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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: March 31, 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 South Loop West, 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 May 9, 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
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets as of March 31, 1996
and March 31, 1997 (unaudited) 4
Consolidated Statements of Operations and Accumulated Deficit
for the three months ended March 31, 1996 and
March 31, 1997 (both unaudited) 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and March 31, 1997 (both unaudited) 6
Selected Notes to Consolidated Condensed Interim
Financial Statements 7-12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13-17
PART II - OTHER INFORMATION
Item 5. Other Information 18
Signature Page 19
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27--Financial Data Schedule
</TABLE>
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
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CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
(UNAUDITED)
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM BALANCE SHEETS
MARCH 31, 1997 AND 1996
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(UNAUDITED)
<TABLE>
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ASSETS 1997 1996
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Current assets:
Cash and cash equivalents $ 2,626,760 $ 212,354
Accounts receivable from the Investee 57,661 --
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Total current assets 2,684,421 212,354
Property and equipment, net 3,978 16,415
Investment in the Joint Venture 2,887,442 523,326
Debt issuance costs -- 54,749
Other assets, net 925 --
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Total assets $ 5,576,766 $ 806,844
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt $ -- $ 6,013
Accounts payable, trade 121,907 302,369
Accounts payable to the Joint Venture 12,351 162,416
Accrued liabilities 23,229 --
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Total current liabilities 157,487 470,798
Long-term debt, including accrued interest
of $53,681 at March 31, 1997 3,053,681 --
Deferred gain 197,887 --
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Total liabilities 3,409,055 470,798
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Commitments and contingencies
Stockholders' equity:
Common stock; $.001 par value, 50,000,000 shares authorized, 9,257,865 and
6,126,450 shares issued and outstanding at March 31,
1997 and 1996, respectively 9,258 6,126
Unissued common stock 147,252 306,695
Additional paid-in capital 5,627,110 2,923,698
Accumulated deficit (3,615,909) (2,900,473)
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Total stockholders' equity 2,167,711 336,046
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Total liabilities and stockholders'
equity $ 5,576,766 $ 806,844
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</TABLE>
The accompanying selected notes are an integral part
of these condensed interim financial statements.
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
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Income:
Interest income $ 30,553 $ --
Income from investment in the
Joint Venture 1,543 44,898
Other income 1,793 --
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Total income 33,889 44,898
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Costs and expenses:
Operational and general 112,143 112,507
Depreciation expenses 444 1,825
Interest expenses 80,203 2,246
Stock compensation -- 30,254
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Total costs and expenses 192,790 146,832
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Loss before extraordinary gain on elimination
of debt (158,901) (101,934)
Extraordinary gain on elimination of debt, net -- 11,598
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Net loss (158,901) (90,336)
Accumulated deficit at beginning of period (3,457,008) (2,810,137)
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Accumulated deficit at end of period $(3,615,909) $(2,900,473)
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Weighted average shares outstanding 9,224,532 5,819,478
=========== ===========
Net loss per common share before extra-
ordinary gain on elimination of debt (0.02) (0.02)
Extraordinary gain -- --
----------- -----------
Net loss per common share (0.02) (0.02)
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</TABLE>
The accompanying selected notes are an integral part
of these condensed interim financial statements.
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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(UNAUDITED)
<TABLE>
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1997 1996
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Cash flows from operating activities:
Net loss $ (158,901) $ (90,336)
Adjustment to reconcile net loss to net cash
used in operating activities:
Extraordinary gain on elimination of debt -- (11,598)
Common and preferred stock issued in exchange
for services -- 30,254
Income from investment in the Joint Venture (1,543) (44,898)
Amortization of deferred gain (1,779) --
Amortization of debt issuance costs 1,507 --
Amortization of debt discount 12,312 --
Depreciation expense 444 1,825
Changes in operating assets and liabilities:
Decrease in accounts receivable from the
Investee 355 --
Increase in accounts payable 110,595 50,269
Decrease (increase) in accrued liabilities 55,398 (2,000)
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Net cash used in operating activities 18,388 (66,484)
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Cash flows from investing activities:
Investment in the Joint Venture (950,000) (210,550)
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Net cash used in investing activities (950,000) (210,550)
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Cash flows from financing activities:
Repayment of notes payable -- (95,000)
Payment of stock issuance costs (9,928) --
Proceeds from sale of common stock 205,000 410,000
Repayment of long-term debt -- (20,000)
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Net cash provided by financing activities 195,072 295,000
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Net increase (decrease) in cash and cash equivalents (736,540) 17,966
Cash and cash equivalents, beginning of period 3,363,300 194,388
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Cash and cash equivalents, end of period $ 2,626,760 $ 212,354
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ -- $ 4,329
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</TABLE>
The accompanying selected notes are an integral part
of these interim financial statements.
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS
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(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 reclamation/remediation units in
South America.
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 month
periods ended March 31, 1997 and March 31, 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
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
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(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 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
will be 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 be required to make additional capital
contributions, if funds are 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
March 31, 1997 and 1996 and for the three months then ended:
Continued
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
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(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE, CONTINUED:
<TABLE>
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BALANCE SHEET
1997 1996
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ASSETS
Current assets:
Cash $ 151,001 $ 280,836
Accounts receivable, trade 75,600 100,800
Accounts receivable from the Company 12,351 162,416
Accounts receivable from the Investee 92,203 --
Other current assets 6,820 500
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Total current assets 337,975 544,552
Due from the Investee 950,000 --
Property and equipment, net 4,639,629 718,501
Investment in the Investee 156,008 --
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Total assets $6,083,612 $1,263,053
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LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Accounts payable $ 308,729 $ 43,810
Accounts payable to a related party -- 172,591
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Total current liabilities 308,729 216,401
Venturers' capital 5,774,883 1,046,652
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Total liabilities and venturers'
capital $6,083,612 $1,263,053
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The Company's 50% share of the
capital of the Joint Venture $2,887,442 $ 523,326
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</TABLE>
Continued
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
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(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE, CONTINUED:
<TABLE>
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STATEMENT OF OPERATIONS
1997 1996
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Income:
Service revenue $151,200 $234,050
Income from investment in OnSite
Colombia 75,369 --
Interest income 28,110 --
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Total income 254,679 234,050
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Costs and expenses:
Operating and general expenses 213,085 108,544
Depreciation expense 38,509 35,710
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Total costs and expenses 251,594 144,254
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Net income $ 3,085 $ 89,796
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The Company's 50% equity in income
of the Joint Venture $ 1,543 $ 44,898
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</TABLE>
The accounts payable to a related party at March 31, 1996 represents
amounts due to a subsidiary of PDC that constructed the Joint Venture's
first ITD unit.
In July 1996 the Joint Venture took delivery of an additional ITD unit
at an approximate manufactured cost of $950,000. In September 1996 the
Joint Venture awarded contracts for four additional units at a total
cost of approximately $4,000,000. Following is an analysis of the Joint
Venture's commitment at March 31, 1997:
<TABLE>
<S> <C>
Approximate amount of original commitment $4,000,000
Add increase for changes 257,000
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Adjusted commitment 4,257,000
Approximate amount paid to date 3,817,000
Approximate amount included in accounts
payable at March 31, 1997 250,000
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Remaining commitment at March 31, 1997 $ 190,000
==========
</TABLE>
Continued
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
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(UNAUDITED)
3. INVESTMENT IN JOINT VENTURE, CONTINUED:
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.
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.
4. COMMITMENTS
In March 1997, the Company entered into a three year employment
agreement with the Chief Executive Officer that provides for an annual
salary of $125,000 per year and includes provisions for incentive
bonuses.
Continued
11
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ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARY
SELECTED NOTES TO CONSOLIDATED CONDENSED
INTERIM FINANCIAL STATEMENTS, CONTINUED
----------
(UNAUDITED)
5. 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.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
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.
Certain of the statements contained in the body of this report are
forward-looking statements (rather than historical facts) that are subject to
risks and uncertainties that could cause results to differ materially from
those described in the forward-looking statements. Such forward-looking
statements are typically identified by statements to the effect that the
Company "believes", "estimates", "intends", "expects", or "anticipates" a
certain state of affairs. There are a number of important factors that could
cause the results of the Company to differ materially from such forward-looking
statements including: the Company's ability to attain widespread market
acceptance of its technology, the Company's ability to obtain acceptable forms
and amounts of financing to fund planned expansion efforts and the Company's
ability to maintain acceptable utilization rates on its equipment.
RESULTS OF OPERATIONS
GENERAL
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"). The environmental reclamation/remediation services provided
by the Company through the Joint Venture have, to date, involved the removal of
hydrocarbon contaminants from soil using indirect thermal desorption ("ITD")
remediation technology.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has operated with limited financial resources
and the Company believes that a lack of such resources has slowed the
commercialization of its ITD technology. The Company has relied almost
exclusively on private offerings of debt and equity securities for its
financial needs and such financial needs have increased dramatically since the
formation of the Joint Venture.
During the three months ended March 31, 1997 the Joint Venture took
delivery of two ITD Units, each costing approximately $1,100,000. Two additional
ITD units currently being built for the Joint Venture are expected to be
completed and delivered by June 30, 1997. During the three months ended March
31, 1997, the Company took two important steps that have strengthened its
financial
13
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position and cash flow and have allowed the Company to comfortably fund its
share of the cost of ITD units purchases by the Joint Venture, as follows:
o In February 1997 the Company closed a Regulation D offering of its common
stock at $2.50 per share through which the Company raised $833,500 before
offering costs involving the issuance of 333,400 shares. These funds have
been placed into the general working capital account of the Company.
o In February 1997 the Company also completed a public registration of
2,304,792 shares of its common stock that resulted in the automatic
conversion of the Company's 10% convertible debentures and related accrued
interest thereon. At February 22, 1997, the date of conversion, the
carrying value of the debentures was $1,166,312 and related accrued
interest was $95,709.
The Company is currently primarily dependent on the operations of the
Joint Venture for its future growth and success. During the three months ended
March 31, 1997, the Company contributed $950,000 to the Joint Venture to allow
the Joint Venture to continue expanding operations. The Company continues to
consider its most important function to be commercializing new environmental
technologies, expanding the market for the Joint Venture's technology and
raising capital to meet its obligations for new equipment in the Joint Venture.
In November 1996 the Joint Venture received a one year contract from a major
international energy company who is employing the Joint Venture's second and
third ITD Unit in Colombia through a new 50%-50% venture between the Joint
Venture and a group of South American investors. The new venture, OnSite
Colombia, is discussed below in Operations of OnSite Technology, L.L.C.. As
demand grows for the Joint Venturer's services, the Company may again be faced
with the need to raise additional funds for its share of the cost of more
units.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1996
The Company's net loss for the three months ended March 31, 1997 increased
by approximately $68,000 over the three months ended March 31, 1996 due
primarily to interest expense associated with convertible debentures (since
converted to equity in February 1997), partially offset by higher interest
income on investment of the proceeds.
Interest income was almost $31,000 during the three months ended March 31,
1997 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 the three months ended March 31, 1996, the
Company was in a tight cash flow position and 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 additional investment in
the Joint Venture.
The Company realized net income of $1,543 on its investment in the Joint
Venture during the three months ended March 31, 1997 as compared to income of
$44,898 during the quarter ended March 31, 1996. The Company's investment in
the Joint Venture is discussed in OPERATIONS OF ONSITE TECHNOLOGY, L.L.C.
below.
14
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Operating and general expenses of the Company were relatively constant
during the three months ended March 31, 1997 as compared to the three months
ended March 31, 1996 because they consist primarily of the relatively steady
cost to the Company of managing its investment in the Joint Venture. These
costs should be expected to rise in the subsequent quarters because the Company
has signed a three year employment contract with its Chief Executive Officer
that will increase compensation expenses by $125,000 per year; however,
payment of such compensation will not begin prior to the fourth quarter 1997.
The Company's interest expense increased by approximately $78,000 during
the quarter ended March 31, 1997 as compared to the quarter ended March 31,
1996. The increase is the result of interest expense on $1,110,000 of
convertible debentures and $3,000,000 long-term debt that originated in June
1996 and December 1996, respectively. Interest expense on the convertible
debentures will be eliminated in subsequent quarters because such debentures
were converted to common stock in February 1997.
Stock compensation of approximately $30,000 and extraordinary gain on
elimination of debt of approximately $12,000 during the three months ended
March 31, 1996 were not of a recurring nature and, accordingly, there are no
similar items of expense and income during the quarter ended March 31, 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. Management does not expect OnSite to be consistently profitable until
at least 3 - 4 ITD units are operational at favorable utilization rates. At
March 31, 1997 the Joint Venture has only one ITD unit in operation; however, a
second unit is being operated through the Joint Venture's 50% owned investment,
OnSite Colombia, which began operations in November 1996. In April 1997, a
third unit began operations through OnSite Colombia. The following reflects the
results of operations of the Joint Venture, including its investment in OnSite
Colombia:
15
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<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Income:
Service Revenues $151,200 $234,050
Income from Investment in OnSite Colombia 75,369 --
Interest income 28,110 --
-------- --------
Total income 254,679 234,050
-------- --------
Costs and Expenses:
Operating and general expenses 213,085 108,544
Depreciation expense 38,509 35,710
-------- --------
Total costs and expenses 251,594 144,254
-------- --------
Net income $ 3,085 $ 89,796
======== ========
</TABLE>
As shown by the results of the Joint Venture's operations, in the three
months ended March 31, 1997 the Joint Venture experienced a decrease in
profitability as a job was nearing completion due to a decline in the
hydrocarbon contaminated soil available for processing. 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 and impacted profitability. The
Joint Venture expects to increase profitability through employment of
additional ITD Units now being built and through higher utilization rates on
existing units.
In November 1996, the Joint Venture entered into a joint venture, OnSite
Colombia, with a group of South American investors. The Joint Venture 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 March 1997, 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 the unit.
The Joint Venture's contract with a major petroleum company operating in
Wyoming will terminate during the second quarter of 1997. Subsequent to the
completion of that contract, the ITD Unit being used in Wyoming will be
upgraded to match the capabilities of the Company's latest ITD Units. Due to
the positive performance of the ITD Unit in Colombia, during the quarter ended
March 31, 1997 the client initiated a two year contract for a second ITD Unit
and replaced the one year contract for the initial ITD Unit with a two year
contract. The Company is currently in negotiations to contract for the services
of a third ITD Unit for service in Colombia.
16
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TRENDS AND UNCERTAINTIES
The Joint Venture continues to receive strong interest through inquiries
for its remediation services. The Company believes there is a trend by major
petroleum industry participants to address past hydrocarbon contamination
problems and to prevent current contamination caused during exploration for,
and the production, refining, transportation, storage and distribution of
hydrocarbons. The Company believes that these environmental concerns, related
industry trends and governmental regulations will increase demand for the
Company's soil remediation technology. However, the Company is aware of
competing technologies and other companies that offer similar services. Some of
the competitors are well established companies with greater capital resources,
larger research and development staffs and greater marketing capabilities.
Also, the Company is aware of the inherent risks which it faces concerning
conducting operations in a foreign country and the possibility that its
technology may become obsolete. Furthermore, as the Joint Venture continues to
grow it will be necessary to acquire additional ITD Units. This expansion of
the capital equipment will necessitate further funding obligations on the
Company. Management is aware that the inability of the Company to raise its
share of the necessary funding for the Joint Venture's growth could adversely
effect the Company.
Although the Company has not yet achieved profitability, management
believes that environmental concerns by major petroleum companies and pressures
by the government(s) will continue to create opportunities for the Company's
technology, particularly as they relate to land based and offshore drilling
discharge.
17
<PAGE> 18
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On March 27, 1997 the Board of Directors of the Company entered into a
three year employment agreement with James S. Percell (the "Agreement") to
serve as its President and Chief Executive Officer. The Agreement has a
minimum three year term and provides for an annual salary of $125,000. The
Agreement also allows for an annual bonus, in the discretion of the Board of
Directors (excluding Mr. Percell), based upon the financial performance,
including evaluation of the income and earnings of the Company during the year.
The Agreement also provides for participation in all benefit plans maintained
by the Company for salaried employees.
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
(1) On April 22, 1997, The Company filed a current report on
Form 8-K regarding (i) Other Events.
18
<PAGE> 19
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: May 7, 1997 By: /s/ James S. Percell
---------------------------------
James S. Percell, President
By: /s/ Ronald L. Bianco
---------------------------------
Ronald L. Bianco, Chief Financial
Officer
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,626,760
<SECURITIES> 0
<RECEIVABLES> 57,661
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,684,421
<PP&E> 8,866
<DEPRECIATION> 4,888
<TOTAL-ASSETS> 5,576,764
<CURRENT-LIABILITIES> 157,487
<BONDS> 3,053,681
0
0
<COMMON> 9,258
<OTHER-SE> 2,158,451
<TOTAL-LIABILITY-AND-EQUITY> 5,576,764
<SALES> 0
<TOTAL-REVENUES> 33,889
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 112,587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,203
<INCOME-PRETAX> (158,901)
<INCOME-TAX> 0
<INCOME-CONTINUING> (158,901)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (158,901)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
