the aggregate, will have a material adverse
   effect on its financial condition.  (See Note M.)

             In  May  1997, a jury found Texaco oil refinery, a client of the
   Company,  55%  liable  for  injuries  and damages sustained by a Metalclad
   Insulation  employee while working at the Wilmington, California refinery.
   The  jury determined that Texaco s portion of the damages amounted to $5.5
   million.    Under  terms  of  the  Company s contract with Texaco, certain
   indemnities  may be applied.  The Company had project specific, as well as
   other  insurance policies in effect at the time of the injury.  This award
   has  been  appealed and the ultimate outcome cannot be predicted; however,
   the  Company  maintained  separate,  project-specific  insurance coverage,
   which it believes is adequate to address any potential exposure.

   <PAGE>                                    13
<PAGE>






            On October 2, 1996, having completed a long period of negotiation
   with the Mexican government on the opening of its hazardous waste landfill
   in  San Luis Potosi, Mexico, the Company filed a Notice of Claim under the
   provision  of  the  North  American  Free Trade Agreement.  The notice was
   filed  with  the  International  Center  for  the Settlement of Investment
   Disputes  (ICSID)  in  Washington,  D.C. pursuant to the provisions of the
   NAFTA.    On  January 2, 1997, the Company filed its actual claim with the
   Tribunal, after which a three-member Tribunal was impaneled which includes
   one arbitrator from Mexico, one from the United States and a third, chosen
   jointly by the parties, from Great Britain.  The first hearing was held in
   Washington, D.C. on July 15, 1997 and a number of matters were agreed upon
   by  the  parties  and  a  significant amount of direction was given by the
   Tribunal to the proceedings that would move forward.  

          Pursuant to those understandings, the Company, on October 13, 1997,
   filed  its  Memorial,  which  included  the  Claim and all of the evidence
   supporting  the Claim, including expert witness studies and the like.  The
   b a sis  of  the  Company  s  claim  against  Mexico  is  one  likened  to
   expropriation.  The Company s position is since it is not being allowed to
   operate  a legally authorized project, it has in essence been taken by the
   Mexican  government  and they should, therefore, be responsible for paying
   fair  compensation  under  the  provision  of  the  NAFTA.   A fair market
   valuation  was  done  on behalf of the Company by an expert company, which
   indicated the fair market value of this business was $90,000,000.  

        On October 13, 1997, the Company filed its detailed memorial with the
   NAFTA  Tribunal,  hearing  the  Company  s claim related to its  El Confin
   facility.    On  February  17,  1998, the United Mexican States ( Mexico )
   responded  to the Company s claim to the Tribunal.  On August 21, 1998 the
   Company  filed  its Reply to Mexico and on April 19, 1999 Mexico is due to
   file  its rejoinder.  A pre-hearing conference has been scheduled for July
   6,  1999 with a final hearing date set for August 30, 1999.  A decision is
   expected shortly after the final hearing.  

          The Company has devoted substantial resources in the pursuit of its
   claim  before the NAFTA tribunal.  It has given counsel broad authority in
   the employment of experts and others it feels necessary to properly pursue
   the  Company  s  claim.    The  officers  of  the  Company have also spent
   substantial amounts of time and resources in assisting the Company s NAFTA
   counsel  and will continue to do so to completion.  There is no assurance,
   however,  that  the  Company will be successful.  If it is not, the impact
   will  be  material  and adverse (see Note C).  Management does not believe
   that  a  loss  of  its  arbitration case would cause the Company to become
   insolvent  or  prevent  it  from  conducting  its domestic business, or in
   making acquisitions or mergers with others in similar businesses seeking a
   public market.

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

        None.



   <PAGE>                                    14
<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 Stock 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:

   <TABLE>
   <S>                                           <C>         <C>
                                                     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   5/85    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
   3rd Fiscal Quarter  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

   Fiscal Year Ended December 31, 1998
   1st Fiscal Quarter Ended March 31, 1998       1   3/16    1  1/8
   2nd Fiscal Quarter Ended June 30, 1998        1   1/16    1  1/32
   3rd Fiscal Quarter Ended September 30, 1998      11/16       5/8
   4th Fiscal Quarter Ended December 31, 1998       13/32       3/8
   </TABLE>


        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  15,  1999,  the approximate number of record holders of the
   Company's Common Stock was 1,731.

   ITEM 6.  SELECTED FINANCIAL DATA

             The  following  selected  financial  data  is  derived  from the

   <PAGE>                                    15
<PAGE>






   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.  

   <TABLE>
    <S>                                     <C>           <C>         <C>           <C>          <C>          <C>
                                            Year          Year        7 Months      Year          Year         Year
                                            Ended         Ended         Ended       Ended         Ended        Ended
                                            Dec 31,       Dec 31,      Dec 31,      May 31,       May 31,      May 31,
                                           --------       -------      -------      -------      -------      -------
                                                            (in thousands, except per share amounts)
    Statement of Operations Data (1)

    Revenues from 
      continuing operations                $10,009        $8,971        $5,519      $11,445      $15,724      $16,249
    Loss from continuing operations         (2,477)       (2,299)       (1,807)      (5,630)      (6,287)      (1,449)
    Loss from discontinued operations (2)   (2,301)       (2,311)       (1,473)      (1,150)      (9,112)      (3,443)
    Net loss                                (4,778)       (4,610)       (3,280)      (6,780)     (15,399)      (4,892)

    Earnings per share:
    Net loss per common share, continued 
      operations - basic and diluted        $(0.08)        $(0.08)       $(0.06)      $(0.25)     $(0.46)       $(0.16)
    Net loss per common share,
      discontinued operations   basic 
      and diluted                           $(0.08)        $(0.08)       $(0.05)      $(0.05)     $(0.67)       $(0.40)


    Balance Sheet Data

    Total assets                            $9,050       $11,538       $14,931      $17,702      $10,710      $18,311
    Convertible long term notes              1,640         1,500             -            -        2,050        2,662
    Convertible debentures (3)               1,202            20           229          239        8,636        8,755

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

    (1)  In the fourth quarter of 1998, the Company committed to a plan to discontinue its operations in Mexico and to seek a
    buyer.  Consequently, the Statement of Operations Data has been restated to reflect this decision.

    (2)  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 

    (3)  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 years ended December
   31,  1998 or 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

   <PAGE>                                    16
<PAGE>






   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.

   Presentation of Financial Statements

             The financial statements of the Company reflect the Company s on
   g o i n g    business  in  the  insulation  contracting  segment  and  the
   discontinuance  of its waste management segment in Mexico.  The net assets
   of  the  Company  s  business in Mexico are now classified as discontinued
   operations,  with  the  Company  retaining  its interest in the  El Confin
   facility  pending  resolution  of  its  claim  under the NAFTA.  Financial
   statements  of  prior  periods have been restated to reflect the Company s
   decision to discontinue operations in Mexico.

        With the Company having significant financial transactions in Mexico,
   it  has  been  affected  by  the continued decline of the Mexico peso.  In
   November  1994,  the  value of the peso was 3.4 to the U.S. dollar.  As of
   December  31, 1998, the value of the peso was 9.85 to the U.S. dollar.  As
   of  December  31,  1998,  the  Company  has a foreign currency translation
   adjustment of $(2,140,110) in the equity section of its balance sheet.

   Results of Operations

   General.  Historically, the Company s revenues were generated primarily by
   (i)  revenues  in  the United States from insulation services and sales of
   insulation  products  and  related  materials; and (ii) revenues in Mexico
   from  the  collection  of waste oils and solvents for recycling, rental of
   parts  washing  machines,  brokering the disposal of waste and remediation
   services.  

         As discussed in Note B to the Consolidated Financial Statements, the
   Company committed to a plan to discontinue its operations in Mexico and to
   seek  a  buyer.  While no assurances can be made, it is anticipated that a
   sale  will  be  completed in fiscal 1999.  The following narrative details
   the Company s discontinued operations in Mexico and its ongoing Insulation
   Business.


                     Twelve Months Ended December 31, 1998 
                Compared to Twelve Months Ended December 31, 1997

             Insulation Business.  Total revenues were $10,009,000 in 1998 as
   compared  to  $8,971,000  for  1997, an increase of 12%.  This increase is
   attributed  to  work  performed  under  the  Company s various maintenance
   agreements,  particularly  with ARCO, and the Company s continuing efforts

   <PAGE>                                    17
<PAGE>






   in the commercial insulation market.

             Operating costs and expenses were $8,620,000 in 1998 compared to
   $7,686,000  in  1997 an increase of 12%, attributed to the increased level
   of direct costs associated with higher revenues.


           Selling, general and administrative expenses were $993,000 in 1998
   compared  to  $1,177,000  for  the same period in 1997, a decrease of 16%.
   This  decrease  reflects  the  full  year  results  of  the Company s cost
   reduction program, initiated in 1997.

          Discontinued Operations.  Loss from discontinued operations for the
   year  ended  December  31,  1998  was  $2,301,000  compared  to  a loss of
   $2,311,000  for  1997.    The  1998  loss  includes an accrual of $450,000
   associated  with  the decision to discontinue the Mexican waste management
   business.  Net of this accrual, losses for 1998 declined by 20% from 1997.

            Corporate Expense.  Corporate expenses were $2,685,000 in 1998 as
   compared  to  $2,469,000  for  1997,  an  increase  of  9%, reflecting the
   increased legal and consulting costs associated with the Company s ongoing
   NAFTA arbitration.

         Interest Expense.  Interest expense was $187,000 in 1998 compared to
   interest income of $62,000 for 1997, largely due to the Company s issuance
   of notes and debentures in 1998.

          Consolidated Results.  The net loss for the year ended December 31,
   1998 was $4,778,000 as compared to $4,610,000 for 1997, an increase of 4%.
   T h i s  increased  loss  is  attributable  to  accruals  associated  with
   discontinued  operations  in  Mexico and the costs to pursue the Company s
   NAFTA claim.


                     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

   <PAGE>                                    18
<PAGE>






   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.

             Discontinued  Operations.  Loss from discontinued operations was
   $2,311,000  in  1997  versus $1,918,000 in 1996.  The increase in loss was
   due  to  the  expenses associated with the Company s efforts in developing
   new  projects,  the write off of goodwill of approximately $71,000 and the
   expansion of ARI.

        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.

            Interest Expense.  Interest income from continuing operations was
   $62,000 as compared to interest expense of $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.

             Discontinued  Operations.  Loss from discontinued operations was
   $1,473,000  as  compared  to  income of $76,000 in 1995.  This increase in
   loss  was due in large part to the Company s commencement of the expansion
   of  ARI,  which was a joint venture with BFI in 1996, as well as the costs
   associated with the Company s project development activities.

             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

   <PAGE>                                    19
<PAGE>






   for certain ongoing litigation.

            Interest Expense.  Interest income from continuing operations was
   $154,000 for the seven months ended December 31, 1996 compared to interest
   expense of $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
   December  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.

   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  substantial capital.  To
   obtain  capital  for  the  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 August 1997, the Company initiated a warrant exchange program,
   wherein  investors  who  exercised  their  existing  warrants were granted
   additional  replacement  warrants.   Between August 1997 and October 1997,
   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 shares of common stock of the Company and the holder was
   also issued warrants to purchase common stock of the Company (see Note G).
   These  notes  are  secured  by  100%  of the stock of Metalclad Insulation
   Corporation.

             In  July  1998,  the Company issued $1,000,000 in 7% Convertible
   Debentures due in July 2001, netting the Company $875,000 (see Note H).

             In  August  1998, the Company issued $350,000 in 10% Convertible
   Subordinated  Debentures  due in August 2001, netting the Company $308,000
   (see Note H).


   <PAGE>                                    20
<PAGE>






            The Company had a working capital deficit at December 31, 1998 of
   $376,000  compared  to working capital of $1,914,000 at December 31, 1997.
   The Company had cash and cash equivalents at December 31, 1998 of $524,000
   and  $1,533,000  at December 31, 1997.  Cash used in continuing operations
   for  the  twelve months ended December 31, 1998 was $1,236,000 compared to
   $1,580,000  for 1997.  Cash used by discontinued operations for the twelve
   months  ended  December 31, 1998 was $1,012,000 compared to $1,944,000 for
   1997.    Cash  used  in  operating  activities for the twelve months ended
   December  31,  1998  was  funded primarily by cash and cash equivalents on
   hand  at  the  beginning  of the year as well as debt financings completed
   during  1998;  however, no assurances can be given that such funds will be
   available to the Company as required.

             The  Company believes that the insulation business will generate
   adequate  cash  flows  from  operations to meet its future obligations and
   expenses  relating  to  such  operations.  For the year ended December 31,
   1998  the  insulation  business  generated  cash  flow  from operations of
   $832,000.    The  Company will require substantial additional financing to
   continue  pursuit of its NAFTA claim, and complete the sale of its Mexican
   operations,   along  with  general  and  administrative  expenses  without
   revenues  to  offset  such expenses.  The Company is aware of its on going
   cash  needs  and  continues  to  work with its warrant holders, investment
   bankers  and other sources to meet its on going needs through December 31,
   1999.    Given the Company s decision to discontinue operations in Mexico,
   and sell its businesses, the cash requirements in Mexico greatly diminish.
   The  Company  believes  it will obtain the necessary funds to continue its
   planned operations throughout 1999.

   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  remaining
   operations.

   Year 2000 Issues

            During fiscal 1998, the Company initiated a plan to implement new
   business  information  systems,  which  will address all year 2000 issues.
   This plan included updating hardware and software necessary to comply with
   the issues associated with year 2000.  This implementation did not require

   <PAGE>                                    21
<PAGE>






   any significant capital expenditures during fiscal 1998 and no significant
   e x p enditures  are  anticipated  in  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 and all costs associated with the
   modifications  will  be  expensed.  To date, expenditures of approximately
   $40,000  have  been  made  and associated expenditures in 1999 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
   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

        On January 25, 1999, the Board of Directors approved the dismissal of
   its principal accountants, Arthur Andersen LLP and approved the engagement
   of  Moss Adams LLP as its new principal accountants.  During the Company s
   past two fiscal years, there were no disagreements between the Company and
   Arthur  Andersen LLP.  For the fiscal year ended December 31, 1997, Arthur
   Andersen s report on the financial statements of the Company was qualified
   relative to the Company s ability to continue as a going concern given its
   recurring losses and large accumulated deficit.

























   <PAGE>                                    22
<PAGE>






                                    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 1999 Annual Meeting Proxy Statement which will be filed
   with  the Securities and Exchange Commission not later than 120 days after
   December  31,  1999.    The Company's 1999 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 1999 Annual Meeting Proxy Statement which will be filed
   with  the Securities and Exchange Commission not later than 120 days after
   December  31,  1998.    The Company's 1999 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 1999 Annual Meeting Proxy Statement which will be filed
   with  the Securities and Exchange Commission not later than 120 days after
   December  31,  1998.    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
   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.
   Repayment of these notes has been extended until December 31, 1999.

         In June 1996, Mr. Neveau, Chairman of the board of Directors, Senior

   <PAGE>                                    23
<PAGE>






   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.  There are no remaining payments due Mr. Neveau
   and his indebtedness to the Company as of December 31, 1998 was $67,200.

        During the twelve months ended December 31, 1998, the Company accrued
   legal  fees  of $74,000 from the law firm of Gibson, Haglund & Johnson, of
   which  Bruce  H.  Haglund, general counsel, Director, and Secretary of the
   Company, is a principal; however, none of such fees have been paid.

             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.
   Repayment  of this note has been extended to the earlier of the completion
   of the sale of the Mexican operations or December 31, 1999.

































   <PAGE>                                    24
<PAGE>






                                     PART IV

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

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

        1  Financial Statements
           Reports of Independent Public Accountants
           Consolidated Balance Sheets
           Consolidated Statements of Operations
           Consolidated Statements of Shareholders' Equity 
           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:

          3.  Restated and Amended Certificate of Incorporation and Bylaws of
   the Company, and all amendments thereto(1)

              3.1  Form of Certificate for Common Stock (2)

             10.1  Form of 1993 Omnibus Stock Option and Incentive Plan (3)
    
             10.2  Form of 1993 Omnibus Stock Option and Incentive Plan (4)

             10.3  Employment Agreement between the Company and Grant S.
   Kesler dated January 1, 1998

             10.4  Employment Agreement between the Company and Anthony C.
   Dabbene dated January 1, 1998

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

        (1)  Filed with the Company s Annual Report on Form 10-K for the year
   ended December 31, 1997 and incorporated herein by this reference.
        (2)  Filed with the Company s Registration Statement on Form S-1
   dated December 15, 1987 and incorporated herein by this reference.
        (3)  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.
        (4)  Filed with the Company s Preliminary Proxy Statement dated
   September 10, 1996 ad incorporated herein by this reference.


   <PAGE>                                    25
<PAGE>






             10.5  Employment Agreement between the Company and Javier Guerra
   Cisneros dated January 1, 1998

             10.6  Purchase Agreement between the Company and Sundial
   International Fund Limited and Ultra Pacific Holdings S.A. dated December
   31, 1997

             10.7  Form of Common Stock Purchase Warrant between the Company
   and Sundial International Fund Limited and Ultra Pacific Holdings S.A.
   dated December 1, 1997

             10.8  Zero Coupon Secured Note between the Company and Sundial
   International Fund Limited dated December 31, 1997

             10.9  Pledge Agreement between the Company and Gilmartin, Poster
   & Shafto dated December 31, 1997

            10.10  Registration Rights Agreement between the Company and
   Sundial International Fund Limited and Ultra Pacific Holdings S.A. dated
   December 31, 1997

            10.11  Purchase Agreement between the Company and Ultra Pacific
   Holdings S.A. dated June 18, 1998

            10.12  Registration Rights Agreement between the Company and
   Sundial International Fund Limited and Ultra Pacific Holdings S.A. dated
   December 31, 1997

            10.13  Pledge Agreement between the Company and Gilmartin, Poster
   & Shafto dated June 18, 1998

             22.  List of Subsidiaries of the Registrant

             23.  Consents of Experts and Counsel
    
   (b)  Reports on Form 8-K

        A current report on Form 8-K was filed on February 1, 1999, reporting
   the change in the Company s accountants.  See Item 9,  Changes in and
   Disagreements with Accountants on Accounting and financial Disclosure .

                            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. 





   <PAGE>                                    26
<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: March 31, 1999


         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     March 31, 1999
   -----------------------     Director
   Grant S. Kesler             (Principal Executive Officer)

   /s/Anthony C. Dabbene       Chief Financial Officer and     March 31, 1999
   -----------------------     Director
   Anthony C. Dabbene          (Principal Financial and 
                               Accounting Officer)

   /s/Bruce H. Haglund         Secretary and Director          March 31, 1999
   ----------------------
   Bruce H. Haglund


   /s/J. Thomas Talbot         Director                        March 31, 1999
   ----------------------
   J. Thomas Talbot


   /s/Raymond J. Pacini        Director                        March 31, 1999
   ----------------------
   Raymond J. Pacini










   <PAGE>                                    27
<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 Moss Adams LLP......................................  F-1

       Report of Arthur Andersen LLP.................................  F-2


   Financial Statements:

       Consolidated Balance Sheets - December 31, 1998 and 1997......  F-3-4

       Consolidated Statements of Operations - the Years Ended 
       December 31, 1998 and 1997, Seven Months Ended December 31, 
       1996 and the Year Ended May 31, 1996..........................  F-5

       Consolidated Statements of Shareholders  Equity - the Years
       Ended December 31, 1998 and 1997, Seven Months Ended 
       December 31, 1996 and the Year Ended May 31, 1996.............  F-6-7

       Consolidated Statements of Cash Flows - the Years Ended 
       December 31, 1998 and 1997, Seven Months Ended December 31,
       1996 and the Year Ended May 31, 1996..................... ....  F-8-9

       Notes to Consolidated Financial Statements....................  F-10


   Supplementary Financial Statement Schedules:

       Schedule II - Valuation and Qualifying Accounts...............  F-25












   <PAGE>                                    28
<PAGE>






                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

   The Board of Directors and Shareholders of Metalclad Corporation:

   We  have  audited the accompanying consolidated balance sheet of Metalclad
   Corporation  (a  Delaware Corporation) and subsidiaries as of December 31,
   1998,  and the related consolidated statements of operations, shareholders
   equity  and  cash  flows  for  the  year  ended  December 31, 1998.  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 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 financial position of Metalclad Corporation
   and  subsidiaries  as  of  December  31,  1998,  and  the results of their
   operations  and  their  cash flows for the year ended December 31, 1998 in
   conformity with generally accepted accounting principles.

   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.

   Our  audit  was  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, 1998 has
   been  subjected  to  the  auditing  procedures applied in the audit of the
   basic  financial  statements  and,  in  our  opinion,  fairly state in all
   material  respects  the financial data required to be set forth therein in
   relation to the basic financial statements taken as a whole.

                                               /s/MOSS ADAMS LLP
   Costa Mesa, California
   March 24, 1999

   <PAGE>                                   F1
<PAGE>






   <TABLE><S><C>
                           REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

   The Board of Directors and Shareholders of 
   Metalclad Corporation:

   We  have audited the accompanying consolidated balance sheet of Metalclad Corporation (a
   Delaware  Corporation)  and  subsidiaries  as  of  December  31,  1997,  and the related
   consolidated  statements of operations, shareholders  equity and cash flows for the 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.

   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 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.

   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.

   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  has  been  subjected to the auditing procedures applied in the audits of the basic
   financial  statements  and,  in  our opinion, fairly states in all material respects the
   financial  data  required  to  be  set  forth therein in relation to the basic financial
   statements taken as a whole.

                                                 /s/ARTHUR ANDERSEN LLP
   Orange County, California
   April 15, 1998
   </TABLE>

   <PAGE>                                   F2
<PAGE>






                         Metalclad Corporation and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

   <TABLE><S>                                                                                <C>                <C>
                                                                                                       December 31,
                                                                                                   1998            1997
                                                                                             -------------    -------------
    ASSETS
    Current assets:
       Cash and cash equivalents                                                              $    523,953     $ 1,532,694
       Accounts receivable, less allowance for doubtful accounts of $133,868 at 
         December 1998, and $38,701 at December 1997                                               817,257       1,573,506
       Costs and estimated earnings in excess of billings on uncompleted contracts                 143,672         232,073
       Inventories                                                                                 176,697         161,241
       Prepaid expenses and other current assets                                                    58,813         141,838
       Receivables from related parties                                                            190,492         131,825
                                                                                                ----------      ----------
                 Total current assets                                                            1,910,884       3,773,177

    Property, plant and equipment, net                                                           4,631,097       4,424,864
    Net assets of discontinued operations                                                        1,754,677       2,467,440
    Goodwill, less accumulated amortization of $305,579 at December 1998, and
       $210,484 at December 1997                                                                   507,173         517,156
    Other assets                                                                                   245,834         355,857
                                                                                                ----------      ----------
                                                                                               $ 9,049,665     $11,538,494


























    <PAGE>                                   F3
<PAGE>






                                   Metalclad Corporation and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                                   (continued)

                                                                                                      December 31,
                                                                                                   1998            1997
                                                                                             -------------    -------------
    LIABILITIES AND SHAREHOLDERS  EQUITY

    Current liabilities:
       Accounts payable                                                                         $1,031,244      $1,105,705
       Accrued expenses                                                                          1,166,050         713,103
       Billings in excess of costs and estimated earnings on uncompleted contracts                  71,280          20,727
       Current portion of convertible subordinated debentures                                            -          19,533
       Current portion of long-term debt                                                            18,585               -
                                                                                                ----------      ----------
                Total current liabilities                                                        2,287,159       1,859,068

    Long-term debt, less current portion                                                            51,959               -
    Convertible long-term notes                                                                  1,640,000       1,500,000
    Convertible subordinated debentures                                                          1,201,547               -
                                                                                                ----------      ----------
                Total liabilities                                                                5,180,665       3,359,068
                                                                                                ----------      ----------

    Shareholders  equity :
       Preferred stock, par value $10; 1,500,000 shares authorized; none issued                          -               -
       Common stock, par value $.10; 80,000,000 shares authorized; 30,569,122, and
         30,063,870 issued and outstanding at December 1998 and 1997, respectively               3,056,912       3,006,387
       Additional paid-in capital                                                               57,404,880      56,962,689
       Accumulated deficit                                                                     (53,907,766)    (49,129,377)
    Officers  receivable collateralized by stock                                                  (544,906)       (520,163)
    Accumulated other comprehensive income                                                      (2,140,110)     (2,140,110)
                                                                                                ----------      ----------
                                                                                                 3,869,010       8,179,426
                                                                                                ----------      ----------
                                                                                               $ 9,049,665     $11,538,494












                          The accompanying notes are an integral part of these consolidated balance sheets.
    </TABLE>

    <PAGE>                                   F4
<PAGE>






                                   Metalclad Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS
   <TABLE><S>                                           <C>              <C>              <C>                <C>
                                                                                              Seven
                                                          Year Ended       Year Ended      Months Ended       Year Ended
                                                         December 31,     December 31,     December 31,         May 31,
                                                        ------------      -----------      -----------        ----------
                                                            1998              1997             1996              1996
                                                            ----              ----             ----              ----
    Revenues-Insulation
       Contract revenues                                 $9,912,194       $8,533,425       $ 5,380,297        $11,208,360
       Material sales                                        92,227          201,976           138,309            230,336
       Other                                                  4,250          235,702                 -              6,390
                                                          ---------        ---------        ----------         ----------
                                                         10,008,671        8,971,103         5,518,606         11,445,086
                                                          ---------        ---------        ----------         ----------
    Operating costs and expenses - Insulation
       Contract costs and expenses                        8,548,872        7,525,047         4,703,458         10,160,868
       Cost of material sales                                71,316          161,297           112,299            173,911
       Selling, general and administrative                  993,369        1,177,047           768,631          2,055,043
                                                          ---------        ---------        ----------         ----------
                                                          9,613,557        8,863,391         5,584,388         12,389,822
                                                          ---------        ---------        ----------         ----------
    Equity in earnings of unconsolidated affiliate                -                -            44,915             90,817
    Corporate expense                                    (2,685,199)      (2,468,973)       (1,940,147)        (3,676,907)
                                                          ---------        ---------        ----------         ----------
    Operating loss                                       (2,290,085)      (2,361,261)       (1,961,014)        (4,530,826)
    Interest income (expense)                              (187,011)          62,460           154,364           (370,556)
    Other expense                                                 -                -                 -            728,644
                                                          ---------        ---------        ----------         ----------
    Loss from continuing operations                      (2,477,096)      (2,298,801)       (1,806,650)        (5,630,026)

    Loss from discontinued operations                    (2,301,293)      (2,311,332)       (1,473,165)        (1,149,745)
                                                          ---------        ---------        ----------         ----------
    Net loss                                            $(4,778,389)     $(4,610,133)      $(3,279,815)       $(6,779,771)
                                                         ==========       ==========        ==========         ==========

    Weighted average number of common shares             30,362,765       29,438,062        28,910,449         22,770,516
                                                         ==========       ==========        ==========         ==========
    Loss per share of common stock, continuing 
       operations   basic and diluted                     $(.08)            $(.08)            $(.06)             $(.25)

    Loss per share of common stock, discontinued 
       operations   basic and diluted                     $(.08)            $(.08)            $(.05)             $(.05)

    Loss per share of common stock - basic and
       diluted                                            $(.16)            $(.16)            $(.11)             $(.30)
                                                           ====              ====              ====               ====

                            The accompanying notes are an integral part of these consolidated statements.
    </TABLE>

    <PAGE>                                   F5
<PAGE>






                                   Metalclad Corporation and Subsidiaries

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS  EQUITY

                  The Years Ended December 31, 1998 and 1997, 
                 the Seven Months Ended December 31, 1996, and 
                           the Year Ended May 31, 1996

   <TABLE><S>                         <C>           <C>         <C>          <C>           <C>         <C>          <C>
                                                                                                                        Total
                                                                                                         Accumulated    Share-
                                                                  Additional                               Other        holders 
                                            Common Stock           Paid-in    Accumulated    Officers   Comprehensive   Equity
                                        Shares       Amounts       Capital      Deficit     Receivable     Income      (Deficit)
                                       ----------   ----------    ----------   -----------  -----------  ----------   ---------- 
    Balance at May 31, 1995            15,885,628   $1,588,563   $29,044,185 $(34,583,992)   $(740,000) $(1,482,080) $(6,173,324)
    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)
    foreign currency translation 
      adjustment                      -            -                       -             -           -     (393,450)    (393,450)
    Net loss                                    -            -             -    (6,779,771)          -            -   (6,779,771)
                                       ----------   ---------    ----------   -----------   ----------   ----------  ----------
    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)
    Foreign currency 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 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
    Foreign currency translation 
       adjustment                               -           -             -             -            -       18,806       18,806
    Net loss                                    -           -             -    (4,610,133)           -            -   (4,610,133)

    <PAGE>                                   F6
<PAGE>






                                       ----------   ---------    ----------   -----------   ----------   ----------   ----------
                                   Metalclad Corporation and Subsidiaries

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS  EQUITY

                  The Years Ended December 31, 1998 and 1997, 
                 the Seven Months Ended December 31, 1996, and 
                           the Year Ended May 31, 1996
                                   (continued)


                                                                                                                       Total
                                                                                                         Accumulated    Share-
                                                                  Additional                               Other        holders 
                                            Common Stock           Paid-in    Accumulated    Officers   Comprehensive   Equity
                                        Shares       Amounts       Capital      Deficit     Receivable     Income      (Deficit)
                                       ----------   ----------    ----------   -----------  -----------  ----------   ----------
    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
    Issuance of common stock                6,752         675         7,765              -           -            -        8,440
    Common stock issued under stock
      option and warrants                 498,500      49,850       434,426              -           -            -      484,276
    Officers  loans; interest &
      repayments                                -           -             -             -      (24,743)           -      (24,743)
    Net loss                                    -           -             -    (4,778,389)           -            -   (4,778,389)
                                       ----------   ---------    ----------   -----------   ----------   ----------   ----------
    Balance at December 31, 1998       30,569,122  $3,056,912   $57,404,880  $(53,907,766)  $ (544,906) $(2,140,110)  $3,869,010
                                       ==========   =========    ==========   ===========    =========    =========    =========























                            The accompanying notes are an integral part of these consolidated statements.
    </TABLE>

    <PAGE>                                   F7
<PAGE>






                                   Metalclad Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

   <TABLE><S>                                            <C>             <C>              <C>                <C>
                                                                                              Seven
                                                           Year Ended      Year Ended      Months Ended       Year Ended
                                                          December 31,    December 31,     December 31,         May 31,
                                                         ------------     -----------      -----------       ------------
                                                             1998             1997             1996              1996
                                                             ----             ----             ----              ----
    Cash flows from operating activities:
    Net loss                                              $(4,778,389)   $(4,610,133)     $(3,279,815)       $(6,779,771)
       Adjustments to reconcile net loss to net 
         cash used in operating activities:
         Loss from discontinued operations                  2,301,293      2,311,332        1,473,165          1,149,745
         Depreciation and amortization                        128,921        235,045          132,026            154,555
         Provision for losses on accounts receivable           (8,907)             -           (4,572)            (6,522)
         (Equity) from unconsolidated affiliates                    -              -          (44,915)                 -
         Issuance of stock for services and interest            8,441        108,750                -            399,608
         Issuance of debenture for services and interest            -              -                -             39,323
         Debenture conversion expense                               -              -                -            728,644
         Write down of real estate held for sale                    -              -                -            130,415
         Changes in operating assets & liabilities:
         Decrease (increase) in accounts receivable           595,205        680,149         (409,140)           124,400
         Decrease (increase) in unbilled receivables           88,401        (57,305)        (118,396)           287,033
         Decrease (increase) in inventories                   (15,456)       152,916            7,725             42,730
         Decrease (increase) in prepaid expenses and 
           other assets                                        63,771        789,093         (902,600)           657,043
         Distributions from Curtom-Metalclad                         -        12,588           88,530             27,412
         Decrease (increase) in receivables from 
           related parties                                    (59,100)       108,554         (142,064)            97,914
         Increase (decrease) in accounts payable and
          accrued expenses                                    389,729     (1,287,517)         544,526           (539,972)
          Increase (decrease) in billings over cost            50,553        (24,741)         (24,289)           (44,060)
         Other                                                      -          1,164                -           (276,095)
                                                             --------       ---------        ---------          ---------
         Net cash used in continuing operations            (1,235,538)    (1,580,105)      (2,679,819)        (3,807,598)
         Net cash used in discontinued operations          (1,012,106)    (1,943,687)        (891,061)        (2,015,194)
                                                             --------      ---------        ---------          ---------
         Net cash used in operating activities             (2,247,644)    (3,523,792)      (3,570,880)        (5,822,792)
                                                             --------      ---------        ---------          ---------

    Cash flows from investing activities:
       Capital expenditures   continuing operations          (274,104)             -          (31,028)                 -
       Capital expenditures   discontinued operations        (388,940)      (705,240)      (1,205,078)        (2,089,752)
                                                             --------      ---------        ---------          ---------
       Net cash used in investing activities                 (663,044)      (705,240)      (1,236,106)        (2,089,752)
                                                             --------      ---------        ---------          ---------




    <PAGE>                                   F8
<PAGE>






                                                Metalclad Corporation and Subsidiaries

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                             (continued)
                                                                                              Seven
                                                           Year Ended      Year Ended      Months Ended       Year Ended
                                                          December 31,    December 31,     December 31,         May 31,
                                                         ------------     -----------      -----------       ------------
                                                             1998             1997             1996              1996
                                                             ----             ----             ----              ----
    Financing activities:
       Proceeds from long-term borrowings                   1,392,979      1,500,000                -                  -
       Payments on long-term borrowings   
         continued operations                                       -       (210,000)               -           (684,831)
       (Borrowings) repayments by officers, 
         secured by stock (net)                               (24,743)        56,477                -            180,808
       Proceeds from issuance of common stock                       -              -           13,512          8,864,862
       Proceeds from issuance of common stock 
        under stock option plans                              111,527              -          222,250          6,843,570
       Proceeds from exercise of warrants                     372,750      1,365,939          384,350                  -
                                                             --------      ---------        ---------          ---------
       Net cash provided (used) continuing operations       1,852,513      2,712,416          620,112         15,204,409
       Net cash provided (used) in discontinued 
        operations                                            120,391              -                -           (210,471)
                                                             --------      ---------        ---------          ---------
       Net cash provided by financing activities            1,972,904      2,712,416          620,112         14,993,938

    Effects of exchange rates on cash                         139,969        (22,672)         (83,088)          (118,443)
    Loss on foreign currency translations                    (210,926)        (2,413)               -                  -
                                                             --------      ---------        ---------          ---------
    Increase (decrease) in cash and cash 
      equivalents                                          (1,008,741)    (1,541,701)      (4,269,962)         6,962,951

    Cash and cash equivalents at beginning of period        1,532,694      3,074,395        7,344,357            381,406
                                                             --------      ---------        ---------          ---------
    Cash and cash equivalents at end of period             $  523,953     $1,532,694       $3,074,395         $7,344,357
                                                            =========     ==========       ==========         ==========
    Supplemental disclosures of cash flow information:
       Cash paid for interest                              $    1,603    $   114,820      $   211,537        $   951,968
                                                            =========     ==========       ==========         ==========
    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. 
    </TABLE>

   <PAGE>                                   F9
<PAGE>






   NOTE A   DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

   Description of Business

   Metalclad  Corporation  (the  Company ) is engaged in insulation services,
   including asbestos abatement and material sales, to customers primarily in
   California (the  Insulation Business ).  The Company has also been engaged
   in  the  development  of  hazardous  and  non-hazardous  industrial  waste
   treatment  and storage facilities, as well as the collection and recycling
   of  industrial  waste for disposition to landfills or as alternative fuels
   for cement kilns in Mexico (the  Mexican Business ).

   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 permitted and fully constructed landfill facility in the State
   of  San  Luis  Potosi,  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.  A final hearing on the Company s
   claim  has  been scheduled to commence on August 30, 1999, with a decision
   anticipated  shortly  thereafter.    The decision in the NAFTA arbitration
   will  be  material  to the Company, however, no assurances can be given of
   the Company being successful.

   Because  of  this  arbitration,  the Company s other businesses in Mexico,
   including  its  development  of a second landfill facility in the State of
   Aguascalientes,  have  been  impacted  dramatically.    Consequently,  the
   Company  is  discontinuing any further investment in Mexico and is seeking
   to sell its remaining businesses in Mexico.  (See Note B.)

   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 pursue its NAFTA claim, the sale of
   its  Mexican  businesses  and  to fund general and administrative expenses
   without  sufficient  revenues  to offset.  These matters raise substantial
   doubt  about  the  Company  s ability to continue as a going concern.  The
   Company  is  continuing  its  efforts  to  reduce costs and has halted any
   further  funding  for  development  in  Mexico.    The Company is pursuing
   additional  financing  alternatives  to  maintain its operations which may
   include  a  continuation  of  its warrant exchange program.  The financial
   s t a t e ments  to  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

   <PAGE>                                   F7
<PAGE>






   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

   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.

   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.

   Depreciation and Amortization

   Property,  plant  and  equipment  is  stated  at  cost.   Depreciation and
   amortization 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.

   Goodwill

   Goodwill  represents  the  excess  purchase  price  over the fair value of
   certain  landfill  assets  acquired in 1994 and is being amortized over 10
   years.  (See Note C.)

   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.

   Loss Per Share

   The Company computes loss per share in accordance with SFAS 128,  Earnings
   Per  Share  .   This statement requires the presentation of both basic and
   diluted  net  loss  per share for financial statement purposes.  Basic net
   loss   per  share  is  computed  by  dividing  loss  available  to  common
   stockholders  by the weighted average number of common shares outstanding.
   Diluted  net  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
   anti-dilutive,  there  is no difference between the loss per share amounts

   <PAGE>                                   F8
<PAGE>






   computed for basic and diluted purposes.

   Stock-Based Compensation

   Effective  June  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
   Income Taxes . 

   Comprehensive Income

   In  1998,  the Company adopted SFAS 130,  Reporting Comprehensive Income .
   This statement establishes rules for the reporting of comprehensive income
   and  its  components.    Comprehensive  income  consists of net income and
   f o reign  currency  translation  adjustments  and  is  presented  in  the
   Consolidated  Statement of Shareholders  Equity.  The adoption of SFAS 130
   had  no  impact  on  total  shareholders    equity.  Prior  year financial
   statements have been reclassified to conform to the SFAS 130 requirements.

   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 9.85 Mexican Pesos to the U.S. Dollar
   at December 31, 1998.  The resulting translation adjustments were recorded
   as a separate component of shareholders  equity.

   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.



   <PAGE>                                   F9
<PAGE>






   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   DISCONTINUED OPERATIONS

   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. ( El Llano ).

   During  the fourth quarter of 1998, management committed to a plan to sell
   its  Mexican  operations  to a third party.  Consequently, this segment of
   the  Company  s business is now being reported as discontinued operations.
   Although  the exact timing is difficult to predict, the Company expects to
   sell  its  interest  in  ARI, El Llano and ECONSA s development activities
   during fiscal year 1999.

   The  loss  from  discontinued  operations  during  fiscal  1998 includes a
   provision  for  anticipated  closing  costs  and  operating  losses  until
   disposal  of  $450,000.    Based  on  information currently available, the
   Company  does  not anticipate that it will incur a loss on the sale of the
   reported net assets of the discontinued operations.

   The consolidated financial statements for prior periods have been restated
   to reflect the accounting for discontinued operations.

   Net sales and loss from discontinued operations are as follows:

                           Year Ended   Year Ended  Seven Months  Year Ended
                          December 31, December 31, December 31,    May 31,
                              1998         1997         1996         1996
                          ------------ ------------ ------------  ----------

   Net Sales               $5,232,554   $4,704,674     $631,884   $3,456,680
   Operating loss          (1,885,680)  (2,219,177)  (1,281,747)    (560,082)
   Interest expense          (415,613)     (92,155)    (191,418)    (589,663)
                            ---------    ---------    ---------    ---------
   Loss from discontinued 
     operations           $(2,301,293) $(2,311,332) $(1,473,165) $(1,149,745)
                            =========    =========    =========    =========


   <PAGE>                                   F10
<PAGE>






   The net assets of discontinued operations are as follows:

                                         December 31,      December 31,
                                             1998              1997
                                             ----              ----

   Current assets                         $1,035,170        $1,465,676
   Property, plant and equipment, net      3,317,269         1,682,074
   Other assets                              709,682           996,769
   Current liabilities                    (3,307,444)       (1,677,079)
                                          ----------        ----------
   Net assets of discontinued 
      operations                          $1,754,677        $2,467,440
                                           =========         =========

   NOTE C - REALIZATION OF ASSETS

   The  Company  addresses  the realization of its assets as required by SFAS
   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

   Included  in  property,  plant and equipment, net at December 31, 1998, is
   approximately  $4,323,000  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  $507,000  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 filed a
   reply  brief  on  August  21,  1998  and  Mexico  is scheduled to file its
   response  on  April  19, 1999.  A final hearing on the issues is scheduled
   for  August  30,  1999.   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

   <PAGE>                                   F11
<PAGE>






   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 of the Company s NAFTA
   claim.    Based upon independent appraisal and management s best estimate,
   the  Company  believes  that  the  proceeds  from  the  NAFTA  claim  will
   significantly exceed the carrying value of the El Confin assets.  However,
   should  a  decision  be  rendered  against  the  Company,  assets totaling
   $4,830,000  may  be  impaired  and could potentially result in a write off
   should the Company be unable to sell or otherwise recover its investment.


   NOTE D - INVESTMENTS IN UNCONSOLIDATED AFFILIATES

   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,
                                            1998           1997
                                            ----           ----

   Cash                                  $   6,927      $  3,651
   Accounts receivable                     151,784       375,083
                                          --------      --------
   Total assets                           $158,711      $378,734
                                           =======       =======

   Accounts payable                       $151,088      $363,553
   Curtom-equity                             3,795         7,741
   Metalclad-equity                          3,828         7,440
                                           -------       -------
   Total liabilities and partners 
     capital                              $158,711      $378,734
                                           =======       =======









   <PAGE>                                   F12
<PAGE>






                            Statements of Operations
                                   (Unaudited)

                          Year        Year     Seven Months      Year
                          Ended       Ended        Ended         Ended
                         Dec. 31,    Dec. 31,     Dec. 31,      May 31,
                          1998        1997         1996          1996
                          ----        ----         ----          ----

   Revenue            $2,842,465   $3,679,907   $3,427,699   $1,417,601
   Costs of sales     (2,838,438)  (3,684,288)  (3,335,786)  (1,231,613)
   Expenses                    -       (1,255)        (904)        (646)
                       ---------    ---------    ---------    ---------
   Income from 
     operations       $    4,027   $   (5,636)  $   91,009   $  185,342
                       =========    =========    =========    =========


   NOTE E - PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment consists of the following:

                                       December 31,   December 31,
                                          1998            1997
                                          ----            ----

   Land & Buildings                   $   11,476      $  132,494
   Machinery & equipment                 525,766         551,895
   Automotive equipment                  216,330          80,975
   Leasehold improvements                  1,038           1,039
                                       ---------       ---------
                                         754,610         766,403
   Less accumulated depreciation 
     and amortization                   (446,400)       (458,967)
                                       ---------       ---------
                                         308,210         307,436
   Hazardous waste treatment 
     facilities                        4,322,887       4,117,428
                                       ---------       ---------
                                      $4,631,097      $4,424,864
                                       =========       =========












   <PAGE>                                   F13
<PAGE>






   NOTE F   ACCRUED EXPENSES

   Accrued expenses consist of the following:

                                         December 31,  December 31,
                                            1998           1997
                                            ----           ----

   Wages, bonuses and taxes             $  467,763      $125,521
   Union dues                               97,933       105,325
   Accounting fees                         112,700       120,000
   Other                                   487,654       362,257
                                         ---------       -------
                                        $1,166,050      $713,103
                                         =========       =======

   NOTE G   CONVERTIBLE LONG-TERM NOTES

   In  December  1997,  the  Company  issued $2,200,000 Five Year Zero Coupon
   Secured Notes, due December 31, 2002, netting the Company $1,500,000.  The
   Company is amortizing the difference between the value at maturity and the
   purchase  price  over  five years.  Upon the market price of the Company s
   common  stock  closing at or above $1.50 for ten consecutive trading days,
   the notes become convertible into common stock of the Company at $1.50 per
   share  and  the  Company is to issue warrants to purchase 1,500,000 common
   shares  of  stock.    Both the conversion price and warrant exercise price
   also  contain  anti-dilution  provisions.      Additionally, the notes are
   redeemable  at  the  option  of the holder, or the Company, any time after
   April 15, 1999.  These notes are secured by 100% of the stock of Metalclad
   Insulation  Corporation.   In February 1998, the conditions triggering the
   convertibility of the notes and the issuance of warrants were met.

   In  June  1998,  the  Company  registered a bridge loan with the holder of
   these  notes  in  the amount of $250,000.  As additional consideration for
   the bridge loan, the Company issued 250,000 warrants exercisable at $1.25.
   In  connection  with  this  financing, certain amendments were made to the
   original  Five  Year  Zero  Coupon  Notes  which  granted  the  holder  an
   additional  400,000 warrants exercisable at $1.50 and clarifying the anti-
   dilution  language  contained  in the original notes.  The bridge loan was
   paid  in  its  entirety  from  the  proceeds  of  the  Company s July 1998
   financing.    Due  to  the  anti-dilution provisions contained in both the
   notes  and  the  warrants, the holder of these notes had rights similar to
   those of the Company s existing warrant holders.  As part of the Company s
   negotiations  with  the warrant holders to solve the issue of the on going
   anti-dilution effects on the number of shares underlying the warrants, the
   holder  of these notes also had to be addressed to solve the anti-dilution
   provisions  contained in the notes.  In February 1999, the Company and the
   holder  reached agreement on the conversion price of the notes, originally
   priced  to convert at $1.50 per share, and are now convertible into shares
   of the Company s common stock at $.25 per share.



   <PAGE>                                   F14
<PAGE>






   NOTE H - CONVERTIBLE SUBORDINATED DEBENTURES

   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.
   All of these debentures have now either converted or have been retired.

   In  July  1998, the Company issued $1,000,000 in 7% Convertible Debentures
   due  in  July  2001.    The  debentures are convertible into shares of the
   Company common stock at $1.25 or 75% of current market price, whichever is
   lower.    The  Company  has  the  option to redeem all or portions of this
   debenture  at  125%  of  the  principal  amount  of  the  redemption.  The
   debenture  also allows for a mandatory redemption in the event of an award
   in  the  NAFTA  arbitration  or,  in certain cases, if the Company obtains
   additional equity investment.  The mandatory redemption is also at 125% of
   the  then-outstanding  principal  balance.   In February 1999, the Company
   redeemed $150,000 of the principal amount of the debentures.

   I n    August  1998,  the  Company  issued  $350,000  in  10%  Convertible
   S u bordinated  Debentures  due  in  August  2001.    The  debentures  are
   convertible  into  shares of the Company s common stock at $1.25 per share
   through  June  30, 1999.  After June 30, the debentures are convertible at
   75%  of  current market price or $1.25 whichever is lower.  The debentures
   are  also redeemable at the option of the company when the average closing
   bid  and  ask prices of the Company s common stock closes at prices higher
   than $3.00 per share for 20 days in any 30-day period.


   NOTE I - INCOME TAXES

   There  was  no provision for income taxes for the periods presented due to
   losses  incurred  and  the  Company  s inability to recognize certain loss
   carry  forwards.    The  major deferred tax items at December 31, 1998 and
   1997 are as follows:








   <PAGE>                                   F15
<PAGE>






                                         December 31,  December 31,
                                            1998           1997
                                            ----           ----
   Assets:
   Allowances established against 
     realization of certain assets       $   10,000    $   12,000
   Net operating loss carryforwards       8,878,800     8,144,416
   Accrued liabilities and other            206,165       139,200
                                          ---------     ---------
                                          9,094,965     8,295,616
   Valuation allowance                   (9,094,965)   (8,295,616)
                                          ---------     ---------
                                         $        -    $        -
                                          =========     =========

   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,  1998,  the  Company  has available for U.S. Federal and
   California  income  tax  purposes  net  operating  loss  carryforwards  of
   approximately   $19,000,000   and   $7,000,000,   respectively.      These
   carryforward  amounts  expire  in  the  years  2000  through 2018 and 1999
   through  2003,  respectfully.    At  December  31,  1998,  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
   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
   $6,000,000  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 2008.  

   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

   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, 1998, there were options
   outstanding under the 1992 Plan for 770,000 shares, and none 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, 1998, there were options outstanding under

   <PAGE>                                   F16
<PAGE>






   the  1993  Plan  for  674,500 shares, and 500 options available for grant.
   These options expire 10 years from the date of the grant.

   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, 1998 there were no options
   outstanding under this plan.

   During  the  year  ended December 31, 1998, the Board of Directors and its
   Compensation  Committee  approved the grant to various officers, directors
   and  employees  of  the  Company  of  options  to purchase an aggregate of
   2,463,000  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>      <C>          <C>       <C>          <C>          <C>
                                       Year Ended            Year Ended         Seven Months Ended          Year Ended
                                    December 31, 1998    December 31, 1997      December 31, 1996          May 31, 1996
                                    -----------------    -----------------      ------------------     -------------------
                                             Weighted             Weighted               Weighted                  Weighted
                                              Average              Average                Average                   Average
                                              Exercise             Exercise               Exercise                  Exercise
                                    Shares     Price     Shares     Price       Shares     Price         Shares      Price
                                 -----------   -----   -----------  -----     -----------  -----      -----------   -----
    Options outstanding at 
      beginning of the year      3,923,000    $2.23     4,848,250   $2.75     7,904,250    $3.07      4,487,500     $2.17
        Granted                  2,463,000     1.38       890,000    1.47       300,000     3.00      5,040,000      3.56
        Exercised                 (178,500)     .75             -       -      (161,000)    1.38     (1,547,000)     2.10
        Canceled                  (131,000)    2.09    (1,815,250)   3.25    (3,195,000)    3.63        (76,250)     2.25
                                 ---------     ----     ---------    ----     ---------     ----      ---------      ----
    Options outstanding at 
      end of the year            6,076,500    $1.93     3,923,000   $2.23     4,848,250    $2.75      7,904,250     $3.07
                                 =========     ====     =========    ====     =========     ====      =========      ====

    Options Exercisable          5,721,000              3,699,000             2,982,000               2,855,750
                                 =========              =========             =========               =========
    </TABLE>













    <PAGE>                                   F17
<PAGE>






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

                                       December      December      December
                                         1998          1997          1996
                                       --------      --------      --------

   Risk Free interest rate               6.00%         6.00%         6.10%
   Expected life                      1.5 years     1.31 years    1.2 years
   Expected volatility                   1.07         .9877          1.05
   Expected dividends                      -             -            -
   Weighted average fair value of 
     options granted                     .608          .615          3.36


   <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         exercise                 exercisable           exercise
    exercise prices        as of 12/31/98          life in years          price                 as of 12/31/98           price
    ---------------       ---------------         --------------       ---------                --------------         --------
    $0.560 - $1.438            613,000                 8.84             $1.0911                     559,000            $1.0682
    $1.500 - $1.500          2,036,500                 9.01             $1.5000                   1,835,000            $1.5000
    $1.625 - $1.625            500,000                 8.01             $1.6250                     500,000            $1.6250
    $2.250 - $2.250          2,207,000                 5.56             $2.2500                   2,107,000            $2.2500
    $2.500 - $3.000            580,000                 7.53             $2.8276                     580,000            $2.8276
    $3.625 - $3.625             50,000                 7.01             $3.6250                      50,000            $3.6250
    $4.500 - $4.500             90,000                 7.01             $4.5000                      90,000            $4.5000
    ---------------          ---------                 ----             -------                   ---------            -------
    $0.560 - $4.500          6,076,500                 7.47             $1.9301                   5,721,000            $1.9453
    ===============          =========                 ====             =======                   =========            =======
    </TABLE>
















   <PAGE>                                   F18
<PAGE>






   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.

                         Year         Year       Seven Months     Year
                         Ended        Ended         Ended         Ended
                        Dec. 31,     Dec. 31,      Dec. 31,      May 31,
                         1998         1997          1996          1996
                         ----         ----          ----          ----

   Net loss          $(4,778,389)  $(4,610,000)  $(3,280,000)  $(6,780,000)
   Pro forma 
     compensation
     expense          (1,497,000)     (547,000)     (355,000)   (1,023,000)
                       ---------     ---------     ---------     ---------
   Pro forma net
     loss            $(6,275,389)  $(5,157,000)  $(3,635,000)  $(7,803,000)
                      ==========    ==========    ==========    ==========

   Pro forma loss
     per share          $(.21)        $(.17)         $(.13)        $(.34)
                         ====          ====           ====          ====


   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 is as follows:
















   <PAGE>                                   F19
<PAGE>






   <TABLE><S>                                              <C>             <C>
                                                              Number         Price
                                                           of Warrants     Per Share
                                                           -----------     ---------

   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
   Issued                                                   2,568,400      1.25-1.50
   Exercised                                                 (320,000)        1.25
   Expired                                                   (221,000)     1.50-5.00
                                                            ---------      ---------
   Warrants outstanding at December 31, 1998                8,689,285    $1.25-$2.25
                                                            =========     ==========
   </TABLE>

   As  a result of the implementation of the ratchet clause contained in most
   of the warrants issued by the Company, the shares underlying the Company s
   warrants were increased significantly in 1999.. As a further result of the
   Company  s negotiations with its warrant holders, the ratchet effects have
   been frozen and are reflected in the following table as of March 15, 1999:

                                                 Underlying  Exercise Price
                                                   Shares       Per Share
                                                   ------       ---------
   Shares underlying the warrants at 
     December 31, 1998                           27,259,273    $.25-$2.25
   Shares issued from exercises                  (2,773,400)       .25
   Shares underlying new warrants issued          1,773,400        .35
                                                 ----------     ---------
   Total underlying shares of warrants 
     outstanding                                 26,259,273    $.25-$2.25
                                                 ==========     =========

   Common Stock

   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.


   During  the  year  ended  December  31,  1998,  the Company issued 505,252

   <PAGE>                                   F20
<PAGE>






   shares,  with 320,000 being the result of warrant exercises, 178,500 being
   from  the  exercise of warrants and 6,752 being for services.  The Company
   realized net proceeds of $484,000 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 years ended December 31, 1998 and 1997, the seven months
   ended December 31, 1996 or the year ended May 31, 1996, 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
   $222,443, $257,000, $127,000 and $296,000 for the years ended December 31,
   1998 and 1997, the seven months ended December 31, 1996 and for the fiscal
   year ended May 31, 1996, respectively.


   NOTE L - SIGNIFICANT CUSTOMERS

   Sales  for  the  twelve months ended December 31, 1998 to Curtom-Metalclad
   were approximately $3,136,000 representing work performed at Edison plants
   under the strategic alliance program.  Additionally, the Company had sales
   of  $3,776,000 to Arco and $1,357,000 to Equilon (formerly Texaco).  As of
   December  31,  1998,  the  Company  had  accounts  receivable from Curtom-
   Metalclad of $151,000, ARCO of $110,000, Edison of $177,000 and Equilon of
   $118,000.

   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.    The  Company  had  trade accounts receivable of $1,602,000 from
   Curtom-Metalclad as of December 31, 1996.

   S a l e s    to  Southern  California  Edison  and  Curtom-Metalclad  were
   approximately  $2,417,000  and $1,267,000, respectively, in the year ended
   May 31, 1996.



   <PAGE>                                   F21
<PAGE>






   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  $178,245, $307,839,  $168,722, and $404,647
   for  the  years  ended  December  31,  1998  and  1997, seven months ended
   December  31,  1996  and  for  the years ended May 31, 1996, respectively.
   Future  minimum  non-cancelable lease commitments (assuming renewal of the
   Anaheim lease) are as follows:

              Year ending December 31, 1999   $211,788
                                       2000    237,660
                                       2001    149,878
                                       2002     60,957
                                               -------
                                              $660,283
                                               =======

   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.  Presently, the number of these claims exceed 300.  The
   potential value of the claims is in the range of $1,000,000 to $5,500,000.
   t h e   Company  continues  to  have  adequate  insurance  coverages  with
   financially sound carriers responding to these claims and does not foresee
   any  financial  exposure  resulting  from  these  claims.   Throughout its
   history,  the  Company  has  maintained  insurance policies that typically
   respond  to  these  claims.    Based  on  the  advice  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.
















   <PAGE>                                   F22
<PAGE>






   NOTE N - RELATED PARTY TRANSACTIONS

   Receivables from related parties are comprised of the following :

                                     December 31,      December 31,
                                         1998              1997
                                     -----------       -----------
        Parc-Metalclad                $      -          $ 12,644
        Loans to executive officers,
          directors and employees      100,297           119,181
        Other                           90,195                 -
                                       -------           -------
                                      $190,492          $131,825
                                       =======           =======

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

   An  officer  and  director of the Company is a partner in a law firm which
   has  received  payments  for  legal  fees  of  approximately  $0, $47,000,
   $54,000,  and $283,000 for the years ended December 31, 1998 and 1997, the
   seven  months  ended  December  31,  1996 and the year ended May 31, 1996,
   respectively.

   During fiscal 1995 the Company loaned $370,000 each to Grant S. Kesler and
   T.  Daniel  Neveau, officers of the Company.  The loans are collateralized
   by  180,000  shares  of  common  stock  of the Company.  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 repayment of these notes has been extended until December 31, 1999.

   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
   1997, Mr. Guerra repaid $120,000 of this note.  The repayment of this note
   has  been  extended until the earlier of the Company s sale of its Mexican
   operations or December 31, 1999.

   NOTE O - UNAUDITED INTERIM INFORMATION

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





   <PAGE>                                   F23
<PAGE>







   <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(1)                              4,704,674       2,320,398          631,884        1,450,860

    Operating Income (Loss) - Insulation Business                 107,712        (873,517)         (20,867)          (1,269)
    Operating Loss - Waste Management(1)                       (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)
                                                                  ====            ====             ====              ====

    (1) The waste management business was discontinued in 1998.  See Note B.
    </TABLE>

























    <PAGE>                                   F24
<PAGE>






                                   Metalclad Corporation and Subsidiaries

                 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(A)     Period
       -------------                    ---------      ----------   ----------    ----------    --------   ----------

    Year ended December 31, 1998:
     Deducted from asset accounts:
      Allowance for doubtful accounts     $38,701       $95,167       $     0      $       0    $     0     $133,868
      Allowance for excess and 
       obsolete inventory                  16,009             0             0         11,009          0        5,000

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

    Year ended December 31, 1997:
     Deducted from asset accounts:
      Allowance for doubtful accounts     $67,972       $ 8,340       $38,018      $ (31,416)  $(44,213)(B)  $38,701
      Allowance for excess and 
       obsolete inventory                  25,289             0             0         (9,280)         0       16,009

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

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

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

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

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

    (A) Exchange rate effect
    (B) Includes adjustment for discontinued operations

    </TABLE>
   <PAGE>                                  F24