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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-19497
MOBLEY ENVIRONMENTAL SERVICES, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 75-2242963
(State or Other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
c/o 111 CONGRESS AVENUE, SUITE 1400
AUSTIN, TEXAS 78701
(Address of Principal Executive Offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for the most recent fiscal year: $ -0-
The aggregate market value of the voting and non-voting common entity (Class A
Common Stock) held by non-affiliates computed by reference to the average bid
and asked price of such common equity as reported by the OTC Bulletin Board as
of March 1, 1999 was estimated to be $795,947.
The number of shares outstanding of the issuer's common stock, as of March 1,
1999 was 4,259,650 shares of Class A Common Stock, $.01 par value and 4,575,643
shares of Class B Common Stock, $.01 par value.
Transitional Small Business Disclosure Format: Yes No X
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FORM 10-KSB INDEX
PART I
<TABLE>
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Page Number
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<S> <C>
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 4
Item 3. Legal Proceedings....................................................... 4
Item 4. Submission of Matters to a Vote of Security Holders..................... 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters... 6
Item 6. Management's Discussion and Analysis.................................... 7
Item 7. Financial Statements.................................................... 11
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 11
PART III
Item 9. Directors and Executive Officers; Compliance with Section 16(a)
of the Exchange Act................................................... 11
Item 10. Executive Compensation.................................................. 13
Item 11. Security Ownership of Certain Beneficial Owners and Management.......... 14
Item 12. Certain Relationships and Related Transactions.......................... 15
PART IV
Item 13. Exhibits List and Reports on Form 8-K................................... 16
Signatures.............................................................. 18
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Prior to May 29, 1997, Mobley Environmental Services, Inc. (the "Company")
provided diverse environmental and field-related services to industrial,
governmental and commercial markets, and specialized in the collection,
transportation, treatment, recycling, and management of a wide variety of
non-hazardous liquid hydrocarbons, oil filters, absorbents, and related
materials. Prior to January 20, 1997, the Company also provided oilfield
services, including transporting, marketing, storing, and disposing of various
liquid materials used or produced as waste throughout the lifecycle of oil and
gas wells.
The Company was formed in July 1991 for the purpose of combining the
businesses of Gibraltar Chemical Resources, Inc. ("Gibraltar"), Mobley Company,
Inc. ("Mobley Co."), and Mobley Group, Inc. which had been under common
management since their inception. Shareholders of the predecessor companies
received shares of the Company's Class B Common Stock in exchange for their
shares of common stock of these companies, and certain of the principal
shareholders of the Company sold to the Company for cash certain assets used in
the businesses of the predecessor companies. As a result of the foregoing
transactions, Gibraltar and Mobley Co. became wholly-owned subsidiaries of the
Company and Mobley Group, Inc. was merged into the Company.
The Company's oilfield services business was founded in 1943, and in 1980
the Company expanded into the hazardous waste treatment and disposal business.
However, the Company completed the sale of Gibraltar on December 31, 1994; and
since that time, the Company has not been involved in the commercial management
of hazardous wastes.
In 1987, the Company expanded its waste management services activities to
include the collection and treatment of non-hazardous, hydrocarbon-laden wastes
for customers outside the oil and gas industry. In 1995, the Company, through a
newly-formed subsidiary, Hydrocarbon Technologies, Inc., broadened its
hydrocarbon recycling and recovery activities to include the collection and
marketing of used oil and oil filters through the acquisition of the assets of a
group of three related recycling companies. Additionally, during 1996, the
Company completed construction of two new facilities for the recycling of used
motor oil and fuel mixtures into higher-value finished products for sale and the
processing and recycling of used oil filters, absorbents and related materials.
As further discussed below (see "Business Strategy and Background of
Disposition Transactions") on January 20, 1997, the Company completed the sale
of the assets used in its oilfield services business to Dawson Production
Services, Inc. ("Dawson"). Thereafter, the Company completed the sale (the
"Transaction") of its hydrocarbon recycling and recovery assets to the United
States Filter Corporation ("U.S. Filter") on May 29, 1997.
RESTRUCTURING AND DIVESTITURE OF HAZARDOUS WASTE OPERATIONS
In late 1993, the Company determined that the divestiture of its hazardous
waste business conducted by Gibraltar was in the best interests of the Company
and its shareholders. On May 10, 1994 the Company entered into a definitive
agreement (the "Stock Purchase Agreement") for the sale of all of the
outstanding shares of common stock of Gibraltar to American Ecology Corporation
("AEC"), and such sale was completed effective December 31, 1994. See Note 3 of
Notes to Consolidated Financial Statements set forth in Item 7 herein. The
Company made extensive warranties and representations in the Stock Purchase
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Agreement, including the absence of any liabilities arising prior to closing
other than those disclosed to AEC. The Company is required to indemnify AEC for
all losses resulting from breaches of warranties and representations and pending
or future claims or proceedings resulting from circumstances existing prior to
closing through June 30, 1996 (or in the case of tax, environmental and ERISA
claims, through June 30, 1998). However, the Company and AEC executed a Tolling
Agreement dated July 30, 1997, pursuant to which the statute of limitations
period for certain potential claims by either party against the other was tolled
from July 30, 1997 through July 30, 2000. The maximum liability of the Company
under such indemnity with respect to undisclosed claims is $3.0 million; there
is no limit with respect to disclosed liabilities. See Note 14 of Notes to
Consolidated Financial Statements set forth in Item 7 herein for further
information regarding certain obligations and contingent liabilities relating to
Gibraltar.
BUSINESS STRATEGY AND BACKGROUND OF DISPOSITION TRANSACTIONS
Having exited the hazardous waste industry with the sale of Gibraltar, the
Company focused on the continued growth and development of its non-hazardous
hydrocarbon recycling and recovery business. The Company's Board of Directors
and management believed that its core skills in managing liquid hydrocarbon
wastes, combined with its experience in processing industrial oily wastes,
formed a solid foundation for a business expansion into more advanced
hydrocarbon recycling and recovery technologies. Specific plans were made for
the engineering and construction of a distillate fuels production facility and
oil filter recycling facility. The filter recycling facility began operations in
April, 1996, and the distillate fuels production facility began full-scale
operations in August, 1996.
In October 1995, the Company engaged Cureton and Co., Incorporated
("Cureton & Co."), an investment banking and business advisory firm, to assist
it with the investigation and possible financing of other business combination
opportunities that had come to the Company's attention. With the assistance of
Cureton & Co., the Company investigated possible relationships or affiliations
with a variety of entities whose operations might be a feasible expansion of, or
complementary to, the Company's existing operations or those contemplated under
its strategic plan. Of the discussions undertaken by management, PORI
International, Inc. ("PORI"), based in Baltimore, Maryland, emerged as a
candidate for serious consideration. On March 11, 1996, the Company's
discussions with PORI culminated in a letter of intent to acquire substantially
all of PORI's assets with completion of the transaction subject to, among other
things, the Company's ability to secure the necessary financing.
Operating losses sustained by the Company in early 1996, coupled with the
capital spending program associated with the execution of its growth strategy,
significantly weakened the Company's liquidity over the first half of 1996. As a
result of the Company's deteriorated financial condition and unfavorable results
of operations, bank debt financing was effectively eliminated as a viable source
of funds for the continued execution of its strategic plan. Through Cureton &
Co., the Company contacted numerous persons during the summer of 1996 to discuss
the possibilities of a private investment in the Company or other strategic
alliance. Through an exhaustive process, U.S. Filter emerged as the most viable
party interested in pursuing a specific transaction with the Company. After
lengthy discussions, it became clear that U.S. Filter was not interested in
joint ownership and would only proceed with negotiations on the basis of
purchasing, with shares of U.S. Filter common stock as consideration, the
Company's entire interest in its hydrocarbon recycling and oil/water processing
business.
On October 9, 1996, the Company's Board of Directors authorized the Company
to enter into a letter of intent to sell to U.S. Filter the net assets of the
Company's hydrocarbon recycling and recovery business in consideration for U.S.
Filter common stock having an aggregate exchange value of $8.0 million, plus the
right to receive additional shares of U.S. Filter common stock with an exchange
value of up to $4.0 million upon the attainment of certain financial performance
goals by the business in the two-year period following the
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sale. The Company executed a letter of intent with U.S. Filter on October 30,
1996, and thereafter, on April 25, 1997, the parties executed a definitive Asset
Purchase Agreement (the "Agreement"). In conjunction with this decision, the
Company abandoned its plans to acquire the assets of PORI; such assets were
subsequently acquired by U.S. Filter in February 1997.
WASTE MANAGEMENT SERVICES
Since the divestiture of Gibraltar at year-end 1994 through the May 29,
1997 disposition of the Company's remaining operating assets, the waste
management services provided by the Company consisted of the collection,
transportation, treatment, recycling, and management of non-hazardous liquid
industrial hydrocarbons, off-specification motor fuels, used oils, oil filters,
absorbents and related materials. These activities are collectively referred to
herein as "hydrocarbon recycling and recovery". These activities are no longer
conducted by the Company.
OILFIELD SERVICES
This business segment consisted of the transportation, management and
disposal of various liquids which are used or produced as waste in the drilling,
completion, and production operations of oil and gas wells. In light of its
decision to sell the assets of its hydrocarbon recycling and recovery business,
the Company's Board of Directors evaluated the remainder of the Company's
business activities, being its oilfield services business. Given the relatively
high administrative costs of operating a business as small as the oilfield
services business on a stand-alone basis, and the rather limited growth
opportunities available to the Company for this business, the Board of Directors
concluded that a sale of the business was in the best interest of the Company.
On January 20, 1997, the Company completed the sale of substantially all of its
oilfield services assets to Dawson. See Note 2 of Notes to Consolidated
Financial Statements set forth in Item 7 herein for related information
regarding this segment of the Company's business.
INSURANCE
Since the sale of the Company's operating assets, the Company has
maintained directors and officers liability and general liability insurance
policies.
EMPLOYEES
The Company currently has no employees.
INVESTMENT SECURITIES HELD BY THE COMPANY
All of the U.S. Filter common stock received at the time of the closing
of the sale of its waste management services assets (in May 1997) has been
sold. Cash from the U.S. Filter stock sale, along with the proceeds from the
sale of the oilfield services assets, were used to pay bank indebtedness,
transaction expenses, and current liabilities. Remaining proceeds were used
to purchase investment grade fixed term securities. Such securities include
U.S. Treasury and corporate bonds. However, the Company currently holds
28,294 shares of U.S. Filter common stock received, pursuant to the earnout
provisions of the Agreement, in connection with the results of operations of
the business by U.S. Filter during the first year of operations after the
Transaction. See Consolidated Financial Statements set forth in Item 7 herein.
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CURRENT STATUS AND FUTURE PLANS OF THE COMPANY
The Company has had no operating assets since the sale of its oilfield
services business and hydrocarbon recovery and recycling business in 1997.
Because of its indemnity obligations related to the sale of Gibraltar, as well
as potential indemnification responsibilities with respect to the sale of its
operating assets, and considering ongoing litigation (see "LEGAL PROCEEDINGS"
set forth in Item 3 herein and Note 14 of Notes to Consolidated Financial
Statements set forth in Item 7 herein), the Company will remain in existence for
the foreseeable future.
The litigation involving the Company is in varying stages, with some cases
in the early phases of discovery, while others are awaiting trial. The claims
are unliquidated; and the Company's potential liability, even after available
insurance coverage, could exceed the amount of its assets. Accordingly, based on
consultation with legal counsel, the Company's Board of Directors believes that
they are required by applicable law to hold the Company's assets as a fiduciary
for potential creditors as well as the shareholders. No steps will be taken to
reduce the corporate corpus of the Company by paying liquidating or other
dividends to shareholders until these claims are resolved or more nearly
quantified. In light of the nature and complexity of the litigation, the Company
expects that it may take a period of up to several years to resolve these
matters.
As circumstances change or additional information with respect to the
Company's potential indemnity obligations and litigation exposure becomes
available, the Board of Directors will continue to evaluate various uses of the
Company's funds. The Company has no plans to conduct any kind of operating
business at any time in the future.
ITEM 2. PROPERTIES
The Company's previous corporate office in Kilgore, Texas, consisting of
land and approximately 10,000 square feet of office space, is still owned by the
Company and is currently leased-out. With the sales of its oilfield services and
hydrocarbon recycling and recovery businesses in 1997, the Company disposed of
substantially all other real properties.
The Company's current mailing address is c/o Howard V. Rose, 111 Congress
Avenue, Suite 1400, Austin, Texas 78701.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION AND VARIOUS OTHER CLAIMS. The Company previously filed a
complaint against National Union Fire Insurance Company of Pittsburgh, Pa.
("National Union") seeking declaratory judgment that National Union is obligated
to indemnify the Company under three pollution legal liability insurance
policies issued by National Union and that certain claims previously made by the
Company with respect to such policies are not "related claims" covered by a
single policy as was alleged by National Union in notice correspondence directed
to the Company. Previously, National Union had issued three pollution liability
policies to the Company, each covering a different time period and each
containing a provision that all claims arising out of related or continuous acts
would be considered a single loss and be deemed first reported during the policy
period in which the initial claim was first reported. The Company sought a
declaratory judgement establishing that the foregoing provision was not
applicable to claims that might arise under various lawsuits in which the
Company is a defendant (see "Claims and Legal Proceedings Against Gibraltar"
below). This case was dismissed in 1997; however, the issues raised in this
action have not yet been resolved by the parties.
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Additionally, in connection with its prior ownership of Gibraltar, the
Company is a party to lawsuits styled WILLIAMS V. GIBRALTAR CHEMICAL RESOURCES,
INC., ADAMS V. GIBRALTAR CHEMICAL RESOURCES, INC. and DANIELS V. GIBRALTAR
CHEMICAL RESOURCES, INC. to which Gibraltar is also a party. These lawsuits are
described below.
CLAIMS AND LEGAL PROCEEDINGS AGAINST GIBRALTAR. In connection with the sale
of Gibraltar discussed in Note 3 of Notes to Consolidated Financial Statements
set forth in Item 7 herein, the Company is obligated to indemnify AEC for
certain claims against Gibraltar, including various legal claims and proceedings
disclosed to AEC, arising from circumstances existing on or prior to the date of
the sale of Gibraltar. The following items constitute material legal claims and
proceedings for which the Company is obligated to indemnify AEC:
On October 18, 1993, a suit styled WILLIAMS V. GIBRALTAR CHEMICAL
RESOURCES, INC. was filed against the Company, Gibraltar, Mobley Co. and certain
individuals, former customers of Gibraltar and other entities. This case is
currently pending in the State District Court of Smith County, Texas. The named
plaintiffs are certain individuals residing in Smith County, and are seeking
monetary damages for themselves and on behalf of all other persons similarly
situated. The petition alleges various acts of negligence, fraudulent
concealment, nuisance, trespass, and various others resulting from operations of
Gibraltar's hazardous waste facility. On May 12, 1997, plaintiffs' claims were
dismissed with prejudice by the Court. However, the Court's decision has been
appealed to the Court of Appeals.
A suit styled DANIELS V. GIBRALTAR CHEMICAL RESOURCES, INC. was filed on
August 31, 1995 in the State District Court of Dallas County, Texas against the
Company, Mobley Co., Gibraltar, and certain individuals, former customers of
Gibraltar and other entities by certain residents of Smith County, Texas. The
plaintiffs claim that they have experienced personal injury and property damage
which are alleged to have been caused by the operation of the Company's former
subsidiary, Gibraltar. The plaintiffs demand recovery of unspecified monetary
damages based on various legal grounds, including fraudulent concealment,
negligence, and assault & battery. This case has been set for trial in April
1999. While the Company disputes the material allegations of the plaintiffs'
suit and is vigorously defending the litigation, it is unable to determine the
likelihood of an unfavorable outcome at this time.
A suit styled GLAZER V. GIBRALTAR CHEMICAL RESOURCES, INC. was filed on
September 6, 1994, in the United States District Court for the Eastern District
of Texas, Tyler Division against Gibraltar by an individual and Mothers
Organized to Stop Environmental Sins ("MOSES"), under the citizens' suit
provisions of the Clean Air Act and the Resource Conservation and Recovery Act.
The suit alleges repeated and continuing violations of these federal
environmental protection statutes by Gibraltar and an imminent and substantial
endangerment to public health and the environment caused by Gibraltar's alleged
improper transportation, storage, treatment and disposal of solid and hazardous
wastes. The plaintiffs' request that Gibraltar's hazardous waste facility be
permanently closed, civil penalties be imposed, and plaintiffs' costs of
litigation be awarded. This case has been suspended by the court pending closure
of the plant site pursuant to TNRCC regulations and approvals; the closure
process for the facility is ongoing.
A suit styled ADAMS V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION,
F/K/A GIBRALTAR CHEMICAL RESOURCES, INC. was filed on August 7, 1996 in the
State District Court of Tarrant County, Texas against Gibraltar by approximately
600 individuals. The plaintiffs claim that they have experienced personal injury
and property damage which are alleged to have been caused by the operation of
Gibraltar. The plaintiffs demand recovery of unspecified monetary damages and
injunctive relief based on various legal grounds including negligence, assault
and battery, and intentional infliction of emotional distress. Discovery is
ongoing in this case. Neither the defense costs nor the damages, if any, arising
from this action are covered by any insurance policies the Company currently has
or had at the time of the alleged activities. However,
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the Company may be obligated to indemnify the purchaser of Gibraltar for certain
losses resulting from the claims asserted by the plaintiffs. While the Company
disputes the material allegations of the plaintiffs suit and intends to
vigorously defend the litigation, it is unable to determine the likelihood of an
unfavorable outcome at this time.
The Company is currently not able to reasonably estimate its potential
exposure with respect to the foregoing matters. The Company's future
financial condition, results of operations, and liquidity could be materially
adversely impacted as the nature and scope of the Company's ultimate
liability arising from Gibraltar's operations and sale become better defined.
Notwithstanding the sale of its oilfield services business to Dawson and its
hydrocarbon recycling and recovery business to U.S. Filter, all
responsibility for the foregoing matters will be retained by the Company. To
the extent the Company is held liable for these matters, it anticipates
paying for any such obligations not covered by insurance with funds retained
from the net proceeds of such sales. See Note 14 of Notes to Consolidated
Financial Statements set forth in Item 7 herein for related information.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 20, 1998, the Company held its Annual Meeting of Shareholders
("Annual Meeting") for which the Company solicited proxies on behalf of the
Board of Directors of the Company. At the Annual Meeting, two proposals were
submitted to a vote of the shareholders: (i) election of three members of the
Board of Directors, and (ii) ratification of the appointment of KPMG LLP as the
Company's independent auditor for the year ending December 31, 1999. The number
of votes cast for, against or withheld, as well as the number of abstentions and
broker nonvotes, as to each of the matters voted on at the Annual Meeting are as
follows:
<TABLE>
<CAPTION>
Results of Voting
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For Against Withheld Abstained Nonvotes
<S> <C> <C> <C> <C> <C>
Election of Directors
Class A Director
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Stewart Cureton, Jr.* 3,043,414 148,412 -- -- --
Class B Directors
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John Mobley 3,981,590 -- -- -- --
T.M. Mobley 3,981,590 -- -- -- --
Ratification of Auditor 43,004,426 3,300 -- -- --
</TABLE>
* In March 1999, Mr. Cureton resigned his position as a Class A Director for
the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to May 23, 1996, the Company's Class A Common Stock was traded on the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System under the symbol "MBLYA". Since that date, the
Company's Class A Common Stock has been quoted for trading on the OTC Bulletin
Board under the same symbol. The following table presents the range of reported
high and low bid quotations for the Company's Class A Common Stock for 1997 and
1998 as reported by the OTC Bulletin
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Board. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Quarter Ended 1997 1998
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High Low High Low
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<S> <C> <C> <C> <C>
March 31 $ 0 3/16 $ 0 9/32 $ 0 3/8 $ 0 7/32
June 30 0 7/32 0 19/64 0 3/8 0 7/32
September 30 0 7/32 0 19/64 0 3/8 0 13/64
December 31 0 7/32 0 1/4 0 5/16 0 1/8
</TABLE>
At March 1, 1999, there were approximately 1,100 beneficial owners of the
Company's Class A Common Stock, and 36 stockholders of record of the Company's
Class B Common Stock.
The Company has not paid any cash dividends on its Common Stock since its
initial public offering in September 1991 and has no immediate plans to make any
distributions to its shareholders (see "BUSINESS--Future Plans of the Company"
set forth in Item 1 herein).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
AUDITED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997, AND THE
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY, AND CASH
FLOWS FOR EACH OF THE YEARS THEN ENDED ("CONSOLIDATED FINANCIAL STATEMENTS") AND
RELATED NOTES THERETO SET FORTH AT PAGES F-1 TO F-21 ATTACHED HERETO.
GENERAL
Prior to May 29, 1997, the Company's business involved providing diverse
environmental and field-related services to industrial, governmental, and
commercial markets, specializing in the collection, transportation, treatment,
recycling and management of a wide variety of non-hazardous liquid hydrocarbons,
oil filters, absorbents and related materials. Additionally, prior to January
20, 1997, through its oilfield services segment, the Company provided services
for managing liquids used or produced during the life cycle of oil and gas
wells.
The following discussion is designed to assist in the understanding of the
Company's financial condition as of December 31, 1998, as well as the Company's
operating results for the year ended December 31, 1998. Certain material events
affecting the business of the Company are discussed in Item 1 herein. The Notes
to Consolidated Financial Statements contain additional information that should
be read in conjunction with this discussion.
1997 ASSET SALES AND DISCONTINUED OPERATIONS
On January 20, 1997 and May 29, 1997, the Company completed transactions
pursuant to which it sold substantially all of its operating assets in two
separate transactions (see Note 2 of Notes to Consolidated Financial
Statements). Because of these sales, results of operations of the Company's two
business segments for the years ended December 31, 1998 and 1997, have been
accounted for as discontinued operations in the accompanying consolidated
financial statements. The transactions and their impact on the consolidated
financial statements are described in the following paragraphs.
SALE OF WASTE MANAGEMENT SERVICES, ASSETS & DISCONTINUANCE OF BUSINESS
SEGMENT. On May 29, 1997, the Company sold substantially all of the assets
related to its waste management services activities to United
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States Filter Corporation ("U.S. Filter"). As a result of that transaction, the
Company received $8.0 million in shares of U.S. Filter common stock (registered
with the Securities and Exchange Commission) in exchange for such assets, and
can earn up to an additional $4.0 million in U.S. Filter common stock based on
the performance of the business during the two years following its sale.
Additionally, U.S. Filter assumed certain liabilities (accounts payable and
accrued expenses) as part of the transaction. The net assets which were the
subject of this transaction have been removed from the consolidated balance
sheet as of December 31, 1997. Such assets had a net book value (net of assumed
liabilities) of approximately $14,965,060.
During the year ended December 31, 1996, the Company recorded a charge of
$7,621,000 (net of a deferred income tax benefit of $698,000), representing the
estimated loss on the disposal of the business segment. The Company's waste
management services segment incurred a net loss of approximately $405,000 during
the period from January 1, 1997 until May 29, 1997, the date of closing of the
sale, which was in excess of the amounts previously accrued. The majority of the
loss was created by additional charges related to automobile liability insurance
claims and medical claims which were not included in the accruals established at
December 31, 1996.
In 1995, the Company acquired certain assets of a group of three affiliated
companies, including Romero Brothers Oil Exchange, Inc., Environmental Petroleum
Products Co./EPPCO, and Environmental Insight, Inc. (the "Romero Acquisition").
The principals of the acquired companies had the right to earn shares in the
Company based on the profitability of the acquired companies. This right was
suspended due to the sale of the waste management services segment. In order to
settle this obligation and to offer the principals of the acquired companies an
incentive to remain with the business to maximize the Company's earnout
provision with U.S. Filter, the Company paid the principals of the acquired
companies approximately $115,000 in June 1998. This payment had not been accrued
and was recorded as a loss from discontinued operations. In addition, the
principals of the acquired companies are to receive a percentage of the
Company's earnout with U.S. Filter. Approximately $72,500 was paid to the
principals of the acquired companies during the third quarter of 1998 resulting
from the earnout with U.S. Filter that was achieved as of May 29, 1998 for the
first year of operations subsequent to closing the sale of the waste management
services segment. The payment has been reported as a loss from discontinued
operations.
SALE OF OILFIELD SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS SEGMENT. On
January 20, 1997, the Company sold substantially all of the assets related to
its oilfield services business to Dawson Production Services, Inc. ("Dawson").
As a result of that transaction, the Company received approximately $4,917,000
and a subordinated note in the amount of $500,000 due in January 2002 in
exchange for such assets. The assets which were the subject of the sale had a
net book value, based on historical cost adjusted for accumulated depreciation
and amortization, of approximately $2,354,000. The results of operations
associated with the discontinued segment through the disposal date, after
allocation of certain overhead and interest costs, did not result in a loss. The
Company's oilfield services segment generated net income of approximately
$120,000 during the period October 1, 1996 to January, 21, 1997. The Company
recognized a gain upon completion of the sale, after transaction costs of
approximately $261,000, amounting to approximately $2,802,000 in January 1997.
The $500,000 note was paid in full during the fourth quarter of 1998.
RESULTS OF OPERATIONS
General and administrative expenses amounted to $704,000 and $759,000 for
the year ended December 31, 1998 and 1997, respectively. These costs represent
the ongoing administrative costs of the Company after disposing all of its
operating assets. Interest income of $330,000 and $158,000 was earned during the
year ended December 31, 1998 and 1997, respectively, on the investments
available for sale and note receivable. The increase resulted because the
investment securities were not received until May 29, 1997 as a result of
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the sale of the waste management services business segment. In addition, a gain
on the sale of U.S. Filter shares in the amount of $556,000 was recorded during
the year ended December 31, 1997, as substantially all of the U.S. Filter stock
was sold.
Income from discontinued operations amounted to $2,397,000 for the year
ended December 31, 1997. The $607,000 in income from discontinued operations for
the year ended December 31, 1998 is comprised of the $794,000 in U.S. Filter
stock received and approximately $187,500 cash paid to satisfy obligations of
the Company owed to the principals of the acquired companies of the Romero
Acquisition.
CAPITAL RESOURCES AND LIQUIDITY
All of the $8.0 million in U.S. filter common stock received at the time of
the closing of the sale of its waste management services assets has been sold.
Cash from the U.S. Filter stock sale, along with the proceeds from the sale of
the oilfield services assets, resulted in net proceeds totaling approximately
$8.2 million after repayments of the outstanding bank indebtedness and
transaction expenses. Such net proceeds were used to fund the current
liabilities retained by the Company following the sales, with the remaining
surplus cash deployed in investment securities. General and administrative
expenses incurred for the year ended December 31, 1998 were $704,000. The
Company anticipates that ongoing general and administrative expenses will be
approximately $540,000 annually, exclusive of any litigation costs, and expects
earnings from investments to partially offset such costs. The amounts described
herein are approximate and based on the Company's current estimates.
Furthermore, there can be no assurance that such amounts will actually be
realized.
In addition to the aforementioned proceeds, under the terms of the asset
purchase agreement with U.S. Filter, the Company may receive up to $4.0 million
in U.S. Filter common stock during the two-year period following the sale based
on the performance of the hydrocarbon recycling business. As of May 29, 1998,
approximately 20% of the earnout was achieved and 28,294 shares of U.S. Filter
stock was received for the first year of operations subsequent to closing the
sale. The fair value of the 28,294 shares at June 30, 1998 was approximately
$794,000, which was reported as a gain from discontinued operations during the
period ended June 30, 1998. As of December 31, 1998, the fair value of the stock
had declined to approximately $647,000 resulting in a recorded unrealized loss
of approximately $147,000. Additionally, in connection with the sale of the
oilfield services business, the Company received a $500,000 subordinated note
receivable from Dawson, bearing interest at 8.5%, which was to mature on January
4, 2002. This note was paid in full during the fourth quarter of 1998.
In connection with the sale of assets to U.S. Filter, 10% of the proceeds
of such transaction (approximately $825,000) were required to be maintained in
escrow for a period of one year from the closing of the transaction to satisfy
indemnification obligations of the Company to U.S. Filter. On May 29, 1998,
approximately $500,000 were released from escrow and paid to the Company. In an
agreement between the Company and U.S. Filter dated September 25, 1998, an
additional $55,000 was released from escrow and paid to the Company with all
other funds being remitted to U.S. Filter.
Because of its indemnification obligations related to the sale of
Gibraltar, as well as potential indemnity obligations with respect to the asset
sales to U.S. Filter and Dawson, and in light of the ongoing litigation,
9
<PAGE>
the Company, based on consultation with legal counsel, does not currently
anticipate making a distribution to its stockholders in the foreseeable future.
As circumstances change or additional information with respect to the extent of
the Company's potential indemnity obligations becomes available, the Board of
Directors will continue to evaluate various uses of the Company's funds. The
Company has no plans to conduct any kind of operating business at any time in
the future.
MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company are the responsibility
of management. They have been prepared in accordance with generally accepted
accounting principles and include estimates and judgments made by management. To
meet the responsibility for reliable financial data, management maintains a
system of internal accounting controls which is designed to provide reasonable
assurance that transactions are executed as authorized and are accurately
recorded and that assets are properly safeguarded. Although accounting controls
are designed to achieve this objective, it must be recognized that errors or
irregularities may occur. In addition, it is necessary to assess and balance the
relative costs and the expected benefits of the internal accounting controls.
The Company's independent auditors, KPMG LLP, have audited the Consolidated
Financial Statements in accordance with generally accepted auditing standards,
which include a review of the system of internal accounting controls only to the
extent necessary to determine audit procedures required to express their
opinion.
CERTAIN TRENDS AND UNCERTAINTIES
As a cautionary note to investors, the Company and its representatives may
make oral or written statements from time to time that are "forward-looking
statements" within the meaning of the United States federal securities laws,
including information contained herein which is not historical. There are a
number of important factors which could cause actual results and consequences to
differ materially from those anticipated. Such factors include, but are not
limited to, those set forth below.
RESOLUTION OF INDEMNIFICATION OBLIGATIONS AND PENDING LITIGATION. As more
fully discussed in "LEGAL PROCEEDINGS" set forth in Item 3 herein and Note 14 of
Notes to Consolidated Financial Statements set forth in Item 7 herein, the
Company has various outstanding contractual indemnification obligations and is a
defendant in various pending litigation matters. These matters raise difficult
and complex factual and legal issues, including but not limited to, the nature
and amount of the Company's liability, if any. The Company, based on
consultation with its legal counsel, believes that it is probable that the
Company will continue to incur expenses associated with the foregoing matters
and the Company has made an accrual for estimated out-of-pocket costs associated
with the ongoing administrative management of existing legal matters. However,
the Company is currently unable to reasonably estimate its potential exposure
for defending such matters, any indemnity obligations resulting therefrom, and
any corresponding insurance reimbursement. The Company's future financial
condition, results of operations, and liquidity could be materially adversely
impacted as the nature and scope of the Company's ultimate liability arising
from Gibraltar's operations and sale become better defined.
FUTURE PLANS OF THE COMPANY. For reasons described elsewhere in this Form
10-KSB (see "BUSINESS--Future Plans of the Company" set forth in Item 1 herein),
the Company does not currently anticipate making a distribution to its
shareholders in the foreseeable future. As circumstances change or additional
information with respect to the extent of the Company's potential indemnity
obligations becomes available, the Board of Directors will continue to evaluate
various uses for the Company's funds. The Company anticipates that its ongoing
general and administrative expenses will be approximately $540,000
10
<PAGE>
annually. This amount is based on current estimates and actual amounts could
differ from this estimate.
INVESTMENT SECURITIES OF THE COMPANY. As of December 31, 1998, the
Company's assets included $4,954,000 in investment securities available for
sale. Such securities are interest-bearing investment grade bonds and similar
securities, in addition to 28,294 shares of U.S. Filter common stock with a
market value of $647,225 as of December 31, 1998. However, the future value or
quality of such securities is subject to market fluctuation and their
performance is not guaranteed.
ITEM 7. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries are incorporated by reference in response to this item:
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets
December 31, 1998 and 1997 F-2
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6 to F-21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
DIRECTORS
Set forth below is certain information regarding each of the two (2)
persons currently serving as Class B directors of the Company. In March 1999,
Stewart Cureton, Jr., the Company's Class A Director, resigned from such
position. The Company is currently conducting a search for a Class A Director
nominee.
11
<PAGE>
<TABLE>
<CAPTION>
Name Age Director Since
---- --- --------------
<S> <C> <C>
John Mobley 68 1991
T.M. Mobley 63 1991
</TABLE>
JOHN MOBLEY has been Chairman of the Board of the Company since its
organization. From the time of the Company's organization through November 1993,
Mr. Mobley served as Chief Executive Officer. Prior to the organization of the
Company, Mr. Mobley held various senior management positions with the Company's
predecessors. Mr. Mobley was President of Tiger Corporation, a solid-waste
disposal company, from 1971 until it was sold to a national solid-waste disposal
company in 1986. Upon the sale of substantially all of the Company's operating
assets, Mr. Mobley became President, Chief Financial Officer and Secretary of
the Company.
T.M. MOBLEY has been Vice Chairman of the Board since November 1992.
Previously Mr. Mobley had served as President and Chief Operating Officer of the
Company from the time of its organization until November 1992 and had held
various senior management positions with the Company's predecessors since 1961.
Mr. Mobley joined Gibraltar Chemical Resources, Inc. ("Gibraltar") as President
in 1985 and served in that capacity until 1991. Mr. Mobley served as President
of Mobley Company, Inc. ("Mobley Co.") from 1965 until 1989. Upon the sale of
substantially all of the Company's operating assets, Mr. Mobley became Vice
President and Treasurer of the Company.
John Mobley and T.M. Mobley are brothers.
EXECUTIVE OFFICERS
The following persons are the Company's current executive officers.
<TABLE>
<CAPTION>
NAME POSITION
<S> <C>
John Mobley President, Chief Financial Officer and Secretary
T.M. Mobley Vice President and Treasurer
</TABLE>
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
its review of the copies of such forms received by it with respect to fiscal
year 1998, or written representations from certain reporting persons, except as
set forth below, the Company believes that all filing requirements applicable to
its directors, officers, and persons who own more than 10% of a registered class
of the Company's equity securities have been complied with: John Mobley is
delinquent in the filing of one Form 4 for transactions that occurred during
1998.
12
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid to the Company's chief executive officer during the Company's last two
fiscal years (no other executive officer of the Company earned in excess of
$100,000 during 1998). Mr. Mobley was not an executive officer of the Company
during 1996.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------
Annual Compensation Awards Pay-outs
--------------------------------- ------------------------ --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------- ----- ---------- --------- --------- ---------- ----------- -------- -------------
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Compensa- Stock Options/ Pay-outs Compensation
Position Year ($) ($) tion ($) Awards ($) SARs (#) ($) ($)
- --------------------- ----- ---------- --------- --------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
John Mobley 1998 -- -- -- -- -- -- --
PRESIDENT, CHIEF 1997 -- -- 6,000* -- -- -- --
FINANCIAL OFFICER AND
SECRETARY
</TABLE>
- --------------------
* Consists of car allowance.
AGGREGATED OPTION/SAR EXERCISES IN 1998 FISCAL YEAR AND DECEMBER 31, 1998
OPTION/SAR VALUES
All stock options previously granted to the Company's executive officers
had terminated unexercised prior to 1998.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
During 1998, the Company did not have any employees; and, therefore, did
not pay any compensation for that year. Accordingly, the Compensation Committee
of the Board of Directors, which was comprised of Stewart Cureton, Jr., John
Mobley, and T.M. Mobley (all of which are non-employee directors of the
Company), did not meet or have any other responsibilities in that capacity.
In the past, to enable the Company to provide its executive and other key
officers with an additional incentive to maximize shareholder value by giving
them a proprietary interest in the Company through the ownership of stock, the
Compensation Committee concluded that the grant of restricted shares of Class A
Common Stock was in the best interests of the Company and its shareholders.
Consequently, the Board of Directors adopted the 1995 Employee Restricted Stock
Plan effective January 1, 1995. In light of the sale of assets to U.S. Filter,
certain individual grant agreements were amended such that the deferred
compensation costs associated with the unvested shares will be earned by the
Company's two executive officers and two other officers only in the event and to
the extent that the Company receives additional shares of U.S. Filter common
stock pursuant to an "earnout" provision in the definitive asset acquisition
agreement (see "BUSINESS--Business Strategy and Background of the Transaction"
set forth in Item 1 herein).
COMPENSATION OF DIRECTORS
During 1998, each director received a payment of $250.00.
13
<PAGE>
SUMMARY OF COMPENSATION PLANS
Prior to the disposition of substantially all of the Company's remaining
operating assets on May 29, 1997, the Company maintained several employee
compensation plans. During 1998, the Company had no employees; accordingly, no
employees participated in any such plans. The Company does not anticipate that
any employees will participate in any such plans at any time in the future.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of March 15, 1999, the shares of Class A
and Class B Stock beneficially owned by (i) each person known to the Company to
be the beneficial owner of more than five percent of the issued and outstanding
shares of the Company's Class A or Class B Stock, (ii) each director, (iii) the
Company's Chief Executive Officer, and (iv) the directors and executive officers
as a group. This information is based on public filings made with the Securities
and Exchange Commission through May 1998, and certain information supplied to
the Company by the persons listed below.
<TABLE>
<CAPTION>
CLASS A STOCK(1) CLASS B STOCK(1)
Percent of Percent of
Name of Beneficial Owner (2) Shares Class Shares Class
- ------------------------------------------- ---------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
John Mobley -- -- 470,277(3) 15.0%
Lois Ann Mobley -- -- 470,277(4) 5.5%
James A. Mobley(5) -- -- 647,517 14.1%
Steven M. Mobley(5) -- -- 647,517 14.1%
H. David Hughes, Trustee -- -- 365,786(6) 8.0%
T.M. Mobley -- -- 1,108,210(7) 24.2%
Jo Ann Mobley Grooms -- -- 324,671(8) 7.10%
Susan Mobley Matthews -- -- 235,471(9) 5.1%
David Mobley -- -- 515,163(10) 11.3%
Robert G. Schleier, Trustee -- -- 691,527(11) 15.1%
Pilot Investments, Ltd. -- -- 433,454 9.47%
Directors and Executive Officers
as a Group (3 persons) -- -- 1,578,487 39.2%
</TABLE>
- --------------------
*Less than 1%
(1) Each share of Class B Stock is convertible into Class A Stock on a
share-for-share basis at any time. The information set forth for Class A
Stock does not include the shares of Class B Stock which are convertible
into Class A Stock.
(2) Addresses of beneficial owners are as follows: John Mobley, Lois Ann Mobley
and Pilot Investments, Inc., 305 Camp Craft Road, Suite 150, Austin, Texas;
James A. Mobley, 919 Hillcrest Drive, Longview, Texas; Steven M. Mobley,
816 Congress Avenue, Suite 1100, Austin, Texas; H. David Hughes, 111
Congress Avenue, Suite 1400, Austin, Texas; T.M. Mobley, 609 Willow Bend,
Kilgore, Texas; Jo Ann Mobley Grooms, 1880 Bent Tree, Tyler, Texas; Susan
Mobley Matthews, HCR 68, Box 23A, Hondo, Texas; David Mobley, 1909 N.
Longview Street, Kilgore, Texas; and Robert G. Schleier, 1100 Stone Road,
Suite 101, Kilgore, Texas.
14
<PAGE>
(3) Includes 253,550 shares held by a family trust for which Mr. Mobley's
spouse, Lois Ann Mobley, is co-trustee; Mr. Mobley has no pecuniary
interest in such shares. Also includes a pro-rata portion of shares
owned by a partnership in which Mr. Mobley has an ownership interest;
Mr. Mobley shares voting and investment power for shares owne by such
partnership.
(4) Includes 253,550 shares held as co-trustee for a trust; Mrs. Mobley
shares voting and investment power for such shares with H. David Hughes.
Also includes a pro-rata portion of shares owned by a partnership in which
Mrs. Mobley has an ownership interest; Mrs. Mobley shares voting and
investment power for shares owned by such partnership.
(5) The number of shares listed for each of James A. Mobley and Steven M.
Mobley includes 290,600 shares owned by trusts for which they serve as
trustees.
(6) Represents shares held as co-trustee for two trusts (see Footnotes (6) and
(9)). Although Mr. Hughes shares voting and investment power for such
shares, he has no pecuniary interest in the shares.
(7) Includes 112,236 shares held as co-trustee for a trust; although Mr. Mobley
shares voting and investment power with H. David Hughes for shares owned by
such trust, he has no pecuniary interest in those shares.
(8) Includes 296,671 shares owned by trusts for which Mrs. Grooms is sole
trustee. Also includes 28,000 shares owned of record by Mrs. Grooms'
spouse; Mrs. Grooms disclaims beneficial ownership for such shares.
(9) Includes 207,471 shares owned by trusts for which Mrs. Matthews is sole
trustee. Also includes 28,000 shares owned of record by Mrs. Matthews'
spouse; Mrs. Matthews disclaims beneficial ownership for such shares.
(10) Represents shares held as trustee or co-trustee for trusts. Mr. Mobley
shares voting and investment power for 512,739 of the shares.
(11) Represents shares held as trustee or co-trustee for four trusts; Mr.
Schleier shares voting and investment power with David Mobley for 511,527
of these shares. However, Mr. Schleier has no pecuniary interest in any of
the shares he beneficially owns.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, the Company engaged Cureton & Co., an entity in which Stewart
Cureton, Jr. has an ownership and management interest, to provide certain
business consulting services to the Company, including analysis and negotiation
of potential business combination transactions to which the Company might be a
party. Until March 1999, Mr. Cureton was a Class A director. Under the terms of
the engagement, the Company paid Cureton & Co. retainer fees of $12,200 through
December 31, 1997. Additionally, the Company paid Cureton & Co. a total of
approximately $220,000, plus out-of-pocket expenses, in conjunction with the
sale of assets to U.S. Filter, and a fee of approximately $207,500, plus
out-of-pocket expenses, in connection with U. S. Filter's acquisition of PORI,
which was completed on February 28, 1997. Under the terms of the Agreement, U.S.
Filter reimbursed the Company $250,000 for expenses associated with its due
diligence investigations of PORI, including amounts due to Cureton & Co.
Additionally, in connection with the disposition of its oilfield services
business described previously, the Company paid Cureton & Co. approximately
$150,000, plus out-of-pocket expenses. The Company believes that the terms of
its arrangements with Cureton & Co. are consistent with industry standards for
similar services.
15
<PAGE>
PART IV
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
ITEM 13 (a) LIST OF EXHIBITS
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.1* Certificate of Incorporation of the Company (filed as Exhibit 3.1 to
the Company's Registration Statement on Form S-1, No. 33-41722).
3.2* Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1, No. 33-41722).
3.3* Amendment to Bylaws of the Company (filed as Exhibit 3.2(b) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991).
4.1* Specimen Class A Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1, No. 33-41722).
4.2* Specimen Class B Common Stock Certificate (filed as Exhibit 4.2 to
the Company's Registration Statement on Form S-1, No. 33-41722).
10.1*+ Form of Restated Stock Compensation Plan (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8, No. 33-92336).
10.2*+ Mobley Employees Profit Sharing Plan, as amended and restated
effective January 1, 1994 (filed as Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.3* Registration Rights Agreement, dated August 23, 1991 between the
Company and David Mobley Grantor Trust (filed as Exhibit 10.54 to the
Company's Registration Statement on Form S-1, No. 33-41722).
10.4* Stock Purchase Agreement dated May 10, 1994 by and between American
Ecology Corporation and Mobley Environmental Services, Inc. (filed as
Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.5* Side Letter Agreement dated May 13, 1994 between American Ecology
Corporation and Mobley Environmental Services, Inc. regarding the
Stock Purchase Agreement set forth at Exhibit 10(ii) (filed as
Exhibit 10(jj) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.6* Amendment to Stock Purchase Agreement dated September 2, 1994 between
American Ecology Corporation and Mobley Environmental Services, Inc.
regarding the Stock Purchase Agreement (filed as Exhibit 10(mm) to
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1994).
16
<PAGE>
10.7* Promissory Note in the original principal amount of $550,000 dated
December 31, 1994 executed by American Ecology Corporation payable to
Mobley Environmental Services, Inc. (filed as Exhibit 10(v) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.8*+ 1995 Employee Restricted Stock Plan (filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-8, No. 33-92336).
10.9* Asset Purchase Agreement dated April 25, 1997 by and among Mobley
Environmental Services, Inc., Mobley Company, Inc., Hydrocarbon
Technologies, Inc., United States Filter Corporation, and U.S. Filter
Recovery Services (Southwest), Inc.
10.10* Asset Purchase Agreement dated January 20, 1997 by and among Mobley
Company, Inc., and Dawson Production Services, Inc.
10.11* Promissory Note in the amount of $500,000 dated January 20, 1997
executed by Dawson Production Services, Inc. payable to Mobley
Company, Inc.
10.12* Information Statement dated May 9, 1997 to the Shareholders of the
Company relating to the pending sale of the Company's hydrocarbon
recycling and recovery business, including Supplement thereto dated
May 12, 1997 (filed as Schedule 14C on May 9, 1997 and May 14, 1997).
10.13* Tolling Agreement dated July 30, 1997 between American Ecology
Corporation and Mobley Environmental Services, Inc.
23 Independent Auditors' Consent.
27 Financial Data Schedule (submitted only in electronic format).
- --------------------
* Incorporated herein by reference to the respective filing identified
above.
+ Identifies management or compensatory plan or arrangement required to
be filed as an exhibit to this form pursuant to Item 14(c) of this
report.
ITEM 13(b) REPORTS ON FORM 8-K
None
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 31, 1999 Mobley Environmental Services, Inc.
Registrant
/s/ John Mobley
------------------------------------------------
John Mobley
President, Chief Financial Officer and Secretary
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John Mobley Chairman of the Board March 31, 1999
- ---------------------- and Director; President,
John Mobley Chief Financial Officer,
and Secretary
/s/ T.M. Mobley Vice-Chairman of the March 31, 1999
- ---------------------- Board and Director;
T.M. Mobley Vice President and
Treasurer
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mobley Environmental Services, Inc.:
We have audited the accompanying consolidated balance sheets of Mobley
Environmental Services, Inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits 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 audits provide 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 Mobley
Environmental Services, Inc. and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
KPMG LLP
Shreveport, Louisiana
March 12, 1999
F-1
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
------------------ -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 81 353
Receivables 155 373
Prepaid expenses 94 93
------------------ -------------------
Total current assets 330 819
Property, plant, and equipment, net 188 211
Note receivable - 500
Investment securities available for sale 4,954 4,495
Other assets, net 359 192
------------------ -------------------
$ 5,831 6,217
------------------ -------------------
------------------ -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 61 100
Accrued expenses 413 1,041
------------------ -------------------
Total current liabilities 474 1,141
------------------ -------------------
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value:
Class A, 15,000,000 shares authorized; 4,259,650 shares
issued and outstanding in 1998 and 1997 43 43
Class B, 10,000,000 shares authorized; 4,660,350 shares issued
and 4,575,643 shares outstanding in 1998 and 1997 47 47
Additional paid-in capital 25,159 25,159
Accumulated deficit (19,845) (20,093)
Accumulated other comprehensive income (loss) (39) 29
Deferred compensation costs under restricted stock agreements - (101)
Treasury stock: 84,707 shares of Class B common stock, at cost (8) (8)
------------------ -------------------
Total stockholders' equity 5,357 5,076
Commitments and contingencies
------------------ -------------------
$ 5,831 6,217
------------------ -------------------
------------------ -------------------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
F-2
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997
(in thousands, except per share amounts and share data)
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Revenues $ - -
Cost of revenues - -
---------------- ----------------
Gross profit - -
Selling, general, and administrative expenses 704 759
---------------- ----------------
Operating loss (704) (759)
Gain on sale of investment securities - 555
Interest income 330 158
Other income (expense), net 15 42
---------------- ----------------
Loss from continuing operations before income taxes (359) (4)
Income taxes - -
---------------- ----------------
Loss from continuing operations (359) (4)
---------------- ----------------
Discontinued operations, net of tax:
Net loss from operations of waste management services segment - (405)
Gain on sale of oilfield services segment - 2,802
Net gain from the earnout period of waste management services segment 607 -
---------------- ----------------
Income from discontinued operations 607 2,397
---------------- ----------------
Net income 248 2,393
Comprehensive income (loss):
Other comprehensive income (loss) - change in net unrealized
gains (losses) on securities, net of tax of $(35) and $15 (68) 29
---------------- ----------------
Comprehensive income $ 180 2,422
---------------- ----------------
---------------- ----------------
Net income (loss) per share - basic and assuming dilution:
Continuing operations $ (0.04) (0.00)
Discontinued operations 0.07 .27
---------------- ----------------
$ 0.03 .27
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
F-3
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998 and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Preferred stock - none issued $ - -
Class A common stock:
Balance at beginning of year 43 42
Conversion of 104,553 shares of Class B common stock - 1
---------------- ----------------
Balance at end of year 43 43
---------------- ----------------
Class B common stock:
Balance at beginning of year 47 48
Conversion of 104,553 shares into Class A common stock - (1)
---------------- ----------------
Balance at end of year 47 47
---------------- ----------------
Additional paid-in capital 25,159 25,159
---------------- ----------------
Accumulated deficit:
Balance at beginning of year (20,093) (22,486)
Net income 248 2,393
---------------- ----------------
Balance at end of year (19,845) (20,093)
---------------- ----------------
Accumulated other comprehensive income (loss):
Balance at beginning of year 29 -
Unrealized gain (loss) on investment securities (68) 29
---------------- ----------------
Balance at end of year (39) 29
Deferred compensation costs under restricted
stock agreements:
Balance at beginning of year (101) (288)
Amortization of deferred compensation costs 101 187
---------------- ----------------
Balance at end of year - (101)
---------------- ----------------
Treasury stock (8) (8)
---------------- ----------------
Total stockholders' equity $ 5,357 5,076
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
F-4
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 248 2,393
Adjustments to reconcile net income to net cash used by
operating activities:
Gain on sale of US Filter stock - (556)
US Filter stock received from earnout of waste management
services segment (794) -
Gain on sale of oilfield services segment - (2,802)
Depreciation and amortization 23 538
Deferred income tax benefit - (148)
Amortization of deferred compensation costs 101 187
Bad debt expense - 152
Changes in certain operating assets and liabilities:
Receivables 218 (750)
Prepaid expenses and other assets (168) 364
Accounts payable (39) (931)
Accrued expenses (594) (2,122)
Other (4) (36)
--------------- --------------
Net cash used by operating activities, including
discontinued operations (1,009) (3,711)
--------------- --------------
Cash flows from investing activities:
Net proceeds from sale of oilfield services segment - 4,656
Net proceeds from sale of US Filter stock - 8,556
Net proceeds from sale of investment securities available for sale 435 349
Net proceeds from maturity of investment securities
available for sale 551 -
Purchase of investment securities available for sale (750) (4,801)
Proceeds from sale of fixed assets 1 45
Capital expenditures - (112)
--------------- --------------
Net cash provided by investing activities,
including discontinued operations 237 8,693
--------------- --------------
Cash flows from financing activities:
Principal payments on long-term debt - (5,014)
Proceeds from collection of note receivable 500 -
--------------- --------------
Net cash provided (used) by financing activities,
including discontinued operations 500 (5,014)
Net decrease in cash and cash equivalents (272) (32)
Cash and cash equivalents at beginning of year 353 385
--------------- --------------
Cash and cash equivalents at end of year $ 81 353
--------------- --------------
--------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
F-5
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements present the consolidated accounts
of Mobley Environmental Services, Inc. (the "Company") and its
wholly-owned subsidiaries, Hydrocarbon Technologies, Inc. ("HTI") and
Mobley Company, Inc. ("Mobley"). In January 1997, the Company sold the
assets of its oilfield services segment, and in May 1997, it sold the
assets of its waste management services segment (note 2). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
DESCRIPTION OF BUSINESS
Prior to the sale of its oilfield services and waste management services
segments, the Company provided diverse environmental and field-related
services to industrial, governmental, and commercial markets,
specialized in the collection, transportation, treatment, recycling, and
management of a wide variety of non-hazardous liquid hydrocarbons, oil
filters, absorbents, and related materials and also provided oilfield
services for managing liquids used or produced during the lifecycle of
oil and gas wells. The Company operated primarily in the states of
Texas, Louisiana, and Arkansas.
As of May 1997, the Company had sold all of its operating assets.
Proceeds from the sale of its segments have been invested until pending
litigation and outstanding contractual indemnification obligations
expire or are otherwise satisfied. The Company is being managed by its
President. Accounting and other administrative functions are being
performed by third-parties through contractual arrangements.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in note 2, the Company's Board of Directors determined that the
divestiture of its operations was in the best interests of the Company
and its shareholders. The consolidated financial statements do not
include any adjustments that might result from the liquidation of the
Company.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers investments
with original maturities of three months or less to be cash equivalents.
Cash equivalents consist of investments in money market accounts at
December 31, 1998 and 1997.
INVESTMENT SECURITIES
The Company classifies its debt and marketable equity securities in one
of three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale. All of the
Company's investment securities are classified as available-for-sale,
which are recorded at fair value. Unrealized holding gains and losses,
net of the related tax effect, are excluded from earnings and are
reported as a separate component of stockholders' equity until realized.
(Continued)
F-6
<PAGE>
A decline in the market value of any security below cost that is deemed
other than temporary is charged to operations resulting in the
establishment of a new cost basis for the security.
Due to the overall immateriality to the consolidated financial
statements, premiums and discounts are taken to the income statement at
the time of purchase. Dividend and interest income are recognized when
earned. Realized gains and losses are included in earnings and are
derived using the specific identification method for determining the
cost of securities sold.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost and depreciated
using the straight-line method over their estimated useful lives ranging
from three to thirty years. Routine maintenance and repair costs are
charged to expense as incurred. Renewals and betterments are
capitalized. When an asset is retired or sold, its cost and related
accumulated depreciation are removed from the accounts and the
difference between the net book value of the asset and proceeds from
disposition is recognized as gain or loss.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company utilizes the provisions of Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121"), which requires
that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows, undiscounted and
without interest charges, expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS PER COMMON SHARE
Earnings per share amounts presented were calculated under the
provisions of SFAS 128, EARNINGS PER SHARE. Basic earnings per share is
computed based on earnings available to common shareholders and the
weighted average number of common shares outstanding. The earnings per
share assuming dilution amounts presented are computed based on earnings
available to common shareholders and the weighted average number of
common shares outstanding, including shares assumed to be issued under
the Company's 1995 Employee Restricted Stock Plan. SFAS 128 had no
significant impact on earnings per share.
(Continued)
F-7
<PAGE>
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles.
Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires that the Company disclose
estimated fair values for its financial instruments. Fair value
estimates are set forth below for the Company's financial instruments:
- Cash and Cash Equivalents, Receivables, Accounts Payable, and
Accrued Expenses - The carrying amounts approximate fair value
because of the short maturity of these instruments.
- Note Receivable - The carrying amount of the note receivable at
December 31, 1997 approximated market because the interest rate
was comparable to the then current market rates.
- Investment Securities Available for Sale - The fair value of
securities available for sale is estimated based on bid prices
published in financial newspapers or bid quotations received
from security dealers.
STOCK COMPENSATION PLANS
The Company has elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES ("APB 25") and provide the pro forma disclosure provisions
of Statement of Accounting Standards Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS 123"). As a result of the Company
selling all of its operating assets during 1997, all stock compensation
plans, except for the 1995 Employee Restricted Stock Plan, have been
terminated and options outstanding under these plans have been
forfeited. (note 11).
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net income
and net unrealized gains (losses) on securities and is presented in the
consolidated statements of operations. The Statement requires only
additional disclosures in the consolidated financial statements; it does
not affect the Company's financial position or results of operations.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
(Continued)
F-8
<PAGE>
(2) ASSET SALES AND DISCONTINUED OPERATIONS
During 1996, in light of the Company's severely weakened financial
condition and, in particular, concerns about its liquidity, the Board of
Directors reviewed the challenges facing the Company and discussed in
general terms the alternatives available to address them. As part of
these deliberations, management and the Company's financial advisors
reviewed in detail with the Board of Directors their efforts with third
parties to attract possible investments in, or strategic alliances with,
the Company. Since such efforts had not yielded access to funds on terms
acceptable to the Company, the Board of Directors determined that the
divestiture of its operations was in the best interest of the Company
and its shareholders. These circumstances required the Company to
re-evaluate the basis used to assess the carrying values of assets.
Subsequently, on January 20, 1997, and May 29, 1997, the Company sold
substantially all of its operating assets in two separate transactions.
The transactions and their impact on the Company's consolidated
financial statements are described in the following paragraphs.
The Company's two business segments, waste management services and
oilfield services, have been accounted for as discontinued operations,
and accordingly, their operations have been segregated in the
accompanying consolidated statements of operations. The revenues,
operating costs and expenses, interest expense, and income taxes for the
year ended December 31, 1997, have been reclassified for amounts
associated with the discontinued segments. Due to the relative
significance of the Company's business segments to its operations as a
whole, and in light of the Company's decision in 1996 to divest itself
of all of its operating assets, the Company allocated certain general
and administrative expenses to the business segments in the accompanying
consolidated segments of operations. General and administrative expenses
attributable to continuing operations have been determined based upon an
allocation of such costs between the business segments and continuing
operations. Other income and expense have been recorded as continuing
operations as such amounts were not specifically attributable to either
of the Company's business segments which were disposed of. Interest
expense was allocated to the segments based on the outstanding
indebtedness attributable to each of the business segments.
SALE OF OILFIELD SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS SEGMENT.
On January 20, 1997, the Company sold substantially all of the assets
related to its oilfield services business to Dawson Production Services,
Inc. ("Dawson"). As a result of that transaction, the Company received
approximately $4,917,000 and a subordinated note in the amount of
$500,000, due in January 2002, in exchange for such assets. The assets
which were the subject of the sale had a net book value, based on
historical cost adjusted for accumulated depreciation and amortization,
of approximately $2,354,000. The results of operations associated with
the discontinued segment through the disposal date, after allocation of
certain overhead and interest costs, did not result in a loss. The
Company's oilfield services segment generated net income of
approximately $120,000 during the period October 1, 1996 to January 20,
1997. The Company recognized a gain upon completion of the sale, after
transaction costs of approximately $261,000, amounting to approximately
$2,802,000 in January 1997. The $500,000 note was paid in full during
the fourth quarter of 1998.
(Continued)
F-9
<PAGE>
SALE OF WASTE MANAGEMENT SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS
SEGMENT.
On May 29, 1997, the Company sold substantially all of the assets
related to its waste management services activities to United States
Filter Corporation ("USF"). As a result of that transaction, the Company
received $8,000,000 in shares of USF common stock (registered with the
Securities and Exchange Commission) in exchange for such assets, and can
earn up to an additional $4,000,000 in USF common stock based on the
performance of the business during the two years following its sale.
Additionally, USF assumed certain liabilities (accounts payable and
accrued expenses) as part of the transaction. The net assets which were
the subject of that transaction have been removed from the consolidated
balance sheet as of December 31, 1997. Such assets had a net book value
(net of assumed liabilities) of approximately $14,965,060.
During the year ended December 31, 1996, the Company recorded a charge
of $7,621,000 (net of a deferred income tax benefit of $698,000),
representing the estimated loss on the disposal of the business segment.
The Company's waste management services segment incurred a net loss of
approximately $405,000 during the period from January 1, 1997 until May
29, 1997, the date of closing on the sale, which was in excess of the
amounts previously accrued. The majority of this loss was created by
additional charges related to automobile liability insurance claims and
medical claims which were not included in the accruals established at
December 31, 1996.
Operating results and the estimated loss on disposal of the Company's
waste management services segment for the year ended December 31, 1997
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Revenues $ 9,489
Cost of revenues 7,697
-----------
Gross profit 1,792
Selling, general, and administrative expenses, including
allocated amounts 2,209
-----------
Operating loss (417)
Interest expense, net (136)
-----------
Loss before income taxes (553)
Income tax benefit 148
-----------
Net loss from operations of waste management
services segment $ (405)
-----------
-----------
</TABLE>
(Continued)
F-10
<PAGE>
Operating results of the Company's oilfield services segment for the year
ended December 31, 1997 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Revenues $ 231
Cost of revenues 168
-----------
Gross profit 63
Selling, general, and administrative expenses, including
allocated amounts 63
-----------
Net loss from operations of oilfield
services segment $ -
-----------
-----------
</TABLE>
Upon completion of the sale of the waste management services segment,
the $8,000,000 of USF common stock was sold resulting in a gain of
$556,000 which is reflected in other income in continuing operations in
the 1997 statement of operations. Proceeds from this sale were used to
pay off existing long-term debt and current liabilities, and the
remaining proceeds were used to purchase investment grade fixed term
securities. As of December 31, 1997, approximately $825,000 in
investments were held in escrow until May 29, 1998 to satisfy any
indemnification obligations of the Company to USF. As of May 29, 1998,
approximately $500,000 were released from escrow. In an agreement dated
September 25, 1998 with USF, an additional $55,000 were released from
escrow, with all other funds being remitted to USF.
As of May 29, 1998, approximately 20% of the earnout was achieved and
28,294 shares of USF stock was received for the first year of operations
subsequent to closing the sale. The fair value of the 28,294 shares at
June 30, 1998 was approximately $794,000, which was reported as a gain
from discontinued operations during the period ended June 30, 1998. As
of December 31, 1998, the fair value of the stock had declined to
approximately $647,000 resulting in a recorded unrealized loss of
approximately $147,000.
In 1996, the Company engaged an investment banking and financial
advisory firm in which a Class A director has an ownership and
management interest to provide certain business consulting services to
the Company, including analysis and negotiation of potential business
combination transactions to which the Company might be a party. Under
the terms of the engagement, the Company paid the investment banking
firm retainer fees of $12,200 in 1997. Additionally, the Company paid
such investment banking firm a total of approximately $220,000, plus
out-of-pocket expenses, in conjunction with the transaction with USF and
approximately $207,500, plus out-of-pocket expenses, in connection with
USF's acquisition of an unrelated entity, which was completed on
February 28, 1997. However, USF reimbursed the Company $250,000 for
certain expenses, including amounts that were paid to the investment
banking firm. In connection with the disposition of the Company's
oilfield services segment, the Company paid the investment banking firm
approximately $150,000, plus out-of-pocket expenses. The Company
believes that the terms of its arrangement with the investment banking
firm are consistent with industry standards for similar services.
(Continued)
F-11
<PAGE>
Because of the outstanding contractual indemnification obligations of
the Company resulting from its business divestitures and in light of
pending litigation to which the Company is a party, the Company will
remain in existence and incur certain general and administrative
expenses for the foreseeable future but will have no operating assets.
Therefore, certain general and administrative expenses and nonoperating
income and expense have been accounted for as continuing operations.
Future costs incurred in connection with these indemnification
obligations and litigation responsibilities will be reported as part of
the discontinued operations in which they originated or to which they
related. The Company believes it is probable that it will continue to
incur certain costs associated with these legal matters and accordingly
established an accrual for estimated out-of-pocket expenses related to
the ongoing administrative management of such matters. However, the
Company is currently unable to reasonably estimate its potential
exposure for defending such matters, any indemnity obligations resulting
therefrom, and any corresponding insurance reimbursement (note 14).
(3) SALE OF GIBRALTAR
Effective December 31, 1994, pursuant to a definitive agreement (the
"Stock Purchase Agreement"), the Company completed the sale of all of
the outstanding shares of common stock of Gibraltar to American Ecology
Corporation ("AEC"). The Company received cash of $5,500,000 from AEC
and a note payable to the Company in the amount of $550,000 to be held
in escrow as a source of payment of claims, if any, for which the
Company indemnifies AEC under the Stock Purchase Agreement (note 14).
The change in the reserve for loss on the sale of Gibraltar for the
years ended December 31, 1998 and 1997, is summarized as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1996, included in accrued expenses $ 404
Allocation of additional reserves to cover Gibraltar indemnity
obligations 190
1997 expenditures related to Gibraltar indemnity obligations (331)
-----------
Balance at December 31, 1997, included in accrued expenses 263
1998 expenditures related to Gibraltar indemnity obligations (104)
----------
Balance of December 31, 1998, included in accrued expenses $ 159
----------
----------
</TABLE>
(Continued)
F-12
<PAGE>
(4) PREVIOUS ASSET ACQUISITION
In 1995, the Company acquired certain assets of a group of three
affiliated companies, including Romero Bros. Oil Exchange, Inc.,
Environmental Petroleum Products Co./EPPCO, and Environmental Insight,
Inc. The principals of the acquired companies had the right to earn
shares in the Company based on the profitability of the acquired
companies. This right was suspended due to the sale of the waste
management services segment. In order to settle this obligation and to
offer the principals of the acquired companies an incentive to remain
with the business to maximize the Company's earnout provision with USF,
the Company paid the principals of the acquired companies approximately
$115,000 in June 1998. This payment had not been accrued and was
recorded as a loss from discontinued operations. In addition, the
principals of the acquired companies are to receive a percentage of the
Company's earnout with USF. Approximately $72,500 was paid to the
principals of the acquired companies during the third quarter of 1998
resulting from the earnout with USF that was achieved as of May 29, 1998
for the first year of operations subsequent to closing the sale of the
waste management services segment. This payment has also been reported
as a loss from discontinued segments.
(5) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for investment securities by major
security type and class of security at December 31, 1998 and 1997, were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
At December 31, 1998
--------------------
U.S. Treasury securities $ 720 20 - 740
Corporate debt securities 3,500 67 - 3,567
------------------ ----------------- ----------------- -----------------
4,220 87 - 4,307
U.S. Filter common stock 794 - (147) 647
------------------ ----------------- ----------------- -----------------
$ 5,014 87 (147) 4,954
------------------ ----------------- ----------------- -----------------
------------------ ----------------- ----------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
At December 31, 1997
--------------------
U.S. Treasury securities $ 900 13 - 913
Corporate debt securities 3,551 33 (2) 3,582
------------------ ----------------- ----------------- -----------------
$ 4,451 46 (2) 4,495
------------------ ----------------- ----------------- -----------------
------------------ ----------------- ----------------- -----------------
</TABLE>
(Continued)
F-13
<PAGE>
The carrying amount of debt securities at December 31, 1998, by
contractual maturity are as follows: 1999 - $648,629; 2000 - $1,343,371;
2001 - $1,800,992; 2002 - $0; and 2003 - $514,017.
(6) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at
December 31, 1998 and 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Land $ 65 65
Buildings and improvements 253 253
Machinery and equipment 32 32
Furniture, fixtures, and other 41 43
--------------- --------------
391 393
Less: Accumulated depreciation 203 182
--------------- --------------
Net property, plant, and equipment $ 188 211
--------------- --------------
--------------- --------------
</TABLE>
Depreciation expense totaled $23,000 and $485,000 for the years ended
December 31, 1998 and 1997, respectively.
(7) NOTES PAYABLE
The Company had a credit agreement (the "Credit Agreement") that provided
up to $6,500,000 in available credit for the Company. In connection with
the closing of the sale of the Company's oilfield services segment in
January 1997, the Company repaid $3,300,000 of outstanding indebtedness
under the Credit Agreement. In connection with the closing of the sale of
the Company's waste management services segment in May 1997, the Company
repaid the remaining balance of $1,714,000 of outstanding indebtedness
under the Credit Agreement.
(8) ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1998 and
1997 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
Accrued insurance claims payable $ 206 526
Accrued expenses for estimated legal costs relating to
Gibraltar (notes 3 and 14) 159 263
Other 48 252
--------------- -------------
$ 413 1,041
--------------- -------------
--------------- -------------
</TABLE>
(Continued)
F-14
<PAGE>
(9) INCOME TAXES
Income taxes for the years ended December 31, 1998 and 1997, consisted of
the following (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
Deferred Federal income tax benefit from discontinued
operations $ - (148)
--------------- -------------
--------------- -------------
</TABLE>
Income tax expense (benefit) differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% to income (loss) before
income taxes as a result of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
---------------- --------------
<S> <C> <C>
Computed "expected" tax expense (benefit) $ 84 763
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets 139 (911)
Other, net (223) -
---------------- ---------------
Total income tax benefit $ - (148)
---------------- ---------------
---------------- ---------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997, are presented below (in thousands of
dollars):
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,687 2,144
Property, plant and equipment - basis differences and
depreciation 127 89
Accrued expenses, provisions for book not yet
deductible for tax - 468
Capital loss carryforward 6 194
Alternative minimum tax credit carryforward 586 134
US Filter contingent gain recognized for tax purposes 1,090 1,360
Other 32 -
--------------- ----------------
Total gross deferred tax assets 4,528 4,389
Less valuation allowance (4,528) (4,389)
--------------- ----------------
Net deferred tax assets $ - -
--------------- ----------------
--------------- ----------------
Deferred tax liabilities:
Property, plant, and equipment - depreciation and basis
differences $ - -
Other - -
--------------- ----------------
Total gross deferred tax liability - -
--------------- ----------------
Net deferred tax liability $ - -
--------------- ----------------
--------------- ----------------
</TABLE>
(Continued)
F-15
<PAGE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities and projected future taxable income in making
this assessment. Subsequently recognized tax benefits relating to the
valuation allowance for deferred tax assets as of December 31, 1998,
will be included as an income tax benefit in the consolidated statement
of operations in future periods.
At December 31, 1998, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $7,900,000. Such
amounts are available to offset future Federal taxable income, if any,
through 2018 and expire in the following years: 2009 - approximately
$1,600,000; 2010 - approximately $1,200,000; 2011 - approximately
$2,900,000; 2012 -approximately $1,600,000; and 2018 - approximately
$600,000.
(10) LEASES
The Company leased certain equipment and facilities used in its
operations, the majority of which were assumed by USF and Dawson at
closing of the respective transactions. Total rentals approximated
$20,000 and $303,000 for the years ended December 31, 1998 and 1997,
respectively.
(11) EMPLOYEE BENEFIT PLANS
RESTATED STOCK COMPENSATION PLAN
The Company had adopted the Restated Stock Compensation Plan to provide
for the grant of nonqualified options to participating employees. An
aggregate of 645,000 shares of Class A common stock had been authorized
and reserved for issuance under such plan. The plan was administered by
the Compensation Committee of the Board of Directors, which had the sole
authority to interpret the plan, to determine the persons to whom
options would be granted, and to determine the exercise price, duration,
and other terms of options to be granted under the plan, provided that
options would not be granted at prices less than fair market value on
the dates of the grants and that options would not be outstanding for a
period longer than ten years from the date the options were granted. As
a result of the Company selling all its operating assets during 1997,
the Restated Stock Compensation Plan was terminated and any options
outstanding were forfeited.
The following table summarizes activity under the Company's Restated
Stock Compensation Plan for the year ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
OPTIONS PRICE
--------------- ---------------
<S> <C> <C>
Balance at December 31, 1996 567,673 2.3408
Granted - -
Forfeited (567,673) 2.3408
--------------- ---------------
Balance at December 31, 1997 and 1998 - -
--------------- ---------------
--------------- ---------------
</TABLE>
(Continued)
F-16
<PAGE>
1995 EMPLOYEE RESTRICTED STOCK PLAN
In January 1995, the Board of Directors adopted the 1995 Employee
Restricted Stock Plan (the "Restricted Plan"). The Restricted Plan was
approved by the shareholders in June 1995, at which time 420,000 shares
of Class A common stock available for issuance under the Restricted Plan
were issued to certain executive officers and senior managers of the
Company pursuant to the terms of the Restricted Plan. The original
shares granted under the Restricted Plan were to vest 20% per year
beginning in January 1995 with provisions for earlier vesting based on
increases in the Company's stock price. As a result of the Company
selling its operating assets during 1997, certain shares under the plan
were forfeited. As of December 31, 1998, four former employees are still
covered by the plan. The total number of shares remaining under the plan
is 168,000, with future vesting being dependent on the performance of
the hydrocarbon business that was sold to USF in May 1997. Should the
business perform as expected, during the two years following its sale,
the four former employees will receive shares of Company stock in
accordance with the Restricted Plan.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In December 1995, the Board of Directors adopted, subject to shareholder
approval, the 1996 Non-Employee Director Stock Option Plan. Such plan
replaced the Nonqualified Stock Option Plan for Outside Directors, which
was adopted in 1991. Directors who were not employees of the Company
were eligible to participate in the plan. Under the terms of the plan,
the exercise price of each option granted was to be equal to the fair
market value on the date of grant. Options became fully exercisable one
year from the date of grant, provided that such vesting period would be
accelerated upon the occurrence of a change of control. Options were to
expire ten years after the date of grant. A total of 90,000 shares of
Class A common stock had been reserved for issuance under the plan.
Participants were granted, effective December 6, 1995, options to
purchase 15,000 shares of Class A common stock at an exercise price
equal to the fair market value at that date of $1.0625, of which 5,000
shares vested immediately with the remainder vesting in equal increments
on the first and second anniversary dates of the grant. Upon the
election of any new outside directors, each such director was to be
granted an option to purchase 7,500 shares of Class A common stock.
Thereafter, each participant was to be granted an option to purchase
3,000 shares of Class A common stock each date he or she was reelected
as a director of the Company, subject to share availability, adjustment
for stock dividends, splits, and similar events. As a result of the
Company selling all its operating assets during 1997, the 1996
Non-Employee Director Stock Option Plan was terminated and any options
outstanding were forfeited.
MOBLEY EMPLOYEES' PROFIT SHARING PLAN
The Company had a contributory profit sharing plan for the benefit of
substantially all employees. Contributions to the plan were made at the
discretion of the Compensation Committee of the Board of Directors and
approximated $8,000 for the year ended December 31, 1997. Subsequent to
the sale of the Company's operating assets during 1997, the plan was
terminated.
(Continued)
F-17
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. EMPLOYEES' BENEFIT TRUST
The Company had a medical benefit plan which was funded by employer and
participant contributions and supplemented by stop-loss insurance.
Contributions were determined by the plan administrator based upon the
actual claim experience and administrative costs of the plan. As a
result of the sale of the Company's operating assets, the plan was
terminated effective July 1, 1997 and benefits were no longer available
to participants. All remaining claims incurred prior to the termination
date are being funded by the Company and paid by the plan.
(12) STOCKHOLDERS' EQUITY
The Company is authorized to issue up to 2,000,000 shares of preferred
stock (par value $.01), and the Board of Directors has the authority to
fix the rights, preferences, privileges, limitations, and restrictions
of such stock. No preferred stock has been issued as of December 31,
1998.
Each share of the Company's Class A and Class B common stock is entitled
to one vote per share and ten votes per share, respectively. Each share
of Class B common stock is convertible into one share of Class A common
stock at any time at the option of the stockholder, and certain
restrictions may exist upon the transfer of Class B common shares.
(13) EARNINGS PER SHARE
The following data shows the weighted average number of shares used in
computing basic and diluted income (loss) per share.
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Weighted average number of common shares
used in basic EPS $ 8,835,293 8,835,293
Effect of dilutive securities
1995 Employee Restricted Stock Plan 168,000 168,000
Weighted average number of common shares
and dilutive potential common stock
used in EPS assuming dilution 9,003,293 9,003,293
</TABLE>
(14) COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
At December 31, 1998 and 1997, letters of credit totaling approximately
$442,566 and $1,012,000, respectively, had been provided by the Company
to its insurance carrier in connection with its workers' compensation,
general liability, and auto liability insurance policies.
(Continued)
F-18
<PAGE>
REGULATORY ENFORCEMENT ACTIONS
In November 1993, the State of Texas filed a lawsuit against Gibraltar
stemming from an enforcement action by the TNRCC alleging certain
regulatory violations. The lawsuit was subsequently amended to include
certain notices of violation issued by the TNRCC and allegations of
noncompliance associated with certain regulatory orders. In July 1994,
this litigation was tentatively settled through mediation and an Agreed
Final Judgment was subsequently entered in December 1994. Under the
terms of the judgment, Gibraltar was obligated for $1,150,000 in
assessed fines and attorneys fees. Of such amount, $450,000 was paid by
the American Ecology Corporation ("AEC") and the Company was responsible
for payment of the remaining $700,000. During 1996 and 1997, the Company
paid all of its obligations.
In January 1996, the Company was notified by the TNRCC that it was a
potentially responsible party of the alleged release, during the early
or mid-1980s, of hazardous substances at the McBay Oil and Gas State
Superfund Site located near Grapeland, Texas. During 1997, the Company
entered into a contractual remediation plan for this site and paid the
contract amount. Such plan did not have a material affect on the
consolidated financial statements. However, completion of the
remediation and final resolution of the matter is subject to approval of
the TNRCC.
LITIGATION AND VARIOUS OTHER CLAIMS
The Company continues to defend various claims resulting from the
operations of its former subsidiary, Gibraltar (the sale of which is
discussed in note 3). As of December 31, 1998, three such lawsuits were
pending. During the Company's ownership of Gibraltar, Gibraltar engaged
in the collection, transportation, analysis, treatment, management, and
disposal of various types of hazardous wastes. In the actions pending
against the Company and/or Gibraltar, the plaintiffs complain of a
variety of acts by Gibraltar which allegedly occurred in the course of
its operations, including improper air emissions, nuisance odors,
contamination of water supplies, and repeated and continuing violations
of environmental laws. In the various pending actions, plaintiffs assert
similar theories as the alleged basis for recovery, including
negligence, nuisance, trespass, fraudulent concealment, assault and
battery, and international infliction of emotional distress. Likewise,
such plaintiffs seek similar types of damages, including loss of
property value and compensatory and punitive damages for personal injury
and property damage for nuisance odors, physical discomfort and
impairment, interference with use and enjoyment of property, medical
expenses, mental anguish, and loss of earning capacity. An additional
claimant seeks permanent closure of the facility and civil penalties as
the remedy for alleged violations by Gibraltar of environmental
protection statutes and endangerment to public health and the
environment.
These matters raise difficult and complex factual and legal issues,
including but not limited to, the nature and amount of the Company's
liability, if any. Although the Company is a defendant in some
litigation, in other matters the Company's potential liability arises
from material contractual indemnifications given by the Company to the
purchaser of Gibraltar. In particular, in connection with the sale of
Gibraltar, the Company made extensive representations and warranties
regarding Gibraltar. The Company is required to idemnify AEC for all
losses resulting from breaches of representations and warranties and
pending or future claims or proceedings resulting from circumstances
existing prior to closing. The terms of the stock purchase agreement
between AEC and the Company provided that such indemnification
obligations would extend through June 30, 1996 (or in the case of tax,
environmental and ERISA claims, through June 30, 1998). However, the
(Continued)
F-19
<PAGE>
Company and AEC executed a Tolling Agreement dated July 30, 1997,
pursuant to which the statute of limitations period for certain
potential claims by either party against the other was tolled from July
30, 1997 through July 30, 2000. These indemnifications may include the
potential liability of former customers of Gibraltar, a significant
number of which have also become defendants in litigation involving
Gibraltar's operations. The failure of Gibraltar to prevail in these
matters could result in significant liabilities to the Company.
The Company has been notified by its insurance carrier that it disputes
the Company's interpretation of its pollution liability insurance
coverage and policy limitations applicable to the foregoing claims.
While the Company is vigorously pursuing a favorable resolution of this
dispute, it is unable to determine the likelihood of an unfavorable
outcome at this time.
The Company, based on consultation with its legal counsel, believes that
it is probable that the Company will continue to incur certain costs
associated with the foregoing matters and accordingly, in connection
with the divestiture of Gibraltar in 1994, established an accrual for
estimated out-of-pocket expenses related to the ongoing administrative
management of such matters (notes 3 and 8). However, the Company is
currently unable to reasonably estimate its potential exposure for
defending such matters, any indemnity obligations resulting therefrom,
and any corresponding insurance reimbursement. As noted above, the
litigation matters to which the Company is a party raise several
difficult and complex factual and legal issues. More specifically: (i)
while certain of the plaintiffs exhibit apparent physical injury and a
variety of health problems, the requisite causal connection of
Gibraltar's facilities or operations has not been established; (ii)
certain of the cases involve literally hundreds of plaintiffs whose
physical condition and medical history have not yet begun to be
investigated; (iii) although the Company has historically experienced
some degree of success in certain jury trials, there is inherent
uncertainty associated with jury trials in such cases such as these
which tend to have a strong emotional appeal; (iv) the extent of
pollution liability insurance coverage available to the Company for
potential indemnity exposure and defense costs is currently in dispute;
(v) the Company's potential liability relating to defense cost claims of
approximately 50 of Gibraltar's former customers who have also been
named in the litigation (and who are represented by over 20 different
law firms) is currently not determinable; and (vi) the indemnifications
given to AEC in connection with the Gibraltar sale are comprehensive and
subject to broad interpretation. Accordingly, the Company has not made
an accrual for losses, if any, which might result from these legal
matters as such amounts or a range of amounts are not currently
reasonably estimatable. The Company's future financial condition,
results of operations, and liquidity could be materially adversely
affected as the nature and scope of the Company's ultimate liability
arising from Gibraltar's operations and sale become better defined.
There are various other routine claims and legal actions pending and
threatened against the Company which are incidental to the Company's
business and have arisen in the ordinary course of its business related
to services, contracts, employment, and other matters. Where applicable,
the Company has recorded accruals for estimated potential damages and
expenses associated with such matters. While the final outcome of these
matters cannot be predicted with certainty, management, upon
consultation with legal counsel, and considering the Company's limited
continuing activities, believes that financial obligations of the
Company arising from such claims could have a material adverse effect on
its consolidated financial condition, results of operations, or
liquidity.
(Continued)
F-20
<PAGE>
(15) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Interest paid, net of amounts capitalized $ - 151
</TABLE>
(16) YEAR 2000 COMPLIANCE
The Company has made an assessment of the potential risk associated with
the Year 2000 issue. The Company has had no operations subsequent to the
sale of its operating assets as previously discussed. The risk related
to internal systems is minimal due to the limited accounting functions
that are currently required. The Company does rely upon third parties
such as its investment advisors and custodians. There can be no
assurance that these third parties will be compliant but do to the
limited activity, these functions could be performed by the Company.
The Company is not aware of any additional cost required to become Year
2000 compliant nor is it aware of any contingency plans that would
require additional funding.
F-21
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mobley Environmental Services, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
33-92336) on Form S-8 of Mobley Environmental Services, Inc. of our report
dated March 12, 1999, relating to the consolidated balance sheets of Mobley
Environmental Services, Inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended, which report appears in the
December 31, 1998, annual report on Form 10-KSB of Mobley Environmental
Services, Inc.
KPMG LLP
Shreveport, Louisiana
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 81
<SECURITIES> 4,954
<RECEIVABLES> 155
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 330
<PP&E> 391
<DEPRECIATION> 203
<TOTAL-ASSETS> 5,831
<CURRENT-LIABILITIES> 474
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 5,267
<TOTAL-LIABILITY-AND-EQUITY> 5,831
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (359)
<INCOME-TAX> 0
<INCOME-CONTINUING> (359)
<DISCONTINUED> 607<F1>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
<FN>
<F1>BECAUSE OF THE SALES OF ITS TWO BUSINESS SEGMENTS DURING 1997, SUCH SEGMENTS
HAVE BEEN ACCOUNTED FOR AS DISCONTINUED OPERATIONS, AND ACCORDINGLY, THEIR
OPERATIONS HAVE BEEN SEGREGATED IN THE ACCOMPANYING CONSOLIDATED STATEMENTS OF
OPERATIONS.
</FN>
</TABLE>
