<PAGE> 1
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly Period Ended: June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-21953
ENVIRONMENTAL SAFEGUARDS, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0429198
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2600 West Loop South, Suite 645
Houston, Texas 77054
(Address of principal executive offices, including zip code)
(713) 641-3838
(Registrant's telephone number, including area code)
_________________
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
At July 29, 1997, 9,282,265 shares of common stock, $.001 par value,
were outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ]
No [x]
<PAGE> 2
Environmental SAFEGUARDS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements 3
Consolidated Condensed Interim Balance Sheets
as of June 30, 1997 and 1996 4
Consolidated Condensed Interim Statements
of Operations and Accumulated Deficit
for the three and six months
ended June 30, 1997 and 1996 5
Consolidated Condensed Interim Statements of
Cash Flows for the three and six months ended
June 30, 1997 and 1996 6
Selected Notes to Consolidated Condensed Interim
Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of Financial Condition and 13 - 16
Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
Exhibit 27 - Financial Data Schedule
</TABLE>
<PAGE> 3
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
----------
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(UNAUDITED)
3
<PAGE> 4
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM BALANCE SHEETS
JUNE 30, 1997 AND 1996
----------
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,427,529 $ 1,166,016
Accounts receivable from the Investee 68,258 --
Accounts receivable from the Joint Venture -- 53,155
----------- -----------
Total current assets 2,495,787 1,219,171
Property and equipment, net 3,534 14,915
Investment in the Joint Venture 3,069,663 524,812
Debt issuance costs -- 54,749
Other assets, net 1,554 925
----------- -----------
Total assets $ 5,570,538 $ 1,814,572
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 34,752 $ 129,664
Accounts payable to the Joint Venture 26,885 --
Accrued liabilities 31,486 --
----------- -----------
Total current liabilities 93,123 129,664
Long-term debt, including accrued interest
of $101,362 at June 30, 1997 3,101,362 --
Convertible debentures -- 1,110,000
Deferred gain 196,109 177,785
----------- -----------
Total liabilities 3,390,594 1,417,449
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock; $.001 par value, 50,000,000 shares authorized,
9,282,265 and 6,305,318 shares issued and outstanding
at June 30, 1997 and 1996, respectively 9,282 6,305
Unissued common stock 56,252 --
Additional paid-in capital 5,718,086 3,230,863
Accumulated deficit (3,603,676) (2,840,045)
----------- -----------
Total stockholders' equity 2,179,944 397,123
----------- -----------
Total liabilities and stockholders'
equity $ 5,570,538 $ 1,814,572
=========== ===========
</TABLE>
The accompanying selected notes are an integral part
of these condensed interim financial statements.
4
<PAGE> 5
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
----------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Income from investment in the
Joint Venture $ 82,221 $ 1,486 $ 83,764 $ 46,384
Interest income 30,320 -- 60,873 --
Other income 1,764 3,340 3,557 3,340
----------- ----------- ----------- -----------
Total income 114,305 4,826 148,194 49,724
----------- ----------- ----------- -----------
Costs and expenses:
Operational and general 53,087 5,154 165,230 147,915
Depreciation expenses 444 1,825 888 3,650
Interest expenses 48,541 681 128,744 2,927
----------- ----------- ----------- -----------
Total costs and expenses 102,072 7,660 294,862 154,492
----------- ----------- ----------- -----------
Income (loss) before extraordinary
gain on elimination of debt 12,233 (2,834) (146,668) (104,768)
Extraordinary gain on elimination
of debt, net -- 62,437 -- 74,035
----------- ----------- ----------- -----------
Net income (loss) 12,233 59,603 (146,668) (30,733)
Accumulated deficit at beginning of
period (3,615,909) (2,899,648) (3,457,008) (2,809,312)
----------- ----------- ----------- -----------
Accumulated deficit at end of period $(3,603,676) $(2,840,045) $(3,603,676) $(2,840,045)
=========== =========== =========== ===========
Weighted average shares outstanding 9,282,265 6,305,318 8,778,865 6,056,012
=========== =========== =========== ===========
Net income (loss) per common share
before extraordinary gain on
elimination of debt 0.00 0.01 (0.02) (0.02)
Extraordinary gain -- -- -- --
----------- ----------- ----------- -----------
Net loss per common share 0.00 0.01 (0.02) (0.02)
=========== =========== =========== ===========
</TABLE>
The accompanying selected notes are an integral part
of these condensed interim financial statements.
5
<PAGE> 6
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
----------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 12,233 $ 59,603 $ (146,668) $ (30,733)
Adjustment to reconcile net loss to net
cash used in operating activities:
Extraordinary gain on elimination of
debt -- (62,437) -- (74,035)
Common and preferred stock issued
in exchange for services -- -- -- 30,254
Income from investment in the Joint
Venture (82,221) (1,486) (83,764) (46,384)
Amortization of deferred gain (1,778) -- (3,557) --
Amortization of debt issuance costs -- -- 1,507 --
Amortization of debt discount -- -- 12,312 --
Depreciation expense 444 1,825 888 3,650
Changes in operating assets and
liabilities:
Increase (decrease) in accounts
receivable from the Investee (11,307) (53,155) (10,952) (53,155)
Increase in deposits (629) (925) (629) (925)
Decrease (increase) in accounts
payable (72,621) (16,192) 37,974 34,077
Decrease (increase) in accrued
liabilities 56,648 (30,316) 112,046 (32,316)
----------- ----------- ----------- -----------
Net cash used in operating
activities (99,231) (103,083) (80,843) (169,567)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Investment in the Joint Venture (100,000) 6,007 (1,050,000) (204,543)
Proceeds from sale of equipment -- 1,500 -- 1,500
Acquisition of other assets -- (54,749) -- (54,749)
----------- ----------- ----------- -----------
Net cash used in investing
activities (100,000) (47,242) (1,050,000) (257,792)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayment of notes payable -- -- -- (95,000)
Proceeds from sale of convertible
debentures -- 1,110,000 -- 1,110,000
Payment of stock issuance costs -- -- (9,928) --
Proceeds from sale of common stock -- -- 205,000 410,000
Repayment of long-term debt -- (6,013) -- (26,013)
----------- ----------- ----------- -----------
Net cash provided by financing
activities -- 1,103,987 195,072 1,398,987
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (199,231) 953,662 (935,771) 971,628
Cash and cash equivalents, beginning
of period 2,626,760 212,354 3,363,300 194,388
----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period $ 2,427,529 $ 1,166,016 $ 2,427,529 $ 1,166,016
=========== =========== =========== ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest expense $ -- $ 660 $ -- $ 4,989
=========== =========== =========== ===========
</TABLE>
The accompanying selected notes are an integral
part of these interim financial statements.
6
<PAGE> 7
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS
----------
(UNAUDITED)
1. ORGANIZATION:
Environmental Safeguards, Inc. ("ESI") was incorporated under the laws
of the state of Nevada on December 30, 1985 as Cape Cod Investment
Company. The Company adopted its present name on May 17, 1993
concurrently with its reverse acquisition of National Fuel and Energy,
Inc. ("NFE"), a Wyoming corporation. In these financial statements, the
Company and its wholly owned subsidiary, NFE, are collectively referred
to as the "Company".
The Company is engaged in the business of developing, marketing and
providing environmental reclamation/remediation technologies and
services. To date, the primary service offered by the Company has been
the reclamation/remediation of soil contaminated by oil based drilling
mud, fuel spills, leaking underground storage tanks and other sources of
hydrocarbon contamination. The Company's primary customers have
generally been energy companies operating in the Western United States;
however, the Company is making efforts to broaden the geographical scope
of its operations and is now operating three reclamation/remediation
units in South America, each under two year service contracts.
2. INTERIM FINANCIAL STATEMENTS:
The unaudited consolidated condensed interim financial statements have
been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and note disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant
to those rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. In the opinion of management, all adjustments necessary for
a fair presentation of results of operations have been made to the
interim financial statements. Results of operations for the three and six
month periods ended June 30, 1997 and June 30, 1996 are not necessarily
indicative of results of operations for the respective full years.
A summary of the Company's significant accounting policies and other
information necessary to understand these consolidated condensed interim
financial statements is presented in the Company's audited financial
statements for the years ended December 31, 1996 and 1995. Accordingly,
the Company's audited financial statements should be read in connection
with these financial statements.
Continued
7
<PAGE> 8
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
----------
(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE
Effective January 1, 1995, the Company entered into an exclusive
marketing agreement with Parker Drilling Company ("PDC") under which PDC
was appointed as the Company's sole marketing representative for the
Company's ITD services as they relate to reclamation of hydrocarbons
from drill cuttings. The geographical scope of the exclusive marketing
agreement extended to the continental United States and Alaska and many
countries which have significant energy-related industries.
Effective August 1, 1995, the Company and PDC entered into a joint
venture agreement (the "Agreement") to provide certain services
previously provided under the exclusive marketing agreement described in
the previous paragraph. Accordingly, Onsite Technology, L.L.C. (the
"Joint Venture") was formed under the Oklahoma Limited Liability Company
Act. Pursuant to the Agreement, as amended, the Company granted to the
Joint Venture certain exclusive licenses to use the technologies
included in the reclamation/remediation units and the proprietary
processes for on location soil reclamation/remediation in the United
States and in certain foreign countries. PDC has agreed to actively
market and promote the services of the Joint Venture through specific
actions described in the Agreement. Expenses associated with certain
promotional activities were borne by PDC until July 31, 1996 and
included in the operational and general expenses of the Joint Venture.
The Company intends to conduct all of its future business operations,
related to its ITD technology and related services through the Joint
Venture.
Under the terms of the Agreement the Company and PDC each own a 50%
interest in the assets, liabilities, capital and profits of the Joint
Venture. Each member initially made capital contributions of $1,000 to
the Joint Venture and have made additional contributions as needed
to enable the Joint Venture to conduct its business. The Joint Venture
will continue to operate until January 1, 2025, unless such date is
changed as provided for in the Agreement.
Following is summarized financial information of the Joint Venture as of
June 30, 1997 and 1996 and for the three and six months then ended:
Continued
8
<PAGE> 9
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
----------
(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE, CONTINUED:
<TABLE>
<CAPTION>
BALANCE SHEET
1997 1996
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash $1,179,060 $ 32,324
Accounts receivable, trade -- 105,550
Accounts receivable from the Company 26,885 --
Accounts receivable from the Investee 130,793 --
Other current assets 17,466 2,095
---------- ----------
Total current assets 1,354,204 139,969
---------- ----------
Due from the Investee 1,077,882 --
Property and equipment, net 2,953,464 1,057,639
Investment in the Investee 828,125 --
---------- ----------
Total assets $6,213,675 $1,197,608
========== ==========
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Accounts payable $ 61,849 $ 94,829
Accounts payable to the Company -- 53,155
Accrued liabilities 12,500 --
---------- ----------
Total current liabilities 74,349 147,984
Venturers' capital 6,139,376 1,049,624
---------- ----------
Total liabilities and venturers'
capital $6,213,675 $1,197,608
========== ==========
The Company's 50% share of the
capital of the Joint Venture $3,069,663 $ 524,812
========== ==========
</TABLE>
Continued
9
<PAGE> 10
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
----------
(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE, CONTINUED:
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income:
Service revenue $ 94,500 $181,150 $245,700 $415,200
Income from investment in
the Investee 133,176 -- 208,545 --
Interest income 59,988 -- 88,098 --
-------- -------- -------- --------
Total income 287,664 181,150 542,343 415,200
-------- -------- -------- --------
Costs and expenses:
Operating and general
expenses 84,458 141,388 297,543 249,932
Depreciation expense 38,763 36,790 77,272 72,500
-------- -------- -------- --------
Total costs and expenses 123,221 178,178 374,815 322,432
-------- -------- -------- --------
Net income $164,443 $ 2,972 $167,528 $ 92,768
======== ======== ======== ========
The Company's 50% equity in
income of the Joint Venture $ 82,221 $ 1,486 $ 83,764 $ 46,384
======== ======== ======== ========
</TABLE>
The Company must bear its share of liabilities entered into by the Joint
Venture and is subject to any liabilities that result from the
operations of the Joint Venture. Failure to meet such liabilities would
have a significant negative impact on the operations of the Company.
Continued
10
<PAGE> 11
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
----------
(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE, CONTINUED:
In November 1996, the Joint Venture entered into a joint venture, OnSite
Colombia, Inc., (the "Investee") with a group of South American
investors. The Investee was established to provide hydrocarbon
contaminated soil reclamation/remediation services in Colombia. The
Joint Venture owns a 50% interest in the assets, liabilities, capital
and profits of the Investee and, accordingly, the Company ultimately
participates on a 25% basis in the operations of the Investee. In
December 1996, the Joint Venture sold an ITD unit to the Investee for
$950,000 in a transaction that resulted in no gain or loss to the Joint
Venture. In March 1997, the Investee entered into a sales leaseback
transaction for this ITD unit and in April 1997 received $950,000 in
cash proceeds from the sale. However, due to the terms of the leaseback
transaction, no gain or loss was recognized on the sale. In April and
May of 1997, the Joint Venture delivered two additional units to the
Investee for a total cost of $2,155,764.
4. STOCKHOLDERS' EQUITY
In February 1997, the Company closed an exempt offering under Regulation
D of the Securities Act of 1933. The Company collected cash proceeds of
$833,500 for the issuance of 333,400 shares of common stock ($688,500
collected in 1996 and $145,000 in 1997).
In February 1997, the Company also completed a public registration of
2,304,792 shares of its common stock. The company's 10% convertible
debentures provide that they would be automatically converted into
shares of the Company's common stock upon the effective registration by
the Company of its common stock under the Securities Exchange Act of
1934 as amended. Of the 2,304,792 shares offered in the registration,
370,000 shares were outstanding at December 31, 1996 and the balance of
1,934,792 were issued in March 1997 pursuant to the conversion of the
10% debentures and payment of related accrued interest.
Continued
11
<PAGE> 12
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
----------
(UNAUDITED)
4. STOCKHOLDERS' EQUITY, CONTINUED
In June 1997, the Company issued PDC 50,000 warrants to acquire shares
of the Company's common stock at $2.50 per share. These warrants issued
under the Credit Agreement with PDC expire December 31, 1998.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The results of operations for the three and six months ended June 30, 1997
are not necessarily indicative of the results for future periods. The
following discussion should be read in conjunction with the unaudited
consolidated condensed interim financial statements and related notes thereto
included in this quarterly report and the audited Consolidated Financial
Statements and Managements Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company's 10KSB for the year ended
December 31, 1996.
OVERVIEW
Environmental Safeguards, Inc. is engaged in the development, production
and sale of environmental reclamation/remediation technologies and services.
Certain of the Company's technologies and services are provided through the
Company's fifty percent owned joint venture, OnSite Technology, L.L.C. (the
"Joint Venture") and the Company is devoting substantially all of its efforts
to the development of markets for the Joint Venture's services. The Joint
Venture is currently providing reclamation/remediation services to companies
engaged in land based oil and gas exploration. Such exploration often produces
significant quantities of petroleum contaminated drill cuttings from which the
Company's indirect thermal desorption ("ITD") units extract and recover the
hydrocarbons for further refining and produces soil which is remediated to
acceptable levels.
The Company intends to expand the activities of the Joint Venture to
include use of ITD technology to address hydrocarbon contamination problems at
both operating and abandoned oil and petrochemical refineries. However,
management believes that hydrocarbon contamination problems inherent in oil and
gas drilling activity continues to currently represent the most profitable
application of ITD technology and will provide the Company and the Joint
Venture increased market exposure and greater industry understanding and
acceptance of its technology.
QUARTERLY FLUCTUATIONS
The Joint Venture's revenues from its ITD Units may be affected
by the timing of deployment of ITD Units to customer drilling sites under
existing contracts and to the timing of obtaining new contracts. Accordingly,
the Company's quarterly results may fluctuate and the results of one fiscal
quarter should not be deemed to be representative of the results of any other
quarter or for the full fiscal year.
RESULTS OF OPERATIONS
NET INCOME
Overall net income was $12,233 for the three months ended June 30, 1997
as compared to $59,603 for the three months ended June 30, 1996 which was a
decrease of $47,370
13
<PAGE> 14
due primarily to the extraordinary gain from extinguishment of debt recognized
in 1996 and due to significant interest expense associated with $3,000,000 of
long-term debt funded in late 1996. Net loss for the six months ended June 30,
1997 was $146,668 as compared to a net loss of $30,733 for the six months ended
June 30, 1996, as a result of the same factors.
INCOME
The Company earned $82,221 on its investment in OnSite Technology, L.L.C.
(the "Joint Venture") during the three months ended June 30, 1997 as compared to
$1,486 during the three months ended June 30, 1996. This significant
improvement in income from the Joint Venture is due to improved profitability by
OnSite Columbia, a venture in which the Joint Venture participates on a 50%
basis, and due to the fact that in 1996 the Joint Venture was operating only one
ITD unit at a single customer site that provided an inconsistent supply of soil
for processing. The Joint Venture currently operates three units through OnSite
Colombia and expects to experience more consistent earnings. The Company's
earnings from the Joint Venture increased to $83,764 during the six months ended
June 30, 1997 as compared to $46,384 for the six months ended June 30, 1996.
Interest income of $30,320 and $60,873 during the three months and the
six months ended June 30, 1997, respectively, was due to the investment of
proceeds from long-term debt of $3,000,000 received in the fourth quarter of
1996 and investment of net proceeds of approximately $800,000 from the
Company's most recent Regulation D offering that closed in February 1997.
During similar periods of 1996 the Company had no excess cash to invest. The
proceeds from long-term debt and the Regulation D offering will eventually be
used to fund the Company's continuing operations and to meet potential
obligations for additional investment in the Joint Venture.
EXPENSES
Operating and general expenses of the Company were $53,087 during the
three months ended June 30, 1997 as compared to $5,154 during the three months
ended June 30, 1996. This increase is due to the addition of personnel to help
manage the Company's investment in the Joint Venture and due to a new
compensation package with the Company's Chief Executive Officer that began April
1, 1997, which increased compensation expense by $31,250 per quarter.
The Company's interest expense increased by $47,860 during the three months
ended June 30, 1997 as compared to the three months ended June 30, 1996. The
increase is the result of interest expense on $3,000,000 of long-term debt that
originated in December 1996. For the six months ended June 30, 1996 interest
expense increased by $125,817 as compared to the same period in the prior year.
This increase is related not only to the $3,000,000 of long term debt, but also
to $1,110,000 of 10% convertible debt that was converted to common stock in
February 1997.
EXTRAORDINARY ITEM
The extraordinary gain on elimination of debt of $62,437 and $74,035 in the
three months and the six months ended June 30, 1996, respectively, is of a
nonrecurring nature and, accordingly, there are no similar items in 1997.
14
<PAGE> 15
OPERATIONS OF ONSITE TECHNOLOGY, L.L.C.
The Joint Venture began operations in late November of 1995 and has had a
significant impact on the composition of revenue, costs and expenses of the
Company. At June 30, 1997 the Joint Venture is operating three ITD units
through the Joint Venture's 50% owned investment, OnSite Colombia, which began
operations in November 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Income from investment in the
OnSite Colombia $ 133,176 $ - $ 208,545 $ -
Interest income 59,988 - 88,098 -
Service revenue 94,500 181,150 245,700 415,200
---------- ---------- ---------- ----------
Total income 287,664 181,150 542,343 415,200
---------- ---------- ---------- ----------
Costs and expenses:
Operational and general 84,458 141,388 297,543 249,932
Depreciation expenses 38,763 36,790 77,272 72,500
---------- ---------- ---------- ----------
Total costs and expenses 123,221 178,178 374,815 322,432
---------- ---------- ---------- ----------
Net income (loss) $ 164,443 $ 2,972 $ 167,528 $ 92,768
========== ========== ========== ==========
The Company's 50% equity in
income of the Joint Venture $ 82,221 $ 1,486 $ 83,764 $ 46,384
========== ========== ========== ==========
</TABLE>
As shown by the results of the Joint Venture's operations, during the
three months and the six months ended June 30, 1997 the Joint Venture
experienced a decrease in service revenue when its job in Lysite, Wyoming was
completed. Furthermore, the additional cost associated with building a strong
management team and expenses incurred managing the Company's investment in the
Joint Venture caused the increase in operating and general expenses during the
six months ended June 30, 1997. The Joint Venture expects to increase
profitability through the deployment of its three additional new or refurbished
ITD Units under contracts now being negotiated and through higher utilization
rates on existing units.
In November 1996, the Joint Venture entered into a venture, OnSite
Colombia, with a group of South American investors. OnSite Colombia was
established to provide hydrocarbon contaminated soil reclamation services to
energy companies operating in Colombia. The Joint Venture owns a 50% interest
in the assets, liabilities, capital and profits of OnSite Colombia and,
accordingly, the Company ultimately participates on a 25% basis in the
operations of OnSite Colombia. In December 1996, OnSite sold its newest ITD
unit to OnSite colombia for $950,000 in a transaction that resulted in no gain
or loss to the Joint Venture. In April and May 1997, the Joint Venture sold
OnSite Colombia two additional units for $2,155,765. In order to improve cash
flow for the Joint Venture, OnSite Colombia negotiated a sales leaseback
transaction with a bank in order to repay the Joint Venture for one unit and is
currently negotiating a similar transaction for the second two units. The
three units currently employed in Colombia are all under two year contracts
that should further improve the operating results of OnSite Colombia and the
Joint Venture.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1997, the Company converted debt and related
accrued interest totaling $1,262,021 to equity and completed a Regulation D
offering of 333,400 shares of its common stock at $2.50 per share for proceeds
of $833,500. These transactions, along with the long-term debt proceeds
received by the Company in December 1996, should be adequate to fund the
Company's current operations and allow the Company to meet certain additional
obligations arising from the Joint Venture.
The Joint Venture currently has two new ITD units available for service, on
which contracts are currently being negotiated. A third ITD unit is undergoing
refurbishment after completion of a service contract and should soon be ready
for service. After these ITD units are employed, the Joint Venture anticipates
contracting for the manufacture of additional units. If the Joint Venture
contracts for a significant number of new ITD units, the Company may again be
faced with the need to raise additional funds for its share of the cost.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The Company is including the following cautionary statement in its Report
on Form 10QSB to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. The
Company's expectations, beliefs and projects are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: the ability
of the Company to attain widespread market acceptance of its technology; the
ability of the Company to obtain acceptable forms and amounts of financing to
fund planned expansion efforts; and the ability of the Company to maintain
acceptable utilization rates on its equipment. The Company disclaims any
obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
16
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION SB
(1) Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
On April 22, 1997 the Company filed a current report on Form 8-K
reporting (i) Other Events.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENVIRONMENTAL SAFEGUARDS, INC.
Date: July 30, 1997 By: /s/ James S. Percell
-------------------------------------
James S. Percell, President
By: /s/ Ronald L. Bianco
-------------------------------------
Ronald L. Bianco,
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
(1) Exibit 27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,427,529
<SECURITIES> 0
<RECEIVABLES> 68,258
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,495,787
<PP&E> 8,866
<DEPRECIATION> 5,332
<TOTAL-ASSETS> 5,570,538
<CURRENT-LIABILITIES> 93,123
<BONDS> 3,101,362
0
0
<COMMON> 9,282
<OTHER-SE> 2,170,662
<TOTAL-LIABILITY-AND-EQUITY> 5,570,538
<SALES> 0
<TOTAL-REVENUES> 114,305
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 53,531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,541
<INCOME-PRETAX> 12,233
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,233
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
