<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the Quarterly Period Ended: September 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)
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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 November 10, 1997, 9,282,265 shares of common stock, $.001 par value,
were outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [x]
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ENVIRONMENTAL SAFEGUARDS, INC.
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets as of September 30, 1997 and December 31,
1996 (unaudited) 4
Consolidated Statement of Operations for the three and nine months
ended September 30, 1997 and 1996 (unaudited) 5
Consolidated Condensed Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 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>
2
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
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CONSOLIDATED FINANCIAL STATEMENTS
for the three and nine months ended
September 30, 1997 and 1996
(Unaudited)
3
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- -----------
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,287,009 $ 3,363,300
Accounts receivable from the Investee 76,766 57,306
----------- -----------
Total current assets 2,363,775 3,420,606
Property and equipment, net 40,527 4,422
Investment in the Joint Venture 3,087,534 1,935,899
Other assets, net 22,177 120,060
----------- -----------
Total assets $ 5,514,013 $ 5,480,987
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 15,270 $ 10,405
Accounts payable to the Joint Venture 10,321 13,258
Accrued liabilities 71,898 41,946
----------- -----------
Total current liabilities 97,489 65,609
Convertible debentures -- 1,154,000
Long-term debt, including accrued interest
of $150,853 and $6,732 at September 30,
1997 and December 31, 1996, respectively 3,150,853 3,006,732
Deferred gain 194,330 199,666
----------- -----------
Total liabilities 3,442,672 4,426,007
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Commitments and contingencies
Stockholders' equity:
Common stock; $.001 par value, 50,000,000
shares authorized, 9,282,265 and
6,854,828 shares issued and outstanding at September 30,
1997 and December 31, 1996, respectively 9,282 6,855
Unissued common stock 56,252 812,585
Additional paid-in capital 5,718,086 3,692,548
Accumulated deficit (3,712,279) (3,457,008)
----------- -----------
Total stockholders' equity 2,071,341 1,054,980
----------- -----------
Total liabilities and stockholders'
equity $ 5,514,013 $ 5,480,987
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
4
<PAGE> 5
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
----------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income:
Income (loss) from investment in
the Joint Venture $ 17,871 $ (89,811) $ 101,635 $ (43,427)
Interest income 28,827 7,014 89,700 7,014
Other income 1,793 2,099 5,350 5,439
----------- ----------- ----------- -----------
Total income 48,491 (80,698) 196,685 (30,974)
----------- ----------- ----------- -----------
Costs and expenses:
Operational and general 97,286 353,181 262,516 501,096
Depreciation expenses 1,750 1,825 2,638 5,475
Interest expenses 58,058 60,597 186,802 63,524
----------- ----------- ----------- -----------
Total costs and expenses 157,094 415,603 451,956 570,095
----------- ----------- ----------- -----------
Loss before extraordinary gain
on elimination of debt (108,603) (496,301) (255,271) (601,069)
Extraordinary gain on elimination
of debt, net - - - 74,035
----------- ----------- ----------- -----------
Net loss $ (108,603) $ (496,301) $ (255,271) $ (527,034)
=========== =========== =========== ===========
Net loss per common share before
extraordinary gain on elimination
of debt $ (.01) $ (.08) $ (.03) $ (.10)
Extraordinary gain - - - .01
----------- ----------- ----------- -----------
Net loss per common share $ (.01) $ (0.08) $ (.03) $ (0.09)
=========== =========== =========== ===========
Weighted average shares outstanding 9,282,265 6,427,145 8,946,665 6,139,113
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
5
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
for the three and nine months ended September 30, 1997 and 1996
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<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Operating activities:
Net loss $ (255,271) $ (527,034)
Adjustment to reconcile net loss to net
cash used in operating activities 72,651 278,491
----------- -----------
Net cash used in operating
activities (182,620) (248,543)
----------- -----------
Investing activities:
Investment in the Joint Venture (1,050,000) (690,888)
Purchase of property and equipment (38,743) --
Proceeds from sale of equipment -- 4,526
----------- -----------
Net cash used in investing
activities (1,088,743) (686,362)
----------- -----------
Financing activities:
Repayment of notes payable -- (95,000)
Proceeds from sale of convertible
debentures -- 1,110,000
Payment of stock issuance costs (9,928) (54,749)
Proceeds from sale of common stock 205,000 600,500
Repayment of long-term debt -- (26,013)
----------- -----------
Net cash provided by financing
activities 195,072 1,534,738
----------- -----------
Net change in cash and cash equivalents (1,076,291) 599,833
Cash and cash equivalents, beginning
of period 3,363,300 194,388
----------- -----------
Cash and cash equivalents, end of
period $ 2,287,009 $ 794,221
=========== ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest expense $ - $ 4,989
========== ==========
</TABLE>
See accompanying notes.
6
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1997
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1. Interim Financial Statements:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and nine-month periods ended September
30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1996.
2. Description of the Business:
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.
Continued
7
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
SEPTEMBER 30, 1997
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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 Indirect Thermal Desorption ("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 may 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
September 30, 1997 and December 31, 1996 and for the three and nine
months ended September 30, 1997 and 1996:
Continued
8
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
SEPTEMBER 30, 1997
----------
3. Investment in Joint Venture, continued:
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------- ----------
Assets
<S> <C> <C>
Current assets:
Cash $1,131,204 $ 58,013
Accounts receivable, trade -- 25,200
Accounts receivable from the
Company 10,321 13,258
Accounts receivable from the
Investee 101,834 78,062
Other current assets -- 12,850
---------- ----------
Total current assets 1,243,359 187,383
Due from the Investee 1,077,882 950,000
Property and equipment, net 2,904,330 3,754,435
Investment in the Investee 1,020,478 80,639
---------- ----------
Total assets $6,246,049 $4,972,457
========== ==========
Liabilities and Venturers' Capital
Current liabilities:
Accounts payable $ 45,983 $1,100,659
Accrued liabilities 24,999 --
---------- ----------
Total current liabilities 70,982 1,100,659
Venturers' capital 6,175,067 3,871,798
---------- ----------
Total liabilities and venturers'
capital $6,246,049 $4,972,457
========== ==========
The Company's 50% share of the
capital of the Joint Venture $3,087,534 $1,935,899
========== ==========
</TABLE>
Continued
9
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
SEPTEMBER 30, 1997
----------
3. Investment in Joint Venture, continued:
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income:
Service revenue $ -- $ 51,150 $ 245,700 $ 466,350
Income from investment in
the Investee 205,720 -- 414,265 --
Interest income 34,052 -- 122,150 --
--------- --------- --------- ---------
Total income 239,772 51,150 782,115 466,350
--------- --------- --------- ---------
Costs and expenses:
Operating and general
expenses 164,788 193,594 462,331 443,526
Depreciation expense 39,243 37,178 116,515 109,678
--------- --------- --------- ---------
Total costs and expenses 204,031 230,772 578,846 553,204
--------- --------- --------- ---------
Net income (loss) $ 35,741 $(179,622) $ 203,269 $ (86,854)
========= ========= ========= =========
The Company's 50% equity in
income (loss) of the Joint
Venture $ 17,871 $ (89,811) $ 101,635 $ (43,427)
========= ========= ========= =========
</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
material adverse effect on the operations of the Company.
Continued
10
<PAGE> 11
f
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited), Continued
SEPTEMBER 30, 1997
----------
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 in a transaction that again resulted in no
gain or loss to the Joint Venture.
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 ($145,000 and
$688,500 collected in 1997 and 1996, respectively).
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
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
SEPTEMBER 30, 1997
----------
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.
In February 1997, the Financial Accounting Standards board issued
Statement No. 128, "Earnings Per Share", which the Company will be
required to adopt during the three-month period ending December 31, 1997.
The adoption of this statement is not expected to have a material effect
on the calculation of earnings per share.
5. Income Taxes:
Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Under this method,
deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Cumulative losses
since inception have created deferred tax assets of approximately
$880,000. A valuation allowance was established for the full amount of
these deferred tax assets because the future realization of the
cumulative tax benefit is not assured.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The results of operations for the three and nine months ended September 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 six current 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
The Company's net loss of $108,603 for the three months ended September 30,
1997 represents an improvement of $387,698 as compared to the net loss of
$496,301 for the three months ended
13
<PAGE> 14
September 30, 1996. The improvement is due primarily to the fact that the three
months ended September 30, 1996 included a charge of $312,500 for compensation
to a former contractor of the Company. The net loss for the nine months ended
September 30, 1997 of $255,271 is an improvement of $271,763 versus the net loss
of $527,034 for the nine months ended September 30, 1996, due primarily to the
same reason, with the impact partially offset by an extraordinary gain on
elimination of debt of $74,035 in 1996.
INCOME
The Company's income of $17,871 on its investment in OnSite Technology,
L.L.C. (the "Joint Venture") during the three months ended September 30, 1997
represents an improvement of $107,682 as compared to a loss of $89,811 during
the three months ended September 30, 1996. This improvement in results by the
Joint Venture is due to improved income generated 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 amounted to $101,635 during the nine months ended September 30, 1997, an
improvement of $145,062 as compared to a loss of $43,427 for the nine months
ended September 30, 1996 as a result of the additional units.
Interest income of $28,827 and $89,700 during the three months and the nine
months ended September 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 are now being used to fund the
Company's continuing operations and are available to meet potential obligations
for additional investment in the Joint Venture.
EXPENSES
Operating and general expenses of the Company were $97,286 during the three
months ended September 30, 1997 as compared to $353,181 during the three months
ended September 30, 1996. This $255,895 decrease is primarily due to the
inclusion of a $312,500 charge for common stock issued as compensation to a
former contractor for the Company in 1996, partially offset by additional
personnel needed to manage the Company's investment in the Joint Venture and
additional compensation for the Company's Chief Executive Officer.
During the nine months ended September 30, 1997 interest expense increased
by $123,278 as compared to the nine months ended September 30, 1996 due
primarily to interest expense at the rate of 6.3% per annum on $3,000,000 of
long term debt raised in December 1996.
14
<PAGE> 15
EXTRAORDINARY ITEM
The extraordinary gain on elimination of debt of $74,035 during the nine
months ended September 30, 1996 represented the settlement of old trade payables
of a nonrecurring nature and, accordingly, there was no similar item reported in
1997.
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. As of September 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income:
Service revenue $ -- $ 51,150 $ 245,700 $ 466,350
Income from investment in OnSite
Colombia 205,720 -- 414.265 --
Interest income 34,052 -- 122,150 --
--------- --------- --------- ---------
Total income 239,772 51,150 782,115 466,350
--------- --------- --------- ---------
Costs and expenses:
Operational and general 164,788 193,594 462,331 443,526
Depreciation expenses 39,243 37,178 116,515 109,678
--------- --------- --------- ---------
Total costs and expenses 204,031 230,772 578,846 553,204
--------- --------- --------- ---------
Net income (loss) $ 35,741 $(179,622) $ 203,269 $ (86,854)
========= ========= ========= =========
The Company's 50% equity in income
(loss) of the Joint Venture $ 17,871 $ (89,811) $ 101,635 $ (43,427)
========= ========= ========= =========
</TABLE>
As shown by the results of the Joint Venture's operations, during the nine
months ended September 30, 1997 the Joint Venture experienced a decrease in
service revenue when its project in Lysite, Wyoming was completed. The Joint
Venture expects to increase profitability through the additional deployment of
its two new and one 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 Joint Venture is
charging OnSite Colombia interest at 12% per year until repayment of the
purchase
15
<PAGE> 16
price is received. Such interest charges account for the interest income in the
three and nine months ended September 30, 1997. The three units employed in
Colombia are under two year contracts. As these contracts progress, they should
improve the operating results of OnSite Colombia and the Joint Venture.
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 $3,000,000 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 completing 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
(i) Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
(i) On August 7, 1997 the Company filed a current report on Form 8-K
relating to Item 5. Other Events.
(ii) On September 19, 1997 the Company filed a current report on Form
8-K relating to Item 4. Changes in Registrant's Certifying
Accountant.
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: November 11, 1997 By: /s/ James S. Percell
----------------------------------
James S. Percell, President
By: /s/ Ronald L. Bianco
----------------------------------
Ronald L. Bianco,
Chief Financial Officer
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,287,009
<SECURITIES> 0
<RECEIVABLES> 76,766
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,363,775
<PP&E> 47,609
<DEPRECIATION> 7,082
<TOTAL-ASSETS> 5,514,013
<CURRENT-LIABILITIES> 97,489
<BONDS> 3,150,853
0
0
<COMMON> 9,282
<OTHER-SE> 2,062,059
<TOTAL-LIABILITY-AND-EQUITY> 5,514,013
<SALES> 0
<TOTAL-REVENUES> 196,685
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 265,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,802
<INCOME-PRETAX> 255,271
<INCOME-TAX> 0
<INCOME-CONTINUING> 255,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255,271
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
