<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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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, 1998
[ ] 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 CORPORATE ISSUERS
On November 5, 1998, there were outstanding 9,591,444 shares of common
stock, $.001 par value.
<PAGE> 2
ENVIRONMENTAL SAFEGUARDS, INC. (the "Company")
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997
Consolidated Condensed Statements of Operations for the three
months and nine months ended September 30, 1998 and
1997
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997
Selected Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
The information required by this Item 1 is included in this
report as set forth in the "Contents" page.
ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED BALANCE SHEETS
----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED) (NOTE)
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,841 $ 6,686
Accounts receivable 2,837 1,554
Prepaid expenses 261 206
ITD Units and equipment held for sale 2,058 --
Deferred taxes 85 85
------------ ------------
Total current assets 10,082 8,531
Property and equipment, net 7,243 6,286
Acquired engineering design and
technology, net 2,936 3,242
Other assets 239 239
------------ ------------
Total assets $ 20,500 $ 18,298
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,311 $ 844
Current portion of capital lease
obligation 1,148 1,039
Accounts payable 754 480
Accrued liabilities 607 366
Income taxes payable 519 525
------------ ------------
Total current liabilities 5,339 3,254
Long-term debt 6,839 4,117
Capital lease obligation -- 1,093
Minority interest 679 628
Commitments and contingencies
Stockholders' equity:
Preferred stock; Series B convertible; voting,
$.001 par value (aggregate liquidation value -
$3,998,000); 5,000,000 shares authorized;
3,771,422 shares issued and outstanding 4 4
Preferred stock; Series C non-convertible,
non-voting, cumulative; $.001 par value
(aggregate liquidation value - $4,000,000);
400,000 shares authorized, issued and outstanding 1 1
Common stock; $.001 par value; 50,000,000 shares
authorized; 9,591,444 and 9,282,265 shares
issued and outstanding at September 30, 1998
and December 31, 1997, respectively 10 9
Unissued common stock -- 56
Additional paid-in capital 14,666 14,459
Accumulated deficit (7,038) (5,323)
------------ ------------
Total stockholders' equity 7,643 9,206
------------ ------------
Total liabilities and stockholders' equity $ 20,500 $ 18,298
============ ============
</TABLE>
Note: The consolidated balance sheet at December 31, 1997 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.
F-1
<PAGE> 4
ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Service revenue $ 2,281 $ 2,064 $ 7,147 $ 4,808
Cost of providing services 1,147 975 3,450 2,329
------- ------- ------- -------
Gross margin 1,134 1,089 3,697 2,479
Selling, general and administrative
expenses 998 513 2,718 1,249
Amortization of acquired engineering
design and technology 102 -- 306 --
------- ------- ------- -------
Income from operations 34 576 673 1,230
Other income (expenses):
Interest income 89 19 222 90
Interest expense (415) (58) (1,030) (187)
Foreign currency transaction losses -- -- -- 9
Other 9 -- 27 4
------- ------- ------- -------
Income (loss) before provision for
income taxes, minority interest,
elimination of pre-acquisition
earnings of subsidiary and extra-
ordinary item (283) 537 (108) 1,146
Provision for income taxes 482 441 917 905
------- ------- ------- -------
Income (loss) before minority interest
and elimination of pre-acquisition
earnings of subsidiary (765) 96 (1,025) 241
Minority interest and elimination of
pre-acquisition earnings of subsidiary (166) (204) (391) (496)
------- ------- ------- -------
Net loss $ (931) $ (108) $(1,416) $ (255)
======= ======= ======= =======
Net loss available to common
stockholders $(1,128) $ (108) $(1,999) $ (255)
======= ======= ======= =======
Basic and dilutive net loss per
common share $ (0.12) $ (0.01) $ (0.21) $ (0.03)
======= ======= ======= =======
Weighted average shares outstanding 9,545 9,282 9,400 8,946
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-2
<PAGE> 5
ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,416) $ (255)
Adjustment to reconcile net loss to net
cash provided (used) by operating activities (30) 483
------- -------
Net cash provided (used) by operating
activities (1,446) 228
------- -------
Cash flows from investing activities:
Purchase of property and equipment (3,756) (779)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 5,000 --
Proceeds from sale leaseback transaction -- 950
Payments on long-term debt (811) --
Payments on capital leases (984) (133)
Net proceeds from sale of common stock 152 205
------- -------
Net cash provided by financing
activities 3,357 1,022
------- -------
Net increase (decrease) in cash and cash
equivalents (1,845) 471
Cash and cash equivalents, beginning of
period 6,686 3,363
------- -------
Cash and cash equivalents, end of
period $ 4,841 $ 3,834
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 531 $ 60
======= =======
Cash paid for income taxes $ 923 $ 301
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 6
ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------
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-Q and
Article 10 of Regulation S-X. 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-month and nine-month periods ended
September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998. 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, 1997.
2. IMPACT OF THE ACQUISITION OF ONSITE TECHNOLOGY, L.L.C. ON THE
FINANCIAL STATEMENTS:
On December 17, 1997, the Company acquired Parker Drilling Company's 50%
interest in OnSite Technology, L.L.C. ("OnSite") and, accordingly, OnSite
became a wholly-owned consolidated subsidiary of the Company. Prior to
this transaction, the Company accounted for its 50% ownership interest in
OnSite on the equity method. This acquisition has been accounted for
using the purchase method of accounting and the results of operations and
cash flows of OnSite for the three months and nine months ended September
30, 1997 have been presented on a consolidated basis with a deduction in
the consolidated statement of operations for preacquisition earnings
attributable to Parker's interest prior to December 17, 1997.
3. ITD UNITS AND EQUIPMENT HELD FOR SALE:
ITD Units and equipment held for sale at September 30, 1998 consisting of
finished goods (one refurbished ITD Unit, one new ITD Unit and four new
pumps) are stated at the lower of cost or market value. Cost is
determined using the specific identification method.
Continued
F-4
<PAGE> 7
ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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4. LONG-TERM DEBT:
On June 22, 1998 the Company exercised its option to obtain an additional
$5 million working capital loan from the holders of the Investor Notes
(see Note 5 of the Company's consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB
for the year ended December 31, 1997). The additional loan results in an
increase in the required quarterly principal payment from $300,000 to
$577,000, plus interest. The Investor Notes, including the additional $5
million working capital loan, bear interest at a stated annual rate of
prime plus 1.5% through December 2002.
5. INCOME TAXES:
The Company consolidates its 50% owned subsidiary, OnSite Colombia, Inc.,
a Cayman Islands company that conducts operations in Colombia. The Cayman
Islands impose no income tax on such operations. However, the operations
in Colombia are subject to Colombian federal and local taxes.
Accordingly, the Company has included in its financial statements the
Colombian income tax expense related to such operations. The difference
between the Federal statutory income tax rate and the Company's effective
income tax rate is primarily attributable to Colombian income taxes and
increases in valuation allowances for deferred tax assets relating to
U.S. net operating losses.
6. EARNINGS PER SHARE:
For the three months and nine months ended September 30, 1998 and 1997,
due to the fact that the Company incurred net losses, all common stock
equivalents have been excluded from the calculation of earnings per share
because their effect is anti-dilutive. In future periods, the calculation
of diluted earnings per share may require that the common stock
equivalents (totaling 9,203,969 shares at September 30, 1998) be included
in the calculation of the weighted average shares outstanding for periods
in which net income is reported, using the treasury stock method.
Following is the reconciliation of net loss to the net loss available to
common stockholders.
Continued
F-5
<PAGE> 8
ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------
6. EARNINGS PER SHARE, CONTINUED:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
------- ------- ------- -----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net loss $ (931) $ (108) $(1,416) $ (255)
Less: Series C Preferred
stock dividends (103) -- (301) --
Accretion of discount
on Class C preferred
stock (94) -- (282) --
------- ------- ------- -------
Net loss available
to common stockholders $(1,128) $ (108) $(1,999) $ (255)
======= ======= ======= =======
</TABLE>
F-6
<PAGE> 9
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 financial statements and related notes thereto
included in this quarterly report and in the audited consolidated Financial
Statements and Managements Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contained in the Company's 10KSB for the year
ended December 31, 1997. Certain statements in the following MD&A are forward
looking statements. Words such as "expects", "anticipates", "estimates" and
similar expressions are intended to identify forward looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
are set forth below and under "Information Regarding and Factors Affecting
Forward Looking Statements".
OVERVIEW
Using patented technology and equipment, the Company is engaged in the
development, production, leasing and sale of environmental reclamation and
recycling technologies, systems and services which reclaim
hydrocarbon-contaminants from soil and recycle the hydrocarbon liquids for
re-use. The Company currently offers these technologies, systems and services to
companies engaged in land-based oil and gas exploration, and to offshore
applications where drill cuttings are barged to an accessible land-based
facility for remediation and recycling. Oil and gas exploration often produces
significant quantities of petroleum-contaminated drill cuttings, from which the
Company's proprietary Indirect Thermal Desorption ("ITD") Series 6000 Mobile Oil
Recovery Systems can extract and recover the hydrocarbons as re-useable liquids,
and produce recycled soil compliant with environmental regulations.
The Company has generated a substantial portion of its revenues from
major oil and gas industry participants operating in the U.S.A and in the
Republic of Colombia. The Company anticipates that its most likely future
geographic markets will be Venezuela, Mexico, Canada, other Western Hemisphere
countries, the Middle East, the North Sea and Europe. In addition, the Company
intends to expand the activities of OnSite to include use of ITD technology to
address hydrocarbon contamination problems and hydrocarbon recycling and
reclamation opportunities at heavy industrial, refining and petrochemical sites,
as well as the clean up of Superfund, Department of Defense, Department of
Energy and any other hazardous waste sites.
The Company's present fleet of seven ITD 6000 Systems consists of five
systems owned directly by the Company, plus two systems owned by a consolidated
affiliate of the Company, OnSite Colombia, in which the Company holds a 50%
interest. Two of the seven systems are held in inventory for sale to potential
Joint Venture partners or third-party buyers in non-core geographic markets. In
addition to the seven systems which are either under contract or soon to be
available for service or sale, the Company has another three systems in various
stages of fabrication, commissioning or routine maintenance. The Company
believes these three systems will be available for service or sale by year-end,
but there can be no assurances that these will be delivered, fully commissioned,
in the timeframe indicated.
QUARTERLY FLUCTUATIONS
The Company's revenues may be affected by the timing and deployment of its
ITD systems to customer drilling sites under existing contracts, and by 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
indicative of the results of any other quarter, or for the full fiscal year.
<PAGE> 10
RESULTS OF OPERATIONS
The Company's consolidated operating results have been significantly
affected by the acquisition of the remaining 50% interest in OnSite. In order to
provide a more meaningful period-to-period comparison of the Company's
operations, the results for the comparative periods of 1997 have been presented
on a consolidated basis, with a deduction in the consolidated statement of
operations for pre-acquisition earnings attributed to Parker Drilling Company's
interest prior to December 17, 1997. This change from the equity method to the
consolidated method of accounting for the Company's investment in OnSite did not
have an effect on net income.
For the three months ended September 30, 1998, the Company reported a loss
of $931,000 as compared to a net loss of $108,000 for the corresponding quarter
in 1997. The increase in net loss was primarily due to a $357,000 increase in
interest expense, additional amortization expense of $102,000 associated with
the acquisition of Onsite and higher SG&A expense due to additional personnel
and increased business activity in general.
For the nine months ended September 30, 1998, the Company reported a net
loss of $1,416,000 versus a loss of $255,000 for the corresponding nine months
in 1997. The increase in net loss was primarily due to an $843,000 increase in
interest expense, additional amortization expense of $306,000 associated with
the acquisition of OnSite and higher SG&A expense as described above. These
factors were partly offset by the favorable operating income effect of
approximately two more ITD Units in service versus 1997.
Additional line-by-line analysis for the three months and nine months ended
September 30, 1998 and 1997 follows:
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues and Gross Margin. Service revenue of $2.3 million produced $1.1
million (50% of revenue) gross margin in 1998 as compared to service revenue of
$2.1 million and gross margin of $1.1 million (53% of revenue) for the
comparable quarter in 1997. The 3% lower gross margin ratio was mainly due to
technology upgrades to ITD equipment and one-time permitting expenses in this
quarter. Essentially three ITD systems were in service in each of the
comparative quarters.
Selling, General and Administrative ("SG&A") Expense. SG&A expense
increased during 1998 due to increased business activity in general, combined
with corporate-level personnel additions and/or upgraded skills in such key
areas as international operations, regulatory matters, sales and contract law.
Overall, the number of management employees increased, on a quarter ending
basis, from eight in 1997 to eleven in 1998.
Amortization of Engineering Design and Developed Technology ("AED/DT").
Reflects the amortization of Engineering Design and Developed Technology costs,
an intangible asset related to the December 1997 acquisition of the remaining
50% interest in OnSite from Parker Drilling. The intangible asset is being
amortized over an 8 year estimated economic life.
Interest Expense. In 1998, the Company incurred interest expense of
$415,000 (which included the amortization of debt issuance costs of $122,000),
compared to interest expense of $58,000 in the comparable quarter in 1997 which
related to the $3 million in debt retired in December 1997. Interest expense
increased as a result of increased borrowing both to fund the purchase of
Parker's 50% interest in OnSite, and to fund operations and planned growth. (See
Notes 2 and 4 to the Consolidated Condensed Financial Statements).
<PAGE> 11
Income Taxes. The Company's reported tax provision in 1998 and 1997
related to foreign income tax incurred by OnSite Colombia, a 50% owned
consolidated subsidiary of OnSite. The Company has incurred net operating losses
("NOLs") in the U.S. in recent years, which may be used to offset U.S. taxable
income reported in future periods. The NOLs and certain foreign tax credits
associated with the taxes paid in Colombia have generated deferred tax assets,
but due to uncertainties regarding the future realization of these assets, a
valuation allowance has been provided for the full amount of these deferred tax
assets. The Company is implementing tax planning strategies, which if
successful, may result in the recognition of deferred tax assets in future
periods, thereby significantly reducing the Company's effective tax rate. There
can be no assurances that the NOLs and foreign tax credits will be utilizable.
Elimination of Minority Interest. The minority interest for 1998 and 1997
reflects the 50% minority ownership's interest in the net income of OnSite
Colombia. In addition, the 1997 pre-acquisition earnings which represent 50% of
the results of OnSite operations are eliminated. (See Note 2 to the Consolidated
Condensed Financial Statements).
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues and Gross Margin. During the nine months ended September 30,
1998, the Company produced $3.7 million (52% of revenue) gross margin on $7.1
million service revenue based on an average of 3.7 ITD systems in service
(Colombia and Louisiana). During the comparable period in 1997, the Company
generated $2.5 million (also 52% of revenue) gross margin on $4.8 million
service revenue, with an average of 2.3 ITD systems in service during the period
(Colombia and Wyoming).
SG&A, AED/DT, Income Taxes and Elimination of Minority Interest. Higher
1998 expense in each of these categories was due to the same factors as for the
three month analysis above.
Interest Expense. The 1998 increase in interest expense was due to
increased borrowing to both fund the Company's December 1997 purchase of
Parker's 50% interest in OnSite, and to fund current operations and planned
capital expenditures. During the nine months ended September 1998, the Company
incurred $1,030,000 interest expense (including amortization of debt issuance
costs of $366,000). That compared to interest expense of $187,000 for the
comparable nine months in 1997 which related to the $3 million in debt retired
in December 1997. (See Notes 2 and 4 to the Consolidated Condensed Financial
Statements).
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company raised additional debt and equity capital to fund
current operations, support the construction of ITD Units necessary for its
future growth, and acquire the remaining 50% of OnSite from Parker. In December
1997, the Company raised $14 million in a private placement of Series B
Convertible Preferred Stock, non-convertible Series C Preferred Stock, senior
secured notes and warrants to purchase the Company's Common Stock. The proceeds
from this private placement were primarily used to fund the $8 million
acquisition of the remaining 50% of OnSite, repay $3 million of long-term debt
to a Parker subsidiary, and provide the Company with the capital resources to
continue funding current operations and planned capital expenditures.
In December 1997, the Company received $6 million in proceeds from senior
secured notes as part of the $14 million private placement package noted above.
In June 1998, the Company received supplemental proceeds of $5 million from
additional notes which carry the same interest rate and amortization schedule as
the original $6 million notes. Management believes the Company is in compliance
with all debt covenants at September 30, 1998, but there can be no assurance
that the Company will continue to be in compliance with these covenants as of
any subsequent date.
<PAGE> 12
Prior to the $14 million financing described above, in the first quarter
of 1997 the Company converted debt and related accrued interest totaling
$1,262,000 to equity and completed a Regulation D offering of its Common stock.
The proceeds from these transactions, along with the $3 million long-term debt
proceeds raised by the Company in December 1996, were used to support operations
throughout most of 1997.
During 1997 the Company entered into two sale-leaseback transactions with
third party lenders for two ITD Units operating in OnSite Colombia in order to
improve cash flow. The Company has and will continue to make capital
expenditures for ITD Units and, at December 31, 1997, had placed orders for four
additional units at an aggregate cost of approximately $4.2 million (of which
the Company incurred construction costs of approximately $3.2 million during the
first nine months of 1998). The Company plans to finance these additional ITD
Units through a combination of future surplus operating cash flow, additional
third party sale-leaseback transactions, bank term financing, the outright sale
of equipment to third parties in non-core geographic areas and/or additional
sales of equity. There can be no assurances that the Company will be able to
obtain this additional financing.
The functional currency of OnSite Colombia is the U.S. dollar because
customer invoicing, receivables, imported equipment and many operating costs are
denominated in U.S. dollars. The Company plans to utilize the same approach as
it expands into other geographic markets in an effort to minimize risks
associated with foreign exchange fluctuation and its effect on Company
profitability. However, there can be no assurance that the Company will be
successful in averting foreign exchange losses in future periods .
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have time sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in a system failure or
miscalculation causing disruption of business activities.
The Company believes that its computer information systems will function
properly with respect to the dates in the year 2000 and thereafter based on
computer software upgrades addressing this problem which are expected to be
available during 1999. The Company has additionally developed a minimal-cost
contingency plan in the event that the upgrade does not correct the problem.
Management expects the cost for upgrading the Company's information systems for
this problem to be less than $20,000.
The Company's ITD systems are not dependent on computer software or
hardware, nor do the systems contain any form of date sensitive instrumentation.
Therefore, the Year 2000 issue with respect to 'imbedded technology' is not
expected to pose operational problems. Further, the Company has assessed its
relationships with significant suppliers and major customers to determine the
extent to which the Company is vulnerable to any third party's failure to remedy
its own Year 2000 issues, and based on these assessments, management believes
that significant operational exposure does not exist.
Overall, management believes the Year 2000 issue will not pose significant
operational or financial risks or exposures to the Company.
<PAGE> 13
INFORMATION REGARDING AND FACTORS AFFECTING FORWARD LOOKING STATEMENTS
The Company is including the following cautionary statement in this
Quarterly Report on Form 10-Q 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 projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitation, 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, be achieved, or be 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
material adverse affects on the Company's financial condition and results of
operations: 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; demand for, and price
level of, the Company's services; competitive factors; the actual useful life of
ITD systems; evolving industry and technology standards; ability to protect
proprietary technology; dependence on key personnel; the effect of business
interruption due to political unrest; foreign exchange fluctuation risk; 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.
<PAGE> 14
PART II
OTHER INFORMATION
Item 2. Changes in Securities.
On August 30, 1998, Robin Pate, a former director of the Company,
exercised options to purchase 50,000 shares of common stock of the Company at an
exercise price of $0.60 per share. The Company received $30,000 in connection
with this exercise. This transaction was effected by the Company, as the issuer,
in reliance on exemptions from registration under the Securities Act of 1933 as
amended (the "Act") as provided in Section 4(2) thereof. The common stock
certificate issued for this transaction contained a legend stating that the
securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did the Company pay any commissions or fees to
any underwriter in connection with this transaction. This transaction did not
involve a public offering.
On September 24, 1998, the Pate Trust exercised options to purchase
15,000 shares of common stock of the Company at an exercise price of $0.60 per
share. The Company received $9,000 in connection with this exercise. The Pate
Trust is a trust established by Robin Pate, a former director of the Company.
This transaction was effected by the Company, as the issuer, in reliance on
exemptions from registration under the Securities Act of 1933 as amended (the
"Act") as provided in Section 4(2) thereof. The common stock certificate issued
for this transaction contained a legend stating that the securities have not
been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with this transaction. This transaction did not involve a public offering.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held on September 14, 1998.
Elected as Directors were:
Votes For Votes Against
--------- -------------
James S. Percell 5,891,930 -0-
Bryan Pate 5,891,930 -0-
Albert M. Wolford 5,891,930 -0-
David L. Warnock 5,891,930 -0-
The Board of Director's selection of Ernst & Young L.L.P. as the
Company's Independent Auditor was ratified as follows:
Votes for the ratification of Ernst & Young L.L.P.: 7,710,294 (FNI)
Votes against the ratification Ernst & Young L.L.P. -0-
- -----------
FNI includes 1,818,364 votes cast by Series B Convertible Preferred Stock.
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-k.
(a) Exhibits required by Item 601 of Regulation S-K
(1) Exhibit 27.1 -- Financial Data Schedule
(b) Reports on Form 8-K
None.
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.
November 5, 1998 By: /s/ James S. Percell
-----------------------------
James S. Percell, President
November 5, 1998 By: /s/ Ronald L. Bianco
-------------------------------
Ronald L. Bianco, Chief Financial Officer
<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,841
<SECURITIES> 0
<RECEIVABLES> 2,837
<ALLOWANCES> 0
<INVENTORY> 2,058
<CURRENT-ASSETS> 10,082
<PP&E> 8,943
<DEPRECIATION> 1,700
<TOTAL-ASSETS> 20,500
<CURRENT-LIABILITIES> 5,339
<BONDS> 6,839
0
5
<COMMON> 10
<OTHER-SE> 7,628
<TOTAL-LIABILITY-AND-EQUITY> 20,500
<SALES> 7,147
<TOTAL-REVENUES> 7,147
<CGS> 3,450
<TOTAL-COSTS> 6,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,030
<INCOME-PRETAX> (499)
<INCOME-TAX> 917
<INCOME-CONTINUING> (1,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,416)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
