<PAGE> 1
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
AMENDMENT NO. 1
-----------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Earliest Event Reported: December 17, 1997
ENVIRONMENTAL SAFEGUARDS, INC.
(Exact name of registrant as specified in its charter)
Nevada 000-21953 87-0429198
(State or other jurisdiction (Commission File Number) (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)
- -------------------------------------------------------------------------------
<PAGE> 2
Item 7. Financial Statements and Exhibits
INDEX TO FINANCIAL STATEMENTS
----------
(a) Financial Statements of Business Acquired
Financial Statements of OnSite Technology, L.L.C.
<TABLE>
<CAPTION>
PAGE(S)
------
<S> <C>
ONSITE TECHNOLOGY, L.L.C.
Reports of Independent Auditors F-2 to F-3
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 17,
1997 and December 31, 1996 F-4
Consolidated Statements of Operations for the
period from January 1, 1997 through December 17,
1997 and the year ended December 31, 1996 F-5
Consolidated Statements of Members' Equity for the
period from January 1, 1997 through December 17,
1997 and the year ended December 31, 1996 F-6
Consolidated Statements of Cash Flows for the
period from January 1, 1997 through December 17,
1997 and the year ended December 31, 1996 F-7
Notes to Consolidated Financial Statements F-8 to F-14
</TABLE>
(b) Pro Forma Financial Information
Pro forma financial information required pursuant to
Article II of Regulation S-X.
<TABLE>
<S> <C>
ENVIRONMENTAL SAFEGUARDS, INC.
Unaudited Consolidated Proforma Financial Statements F-15
Consolidated Proforma Balance Sheet as of September 30, 1997 F-16
Consolidated Proforma Statement of Operations for the year
ended December 31, 1996 F-17
Consolidated Proforma Statement of Operations for the nine
months ended September 30, 1997 F-18
Notes to Unaudited Proforma Consolidated Financial Statements F-19 to F-20
</TABLE>
(c) Exhibits
None.
F-1
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
To the Management Committee
OnSite Technology, L.L.C.
We have audited the accompanying consolidated balance sheet of OnSite
Technology, L.L.C. as of December 17, 1997, and the related statements of
operations, members' equity and cash flows for the period from January 1, 1997
through December 17, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of OnSite Technology,
L.L.C. as of December 17, 1997, and the results of its operations and its cash
flows for the period from January 1, 1997 through December 17, 1997 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 26, 1998
F-2
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
To the Management Committee
OnSite Technology, L.L.C.
We have audited the accompanying consolidated balance sheet of OnSite
Technology, L.L.C. as of December 31, 1996, and the related statements of
operations, members' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of OnSite Technology,
L.L.C. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ HAM, LANGSTON, & BREZINA, L.L.P.
Houston, Texas
February 26, 1998
F-3
<PAGE> 5
ONSITE TECHNOLOGY, L.L.C.
CONSOLIDATED BALANCE SHEETS
----------
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 17, DECEMBER 31,
ASSETS 1997 1996
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,221 $ 221
Accounts receivable 1,438 210
Prepaid expenses and other assets 100 48
Deferred taxes 85 --
------ ------
Total current assets 2,844 479
Property and equipment, net 5,679 4,665
------ ------
Total assets $8,523 $5,144
====== ======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current portion of capital lease
obligation $ 282 $ --
Accounts payable 307 1,111
Accrued liabilities 228 15
Income taxes payable 407 22
Due to the Parent 53 44
------ ------
Total current liabilities 1,277 1,192
Capital lease obligation 600 --
Minority interest in subsidiaries 607 80
Commitments (Note 4)
Members' equity 6,039 3,872
------ ------
Total liabilities and members'
equity $8,523 $5,144
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 6
ONSITE TECHNOLOGY, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
----------
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM JANUARY YEAR ENDED
1, 1997 THROUGH DECEMBER 31,
DECEMBER 17, 1997 1996
----------------- -----------
<S> <C> <C>
Service revenue $ 6,379 $ 730
Cost of providing services 3,081 561
------- -------
Gross margin 3,298 169
General and administrative expenses 1,496 414
------- -------
Income (loss) from operations 1,802 (245)
Other income (expenses):
Interest income 64 --
Interest expense (82) --
Foreign currency transaction losses (31) --
------- -------
Income (loss) before provision for
income taxes and minority interest 1,753 (245)
Provision for income taxes 1,159 22
------- -------
Income (loss) before minority interest 594 (267)
Minority interest (527) 82
------- -------
Net income (loss) $ 67 $ (185)
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 7
ONSITE TECHNOLOGY, L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
----------
(IN THOUSANDS)
<TABLE>
<CAPTION>
ENVIRONMENTAL PARKER
SAFEGUARDS, DRILLING
INC. COMPANY, INC. TOTAL
------------- ------------ -----
<S> <C> <C> <C>
Balances at January 1, 1996 $ 106 $ 106 $ 212
Capital contributions 1,923 1,922 3,845
Net loss for the year ended
December 31, 1996 (93) (92) (185)
------ ------ ------
Balances at December 31,
1996 1,936 1,936 3,872
Capital contributions 1,050 1,050 2,100
Net income for the period
from January 1, 1997 through
December 17, 1997 34 33 67
------ ------ ------
Balance at December 17, 1997 $3,020 $3,019 $6,039
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 8
ONSITE TECHNOLOGY, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM JANUARY YEAR ENDED
1, 1997 THROUGH DECEMBER 31,
DECEMBER 17, 1997 1996
------------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 67 $ (185)
Adjustment to reconcile net loss to net
cash provided by (used in) operating
activities:
Minority interest 527 82
Depreciation expense 609 189
Deferred taxes (85) --
Changes in operating assets and liabilities:
Accounts receivable (1,228) 49
Prepaid expense and other assets (52) (47)
Accounts payable (1,048) 338
Accrued liabilities 457 15
Income taxes payable 385 22
Due to the Parent 9 59
------- -------
Net cash (used in) provided by
operating activities (359) 522
Cash flows from investing activities:
Purchase of equipment (1,623) (4,162)
Cash flows from financing activities:
Proceeds from capital lease obligations 950 --
Payments on capital lease obligations (68) --
Member contributions 2,100 3,845
------- -------
Net cash provided by investing
activities 2,982 3,845
------- -------
Net increase in cash and cash equivalents 1,000 205
Cash and cash equivalents, beginning of year 221 16
------- -------
Cash and cash equivalents, end of year $ 1,221 $ 221
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 82 $ --
Income taxes paid $ 859 $ --
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 9
ONSITE TECHNOLOGY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
OnSite Technology, L.L.C. (the "Company") provides environmental
remediation and hydrocarbon reclamation/recycling services principally to
oil and gas companies, using proprietary Indirect Thermal Desorption
("ITD") technology. To date the primary service offered by the Company
has been the remediation of soil contaminated by oil based drill cuttings
and the subsequent recovery of diesel and synthetic oils which were
embedded in the drill cuttings. Substantially all of the Company's
operations were conducted in Colombia in 1997.
The Company was originally established in 1995 as a 50%-50% joint venture
between Environmental Safeguards, Inc. (the "Parent") and Parker Drilling
Company ("Parker"). Effective December 17, 1997, the Parent acquired
Parker's 50% interest and OnSite became a wholly-owned subsidiary. (See
Note 9). These financial statements represent the Company's financial
position, results of operations and cash flows immediately prior to the
acquisition of Parker's 50% interest.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority owned or controlled subsidiaries after elimination of
all significant intercompany accounts and transactions.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. These estimates mainly involve the useful lives of
property and equipment, the valuation of deferred tax assets and the
realizability of accounts receivable.
RESEARCH AND DEVELOPMENT
Research and development activities are expensed as incurred, including
costs relating to patents or rights which may result from such
expenditures.
REVENUE RECOGNITION
Revenue is recognized at the time services are performed or when products
are shipped.
F-8
<PAGE> 10
ONSITE TECHNOLOGY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to concentrations of
credit risk include cash and accounts receivable. The Company maintains
its cash in well known banks selected based upon management's assessment
of the banks' financial stability and international capability. Balances
periodically exceed the $100,000 federal depository insurance limit;
however, the Company has not experienced any losses on deposits. Accounts
receivable generally arise from sales of services to multinational energy
companies operating in the United States and South America. Collateral is
generally not required for credit granted. As of December 17, 1997,
essentially all of the Company's trade receivables were due from one
multinational energy company for services performed in Colombia.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all
short-term investments with an original maturity of three months or less
to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives using the straight-line method. The estimated
useful lives of equipment are 3 to 5 years. Expenditures for maintenance
and repairs are charged to expense when incurred; betterments and major
renewals are capitalized.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long Lived Assets and
for Long Lived Assets to be Disposed Of. SFAS No. 121 requires that
long-lived assets to be held and used by an entity be reviewed for
impairment whenever events or changes indicate that the net book value of
the asset may not be recoverable. An impairment loss is recognized if the
sum of expected future cash flows from the use of the asset is less than
the net book value of the asset.
INCOME TAXES
The Company uses the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and income tax carrying
amounts 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.
F-9
<PAGE> 11
ONSITE TECHNOLOGY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different
from the book value. When the book value approximates fair value, no
additional disclosure is made.
RECLASSIFICATIONS
Certain prior year amounts in the consolidated balance sheets and
statements of operations have been reclassified to conform to the 1997
presentation.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. It requires (a) classification
of the components of other comprehensive income by their nature in a
financial statement and (b) the display of the accumulated balance of the
other comprehensive income separate from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position. SFAS 130 is effective for years beginning after December 15,
1997 and is not expected to have a material impact on financial position
or results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 17, DECEMBER 31,
1997 1996
------- -------
<S> <C> <C>
ITD Remediation/Recycling Units $ 5,033 $ 1,708
ITD Remediation/Recycling Units
in process 1,338 3,149
Office furniture and equipment 10 --
Transportation and other equipment 111 12
------- -------
6,492 4,869
Less accumulated depreciation (813) (204)
------- -------
$ 5,679 $ 4,665
======= =======
</TABLE>
F-10
<PAGE> 12
ONSITE TECHNOLOGY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
2. PROPERTY AND EQUIPMENT, CONTINUED
The Company contracts with one fabricator for the manufacture of ITD
Units and one fabricator for the manufacture of Condensing Units, to be
used in the Company's operations. As of December 17, 1997, the Company
had approximately 1 ITD Unit and 2 Condensing Units in process with an
expected cost to complete of $150. An unexpected disruption of the
fabricator's ability to timely deliver ITD Units could cause a delay in
the Company's ability to meet future service orders. Should a delay
occur, the Company has taken steps to facilitate the placement of orders
with alternative fabricators.
3. INCOME TAXES
The Company is a wholly owned Oklahoma limited liability company and for
U.S. federal and state income tax purposes, is treated as a flow through
entity. Income or loss and any tax credits associated with the operations
of the Company are included in the U.S. federal and state tax expense of
the Parent. Accordingly, no U.S. federal or state income tax provision is
reflected on the Company's financial statements.
The Company consolidates its 50% owned subsidiary, OnSite Colombia, Inc.,
a Cayman Island company that conducts operations in Colombia. The Cayman
Island imposes 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 Company provided for Colombian income taxes as follows:
<TABLE>
<CAPTION>
PERIOD FROM JANUARY YEAR ENDED
1, 1997 THROUGH DECEMBER 31,
DECEMBER 17, 1997 1996
------------------- ------------
<S> <C> <C>
Current expense $1,244 $ 22
Deferred benefit (85) -
------ ------
Income tax provision $1,159 $ 22
====== ======
</TABLE>
F-11
<PAGE> 13
ONSITE TECHNOLOGY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
3. INCOME TAXES, CONTINUED
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes.
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 17, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued municipal taxes $ 85 $ -
------ ----
Total deferred tax assets $ 85 $ -
====== ====
</TABLE>
A portion of the Colombian income taxes paid by OnSite Colombia, Inc.,
will result in a foreign tax credit to the Parent Company upon the
distribution of the Company's proportionate share of the profits of
OnSite Colombia, Inc. The Company has not recorded a deferred tax benefit
or deferred tax asset related to these tax credits which may be utilized
by the Parent Company at some future date.
The following table reconciles the income tax attributable to operations
computed at the U.S. federal statutory tax rates to income tax expense:
<TABLE>
<CAPTION>
PERIOD FROM JANUARY YEAR ENDED
1, 1997 THROUGH DECEMBER 31,
DECEMBER 17, 1997 1996
------------------- ------------
<S> <C> <C>
Tax at U.S. statutory
rates $ - $ -
Foreign taxes in excess
of U.S. rate 1,159 22
------ ------
Income tax provision $1,159 $ 22
====== ======
</TABLE>
F-12
<PAGE> 14
ONSITE TECHNOLOGY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
4. LEASE COMMITMENTS
During 1997, the Company sold and leased back an indirect thermal
desorption unit. No gain or loss resulted from this transaction, and the
related lease is accounted for as a capital lease. Included in property
and equipment in the accompanying consolidated balance sheet at December
17, 1997 are the following assets held under capital leases:
<TABLE>
<S> <C>
Indirect thermal desorption unit $ 950
Accumulated amortization (230)
Assets under capital leases, net $ 720
======
</TABLE>
The Company also leases office and warehouse facilities and a truck under
operating leases. Certain of the leases provide for renewal options;
however, only one such lease has an original term of greater than one
year. Rental expense for operating leases was $53 and $4 during the
period from January 1, 1997 through December 17, 1997 and the year ended
December 31, 1996, respectively.
Minimum lease payments due under leases with original lease terms of
greater than one year and expiration dates subsequent to December 17,
1997 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
DECEMBER 17, LEASES LEASES
------------ ------- --------
<S> <C> <C>
1998 $ 386 $ 27
1999 386 27
2000 290 14
------ ------
Total minimum leases 1,062 $ 41
Less amount representing interest (180)
------
Present value of minimum lease
payments 882
Less current portion (282)
------
Long-term portion $ 600
======
</TABLE>
F-13
<PAGE> 15
ONSITE TECHNOLOGY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
----------
5. MAJOR CUSTOMERS
During the periods ended December 17, 1997 and December 31, 1996, the
Company provided services for only two customers and each accounted for
greater than 10% of service revenue.
6. RESEARCH AND DEVELOPMENT
During the period from January 1, 1997 through December 17, 1997, and the
year ended December 31, 1996, expenditures for research and development
were $43 and $87, respectively.
7. RELATED PARTY TRANSACTIONS
The Company shares office facilities and certain employees with the
Parent. Shared costs are generally specifically identified by company;
however, certain costs must be allocated based upon management's
estimates.
8. FOREIGN OPERATIONS
Financial information relating to the Company's foreign operations is
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
PERIOD ENDED YEAR ENDED
DECEMBER 17, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Sales to unaffiliated customers $6,134 $ 188
Operating income (loss) 2,465 (118)
Identifiable assets 6,057 1,278
Net assets 1,168 135
</TABLE>
Substantially all of the Company's foreign operations were conducted by
the Company's 50% owned joint venture in Colombia. The Company's
Colombian subsidiary operated with the U.S. dollar as its functional
currency and, accordingly, no cumulative translation adjustment is
presented in the accompanying balance sheet.
9. SUBSEQUENT EVENT
Effective on December 17,1997, the Parent acquired Parker Drilling
Company's interest in the Company and, accordingly, OnSite became
a wholly-owned subsidiary of Environmental.
F-14
<PAGE> 16
ENVIRONMENTAL SAFEGUARDS, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------
On December 17,1997, Environmental Safeguards, Inc. (the "Company") acquired
Parker Drilling Company's 50% interest in OnSite Technology, L.L.C. ("OnSite")
and, accordingly, OnSite became a wholly-owned subsidiary of the Company. Prior
to this transaction, the Company accounted for their 50% ownership interest in
OnSite on the equity method and following the transaction on the consolidation
method. The $8,000,000 purchase price and the resulting required repayment of
$3,000,000 of long-term debt due to a Parker subsidiary was financed through a
private sale of Series B and Series C preferred stock, combined with senior
secured notes and warrants for shares of the Company's common stock. This
acquisition has been accounted for using the purchase method of accounting. The
following Unaudited Proforma Condensed Consolidated Balance Sheet as of
September 30, 1997 gives effect to the transaction as if it had occurred at that
date. The Unaudited Proforma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1997 and the year ended December 31, 1996
give effect to the transaction as if it had occurred on January, 1, 1996.
The Unaudited Proforma Condensed Consolidated Financial Statements are presented
for informational purposes only and are not necessarily indicative of the
results of operations that would have been achieved had the transaction been
completed at January 1, 1996, nor are they indicative of the Company's future
results of operations.
The Unaudited Proforma Condensed Consolidated Financial Statements should be
read in conjunction with the historical financial statements of the Company and
related notes thereto.
F-15
<PAGE> 17
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
----------
<TABLE>
<CAPTION>
ENVIRONMENTAL ONSITE
SAFEGUARDS, TECHNOLOGY PROFORMA PROFORMA
ASSETS INC. L.L.C. ADJUSTMENTS CONSOLIDATED
------ ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,287 $ 1,547 (a)$14,000
(b) (604)
(c) (8,000)
(d) (3,151) $ 6,079
Accounts receivable, trade 2,212 2,212
Prepaid taxes, duties and
other 22 877 899
Receivables from Affiliate 77 30 (e) (107) -
------- ------- ------- -------
Total current assets 2,386 4,666 2,138 9,190
Property and equipment, net 41 5,728 (c) 608 6,377
Engineering design and
developed technology (c) 3,258 3,258
Investments in Affiliates 3,087 - (e) (3,087) -
------- ------- ------- -------
Total assets $ 5,514 $10,394 $ 2,917 $18,825
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 15 $ 73 $ - $ 88
Payables to Affiliates 10 97 (e) (107) -
Accrued liabilities 72 741 - 813
Accrued income taxes - 1,278 - 1,278
Current maturities of long-
term debt - 176 - 176
------- ------- ------- -------
Total current liabilities 97 2,365 (107) 2,355
Long-term debt 3,151 835 (a) 5,303
(b) (362)
(d) (3,151) 5,776
Deferred gain 195 - (c) (195) -
------- ------- ------- -------
Total liabilities 3,443 3,200 1,488 8,131
------- ------- ------- -------
Minority interest - 1,019 (c) (3,007)
(e) 3,088 1,100
Commitments and contingencies
Stockholders' equity:
Series B Preferred stock - - (a) 4,000 4,000
Series C Preferred stock - - (a) 3,428
(b) (242) 3,186
Common stock 9 - - 9
Unissued common stock 56 - - 56
Additional paid-in capital 5,718 6,175 (a) 1,269
(c) (170)
(e) (6,175) 6,817
Accumulated deficit (3,712) - (c) (762) (4,474)
------- ------- ------- -------
Total stockholders'
equity 2,071 6,175 1,348 9,594
------- ------- ------- -------
Total liabilities and
stockholders' equity $ 5,514 $10,394 $ 2,917 $18,825
======= ======= ======= =======
</TABLE>
See notes to unaudited proforma condensed consolidated
financial statements.
F-16
<PAGE> 18
ENVIRONMENTAL SAFEGUARDS, INC AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
<TABLE>
<CAPTION>
ENVIRONMENTAL ONSITE
SAFEGUARDS, TECHNOLOGY PROFORMA PROFORMA
INC. L.L.C. ADJUSTMENTS CONSOLIDATED
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Service revenue $ - $ 730 $ - $ 730
Cost of services - 561 (a) 151 712
------- ------- ------ -------
Gross margin - 169 (151) 18
Operating expenses 511 414 (b) 407 1,332
------- ------- ------ -------
Operating income (loss) (511) (245) (558) (1,314)
------- ------- ------ -------
Other income (expense):
Interest income 18 - - 18
Interest expense (138) - (c) (600)
(d) (487)
(e) 7 (1,218)
Equity in loss of investee (93) - (f) 93 -
Other, net 3 - (g) (3) -
------- ------- ------- -------
(210) - (990) (1,200)
------- ------- ------- -------
Loss before income taxes,
minority interest and
extraordinary gain (721) (245) (1,548) (2,514)
Provision for income taxes - 22 - 22
------- ------- ------- -------
Loss before minority interest
and extraordinary gain (721) (267) (1,548) (2,536)
Minority interest - 82 - 82
------- ------- ------- -------
Loss before extraordinary
gain (721) (185) (1,548) (2,454)
Extraordinary gain 74 - - 74
------- ------- ------- -------
Net loss $ (647) $ (185) $(1,548) (2,380)
======= ======= =======
Preferred B accretion (3,998)
Preferred C accretion (375)
Preferred C dividends (400)
-------
Net loss available to common
stockholders $(7,153)
=======
Net loss per share of common
stock $ (0.10) $ (1.12)
======= =======
Weighted average shares
outstanding 6,375 6,375
======= =======
</TABLE>
See notes to unaudited proforma condensed consolidated
financial statements.
F-17
<PAGE> 19
ENVIRONMENTAL SAFEGUARDS, INC AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
<TABLE>
<CAPTION>
ENVIRONMENTAL ONSITE
SAFEGUARDS, TECHNOLOGY PROFORMA PROFORMA
INC. L.L.C. ADJUSTMENTS CONSOLIDATED
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Service revenue $ - $ 4,808 $ - $ 4,808
Cost of services - 1,892 (a) 114 2,006
------- ------- ------- -------
Gross margin - 2,916 (114) 2,802
Operating expenses 265 1,464 (b) 305 2,034
------- ------- ------- -------
Operating income (loss) (265) 1,452 (419) 768
------- ------- ------- -------
Other income (expense):
Interest income 90 46 - 136
Interest expense (187) - (c) (450)
(d) (366)
(e) 144 (859)
Equity in income (loss)
of investees 102 - (f) (102) -
Other, net 5 23 (g) (5) 23
------- ------- ------- -------
10 69 (779) (700)
------- ------- ------- -------
Income (loss) before income
taxes and minority interest (255) 1,521 (1,198) 68
Provision for income taxes - 904 - 904
------- ------- ------- -------
Income (loss) before minority
interest (255) 617 (1,198) (836)
Minority interest - (414) - (414)
------- ------- ------- -------
Net income (loss) $ (255) $ 203 $(1,198) (1,250)
======= ======= =======
Preferred C accretion (281)
Preferred C dividends (300)
Net loss available to common
stockholders $(1,831)
=======
Net loss per share of common
stock $ (0.03) $ (0.20)
======= =======
Weighted average shares
outstanding 8,947 8,947
======= =======
</TABLE>
See notes to unaudited proforma condensed consolidated
financial statements.
F-18
<PAGE> 20
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PROFORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On December 17,1997, Environmental Safeguards, Inc. (the "Company")
acquired Parker Drilling Company's 50% interest in OnSite Technology,
L.L.C. ("OnSite") and, accordingly, OnSite became a wholly-owned
subsidiary of the Company. Prior to this transaction, the Company
accounted for their 50% ownership interest in OnSite on the equity method,
and following the transaction on the consolidation method. The $8,000,000
purchase price and the resulting required repayment of $3,000,000 of
long-term debt to a Parker subsidiary was financed through a private sale
of Series B and Series C preferred stock, senior secured notes, and
warrants for shares of the Company's common stock. This acquisition has
been accounted for using the purchase method of accounting. The following
Unaudited Proforma Condensed Consolidated Statements of Operations for the
nine months ended September 30, 1997 and the year ended December 31, 1996
give effect to the transaction as if it had occurred at January, 1, 1996.
The Company believes that the assumptions used in preparing the unaudited
proforma condensed consolidated financial statements provide a reasonable
basis for presenting all of the significant effects of the OnSite
acquisition (other than any synergies anticipated by the Company, and
nonrecurring charges directly attributable to the purchase and
nonrecurring charges that will result from combining operations), and that
the proforma adjustments give effect to those assumptions in the Unaudited
Proforma Condensed Consolidated Statements of Operations.
2. EARNINGS PER SHARE
Net loss per share of common stock was computed by dividing the net income
available to common stockholders by the weighted average number of shares
of common stock outstanding during the period. Due to the net loss, all of
the common stock equivalents were excluded from this calculation due to
their anti-dilutive effect. Certain amounts attributable to the Class B
and Class C preferred stock have been deducted from the net loss to derive
net loss available to common stockholders. These amounts include the
cumulative dividends to be paid on the Class C preferred stock and the
accretion of the discounts on both the Class C and Class B preferred
stock. The entire Class B discount is charged to net loss available to
common stockholders immediately due to the immediate conversion features
of the related instruments. The Class C discount is accreted to its
liquidation value over a period of 26 months.
Continued
F-19
<PAGE> 21
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PROFORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. PROFORMA ADJUSTMENTS
Proforma adjustments to the Unaudited Proforma Condensed
Consolidated Balance Sheet are as follows:
a. Reflects the receipt of $14 million of gross proceeds from the sales
of Class B preferred stock, Class C preferred stock, senior secured
notes and warrants to purchase common stock used to fund the
acquisition.
b. Reflects the payment of issuance costs, which are recorded as
reductions to the carrying value of the related financial instrument.
c. Reflects the payment of $8,000,000 for the acquisition of Parker
Drilling Company's 50% interest in OnSite, and the allocation of the
purchase price to the assets acquired. Includes a $170,000 debit to
paid-in capital for the reacquisition of 300,000 common stock warrants
of Parent and a $762,000 increase to accumulated deficit for
purchased research and development, which is immediately expensed.
d. Reflects the repayment of long-term debt and related accrued interest
expense to a subsidiary of Parker.
e. Reflects the elimination of intercompany balances and the
consolidation of OnSite as a wholly-owned subsidiary of the Company.
OnSite was previously accounted for using the equity method.
Proforma adjustments to the Unaudited Proforma Condensed Consolidated
Statements of Operations are as follows:
a. Reflects additional depreciation expense resulting from the adjustment
of OnSite's equipment (indirect thermal desorption remediation units)
to fair value at the time of acquisition.
b. Reflects the amortization of engineering design and developed
technology costs, an intangible asset related to the acquisition of
the interest in OnSite. The intangible asset is being amortized over
an 8 year estimated economic life.
c. Reflects additional interest expense resulting from the additional
long-term debt incurred in connection with the acquisition of OnSite
based on interest at 10% per year.
Continued
F-20
<PAGE> 22
ENVIRONMENTAL SAFEGUARDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PROFORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. PROFORMA ADJUSTMENTS, CONTINUED
d. Reflects interest cost resulting from the amortization of the discount
on the sale of the long-term debt.
e. Reflects the elimination of interest expense on $3.0 million of
long-term debt to a Parker subsidiary, the repayment of which was
required upon acquisition of OnSite.
f. Reflects the elimination of the Company's 50% equity in earnings of
OnSite due to the change from the equity method to the consolidation
method for reporting the investment in OnSite.
g. Reflects the elimination of the amortization of a deferred gain
between the Company and OnSite which was eliminated in the purchase
price allocation for the acquisition of OnSite.
F-20
<PAGE> 23
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: March 2, 1998 By: /s/ James S. Percell
-------------------------------
James S. Percell, President
