<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
/X/ Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
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
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MOBLEY ENVIRONMENTAL SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 75-2242963
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
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
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 and (2) has been subject to such filing requirements for the past 90
days. Yes X No
---- ----
The number of shares outstanding of the registrant's common stock, as of
May 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.
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<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements (Unaudited)
- Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 2
- Consolidated Statements of Operations - Three
Months Ended March 31, 1999 and 1998 3
- Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 1999 4
- Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 5
- Notes to Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis 13-14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOBLEY ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 527 81
Receivables 142 155
Prepaid expenses 94 94
--------- ---------
Total current assets 763 330
Property, plant and equipment, net 186 188
Investment securities available for sale 4,734 4,954
Other assets, net 335 359
--------- ---------
$ 6,018 5,831
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 133 61
Accrued expenses 591 413
--------- ---------
Total liabilities 724 474
--------- ---------
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 43 43
Class B; 10,000,000 shares authorized; 4,660,350
shares issued and 4,575,643 shares outstanding 47 47
Additional paid-in capital 25,159 25,159
Accumulated deficit (20,020) (19,845)
Accumulated other comprehensive income (loss) 73 (39)
Treasury stock; 84,707 shares of Class B common
stock, at cost (8) (8)
--------- ---------
Total stockholders' equity 5,294 5,357
Commitments and contingencies
--------- ---------
$ 6,018 5,831
--------- ---------
--------- ---------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
2
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- -------
<S> <C> <C>
Revenues $ - -
Cost of revenues - -
-------- -------
Gross profit - -
General and administrative expenses 275 159
-------- -------
Operating loss (275) (159)
Realized gain on sale of investment securities 22 -
Interest income 66 77
Other income, net 12 5
-------- -------
Net loss before income taxes (175) (77)
Income taxes - -
-------- -------
Net loss (175) (77)
Comprehensive income (loss):
Other comprehensive income - change in net
unrealized gains on securities, net of tax of $58 112 -
-------- -------
Comprehensive loss $ (63) (77)
-------- -------
-------- -------
Net loss per share - basic and assuming dilution $(0.02) (0.01)
-------- -------
-------- -------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
3
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1999
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Preferred Stock - none issued $ -
---------
Class A Common Stock:
Balance at December 31, 1998 and March 31, 1999 43
---------
Class B Common Stock:
Balance at December 31, 1998 and March 31, 1999 47
---------
Additional Paid-In Capital:
Balance at December 31, 1998 and March 31, 1999 25,159
---------
Accumulated Deficit:
Balance at December 31, 1998 (19,845)
Net loss (175)
---------
Balance at March 31, 1999 (20,020)
---------
Accumulated other comprehensive income (loss):
Balance at December 31, 1998 (39)
Change in unrealized gain on investment securities 112
---------
Balance at March 31, 1999 73
---------
Treasury Stock:
Balance at December 31, 1998 and March 31, 1999 (8)
---------
Total stockholders' equity at March 31, 1999 $ 5,294
---------
---------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
4
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(175) (77)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation 2 6
Deferred compensation costs under restricted
stock agreements - 24
Gain on sale of investment securities (22) -
Changes in certain operating assets and liabilities:
Receivables 13 4
Prepaid expenses and other 24 35
Accounts payable 72 (24)
Accrued expenses 120 (7)
-------- ---------
Net cash provided (used) by operating
activities 34 (39)
-------- ---------
Cash flows from investing activities - net proceeds from
sale of investment securities 412 56
-------- ---------
Net increase in cash and cash equivalents 446 17
Cash and cash equivalents at beginning of period 81 353
-------- ---------
Cash and cash equivalents at end of period $ 527 370
-------- ---------
-------- ---------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
5
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(unaudited)
(1) BASIS OF PRESENTATION
The accompanying financial statements present the consolidated accounts
of Mobley Environmental Services, Inc. (the "Company") and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
The unaudited consolidated financial statements reflect all adjustments
which are, in the opinion of management, of a normal and recurring nature and
necessary for a fair presentation of the consolidated financial position of the
Company as of March 31, 1999, and the consolidated results of operations and
cash flows for the periods presented herein. Interim results are not necessarily
indicative of results for a full year. The unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto presented in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.
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 financial
statements in accordance with generally accepted accounting principles. Actual
results could differ from those estimates.
(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 did not yield 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
Company's two business segments, waste management services and oilfield
services, were accounted for as discontinued operations. The transactions and
their impact on the Company's consolidated financial statements are described in
the following paragraphs.
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 note was paid in full during the fourth
quarter of 1998.
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
6
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(unaudited)
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. Upon completion of
the sale of the waste management services segment, the $8,000,000 of USF
common stock was sold. 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 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.
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
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. In addition, the principals of the acquired
companies are to receive a percentage of the Company's earnout with US Filter.
Approximately $72,500 was paid to the principals of the acquired companies
during the third quarter of 1998 resulting from the earnout with US 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.
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 7).
7
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(unaudited)
(3) 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 March 31, 1999 and December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ----------- -------
<S> <C> <C> <C> <C>
AT MARCH 31, 1999
U.S. Treasury securities $ 720 14 - 734
Corporate debt securities 3,250 37 - 3,287
--------- ---------- ----------- -------
3,970 51 - 4,021
U.S. Filter common stock 654 59 - 713
--------- ---------- ----------- -------
$ 4,624 110 - 4,734
--------- ---------- ----------- -------
--------- ---------- ----------- -------
<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
--------- ---------- ----------- -------
--------- ---------- ----------- -------
(4) ACCRUED EXPENSES
At March 31, 1999 accrued expenses were comprised of the following (in
thousands of dollars):
$ 357 Accrued insurance claims payable
126 Accrued expenses for estimated legal costs relating to Gibraltar (note 7)
108 Other
------
$ 591
------
------
</TABLE>
8
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(unaudited)
(5) 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 impact on earnings per share.
The following data shows the weighted average number of shares used in
computing basic and diluted net loss per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
--------- ---------
<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>
(6) 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.
(7) COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT. At March 31, 1999, letters of credit totaling
approximately $442,566 had been provided by the Company to its insurance carrier
in connection with its workers' compensation, general liability, and auto
liability insurance policies.
9
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(unaudited)
LITIGATION AND VARIOUS OTHER CLAIMS. The Company continues to defend
various claims resulting from the operations of its former subsidiary,
Gibraltar, which was sold effective December 31, 1994. As of March 31, 1999,
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 intentional 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
indemnify the American Ecology Corporation ("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
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.
10
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(unaudited)
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. 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 to 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 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 estimable. 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.
11
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(unaudited)
(8) 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 advisers and custodians. There can be no assurance that these third
parties will be compliant but due to the limited activity, these functions could
be performed by the Company.
The Company is not aware of any additional cost to become Year 2000
compliant nor is it aware of any contingency plans that would require additional
funding.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 March 31, 1999, as well as the Company's
operating results for the three-month period ended March 31, 1999. The Notes to
Consolidated Financial Statements contain additional information that should be
read in conjunction with this discussion.
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). The transactions and their impact on the consolidated financial
statements are described in the following paragraphs.
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 note was paid in full during the fourth quarter
of 1998.
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 States Filter
Corporation ("USF"). As a result of that transaction, the Company received $8.0
million 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 $4.0 million in USF common stock based on the performance of the
business during the two years following its sale. Upon completion of the sale of
the waste management services segment, the $8,000,000 of USF common stock was
sold. 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 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.
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
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
13
<PAGE>
in June 1998. In addition, the principals of the acquired companies are to
receive a percentage of the Company's earnout with US Filter. Approximately
$72,500 was paid to the principals of the acquired companies during the third
quarter of 1998 resulting from the earnout with US 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.
RESULTS OF OPERATIONS
General and administrative expenses amounted to $275,000 and $159,000 for
the three months ended March 31, 1999 and 1998, respectively. These costs
represent the ongoing administrative costs of the Company after disposing all of
its operating assets. The increase in general and administrative expenses in
1999 was created primarily by additional unexpected charges related to
insurance claims and settlement of retro premiums which were not previously
accrued. During the three months ended March 31, 1999, the Company realized
gains on the sale of investment securities of approximately $22,000. There
were no sales during the three months ended March 31, 1998.
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 USF stock sale, along with the proceeds from the sale of the
oilfield services assets, resulted in net proceeds totaling approximately $8.2
million after repayment 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
three month period ended March 31, 1999 were $275,000, which includes
approximately $180,000 in insurance claims and settlement of retro premiums
which had not previously been accrued. 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 USF common stock during the two-year period following the sale of the
waste management services segment 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.
Because of its indemnification obligations related to the sale of
Gibraltar, as well as potential indemnity obligations with respect to the asset
sales to USF and Dawson, and in light of the ongoing litigation (described in
the Company's Annual Report on Form 10-KSB for the year ended December 31,
1998), 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.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The cause of action styled DANIELS V. GIBRALTAR CHEMICAL RESOURCES,
INC. has been set for trial in February 2000. There have been no other material
developments in the legal proceedings described in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule (submitted only in electronic format)
</TABLE>
REPORTS ON FORM 8-K
None.
15
<PAGE>
In accordance with the requirements of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOBLEY ENVIRONMENTAL SERVICES, INC.
(Registrant)
/s/ John Mobley
------------------------------------------------
John Mobley
Chairman of the Board, President, and
Chief Financial Officer
Date: May 14, 1999
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 527
<SECURITIES> 4,734
<RECEIVABLES> 142
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 763
<PP&E> 391
<DEPRECIATION> (205)
<TOTAL-ASSETS> 6,018
<CURRENT-LIABILITIES> 724
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 5,204
<TOTAL-LIABILITY-AND-EQUITY> 6,018
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (175)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
