** As Filed with The Securities Exchange Commission on __________________

Registration No. ________________

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM SB-2

AMENDMENT NO. 2

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

ENVIRONMENTAL SAFEGUARDS, INC.
(Name Of Small Business Issuer In Its Charter)

NEVADA 4953 87-0429198
(State Or Other Jurisdiction (Primary Standard (I.R.S. Employer
Of Incorporation Industrial Classification Identification Number)
Or Organization) Code Number)

2600 South Loop West, Suite 645
Houston, Texas 77054
(713) 641-3838
(Address and Telephone Number Of Principal Executive Offices Business)

James S. Percell
Chief Executive Officer
c/o Environmental Safeguards, Inc.
2600 South Loop West, Suite 645
Houston, Texas 77054
voice: (713) 641-3838
fax: (713) 641-0756
(Name, Address, And Telephone Number, Of Agent For Service Of Process)

Copy To:
Robert D. Axelrod, Esq.
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Suite 700
Houston, Texas 77007
voice: (713) 861-1996 ext. 116
fax: (713) 552-0202

Approximate Date Of Commencement Of Proposed Sale To The Public:
As soon as practicable after the Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

CALCULATION OF REGISTRATION FEE

PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH OFFERING MAXIMUM
CLASS OF SECURITIES AGGREGATE OFFERING
REGISTRATION AMOUNT TO BE PER PRICE
TO BE REGISTERED REGISTERED SHARE(*) PRICE(*) FEE
- -------------------------------------------------------------------------

Common Stock, par
value $0.001,
underlying
Warrants 1,500,000 $ 0.22(1) $330,000.00(1) $26.73
<FN>

________________________________
(*) Estimated solely for the purpose of calculating the registration fee.
Calculated pursuant to Rule 457(g) and based on the average bid and asked
price of our common stock on April 25, 2003. Estimated legal, accounting,
blue sky, transfer agent and printing fees are $35,600.00.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A). MAY DETERMINE.

PART I

INFORMATION REQUIRED IN PROSPECTUS

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

Subject To Completion, Dated September 10, 2003.

ENVIRONMENTAL SAFEGUARDS, INC.

1,500,000 SHARES OF COMMON STOCK

This Prospectus relates to the resale of 1,500,000 shares of common stock,
par value $0.001 per share that may be offered and sold from time to time by the
selling security holder listed on page 43.

Our common stock is traded on the Over the Counter Bulletin Board (the
OTCBB) under the symbol "ELSF." On August 13, 2003, the closing bid for our
common stock on the OTCBB was $0.20 per share.

OUR COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK AND
SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. YOU SHOULD CAREFULLY READ AND CONSIDER OUR RISK FACTORS SECTION ON
PAGE 11 BEFORE MAKING AN INVESTMENT DECISION.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The Date Of This Prospectus Is September __, 2003.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US OR ANY OTHER PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR ITS SUBSIDIARIES SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY STATE WHERE SUCH OFFER WOULD BE UNLAWFUL.

WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. THE SELLING SECURITY HOLDER IS OFFERING
TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED.

TABLE OF CONTENTS

PAGE
----

AVAILABLE INFORMATION 7

PROSPECTUS SUMMARY 8

RISK FACTORS 9

FORWARD-LOOKING STATEMENTS 13

USE OF PROCEEDS 14

PRICE RANGE OF COMMON STOCK 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 16

BUSINESS 26

PROPERTIES 33

MANAGEMENT 33

LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION 35

EXECUTIVE COMPENSATION 36

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 41

PRINCIPAL STOCKHOLDERS 42

PLAN OF DISTRIBUTION 45

SELLING STOCKHOLDER 46

DESCRIPTION OF SECURITIES 47

LEGAL MATTERS 48

LEGAL PROCEEDINGS 49

EXPERTS 50

CHANGES IN COMPANY'S CERTIFYING ACCOUNTANT 50

CONSOLIDATED FINANCIAL STATEMENTS F-1

AVAILABLE INFORMATION

We are currently subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and we file periodic
reports, proxy materials and other information with the Securities and Exchange
Commission ("Commission"). In addition, we will furnish stockholders with
annual reports containing audited financial statements certified by our
independent accountants and interim reports containing unaudited financial
information as it may be necessary or desirable. We will provide without charge
to each person who receives a copy of this Prospectus, upon written or oral
request, a copy of any information that is incorporated by reference in this
Prospectus (not including exhibits to the information that is incorporated by
reference unless the exhibits are themselves specifically incorporated by
reference). Such request should be directed to Environmental Safeguards, Inc.,
Attn. James S. Percell, President, 2600 South Loop West, Suite 645, Houston,
Texas 77054, tel. (713) 641-3838. Our web site is www.onsite2.com.

We have filed with the Commission a Registration Statement under the Act
with respect to the securities offered by this Prospectus. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to us and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, that may be inspected without charge at the public
reference room maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, tel. 1-800-SEC-0330. Copies of such material may also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

The Commission maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The address of the SEC web site is
www.sec.gov. Visitors to the site may access such information by searching the
EDGAR data base on the SEC's web site.

PROSPECTUS SUMMARY

SUMMARY OF INFORMATION IN THE PROSPECTUS

This prospectus summary highlights selected information contained in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors beginning on page 11 and the
financial statements beginning on page F-1. Unless otherwise indicated, this
prospectus assumes that none of our outstanding options or warrants are
exercised into shares of our common stock, nor any shares of our Series B
Preferred Stock or Series D Preferred Stock are converted into shares of our
common stock. All dollar amounts in this Prospectus are stated in U.S. dollars.

THE COMPANY

We were incorporated under the laws of the State of Nevada in 1985. In
1993, we changed our name to Environmental Safeguards, Inc. We are engaged in
the development, production and sale of environmental remediation and recycling
technologies and services to oil and gas industry participants, waste management
companies and other industrial customers, through our wholly-owned subsidiaries
National Fuel & Energy, Inc. ("NFE") and OnSite Technology, L.L.C. ("OnSite").
References to us include our subsidiaries.

During the period from 1996 until 2000, a substantial portion of our
revenues were generated from major international oil and gas industry
participants in Colombia, Venezuela and Mexico, as well as other domestic and
foreign industrial applications. As of August 2003 we have completed our
foreign contract operations, and we have taken steps to close down some of our
foreign subsidiaries. We are now concentrating our marketing efforts and
resources on domestic downstream plants, manufacturing facilities and waste
management facilities, where our proprietary equipment and process have a
competitive advantage in waste minimization, and in the recycling and reuse of
waste streams.

As of August 2003, OnSite operates internationally through its wholly-owned
subsidiary OST Equipment Leasing L.L.C, and its 50%-owned subsidiary, OnSite
Arabia, Inc. OnSite is in the process of liquidating our OnSite Colombia, Inc.
and OnSite Mexico, L.L.C. subsidiaries. Onsite has completely closed down our
OnSite Venezuela, Inc. and OnSite Environmental UK Ltd. subsidiaries.

The environmental remediation and recycling services that we provide
involve the removal of hydrocarbon contaminants from solids using indirect
thermal desorption remediation and recycling technology. We provide these
services on-site or at the central location to which the customer hauls the
contaminated materials.

Our offices are located at 2600 South Loop West, Suite 645, Houston, Texas
77054, tel. (713) 641-3838. Our web site is www.onsite2.com.

THE OFFERING

Common stock outstanding
as of August 13, 2003 10,745,091 shares of common stock

Common stock to be
offered by our
selling
stockholder 1,500,000 shares of common stock underlying
warrants.

The market for our
common stock Our common stock trades on the Over-the Counter
Bulletin Board, also called the OTCBB, under the
trading symbol "ELSF". The market for our common
stock is highly volatile. We can provide no
assurance that there will be a market in the
future for our common stock.

RISK FACTORS

Any investment in shares of our common stock involves a high degree of
risk. You should carefully consider the following information about these
risks, together with the other information contained in this prospectus, before
you decide to buy our common stock. If any of the following risks actually
occur, our business would likely suffer. In such circumstances, the market
price of our common stock could decline, and you may lose all or part of the
money you paid to buy our common stock.

WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN.

If we were unable to continue as a going concern, your investment could
become worthless. Our present independent auditors issued an unqualified
opinion, with no going concern explanatory paragraph on our audited financial
statements for the year ended December 31, 2002. However, our previous auditors
issued an opinion that contained a going concern explanatory paragraph for the
year ended December 31, 2001.

WE COULD DEFAULT ON OUR $1,500,000 LOAN AND AS A RESULT OF THE DEFAULT, LOSE THE
SECURITY FOR THAT LOAN.

When we borrowed $1,500,000, we provided the Lender, as collateral, a
security interest in three of our five ITD Units in the U.S. If we default on
the loan and if the Lender forecloses on the collateral, we would be left with
only two ITD Units in the U.S. The loss of the three ITD Units would (i) greatly
reduce our capacity to serve customers in the U.S., (ii) would put a limit on
the potential revenue we could achieve in the U.S., and (iii) would create an
additional competitor in the U.S.

OUR NEW MARKETING STRATEGY COULD FAIL.

If our new marketing strategy does not generate sufficient revenue to
sustain our operations we may not be able to continue as a going concern and may
default on our existing obligations. In 2002, we began marketing our services to
different markets and customers than previously. We are now concentrating our

marketing efforts and resources on downstream plants, manufacturing facilities
and waste management facilities located in the U.S., rather than on foreign
customers. All of our business in the U.S. markets is new business with new
customers. We have limited experience with our new marketing strategy.

WE ARE CURRENTLY AT A 20% UTILIZATION RATE OF OUR FLEET OF ITD UNITS. WE HAVE
ONLY ONE CUSTOMER AT THIS TIME USING ONE ITD UNIT. THE LOSS OF OUR CUSTOMER
WOULD RESULT IN A SIGNIFICANT LOSS OF REVENUE.

If our current sole customer were to terminate its contract, we would cease
to have any revenue. This customer has the right to terminate the contract at
will with 90 days notice to us.

If we were at a 100% utilization of our five ITD Units for five customers,
we estimate that any single customer out of the five would represent an average
of 20% of our revenue. Even at full capacity and 100% utilization, the loss of
any particular customer could significantly reduce our revenue.

WE COULD HAVE SIGNIFICANT LOSSES RELATED TO LIABILITY UNDER ENVIRONMENTAL LAWS
AND TORTS.

If we violate an environmental law, we could be fined a significant amount
of money and be subject to toxic tort litigation. We handle hazardous waste
products. Although we presently provide remediation services that meet
applicable federal and state standards, the government can impose new standards
that we might not be able to meet.

Toxic tort litigation has increased markedly in recent years as persons
allegedly injured by chemical contamination seek recovery for personal injuries
or property damage. These legal developments present a risk of liability should
we be held responsible for contamination or pollution.

WE MAY NEVER BECOME PROFITABLE.

Our failure to become profitable could ultimately result in our insolvency.
We incurred net losses from operations of $3,683,000 in 2001 and $ 3,176,000 in
2002.

At December 31, 2002, we had a working capital deficit of $1,186,000 and
positive working capital of $ 766,000 at December 31, 2001. Our presently
existing capital resources may not be sufficient for us to maintain our current
and planned operations through the remainder of 2003. We have historically
funded operations through a combination of internally generated cash and
borrowing. Until such time as our operating results improve sufficiently to fund
our operations, we must obtain outside financing to fund the expansion of our
business and to pay our obligations as they become due. We may not be able to
raise funds under terms that are acceptable to us. Any additional debt or equity
financing may be dilutive to the interests of our Shareholders.

WE CONTINUE TO HAVE EXPOSURE TO THE FOREIGN POLITICAL CLIMATE.

Any adverse circumstances in the foreign political climate could result in
our inability to utilize the two ITD Units located in the Middle East in which
we have a 50% interest. This would result in reducing the potential for any
future revenue from these foreign assets. Although we have substantially exited
foreign markets except for the Arabian Gulf region through our relationship with
OnSite Arabia, we could pursue additional foreign markets again in the future.
We have a 50% interest in two ITD Units that are located in the Middle East.

WE MAY NEED TO RAISE MORE MONEY IN THE FUTURE TO SUSTAIN OR EXPAND OUR
OPERATIONS.

We may need to raise additional money in the future to sustain or expand
our operations. Our failure to raise more money could ultimately result in our
insolvency. We have experienced significant recurring losses from operations in
2002 and 2001, that have caused liquidity problems. In addition, our ability to
grow is directly related to our ability to be profitable or to raise funds as we
do not have the financial resources to build more ITD Units. Although we
borrowed $1,500,000 in March 2003, we may not be able to maintain our business
operations. We may need to raise additional money, either through the sale of
equity securities which could dilute our existing stockholders' interest or from
borrowings from third parties which could result in additional assets being
pledged as collateral and which would increase our debt service requirements.

TO EXPAND THE NUMBER OF OUR ITD UNITS, WE MAY REQUIRE CAPITAL FROM OUTSIDE
SOURCES.

We do not have the financial resources to build more ITD Units. Absent
raising additional capital, we will not be able to increase the number of our
ITD Units which would enable us to expand our business operations. This could
limit the size of our business. There is no assurance that capital will be
available in the future to build more ITD Units or that the capital would be
available under terms acceptable to us.

WE RELY ON OTHER COMPANIES TO BUILD OUR ITD UNITS.

In the past, we have used outside fabricators to construct the ITD Units to
our specifications. Deficient fabrication or financial instability of a
fabricator could upset our ability to manufacture the ITD Units on a timely
basis that could result in delays in fulfilling contracts for recycling and
remediation.

WE FACE INTENSE COMPETITION.

We have many competitors that currently dispose of hazardous and industrial
wastes and remediate sites that have been contaminated. These companies utilize
competing technologies and techniques in an attempt to provide more economical
or superior remediation services. Our competitors are well established companies
with substantially greater capital resources, larger research and development
staffs and facilities and substantially greater marketing capabilities than us.
We may not be able to compete with them.

OUR PROCESS COULD BECOME TECHNOLOGICALLY OBSOLETE.

If our indirect thermal desorption technology to remediate waste becomes
obsolete, we may not be able to effectively compete in the marketplace. This
could ultimately result in our insolvency. Competitors are continuously seeking
to develop new and different technology which would render our technology
obsolete.

THE MARKET PRICE OF OUR STOCK COULD GO DOWN DUE TO THE SALES BY THE SELLING
STOCKHOLDER.

The sale of a substantial number of shares of common stock by the selling
stockholder in this offering could cause our stock price to go down.

THE EXERCISE OF OUR OPTIONS AND THE CONVERSION OF OUR PREFERRED STOCK, AND THE
SUBSEQUENT SALE OF THE RESULTING COMMON STOCK COULD CAUSE THE MARKET PRICE OF
OUR STOCK TO DECLINE; COMMON STOCKHOLDERS WILL FACE DILUTION UPON EXERCISES AND
CONVERSIONS.

The sale of a substantial number of shares of common stock by our option
holders, warrant holders or preferred stockholders could cause our stock price
to decline. As of August 13, 2003, we have outstanding an aggregate of 7,453,495
options and warrants to purchase common stock. We presently have outstanding
shares of preferred stock and the deferred dividends and interest on the
preferred stock that may be converted into common stock. If all of the preferred
stock and the deferred dividends and interest on the preferred stock (as
calculated as of July 31, 2003) were to be converted into common stock, then we
would be required to issue an aggregate of 15,760,881 shares of common stock.
The conversion of all of our preferred stock would result in a substantial
dilution of interests of our other stockholders.

OUR SUCCESS, IN LARGE PART, DEPENDS UPON RETAINING OUR CHIEF EXECUTIVE OFFICER

Our future success is dependent, in a large part, on retaining the services
of Mr. James S. Percell, our President and Chief Executive Officer. Mr. Percell,
who has numerous contacts within the environmental remediation business,
possesses a unique combination of knowledge of our industry and a comprehensive
knowledge of our proprietary technology and its applications. While Mr. Percell
has no present plans to leave or retire in the near future, his loss could have
a negative effect on our operating, marketing and financial performance if we
are unable to find an adequate replacement with similar contacts, knowledge of
our technology and its application and experience within our industry. The loss
of Mr. Percell could have a negative effect on our operating, marketing, and
financing performance.

WE NEED ADDITIONAL PERSONNEL.

As a result of a recent restructuring of our operations, we need to hire
additional personnel. Our inability to engage qualified personnel may result in
our failure to obtain new business contracts for our operations.

WE DO NOT INTEND TO PAY DIVIDENDS.

We have never paid cash dividends on our common stock and do not anticipate
paying any cash dividends in the future. We currently plan to retain future
earnings, if any, to finance operations and expansion of our ITD inventory. The
only way that you may be able to make a profit on your investment is through
stock price appreciation.

IF WE LOSE THE RIGHT TO USE OUR TECHNOLOGY, OUR OPERATIONS COULD CEASE.

We own patents and trade secrets that we use in providing services to
customers. If we lose the ability to use the patents and trade secrets, we will
not be able to provide services. We are presently a party to lawsuits related
to the use of our patents and trade secrets.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements about our future.
Forward-looking statements include statements about our:

- - plans
- - objectives
- - goals
- - strategies
- - expectations for the future
- - future performance and events
- - underlying assumptions for all of the above
- - other statements that are not statements of historical facts

Such forward-looking statements involve risks and uncertainties that could
cause our actual results to materially differ from our forward-looking
statements. Words such as "plan", "expects", "anticipates", "estimates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
are set forth below. Our expectations, beliefs and projections are expressed in
good faith and are believed to have a reasonable basis, including without
limitation, our examination of historical operating trends, data contained in
our records and other data available from third parties. We make these
forward-looking statements based on our analysis of internal and external
historical trends, but there can be no assurance that we will achieve the
results set forth in these forward-looking statements. Our forward-looking
statements are expressed in good faith and we believe that there is a reasonable
basis for us to make them. There can be no assurance, however, that our
expectations, beliefs or projections will result, be achieved, or be
accomplished.

In addition to other factors and matters discussed in this prospectus, the
following are important factors that, in our view, could cause our actual
results to materially differ from our forward-looking statements, and could
cause material adverse affects on our financial condition and results of
operations: our ability to secure contracts for our ITD units; our ability to
attain widespread market acceptance of our technology; our ability to obtain
acceptable forms and amounts of financing; the demand for, and price level of,
our services; competitive factors; the actual useful life of our ITD Units;
ability to mitigate concentration of business in a small number of customers;
the evolving industry and technology standards; the ability to protect
proprietary technology; the dependence on key personnel; the effect of business
interruption due to political unrest; and our ability to maintain acceptable
utilization rates on our equipment.

USE OF PROCEEDS

We will not receive any proceeds upon the sale of the common stock issuable
upon the exercise of the warrants by the selling stockholder. We will pay for
the cost of registering the shares of common stock in this offering. The
warrants were issued in connection with our borrowing $1,500,000 from the
selling stockholder. We are using the loan proceeds for working capital and
general corporate purposes.

If all of the warrants are exercised, than we will receive an aggregate
$15,000 that we plan to use for working capital and general corporate purposes.
The warrants are immediately exercisable and expire on April 30, 2005. The
warrant holder may exercise all or some of the warrants from time to time until
the warrants expire.

PRICE RANGE OF COMMON STOCK

Our Common Stock commenced trading on the OTC Bulletin Board under the
symbol "ELSF" on October 17, 2002. Prior to that, for the periods set forth
below, our common stock traded on the American Stock Exchange under the symbol
"EVV". The following table sets forth the range of high and low closing sales
prices of our Common Stock for the periods shown:

COMMON STOCK PRICE RANGE
HIGH LOW

2001
First Quarter . . . . . . . . . . . . $ 0.43 $ 0.15
Second Quarter. . . . . . . . . . . . $ 0.20 $ 0.05
Third Quarter . . . . . . . . . . . . $ 0.16 $ 0.08
Fourth Quarter. . . . . . . . . . . . $ 0.38 $ 0.06

2002
First Quarter . . . . . . . . . . . . $ 0.40 $ 0.20
Second Quarter. . . . . . . . . . . . $ 0.28 $ 0.12
Third Quarter . . . . . . . . . . . . $ 0.18 $ 0.03
Fourth Quarter. . . . . . . . . . . . $ 0.08 $ 0.02

2003
First Quarter . . . . . . . . . . . . $ 0.36 $ 0.04
Second Quarter. . . . . . . . . . . . $ 0.24 $ 0.15
Third Quarter through August 13, 2003 $ 0.24 $ 0.17

On August 13, 2003, the closing price of our common stock was $0.20 per
share. On the same date, we had approximately 1,100 stockholders of record,
including broker dealers holding shares beneficially owned by their customers.

EQUITY COMPENSATION PLAN INFORMATION (AS OF JULY 31, 2003)

NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES FOR FUTURE ISSUANCE
TO BE ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)

Equity compensation
plans approved by
security holders 792,500 $ 1.23 7,500

Equity compensation
plans not approved
by security holders 4,481,162 1.27 0

Total 5,273,662 $ 1.27 7,500

For information relating to the equity compensation plans, reference is
made to Financial Note 8 to our audited Financial Statements for the year ended
December 31, 2002 under the subsection "Stockholders' Equity-Stock Options."
These Financial statements begin on page F-1.

DIVIDEND POLICY

We have not paid, and do not currently intend to pay cash dividends on our
common stock in the foreseeable future. The current policy of our Board of
Directors is to retain all earnings, if any, to provide funds for the operation
and expansion of our business. The declaration of dividends, if any, will be
subject to the discretion of our Board of Directors, that may consider such
factors as our results of operations, financial condition, capital needs and
acquisition strategy, among other factors. Our Series B Preferred Stock is
entitled to receive dividends at such time, if any, that we declare dividends on
our common stock, in an amount equal to the number of shares of common stock
that the Series B Preferred Stock could be converted into at the time a dividend
is declared.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our
consolidated financial statements and the related notes beginning on page F-1,
and the section entitled "Forward-Looking Statements" on page 8 that discuss
certain limitations inherent in such statements.

INFORMATION REGARDING AND FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

We are including the following cautionary statement in this prospectus to
make applicable and take advantage of the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by us, or on behalf of us. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements that are other than statements
of historical facts. Certain statements in this prospectus are forward-looking
statements. Words such as "expects", "anticipates", "estimates" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
are set forth below. Our expectations, beliefs and projections are expressed in
good faith and are believed to have a reasonable basis, including without
limitation, our examination of historical operating trends, data contained in
our records and other data available from third parties. There can be no
assurance, however, that our expectations, beliefs or projections will result,
be achieved, or be accomplished.

In addition to other factors and matters discussed elsewhere herein, the
following are important factors that, in our view, could cause material adverse
affects on our financial condition and results of operations: our ability to
secure contracts for our ITD units; our ability to attain widespread market
acceptance of our technology; our ability to obtain acceptable forms and amounts
of financing; the demand for, and price level of, our services; competitive
factors; the actual useful life of our ITD Units; ability to mitigate
concentration of business in a small number of customers; the evolving industry
and technology standards; the ability to protect proprietary technology; the
dependence on key personnel; the effect of business interruption due to
political unrest; and our ability to maintain acceptable utilization rates on
our equipment. We are not obligated to update or revise these forward-looking
statements to reflect the occurrence of future events or circumstances.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, that have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates and our
estimates are based on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. These estimates and
assumptions provide a basis for our judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from our estimates under different assumptions or conditions,
and these differences may be material.

We believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

We recognize revenue at the time services are performed, or in the event of
the sale of an ITD unit, when the equipment is shipped.

We record property and equipment at cost and compute depreciation using the
straight-line method over an estimated useful live of 8 years on our ITD Units
and 3 to 5 years on our office furniture and equipment and transportation and
other equipment. Effective October 1, 2002, we changed the estimated useful
lives of our ITD units from 5 years to 8 years to more accurately reflect our
experience with the useful lives of the units and to conform to industry
practices for equipment used in similar applications. Any additions or
improvements that increase the value or extend the life of our assets are
capitalized and expenditures for normal maintenance and repairs are expensed as
incurred. Disposals are removed from the accounts at cost less accumulated
depreciation and any gain or loss from disposition is reflected in operations
currently.

RESULTS OF OPERATIONS

COMPARISON OF OPERATING RESULTS FOR
THE YEARS ENDED DECEMBER 31, 2002 AND 2001

Summary. For the year ended December 31, 2002, we had a net loss of
$3,043,000 as compared to a 2001 net income of $1,507,000. The decrease in
earnings was primarily the result of a non-recurring gain on sale of three ITD
units and certain technical rights during the fourth quarter of 2001.
Additional information follows.

Revenue and Gross Margin. Revenue of $943,000 for 2002 generated a
$1,025,000 negative gross margin as compared to revenue of $2,987,000 and a
negative gross margin of $559,000 in 2001. The decrease in revenue and gross
margin was due to a substantial drop in ITD utilization during 2002. On average
we had 0.1 units in operation in 2002 as compared to 1.8 units during 2001. The
decreased utilization was due to the completion of contract operations in Mexico
at the end of 2001.

Selling, General and Administrative ("SGA") Expense. SGA expenses during
2002 were nearly 35% below the prior year level primarily due to the
winding-down of contract operations in Colombia, Mexico, and Venezuela.

Additional savings were recognized by reductions in SGA expenses in the U.S

Amortization of Engineering Design and Technology. This represents the
amortization of Acquired Engineering Design and Technology costs, an intangible
asset related to the December 1997 acquisition of the remaining 50% interest in
OnSite from Parker Drilling. The intangible asset is being amortized over an
8-year estimated economic life.

Research & Development Costs ("R&D") Expense. The expense for 2002 is
$30,000 as compared to $71,000 for 2001. This expense reflects ongoing R&D
improvements to our Series 6000 ITD system design.

Interest Expense. During 2002, $43,000 of interest expense was incurred,
compared to interest expense of $839,000 for 2001 (including amortization of
debt issuance costs of $344,000). The decrease in interest expense for 2002 was
mainly due to the retirement of all of our senior debt at the end of 2001.

Other Income (Expense). The category "Other" is mainly composed of foreign
currency translation gains and losses. The financial statements of our foreign
subsidiaries are measured as if the functional currency was the U.S. Dollar
("USD"). The re-measurement of local currencies into USD created favorable
(unfavorable) translation adjustments that were included in net income in each
respective year 2002 and 2001.

Income Taxes. The $79,000 tax benefit in 2002 is the result of a refund of
2001 federal income tax. Approximately half of the 2001 tax provision relates to
state income tax effects, with the balance due to foreign income tax effects
mainly in our Mexico subsidiaries. We incurred net operating losses ("NOLs") in
the U.S. in recent years, some of which were used in 2001 to offset taxes on our
2001 taxable income. The balance of our NOLs may be used to offset taxable
income reported in future periods. The NOLs have generated deferred tax assets,
but due to uncertainties regarding the future realization of these assets, a
valuation allowance has been provided for the full amount of the deferred tax
assets. However, presently there can be no assurances that the NOLs will be
utilized.

Minority Interest. Minority interest for 2002 reflects our 50% minority
partner's interest in the net loss of OnSite Arabia because our Colombian
operations were completed and Colombian subsidiary closed down in 2001. During
2001, minority interest reflects our 50% minority partner's interest in the net
loss of OnSite Colombia and OnSite Arabia.

COMPARISON OF OPERATING RESULTS - THREE MONTHS ENDED JUNE 30, 2003 AND 2002

Summary. During the second quarter of 2003, we incurred a net loss of
$462,000 as compared to a 2002 second quarter net loss of $742,000. The loss for
both periods was principally due to insufficient equipment utilization, along
with offsetting expenses as noted below.

Revenue and Gross Margin. Revenue of $470,000 during the second quarter of
2003 generated $163,000 of gross margin as compared to revenue of $237,000 and
negative gross margin of $217,000 in the comparable 2002 quarter. The increase
in revenue and improvement in gross margin were mainly due to a contract for an
ITD unit to process various waste streams in the second quarter of 2003 as
compared to an operations and maintenance contract in the same quarter of 2002.

Selling, General and Administrative ("SGA") Expenses. SGA expenses during
the second quarter of 2003 were lower than the comparable quarter in 2002
primarily due to the closing of substantially all of our foreign operations and
a general reduction in domestic SGA expenses resulting from cost controls.

Interest Expense. During the second quarter of 2003, interest expense of
$45,000 relating to deferred preferred stock dividend, our long term debt and
note payable to related parties compares to interest expense of $6,000 primarily
on deferred preferred stock dividends for the second quarter of 2002.

Income Taxes. There were no tax provision effects in the second quarter of
2003. During the second quarter of 2002 we reported a net tax benefit related to
the recovery of alternative minimum taxes provided at December 31, 2001. During
both comparative quarters we incurred net operating losses ("NOLs") primarily in
the U.S., which may be used to offset taxable income reported in future periods.
The NOLs associated with the taxes paid in OnSite's foreign subsidiaries have
generated deferred tax assets, but due to uncertainties regarding the future
realization of these assets, a valuation allowance has been provided for the
full amount of the deferred tax assets.

Minority Interest. Minority interest for the second quarter of 2003 and
2002 relates to our 50% minority partner's interest in the net loss of OnSite
Arabia.

COMPARISON OF OPERATING RESULTS - SIX MONTHS ENDED JUNE 30, 2003 AND 2002

Summary. During the six months ended June 30, 2003, we incurred a net loss
of $1,219,000 as compared to a 2002 net loss of $1,920,000. The loss for both
periods was principally due to insufficient equipment utilization, along with
operating expenses as noted below.

Revenue and Gross Margin. Revenue of $523,000 during the first six months
of 2003 generated $3,000 of negative gross margin as compared to revenue of
$739,000 and negative gross margin of $650,000 in the comparable 2002 period.
The decrease in revenue and the improvement in gross margin were mainly due to
the fact that in the first six months of 2002 all of our revenue was derived
from an operations and maintenance contract (covering the three units sold in
the latter part of 2001 to a Mexican client) compared with an average of 0.6
units under full-service contract operations in the first six months of 2003.

Selling, General and Administrative ("SGA") Expenses. SGA expenses during
the first six months of 2003 were lower than the comparable six months in 2002
primarily due to foreign operation close-down and a general reduction in SGA
expenses.

Interest Expense. During the first six months of 2003, interest expense of
$63,000 relating to deferred preferred stock dividend, our long term debt, and
note payable to related parties compares to interest expense primarily on
deferred preferred stock dividend of $12,000 for the first six months of 2002

Income Taxes. We have reported a tax benefit in the first six months of
2002 related to the recovery of alternative minimum taxes provided at December
31, 2001. During both comparative six month periods we incurred net operating
losses ("NOLs") primarily in the U.S., which may be used to offset taxable
income reported in future periods. The NOLs associated with the taxes paid in
OnSite's foreign subsidiaries have generated deferred tax assets, but due to
uncertainties regarding the future realization of these assets, a valuation
allowance has been provided for the full amount of the deferred tax assets.

Minority Interest. Minority interest for the first six months of 2003 and
2002 relates to our 50% minority partner's interest in the net loss of OnSite
Arabia.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL
-------

We currently have no significant commitments for capital expenditures.

Since our inception, we have expended a significant portion of our
resources to develop markets and industry awareness of our ITD remediation and
recycling/reclamation process technology. Our efforts have been focused
primarily on hydrocarbon soil contamination inherent in oil and gas exploration
activities. Our efforts to develop markets and produce equipment have required
significant amounts of capital.

To the extent our cash reserves and cash flows from operations are
insufficient to meet future cash requirements, we will need to successfully
raise funds through an equity infusion, the issuance of debt securities or the
sale of ITD units. Financing may not be available on terms acceptable to us, or
at all. Further, the sale of additional equity or convertible debt securities
may result in dilution to our stockholders.

We expect that our existing cash reserves, cash flows from operations, and
our borrowing of $1,500,000 in March 2003 will be sufficient to cover our cash
requirements for 2003. However, there can be no assurance that existing sources
of cash will cover our 2003 cash flow requirements.

The functional currency of our foreign operations is the U.S. dollar
because customer invoicing, customer receivables, imported equipment and many of
the operating cost factors are denominated in U.S. dollars. We plan to continue
to implement the same approach to minimize our risks associated with foreign
exchange fluctuation and its affect on our profitability.

OPERATIONS
----------

In December 2001 we completed the sale of three of our ITD units along with
certain licensing rights, and utilized the bulk of the proceeds from the sale to
retire our senior debt. With the exception of this sale, we have incurred
recurring net losses and have been dependent on revenue from a limited customer
base to provide cash flows. We completed our most significant service contract
in December 2000 and during 2001 and 2002 have been exploring ways to replace
that revenue. During 2001 and 2002 we've experienced a continued tightening of
cash reserves and prior to repaying our senior debt in December 2001, we took
actions to delay payments on that debt. In January 2003 we signed a contract to
process various waste streams at a facility in Arkansas. We are currently
seeking to obtain additional service contracts in our served markets and are
considering strategic alternatives including the possible additional sale of
certain of our assets.

FINANCING
---------

During July 2002, we obtained uncollateralized loans totaling $250,000 from
Cahill Warnock Strategic Partners, L. P. and Strategic Associates, L.P. These
loans bear interest at 12% per year and are due in September 2003.

During March 2003, we obtained a loan of $1,500,000 from a private investor
group. The loan is to be funded in three $500,000 fundings on March 20, 2003;
May 15, 2003; and July 15, 2003. The fundings have all been received. The loan
is collateralized by three ITD units and bears interest at 12% per year.
Principal payments are due in 20 quarterly installments of $75,000 beginning in
August 2003 with the final payment due in May 2008. Warrants to purchase
1,500,000 shares of our common stock at a price of $0.01 were issued in
connection with this loan.

If we default on the $1,500,000 loan and if the lender forecloses on the
collateral, we would be left with only two ITD Units in the U.S. The loss of the
three ITD Units would (i) greatly reduce our capacity to serve customers in the
U.S., (ii) would put a limit on the potential revenue we could achieve in the
U.S., and (iii) would create an additional competitor in the U.S.

AUDIT OPINIONS

During the years ended December 31, 2002 and 2001, the Company faced
significant liquidity issues that caused the Company's prior independent
accountants to include an explanatory paragraph in their auditor's report on the
Company's consolidated financial statements, as of December 31, 2001 and for the
two years in the period then ended, describing the uncertainty about the
Company's ability to continue as a going concern. Below is an analysis of the
circumstances that led to a going concern explanatory paragraph in the Company's
2001 financial statements, followed by a description of changes in circumstances
that resulted in the current auditors issuing an unqualified opinion, without a
going concern explanatory paragraph, on the Company's 2002 financial statements.

BACKGROUND AND 2001 CIRCUMSTANCES

Since its inception, the Company has expended a significant portion of its
resources to develop markets and industry awareness of the capabilities of its
indirect thermal desorption ("ITD") recycling process. The Company's efforts
have been focused on the development, production and sale of environmental
recycling technologies and services to oil and gas industry participants, waste
management companies and other industrial customers. The Company's efforts to
develop markets and produce equipment have required significant amounts of
capital including long-term debt secured by the Company's ITD units and related
ITD technology. In 1995, the Company formed Onsite Technology, L.L.C. with a
50% partner, Parker Drilling Company ("Parker"). In 1997, the Company purchased
Parker's 50% interest for $8,000,000 and repaid a loan of $3,000,000 from an
affiliate of Parker. The sources of funds for the acquisition came from the
issuance of Series B and C Preferred Stock and a secured loan of $6,000,000.
The Series C Preferred Stock was exchanged for Series D Preferred Stock in 2000.

With the exception of the profitability impact from the Company's sale of
three ITD units and certain licensing rights in late 2001, the Company has
incurred recurring net losses and has been dependent on revenue from a limited
customer base to provide cash flows. These factors were the basis for the
Company's predecessor auditor's conclusion that at December 31, 2001,
substantial doubt existed about the Company's ability to continue as a going
concern.

The Company is continually seeking to obtain service contracts in the
markets that it serves. In December 2001, the Company completed the sale of
three of its ITD units and certain licensing rights, and the proceeds were used
to pay off all the Company's senior debt.

securities or the sale of ITD units. Doubt existed as to whether such financing
would be available on terms acceptable to the Company or at all. Further, the
sale of additional equity or convertible debt securities may result in dilution
to the Company's stockholders. The accompanying financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.

NEW DEVELOPMENTS IN 2003
------------------------

In January and March 2003, the Company entered into two important
agreements that management believes will provide cash resources sufficient to
cover the Company's 2003 cash requirements. The first agreement is a processing
contract with a major waste management and disposal contractor as disclosed in
Footnote 14 to the December 31, 2002 Financial Statements. The contract is
currently in the long term operation phase. The second agreement is a $1,500,000
long-term debt arrangement collateralized by certain of the Company's ITD units.

ACCOUNTING MATTERS AND RECENTLY ISSUED PRONOUNCEMENTS

In June 1998 and June 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities", respectively.
These statements establish accounting and reporting standards requiring that
every derivative instrument be recorded on the balance sheet as either an asset
or liability measured at its fair value. SFAS Nos. 133 and 138 also require
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS No. 133 and 138 are
effective for fiscal years beginning after June 15, 2000. We do not currently
hold derivative instruments or engage in hedging activities and, accordingly,
the adoption of these new standards is not expected to have a material impact on
our results of operations or financial position.

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," that requires all business combinations initiated after June 30,
2001 be accounted for using the purchase method. In addition, SFAS No. 141
further clarifies the criteria to recognize intangible assets separately from
goodwill. Specifically, SFAS No. 141 requires that an intangible asset may be
separately recognized only if such an asset meets the contractual-legal
criterion or the separability criterion. The implementation of SFAS No. 141 did
not have a material impact on our results of operations or financial position.

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," under which goodwill and intangible assets with indefinite useful lives
are no longer amortized but will be reviewed for impairment annually, or more
frequently if certain events or changes in circumstances indicate that the
carrying value may not be recoverable. The impairment test for goodwill
involves a two-step process: step one consists of a comparison of the fair value
of a reporting unit with its carrying amount, including the goodwill allocated
to each reporting unit. If the carrying amount is in excess of the fair value,
step two requires the comparison of the implied fair value of the reporting unit
goodwill with the carrying amount of the reporting unit goodwill. Any excess of
the carrying value of the reporting unit goodwill over the implied fair value of
the reporting unit goodwill will be recorded as an impairment loss. The
impairment test for intangible assets with indefinite useful lives consists of a
comparison of fair value to carrying value, with any excess of carrying value

over fair value being recorded as an impairment loss. Intangible assets with
finite useful lives will continue to be amortized over their useful lives and
will be reviewed for impairment in accordance with SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." The implementation of SFAS No.
142 at did not have a material impact on our results of operations or financial
position.

In August 2001, the FASB issued SFAS No. 144, that supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and certain provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 retains the fundamental provisions of SFAS No. 121
related to: (i) the recognition and measurement of the impairment of long-lived
assets to be held and used, and (ii) the measurement of long-lived assets to be
disposed by sale. It provides more guidance on estimating cash flows when
performing recoverability tests, requires long-lived assets to be disposed of
other than by sale to be classified as held and used until disposal, and
establishes more restrictive criteria to classify long-lived assets as held for
sale. In addition, SFAS No. 144 supersedes the accounting and reporting
provisions of APB Opinion No. 30 for the disposal of a segment of a business.
However, it retains the basic provisions of APB Opinion No. 30 to report
discontinued operations separately from continuing operations and extends the
reporting of a discontinued operation to a component of an entity. The
implementation of SFAS No. 144 did not have a material impact on our results of
operations or financial position.

We have evaluated the carrying value of long-lived assets, including
associated intangibles. We performed an evaluation of recoverability by
comparing the estimated future undiscounted cash flows associated with the asset
to the asset's carrying amount to determine if a write-down to market value or
discounted cash flow is required. Given the homogeneous nature and geographic
deployment flexibility of our assets, and based upon a recent evaluation by us,
impairment of our long-lived assets has not been deemed necessary. However,
there can be no assurances that our ongoing evaluation would not result in an
impairment-related write-down.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," that addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. In addition, SFAS No. 146 establishes that fair value is
the objective for initial measurement of the liability. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002, but
early adoption is permitted. We do not expect SFAS No 146 to have a significant
impact on our financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation", that amends SFAS No. 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method of
accounting for stock based employee compensation. It also amends the disclosure
provisions of SFAS No. 123 to require prominent disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to
stock based employee compensation. Finally, SFAS No. 148 amends APB Opinion No.

28, "Interim Financial Reporting", to require disclosure of those effects in
interim financial statements. SFAS No. 148 is effective for fiscal years ended
after December 15, 2002, but early adoption is permitted. We will adopt SFAS No.
148 on January 1, 2003; however, we do not expect the adoption to have a
significant impact on our financial reporting because we do not use stock based
compensation extensively.

RECENT EVENTS

In January 2003 we signed a contract to process various waste streams for
Rineco Chemical Industries, Inc., an entity related to Rineco Recycling, LLC.

In March 2003 we obtained a loan of $1,500,000 from Rineco Recycling, LLC.
The loan is to be funded in three $500,000 fundings (less $40,000 in origination
fees per funding) on March 20, 2003 ; May 15, 2003; and July 15, 2003. The
fundings have all been received. The loan is collateralized by three of our ITD
units and bears interest at a stated rate of 12% per year. Principal payments
are due in 20 quarterly installments of $75,000 beginning in August 2003 with
the final payment due in May 2008. We issued 1,500,000 warrants to purchase
shares of our common stock at an exercise price of $0.01 per share in connection
with this loan and these warrants were valued at $345,000. The loan origination
fees and warrants results in an effective interest rate on the loan of
approximately 35% per year. This transaction made Rineco Recycling, LLC a
related party and the beneficial owner of 13% of our common stock, although none
of the warrants have been exercised.

Also during March 2003, we extended the maturity date of the
uncollateralized notes from April 16, 2003 to September 16, 2003.

ACCOUNTING ESTIMATES AND CHOICES

Preparation of financial statements under generally accepted accounting
principles in the United States of America requires us to make choices between
acceptable methods of accounting and to make estimates of future events to
determine the value we report for certain assets and liabilities at the date of
our financial statements and the value we report for revenues and expenses in a
period covered by our financial statements. While we try to be as precise as
possible in making these estimates, many of them are subjective in nature and
involve matters of judgment. We believe the most subjective and material
estimates in our financial statements are the reserve, if any, that we report
for accounts receivable, the amount of our deferred taxes and our accrued
warranty costs.

Accounts Receivable. When an account receivable is considered impaired, the
amount of the impairment is measured based on the present value of expected
future cash flows or the fair value of collateral. Impairment losses
(recoveries) are included in the allowance for doubtful accounts. At December
31,2002, we had $97,000 of accounts receivable, and the entire balance was
collected subsequent to year end. Accordingly, we estimated that no allowance
was necessary at December 31, 2002.

Deferred Taxes. We record a valuation allowance to reduce our deferred
income tax assets to an amount that we believe to be realizable under the
"more-likely-than-not" recognition criteria. While we consider future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the
need for a valuation allowance, in the future we may change our estimate of the

amount of the deferred income tax assets that would "more-likely-than-not" be
realized, resulting in an adjustment to the deferred income tax asset valuation
allowance that would either increase or decrease, as applicable, reported net
income in the period. At December 31, 2002, we had net deferred tax assets
totaling $2,230,000 that were fully reserved because we could not demonstrate
their future realization. Our deferred tax assets relate primarily to the tax
benefit associated with net operating loss carryforwards. We could realize these
deferred tax assets in the future if we generate profits from a sufficient
number of contracts or the sale of equipment.

Accrued Warranty and Other Contingent Costs. We record an accrual for
product warranty and other contingencies when estimated future expenditures
associated with such contingencies become probable, and the amounts can
reasonably be estimated. However, new information may become available, or
circumstances (such as applicable laws and regulations) may change, thereby
resulting in an increase or decrease in the amount required to be accrued for
such matters (and therefore a decrease or increase in reported net income in the
period of such change). At December 31,2002, we had no products that remained
under warranty and, accordingly, we estimated that no warranty reserve was
necessary.

We believe that all of the estimates we used to prepare our financial
statements are reasonable.

BUSINESS

INTRODUCTION

We are engaged in the development, production and sale of environmental
recycling technologies and services to waste management companies, oil and gas
companies and other industrial customers through our wholly owned subsidiary,
OnSite Technology, L.L.C. ("OnSite"). We are devoting substantially all of our
efforts to the development of markets for OnSite's services. We are currently
providing recycling services to companies engaged in waste management, refining,
and other industrial applications.

During the period from 1996 until 2000 a substantial portion of our
revenues were generated from major international oil and gas industry
participants in Latin America (Colombia, Venezuela and Mexico) as well as from
other domestic and foreign industrial applications. As of August 2003 we have
completed our foreign contract operations, and have taken steps to close down
certain of our foreign subsidiaries. We are now concentrating our marketing
efforts and resources on domestic downstream plants, manufacturing facilities
and waste management facilities, where our proprietary equipment and process
have a competitive advantage in waste minimization, and recycling/reuse of waste
streams.

Highlights of our foreign operations:

OnSite Colombia, Inc. ("OSC"): In November 1996, we formed a 50%-owned
joint company OSC to provide hydrocarbon contaminated soil recycling services to
oil and gas industry participants operating in Colombia. Having completed
contract operations in Colombia, we re-acquired the 50% minority ownership of
OSC and subsequently moved our equipment back to the United States and initiated
formal procedures to liquidate the legal entity OSC. As of August 2003 the
liquidation process was in its final stages.

OnSite Venezuela, Inc. ("OSV"): In January 1998, we formed our 100% owned
subsidiary OSV, and commenced operations to provide hydrocarbon contaminated
soil recycling services to oil and gas industry participants operating in
Venezuela. Following completion of contract operations in Venezuela, the
equipment was moved back to the Unites States and the liquidation of the legal
entity has been completed.

OnSite Arabia, Inc. ("OSA"): In December 1998, we formed a 50%-owned joint
company OSA to provide hydrocarbon contaminated soil recycling services to oil
and gas industry participants operating in the Arabian Gulf region.

OnSite Environmental UK, Ltd. ("OSE"): In April 1999, we formed OSE, a
wholly-owned subsidiary, for operations in Scotland. Having completed contract
operations in Scotland, the equipment was moved back to the United States and
the liquidation of this legal entity has been completed.

OnSite Mexico LLC ("OSM"): In July 1999, we registered OSM, a wholly-owned
subsidiary, for operations in Mexico. OSM has completed operations, sold the
equipment and the procedures for the liquidation of the legal entity have
commenced.

OST Ambiental S de RL de CV ("SRL"): In March 2001, we registered SRL, a
wholly-owned subsidiary, for operations in Mexico. SRL has completed all
operations, moved the equipment back to the United States, and the liquidation
of this legal entity has been completed.

Refining and other types of industrial activities, often produce
significant quantities of petroleum-contaminated waste, from which our Indirect
Thermal Desorption ("ITD") process can extract and recover the hydrocarbons as
re-useable or re-saleable liquids, and produce recycled solids compliant with
environmental regulations. The activities of OnSite include use of ITD
technology to address hydrocarbon contamination problems and hydrocarbon
recycling and reclamation opportunities at heavy industrial, refining,
petrochemical and waste management sites, as well as at Superfund, DOD and DOE
sites. We provide these services on-site or at the central location to which the
customer hauls the contaminated materials.

HISTORY

We were incorporated under the laws of the State of Nevada in December
1985, under the name of Cape Cod Investment Company. In December 1986, our name
was changed to Cape Cod Ventures, Inc. In August 1987, an initial public
offering was completed for 4,148,000 shares of common stock at a price of $0.001
per share pursuant to the exemption from the registration requirements of the
Securities Act of 1933 provided by Regulation A. In May 1993, an Agreement and
Plan of Reorganization was executed with National Fuel & Energy, Inc."(NFE)", a
Wyoming corporation, providing for the acquisition of NFE in exchange for shares
of our common stock. In connection with the reorganization, our name was
changed to Environmental Safeguards, Inc., and NFE became our wholly-owned
subsidiary. We do not conduct any business activities through NFE.

In January 1995, we entered into an agreement with Parker Drilling Company
("Parker"), a Delaware corporation, in which we granted Parker exclusive
marketing rights to our proprietary processes for on-site remediation and
recycling services in connection with drill cuttings at oil and gas drilling
sites throughout the United States and in certain foreign countries and in

return received engineering, fabrication, and technical assistance from Parker.
In August 1995, we formed OnSite, as a corporate embodiment of our January, 1995
agreement in which NFE and Parker each owned 50%. In December 1997, we entered
into a Purchase Agreement (the "Purchase Agreement") with Parker that provided
for our acquisition, through NFE, of Parker's 50% equity interest in OnSite
resulting in NFE becoming the owner of 100% of the equity interest in OnSite.
Pursuant to the terms of the Purchase Agreement, we paid $8,000,000 for the 50%
equity interest and repaid a $3,000,000 loan that had been made to us by an
affiliate of Parker. As part of the transaction, Parker returned to us
unexercised warrants to purchase 300,000 shares of our common stock.

Our sources of funds to effect the acquisition included the sale of
$8,000,000 of new Series B Convertible Preferred Stock and Series C Preferred
Stock to an investor group consisting of Cahill, Warnock Strategic Partners
Fund, L.P., Strategic Associates, L.P., Newpark Resources, Inc. and James H.
Stone, who is the Chairman of Stone Energy Corporation and a secured loan of
$6,000,000 from the same investor group ("Loan Agreement"). Pursuant to the
financing, David L. Warnock, a member of Cahill, Warnock & Co., L.L.C. and
general partner of Cahill, Warnock Strategic Partners Fund, L.P., was appointed
as one of our Directors.

BUSINESS ACTIVITIES

General: Substantially all of our activities are conducted through OnSite, which
is engaged in the development and production of remediation and recycling
technology and the sale of environmental remediation and recycling services.
OnSite owns the technologies included in its Indirect Thermal Desorption ("ITD")
units, and the proprietary processes for on-site remediation and recycling of
hydrocarbon contaminated solids. To date, the environmental remediation and
recycling services we have provided have involved the removal of petroleum
contaminants from waste streams using our ITD units. Our ITD units are easily
transported processing systems which produce clean solids from contaminated
solids while reclaiming the hydrocarbons. Our customers consist primarily of
large corporations with hydrocarbon or hydrocarbon derivative contaminated waste
streams and waste management companies in the business of offering waste
disposal services.

The primary services we offer involve the remediation and recycling of waste
streams contaminated by oil-based drilling fluids, fuel spills, leakage at
storage tanks, refinery wastes, ship sludges and other sources of hydrocarbon
contamination, as well as the remediation of industrial waste. To remediate and
recycle the contaminated solids, we utilize our ITD units consisting of (i) an
indirect thermal desorption unit wherein the hydrocarbon contaminated materials
are indirectly heated, thereby causing the hydrocarbon contamination to
vaporize; and (ii) a condensation process system, which causes the hydrocarbon
vapor to condense to a liquid, or an afterburner or thermal oxidizer, which
incinerates the hydrocarbon vapor resulting in a safe and clean process. Our
ITD units are mobile, and thus, contaminated solids can be remediated and
recycled at the site where the contaminated waste streams are located. We do
not haul or dispose of solids or contaminants away from the customer's location.

As of August 2003, we owned five ITD units outright, and our 50%-owned
subsidiary OnSite Arabia, Inc. owned two additional units.

Customers: Our targeted customers are companies that have industrial
activities or sites that produce or process quantities of hydrocarbon
contaminated waste. Through OnSite, we typically submit a bid for a project
based on the costs of moving the equipment to the location, the estimated

charges for labor and fuel, the nature and extent of the contamination, the type
and moisture content of the soil and the estimated processing time. Once a
contract has been awarded, equipment is moved to the client's desired location.
While we have currently outstanding a number of proposals to prior and
prospective customers, we have one current ongoing project with Rineco Chemical
Industries, Inc.

Indirect Thermal Remediation and Recycling: The primary services we offer
involve: (i) the remediation and recycling of hydrocarbon contaminated
industrial waste streams, (ii) the remediation and recycling of hydrocarbon
contamination at settling ponds, oil and gas exploration sites, refineries,
petrochemical facilities, abandoned production fields, Department of Defense
installations, ships and dock facilities and other similar sites; (iii) the
remediation and recycling of soil contaminated by oil-based drilling mud, fuel
spills, leakage at storage tanks, leakage from pipelines; and (iv) the
remediation and recycling of valuable drilling fluids which have been captured
in soil and drilling muds during the drilling process. To date we have employed
our ITD units to provide remediation and recycling services to oil and gas
industry refining and drilling operations, tank farms and compressor sites,
industrial waste disposal facilities and oilfield waste disposal facilities.
This process is known as "indirect thermal desorption" because it reverses the
contamination process and removes the hydrocarbons from the solids and
discharges the contaminants previously absorbed without direct contact of the
solid to a flame.

Our ITD units, which are portable equipment, utilize a rotating,
heat-jacketed trundle to vaporize hydrocarbons from contaminated soil or other
contaminated materials. Our ITD units consist of two principal components: (i)
an indirect thermal desorption unit wherein the hydrocarbon contaminated solid
is indirectly heated, thereby causing the hydrocarbon contamination to vaporize;
and (ii) a condensation process system, which causes the hydrocarbon vapor to
condense to a liquid for recycling. As an alternative to the condensing system,
the vapor can be passed through an afterburner or thermal oxidizer, which
incinerates the hydrocarbon vapors.

The heat exchange system is comprised of a large fabricated steel shell
which houses a rotating trundle. Hot gases pass through the shell and around the
outside surface of the trundle. Hydrocarbon contaminated materials, are loaded
into the elevated end of the trundle by a conveyor belt or a front-end loader.
As the trundle revolves, the contaminated materials are agitated by internal
lifts and oars as they passes through the inside of the trundle by gravity flow
and are heated to temperatures from 200 to 1,000 degrees Fahrenheit. At these
temperatures, the hydrocarbon contaminants in the solids transform into vapors,
which are vacuumed out of the heat exchange system into the condensing system,
the afterburner or the thermal oxidizer. The clean materials then drop out of
the discharge door at the low end of the trundle and are passed through an
enclosed conveyor for re-hydration before final discharge. Random samples are
tested at the end of the process to confirm that the contaminants have been
removed.

The hydrocarbon vapors removed from the heat exchange system by vacuum are
passed through a fan-cooled condensing system. The vapors are condensed into
liquids and collected in storage tanks and can then be recycled or disposed,
depending on the nature of the contaminant, the needs of the customer and the
specifications required for reuse. To date, our ITD units have demonstrated
their ability to process up to 192 tons of contaminated soil in a 24-hour period
with 30% hydrocarbon saturation. However, the processing capacity varies
significantly depending on the moisture content, degree of contamination, soil
type, contamination type and the remediation and recycling required. There can
be no assurance that our ITD units will continue to perform at this level, or
that this performance will continue to be competitive with other technologies
available in the market.

Recycling of Hydrocarbon Contaminants: We have developed proprietary
processes that are embodied in the condensation process system unit, one of the
two principal components of our ITD units. Within this component the hydrocarbon
contaminants are condensed from the vapor state created in the heat exchange
unit back into a liquid state via the proprietary processes and placed into
storage for recycling back to the client. This allows the client to realize
actual savings from its ability to re-utilize the hydrocarbons. We believe that
this ability to recycle the hydrocarbon contaminants is an important competitive
advantage, as compared to the bioremediation, direct burn or "dig and haul"
remediation technologies.

Manufacturing of ITD Units: We have historically contracted with outside
fabricators to manufacture our ITD units. The primary contractors we have used
are National Oilwell and Houston ProFab. As of August, 2003, we did not have
any ITD units under construction, nor did we have plans to fabricate additional
ITD Units.

RECENT EVENTS

In January 2003 we signed a contract to process various waste streams in a
facility in Arkansas.

During March 2003 we obtained a loan of $1,500,000 from a private investor
group. The loan is to be funded in three $500,000 fundings on March 20, 2003;
May 15, 2003; and July 15, 2003. The fundings have all been received. The loan
is collateralized by three ITD units and bears interest at 12% per year.
Principal payments are due in 20 quarterly installments of $75,000 beginning in
August 2003 with the final payment due in May 2008. Warrants to purchase
1,500,000 shares of our common stock at a price of $0.01 were issued in
connection with this loan.

Also, during March 2003, we extended the maturity date of the
uncollateralized loans from April 16, 2003 to September 16, 2003.

We operate with our own trained personnel through wholly or partially-owned
subsidiaries as discussed above.

As of August 2003, five of our ITD units are located in the United States
and two in the United Arab Emirates.

COMPETITION

There are many companies that currently dispose of hazardous and industrial
wastes and remediate or clean contaminated sites. Such companies are
continually attempting to develop new and improved products and services. Other
companies utilize competing technologies and techniques in an attempt to provide
more economical or superior remediation services. Many of our competitors are
established companies with substantially greater capital resources, larger
research and development staffs and facilities and greater marketing
capabilities than us. We believe that we presently have a nominal share of the
markets in which we compete. There can be no assurance that we will be
competitive in the remediation and recycling industry in the future.

We obtain our contracts through competitive bidding and are in direct
competition with companies providing alternative means of, and utilizing
alternative technologies for, remediating environmental problems. The most
significant competition comes from companies utilizing "dig and haul," direct
burn, and bioremediation technology to remediate hydrocarbon contamination.

Companies utilizing the "dig and haul" method generally transport the
contaminated materials to other facilities for processing. We believe that the
technology we utilize is competitive because our equipment is mobile, and thus,
contaminated materials can be remediated on location. The waste processing,
remediation and recycling businesses are, to a large extent, dependent upon and
constrained by the costs and regulations associated with transporting such
wastes. More importantly, our remediation and recycling process addresses the
latent liability associated with the contamination at the site.

Companies utilizing direct burn technology use direct heat sources to
incinerate contaminants found in the solids. Due to the closed nature of the
heat transfer systems of our ITD units, we can safely handle much higher
concentrations of contaminants than conventional direct burn methods.
Conventional direct burn methods process material with maximum contamination
levels of 3% to 4% while our ITD units have processed materials with
contamination levels as high as 40%. In addition, the portable nature of our ITD
units permit them to be located at the contamination site. Our ITD units also
permit the customer to recapture certain valuable liquids which are otherwise
destroyed.

We differentiate ourselves from our competitors by providing significantly
higher operational service and a significantly higher value-added result for our
clients for the remediation of hydrocarbons from materials, and the subsequent
reclaiming of the hydrocarbons into liquids for customer recycling or resale.
For example, some of the design features of our ITD unit, which we believe
provide service-level advantages, include:

Remediation: Our ITD units remove 99.9% of hydrocarbon contaminants from
the waste-stream, effectively eliminating the client's latent liability.

Recycling: Our ITD units transform waste streams into value for our clients
by reclaiming valuable hydrocarbons for client recycling or resale. For example,
our equipment has reclaimed millions of gallons of diesel oil while processing
drill cuttings for major oil and gas participants.

Tonnage: Our ITD units have proven processing capability of 1 to 10 tons
per hour with up to 30% hydrocarbon-saturation in the soil. Some competitors are
capable of similar processing speeds, but at lower hydrocarbon-saturation
levels, resulting in throughput advantages for us.

Portability: Our ITD units are built on two 44 foot trailer beds for easier
transport to our client's location, avoiding costly hauling expenses of
contaminated materials to a central location. In addition, the design of our ITD
units permit rig-down and/or rig-up in less than a day. Some competitive units
are much less transportable, or not transportable at all.

Wide Range of Hydrocarbons Treated: Our ITD units operate at low
temperatures (200 degrees Fahrenheit), high temperatures (1,000 degrees
Fahrenheit), and anywhere in between, thereby enabling the remediation of wide
ranges of hydrocarbon contaminants encountered at a client's site including both
oil and gas and industrial waste. We believe that competition in the industry is
concentrated in remediation services, whereas our ITD technology not only
provides remediation services, but also is capable of reclaiming and recycling
valuable hydrocarbons. Further, we believe that our pricing policies are
competitive. No assurance, however, can be given that we will be able to
successfully compete with other companies or alternative technologies.

GOVERNMENTAL REGULATIONS AND THE COST OF COMPLIANCE

We render services in connection with the remediation, recycling and
disposal of various wastes. Federal, state and local laws and regulations have
been enacted regulating the handling and disposal of wastes and creating
liability for certain environmental contamination caused by such waste.
Environmental laws regulate, among other things, the transportation, storage,
handling and disposal of waste. Governmental regulations govern matters such as
the disposal of residual chemical wastes, operating procedures, waste water
discharges, air emissions, fire protection, worker and community right-to-know,
and emergency response plans. Moreover, so-called "toxic tort" litigation has
increased markedly in recent years as persons allegedly injured by chemical
contamination seek recovery for personal injuries or property damage. These
legal developments present a risk of liability should we be deemed to be
responsible for contamination or pollution caused or increased by any
evaluation, remediation or cleanup effort conducted by us, or for an accident
which occurs in the course of such remediation or cleanup effort. There can be
no assurance that our policy of establishing and implementing proper procedures
for complying with environmental regulations will be effective at preventing us
from incurring a substantial environmental liability. If we were to incur a
substantial uninsured liability for environmental damage, our financial
condition could be materially adversely affected.

We presently have the ability to deliver remediation and recycling services
that meet applicable federal and state standards for the delivery of our
services, and for the level of contaminant removal. The government can,
however, impose new standards. If new regulations were to be imposed, we may
not be able to comply in either the delivery of our services, or in the level of
contaminant removal from the waste stream.

Operating permits are generally required by federal and state environmental
agencies for the operation of our ITD units. The costs of acquiring the
operating permits have been borne by our customers. Most of these permits must
be renewed periodically and the governmental authorities involved have the
power, under various circumstances, to revoke, modify, or deny issuance or
renewal of these permits. Site-related permits, however, are generally the
responsibility of the client.

EMPLOYEES

We currently have 15 employees, five of whom are in domestic and
international management or supervisory positions, including corporate and
administrative functions. None of our employees are represented by a union. We
consider our employee relations to be good.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Colonial Stock
Transfer Company, Inc., addressed at 66 Exchange Place, Salt Lake City, Utah
84111; (801) 355-5740.

PROPERTIES

Our principal executive offices are located in leased facilities at 2600
South Loop West, Suite 645, Houston, Texas 77054, which consist of approximately
3,500 square feet. The lease for the executive offices will expire in May 2005.
We believe that our offices are adequate for our present needs and that suitable
space will be available to accommodate our future needs.

For information relating to our properties, reference is made to Financial
Note 6 to our audited Financial Statements for the year ended December 31, 2002
under the subsection "Lease Commitments." These Financial statements begin on
page F-1.

MANAGEMENT

The following table sets forth the names and positions of each of our
executive officers and directors:

NAME AGE POSITION
- ------------------- --- ---------------------------------------------------------

James S. Percell 59 Director, Chairman, Chief Executive Officer and President

Thomas R. Bray 47 Director

Bryan Sharp 59 Director

Albert M. Wolford 81 Director

David L. Warnock 45 Director

Michael D. Thompson 52 Chief Financial Officer

Directors are elected annually and hold office until the next annual
meeting of our stockholders or until their successors are elected and qualified.
Officers are elected annually and serve at the discretion of the Board of
Directors. There is no family relationship between or among any of our
directors and executive officers. Board vacancies are filled by a majority vote
of the Board.

James S. Percell serves as Director, Chairman, Chief Executive Officer and
President and also serves as President of our subsidiaries, National Fuel &
Energy, Inc. ("NFE") and OnSite Technology LLC ("OnSite"). Mr. Percell became a
director and President, Chief Executive Officer and a director of NFE in
November 1995. Mr. Percell became President and Chief Executive Officer of our
consolidated company in January 1996. Mr. Percell also serves as President of
Percell & Associates, a project developer of facilities in the hydrocarbon

industry. From 1985-1993, Mr. Percell served as Vice-President of Belmont
Constructors, Inc., a heavy industrial contractor. From 1982-1984, he served as
President of Capital Services Unlimited, an international supply company for
refining, petrochemical and oil field compressor stations, modular refineries
and modular oilfield components. From 1977-1980, Mr. Percell served as
President of Percell & Lowder, Inc., an oilfield fabricator of onshore and
offshore facilities, and from 1960-1977, he served as project manager for
various onshore and offshore projects. He attended Amarillo College in
Amarillo, Texas.

Thomas R. Bray was appointed as Director in January 2002. Mr. Bray is a
member of our compensation and audit committees. Mr. Bray has been a practicing
attorney practicing in Stafford and Houston, Texas for the past nine years,
specializing in business and real estate transactions, and litigation and
general corporate representation, largely for businesses and individuals in the
oil and gas services, banking and investment industries. Prior to that, he was
vice president of New First City, Texas-Houston, N.A., having previously served
as special assistant to the president and an in-house counsel of Collecting
Bank, N.A., and vice-president of First City Asset Servicing Company and First
City, Texas-Houston, N.A. Mr. Bray has also served as president of Associated
Title Company, president of Arbor Oaks Utilities, Inc. a
private water and sewer utility company, and the owner and president of
Rembrandt Homes, Inc., all in Houston. Mr. Bray graduated from the University
of Texas with a BBA in Finance, and received his J.D. degree from South Texas
College of Law in Houston.

Bryan Sharp has served as a Director since November 1995. Mr. Sharp
previously served on our audit committee, and previously was a self-employed
environmental consultant. Mr. Sharp previously served as Principal-in-Charge
and Director of Espey, Huston & Associates, Inc. ("EH&A"), an environmental
consulting company. From 1990-1993, he served as President of EH&A. Mr. Sharp
has also been employed by North Texas State University, the Department of the
Interior, and the University of Texas. Mr. Sharp has a B.S. degree in Education
from North Texas State University, a M.S. degree in Biology from North Texas
State University and studied for his Ph.D. in Zoology from The University of
Texas at Austin.

Albert M. Wolford has served as Director since August 5,1997. Mr. Wolford
is a member of our compensation and audit committees, and previously served as
our Secretary. Mr. Wolford has been an independent business consultant since
1988. From 1970 to 1988, Mr. Wolford served with Texas United Corporation as a
director, a member of the executive committee, senior vice-president, and as the
chairman of the executive development and compensation committees. As a senior
vice-president of Texas United Corporation, Mr. Wolford served its subsidiaries
as president and CEO of Texas United Chemical Corporation, as the chairman,
president and CEO of United Salt Corporation, and as the president of American
Borate Corporation. He has also served the Texas Chemical Council, an industry
trade group, as a director, a member of its executive committee, and as
secretary-treasurer. Mr. Wolford served as a member of the executive committee
of the Salt Institute, an industry trade group. Mr. Wolford is a graduate of
The University of Texas.

David L. Warnock was appointed as Director in December 1997 in connection
with the December, 1997 financing. Mr. Warnock is a member of our audit and
compensation committees. Mr. Warnock is a founding partner of Cahill, Warnock &
Company, L.L.C., an asset management firm established in 1995 to invest in small
public companies. From 1983 to 1995, Mr. Warnock was with T. Rowe Price
Associates in senior management positions including President of the corporate
general partner of T. Rowe Price Strategic Partners I and T. Rowe Price

Strategic Partners II, and as the Executive Vice-president of T. Rowe Price New
Horizons Fund. Mr. Warnock also serves on the Boards of Directors of other
public and private companies. Mr. Warnock received a Bachelor of Arts Degree,
History, from the University of Delaware and a Masters Degree, Finance, from the
University of Wisconsin.

Michael D. Thompson became our Chief Financial Officer in September 2002.
Beginning in 1997, Mr. Thompson served as Chief Operating Officer of Outsourcing
Services, Inc., an accounting and consulting firm where he provided financial
and accounting services to clients in a variety of industries. From 1990
through 1996, Mr. Thompson was Chief Financial Officer of The Hanover Company, a
fully integrated national real estate development firm. Mr. Thompson is a
certified public accountant. Mr. Thompson has a B.B.A. degree with honors from
the University of Texas.

LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION

Our Articles of Incorporation (the "Articles") provide, as permitted by
governing Nevada law, that our directors shall not be personally liable to us or
any of our stockholders for monetary damages for breach of fiduciary duty as a
director, with certain exceptions. The Articles further provide that we will
indemnify our directors and officers against expenses and liabilities they incur
to defend, settle, or satisfy any civil litigation or criminal action brought
against them on account of their being or having been our directors or officers
unless, in such action, they are adjudged to have acted with gross negligence or
willful misconduct.

The inclusion of these provisions in the Articles may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited us and our stockholders.

The Articles provide for the indemnification of our executive officers and
directors, and the advancement to them of expenses in connection with any
proceedings and claims, to the fullest extent permitted by Nevada law. The
Articles include related provisions meant to facilitate the indemnities' receipt
of such benefits. These provisions cover, among other things: (i) specification
of the method of determining entitlement to indemnification and the selection of
independent counsel that will in some cases make such determination, (ii)
specification of certain time periods by which certain payments or
determinations must be made and actions must be taken, and (iii) the
establishment of certain presumptions in favor of an indemnitee.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by a small business issuer of expenses incurred or paid
by a director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of

appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

We do not currently pay any cash director's fees. However, we pay the
expenses, if any, of our directors in attending board meetings. In 1998, our
board adopted a stock option plan (as detailed below) that included
participation in the plan by directors.

EXECUTIVE COMPENSATION

Mr. James Percell became Chief Executive Officer in January 1996. Our
employment contract with Mr. Percell (the "Employment Agreement"), which
commenced in April 1997, has a term of three years. The Employment Agreement
automatically extends, unless terminated by us or Mr. Percell (upon at least
thirty days written notice prior to the end of the initial term or any
additional one-year term), for additional successive one year periods after the
initial three year term. Mr. Percell's employment contract provides that he
receive annual compensation in the amount of $125,000. In November 1997, the
Board of Directors increased Mr. Percell's annual compensation to $250,000,
however, during 1998 Mr. Percell agreed to reduce his annual compensation to
$180,000. During the year ended December 31, 2002, Mr. Percell agreed to defer
and accrue his compensation, beginning with the pay period ended June 15, 2002.

SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
ANNUAL COMPENSATION PAYOUTS
OTHER AWARDS SECURITIES ALL
NAME AND ANNUAL RESTRICTED UNDERLYING OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
- ------------------------------------------------------------------------------------------------------------------

James S. Percell 2002 $ 180,000 -0- -0- -0- -0- -0- -0-
CHIEF 2001 $ 180,000 -0- -0- -0- -0- -0- -0-
EXECUTIVE OFFICER 2000 $ 180,000 -0- -0- -0- -0- -0- -0-

OPTION/SAR GRANTS IN LAST FISCAL YEAR

NAME AND NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT
PRINCIPAL SECURITIES TOTAL ASSUMED ANNUAL RATES OF
POSITION UNDERLYING OPTIONS/SARS STOCK PRICE APPRECIATION FOR
OPTIONS/SARS GRANTED TO OPTION TERM:
GRANTED (1) EMPLOYEES
IN FISCAL EXERCISE OF EXPIRATION
YEAR BASE PRICE DATE 5% 10%
- --------------------------------------------------------------------------------------------------------

<FN>

_________________________________________
(1) No Options/SAR Grants made during 2002

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NAME AND SHARES OPTIONS/SARS AT OPTIONS/SARS AT
PRINCIPAL ACQUIRED ON VALUE FISCAL YEAR-END FISCAL YEAR-END
POSITION EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------

James S. Percell (*) (*) -0- / 1,303,042/0 -0- / -0-
CHIEF EXECUTIVE OFFICER
<FN>

__________
(*) Did not exercise any options.

Other than our 1998 Stock Option Plan (described immediately below), we do
not have any long term incentive plans or defined benefit or actuarial plans.

1998 STOCK OPTION PLAN

While we have been successful in attracting and retaining qualified
personnel, we believe that our future success will depend in part on its
continued ability to attract and retain highly qualified personnel. We pay
wages and salaries that we believe are competitive. We also believe that equity
ownership is an important factor in our ability to attract and retain skilled
personnel, and on December 9, 1998, the Board of Directors approved the 1998
Stock Option Plan (the "Plan") which was approved by the Stockholders at our
1999 annual meeting of stockholders. The Plan will allow Incentive Stock
Options as determined by the Compensation Committee, or the Board of Directors
if there is no compensation committee (the "Committee"). In 1998, the Board of
Directors has reserved 800,000 shares of Common Stock for issuance pursuant to
the Plan. The purpose of the Plan is to foster and promote our financial
success and increase stockholder value by enabling eligible key employees,
directors and consultants to participate in our long-term growth and financial
success of the Company.

ELIGIBILITY. The Plan is open to key employees (including officers and
directors) and our consultants and affiliates ("Eligible Persons").

TRANSFERABILITY. The grants are not transferable.

CHANGES IN CAPITAL STRUCTURE. The Plan will not effect our right to
authorize adjustments, recapitalizations, reorganizations or other changes in
our capital structure. In the event of an adjustment, recapitalization or
reorganization the award shall be adjusted accordingly. In the event of a
merger, consolidation, or liquidation, the Eligible Person will be eligible to
receive a like number of shares of stock in the new entity. The board may waive
any limitations imposed under the Plan so that all options are immediately
exercisable.

OPTIONS. The Plan provides for both Incentive and Nonqualified Stock
Options.

Option price. Incentive options shall be not less than the greater of (i)
100% of fair market value on the date of grant, or (ii) the aggregate par value
of the shares of stock on the date of grant. The Compensation Committee, at its
option, may provide for a price greater than 100% of fair market value. The
price for Incentive Stock Options for Stockholders owning 10% or more of our
shares ("10% Stockholders") shall be not less than 110% of fair market value.

Amount exercisable-incentive options. In the event an Eligible Person
exercises incentive options during the calendar year whose aggregate fair market
value exceeds $100,000, the exercise of options over $100,000 will be considered
nonqualified stock options.

Duration. No option may be exercisable after the expiration date as set
forth in the option agreement.

Exercise of Options. Options may be exercised by written notice to our
President with:

(i) cash, certified check, bank draft, or postal or express money
order payable to Environmental Safeguards, Inc. for an amount
equal to the option price of the shares;

(ii) stock at its fair market value on the date of exercise;

(iii) an election to make a cashless exercise through a registered
broker-dealer (if approved in advance by the Compensation
Committee);

(iv) an election to have shares of stock, which otherwise would be
issued on exercise, withheld in payment of the exercise price (if
approved in advance by the Compensation Committee); and/or

(v) any other form of payment which is acceptable to the Compensation
Committee, including without limitation, payment in the form of a
promissory note, and specifying the address to which the
certificates for the shares are to be mailed.

TERMINATION OF OPTIONS.

Termination of Employment. Any Option which has not vested at the time the
Optionee ceases continuous employment for any reason other than death,
disability or retirement shall terminate upon the last day that the Optionee is
employed by us. Incentive Stock Options must be exercised within three months
of cessation of Continuous Service for reasons other than death, disability or
retirement in order to qualify for Incentive Stock Option tax treatment.
Nonqualified Options may be exercised any time during the Option Period
regardless of employment status.

Death. Unless the Option expires sooner, the Option will expire one year
after the death of the Eligible Person.

Disability. Unless the Option expires sooner, the Option will expire one
year after the disability of the Eligible Person.

Retirement. Any Option which has not vested at the time the Optionee ceases
continuous employment due to retirement shall terminate upon the last day that
the Optionee is employed by us. Upon retirement Incentive Stock Options must be
exercised within three months of cessation of Continuous Service in order to
qualify for Incentive Stock Option tax treatment. Nonqualified Options may be
exercised any time during the Option Period regardless of employment status.

AMENDMENT OR TERMINATION OF THE PLAN. The Committee may amend, terminate or
suspend the Plan at any time, in its sole and absolute discretion; provided,
however, that to the extent required to qualify the Plan under Rule 16b-3
promulgated under Section 16 of the Exchange Act, no amendment that would (a)
materially increase the number of shares of stock that may be issued under the
Plan, (b) materially modify the requirements as to eligibility for participation
in the Plan, or (c) otherwise materially increase the benefits accruing to
participants under the Plan, shall be made without the approval of our
Stockholders; provided further, however, that to the extent required to maintain

the status of any incentive option under the Code, no amendment that would (a)
change the aggregate number of shares of stock which may be issued under
incentive options, (b) change the class of employees eligible to receive
incentive options, or (c) decrease the option price for incentive options below
the fair market value of the stock at the time it is granted, shall be made
without the approval of the Stockholders. Subject to the preceding sentence, the
Board shall have the power to make any changes in the Plan and in the
regulations and administrative provisions under it or in any outstanding
incentive option as in the opinion of our counsel may be necessary or
appropriate from time to time to enable any incentive option granted under this
Plan to continue to qualify as an incentive stock option or such other stock
option as may be defined under the Code so as to receive preferential federal
income tax treatment. No amendment, suspension or termination of the Plan shall
act to impair or extinguish rights in Options already granted at the date of
such amendment, suspension or termination.

OPTIONS GRANTED UNDER
1998 STOCK OPTION PLAN

The following sets forth the options granted under our 1998 Stock Option
Plan as of July 31, 2003:

NAME AND POSITION DOLLAR VALUE(1) NUMBER OF OPTIONS
- ------------------------------- ---------------- -----------------

James S. Percell, CEO $ 220,387 177,500

Executive Group(2) $ 224,587 197,500

Non-executive Director Group $ 126,450 180,000

Non-executive Officer
Employee Group $ 622,745 415,000
Total $ 965,782 792,500
<FN>
__________

(1) Dollar value was calculated based on the exercise price of $1.6875 for the
options granted in December 1998, $0.21 for the options granted in March
2003, and $0.18 for the options granted in May 2003. These exercise prices
were the market value per share on the date of the grants.

(2) Amounts include dollar value and options granted to Mr. Percell.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Our Board of Directors has adopted a policy that our affairs will be
conducted in all respects by standards applicable to publicly-held corporations
and that we will not enter into any transactions and/or loans between us and our
officers, directors and 5% stockholders unless the terms are no less favorable
than could be obtained from independent, third parties and will be approved by a
majority of our independent, disinterested directors.

In January 2003 we signed a contract to process various waste streams for
Rineco Chemical Industries, Inc., an entity related to Rineco Rcycling, LLC.
In March 2003 we obtained a loan of $1,500,000 from Rineco Recycling, LLC. The

loan is to be funded in three $500,000 fundings on March 20, 2003 ,May 15, 2003;
and July 15, 2003. We have received all of the fundings.The loan is
collateralized by three of our ITD units and bears interest at 12% per year.
Principal payments are due in 20 quarterly installments of $75,000 beginning in
August 2003 with the final payment due in May 2008. We issued 1,500,000
warrants to purchase shares of our common stock at an exercise price of $0.01
per share in connection with this loan. This transaction made Rineco Recycling,
LLC the beneficial owner of 13% of our common stock, although none of the
warrants have been exercised as of June 16, 2003.

In July 2002, we obtained uncollateralized loans totaling $250,000 from
Cahill Warnock Strategic Partners, L.P. and Strategic Associates, L.P. These
loans bear interest of 12% per year and were originally due in January 2003 but
have been extended to September 2003. David L. Warnock, one of our Directors,
is a general partner of Cahill Warnock Strategic Partners, L.P. and a managing
member of the general partner of Strategic Associates, L.P.

In March 2001 and September 2000, we entered into agreements with our
primary lenders and holders of our outstanding preferred stock to defer various
principal and interest payments on our senior debt. The senior debt was fully
repaid in December 2001.

During 1998, we entered into a marketing assistance agreement with the
minority owners of OnSite Colombia, Inc. Under the terms of the agreement, in
exchange for assisting us in our business expansion efforts, the minority owners
and we each received marketing assistance fees totaling $320,000 during each of
the years ended December 31, 2000 and 1999.

During December 1998, we formed a joint company, OnSite Arabia, Inc. with
an investor group for the purpose of providing environmental remediation in the
Arabian gulf region. We sold two ITD units to the newly formed joint company
(one in 1999 and one in 1998) and recognized gains to the extent proceeds
received exceeded our proportional basis in the assets.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of July 31, 2003,
with respect to the beneficial ownership of shares of common stock by (i) each
person who is known by us to beneficially own more than 5% of the outstanding
shares of common stock, (ii) each of our directors, (iii) each of our executive
officers, and (iv) all executive officers and directors as a group. Unless
otherwise indicated, each stockholder has sole voting and investment power with
respect to the shares shown.

NUMBER OF PERCENT CLASS OF
NAME SHARES OWNED(1) OF CLASS SECURITIES
- --------------------------------- --------------------- --------- ------------

James S. Percell 1,528,210(2)(14) 12.6% Common Stock
2600 South Loop West, Suite 645
Houston, Texas 77054

Bryan Sharp 1,162,264 (3)(9)(14) 9.8% Common Stock
3200 Wilcrest, #200
Houston, Texas 77042

Albert M. Wolford 159,346 (4)(9)(14) 1.5% Common Stock
2600 South Loop West, Suite 645
Houston, Texas 77054

8,782,276
David L. Warnock (5)(6)(9)(10)(14) 46.5% Common Stock
One South Street, Suite 2150
Baltimore, Maryland 21202

Edward L. Cahill 8,732,276 (5)(6) 46.3% Common Stock
One South Street, Suite 2150
Baltimore, Maryland 21202

Cahill, Warnock Strategic
Partners Fund, L.P. 8,732,276 (5)(6) 46.3% Common Stock
One South Street, Suite 2150
Baltimore, Maryland 21202

Strategic Associates, L.P. 8,732,276 (5)(6) 46.3% Common Stock
One South Street, Suite 2150
Baltimore, Maryland 21202

Cahill, Warnock & Company, L.L.C. 8,732,276 (5)(6) 46.3% Common Stock
One South Street, Suite 2150
Baltimore, Maryland 21202

Cahill, Warnock Strategic
Partners, L.P. 8,732,276 (5)(6) 46.3% Common Stock
One South Street, Suite 2150
Baltimore, Maryland 21202

Thomas R. Bray 30,000 (10)(14) 0.3% Common Stock
2600 South Loop West, Suite 645
Houston, Texas 77054

Newpark Resources, Inc. 8,017,962 (7)(8) 42.7% Common Stock
3850 N. Causeway, Suite 1770
Metairie, LA 70002-1756

Michael D. Thompson 25,000 (11)(14) 0.2% Common Stock
2600 South Loop West, Suite 645
Houston, Texas 77054

Rineco Recycling, LLC 1,500,000 (12) 12.2% Common Stock
629 Vulcan Road
Haskell, Arkansas 72015

Harry C. Erwin 1,500,000 (13) 12.2% Common Stock
629 Vulcan Road
Haskell, Arkansas 72015

All officers and directors as a 11,687,096 54.2% Common Stock
Group (6 persons)
<FN>

_________________________________
(1) Under the rules of the Securities and Exchange Commission (the
"Commission"), a person who directly or indirectly has or shares voting
power or investment power with respect to a security is considered a
beneficial owner of the security. Voting power is the power to vote or
direct the voting of shares, and investment power is the power to dispose
of or direct the disposition of shares. Shares as to which voting power or
investment power may be acquired within 60 days are also considered as
beneficially owned under the Commission's rules and are, accordingly,
included as shares beneficially owned.

(2) Includes an option to purchase 800,000 shares of our common stock at $0.60
per share, and options to purchase 378,042 shares of our common stock at
$1.44 per share. Also includes an option to purchase 125,000 shares of our
common stock at $1.69 per share and an option to purchase 26,250 shares of
our common stock at $0.18 per share. These options are fully vested and
immediately exercisable. Excludes an option to purchase 26,250 shares of
our common stock at $0.18 per share which vests May 22, 2004.

(3) Includes an option to purchase 800,000 shares of our common stock at $0.60
per share, an option to purchase 301,267 shares of our common stock at
$3.00 per share, an option to purchase 10,997 shares of our common stock at
$5.00 per share, and an option to purchase 15,000 shares of our common
stock at $0.21 per share. These options are fully vested and immediately
exercisable. Excludes an option to purchase 15,000 shares of our common
stock at $0.21 per share which vests March 6, 2004.

(4) Includes options to purchase 43,346 shares of our common stock at $1.44 per
share and an option to purchase 15,000 shares of our common stock at $0.21
per share. These options are fully vested and immediately exercisable.
Excludes an option to purchase 15,000 shares of our common stock at $0.21
per share which vests March 6, 2004.

(5) Includes 1,722,900 shares of Series B Convertible Preferred Stock issued to
Cahill, Warnock Strategic Partners Fund, L.P. ("Cahill Warnock Fund"),
whose sole general partner is Cahill, Warnock Strategic Partners, L.P.
("Cahill Warnock Partners"). In addition, includes 95,464 shares of Series
B Convertible Preferred Stock issued to Strategic Associates, L.P.
("Strategic Associates"), whose sole general partner is Cahill, Warnock &
Company, L.L.C. ("Cahill Warnock"). Each share of Series B Convertible
Preferred Stock is immediately convertible into one share of our common
stock, subject to adjustment under certain conditions. David L. Warnock and
Edward L. Cahill are the sole general partners of Cahill Warnock Partners
and the sole members of Cahill Warnock. David L. Warnock and Edward L.
Cahill are control persons of Cahill Warnock Fund, Cahill Warnock Partners,
Strategic Associates, and Cahill Warnock. David L. Warnock, Edward L.
Cahill, Cahill Warnock Fund, Cahill Warnock Partners, Strategic Associates
and Cahill Warnock have shared voting power and shared dispositive power of
these shares and each disclaim beneficial ownership of the shares, except
with respect to their pecuniary interest therein, if any.

(6) Includes 4,938,703 shares of our common stock which would arise upon the
conversion of 182,732 shares of our Series D Convertible Preferred Stock,
issued to the Cahill Warnock Fund, whose sole general partner is Cahill
Warnock Partners. Also includes 273,649 shares of our common stock which
would arise upon the conversion of 10,125 shares of our Series D
Convertible Preferred Stock, issued to Strategic Associates, whose sole
general partners is Cahill Warnock. Also includes 1,012,511 shares of
common stock issuable to Cahill Warnock Fund and 56,012 shares of common
stock issuable to Strategic Associates upon conversion of deferred
dividends and interest thereon related to the Series D Preferred Stock.
These Preferred shares, deferred dividends and interest are immediately
convertible into our common stock.

(7) Includes 5,405,405 shares of our common stock which would arise upon the
conversion of 200,000 shares of our Series D Convertible Preferred Stock,
issued to Newpark Resources, Inc. Also includes 1,108,192 shares of common
stock upon conversion of deferred dividends and interest thereon related to
the Series D Preferred Stock. These Preferred shares, deferred dividends
and interest are immediately convertible into our common stock.

(8) Includes 847,975 shares of Series B Convertible Preferred Stock which are
immediately convertible into shares of common stock. The number of shares
of common stock into which each share of Preferred Stock may be converted
is presently one share of common stock for each share of Series B
Convertible Preferred Stock, subject to adjustment under certain
conditions. Also includes warrants to purchase 656,390 shares of our common
stock at $0.01 per share. The warrant is fully vested and immediately
exercisable.

(9) Also includes an option to purchase 20,000 shares of our common stock at
$1.69 per share that is fully vested and immediately exercisable.

(10) Includes an option to purchase 15,000 shares of our common stock at $0.21
per share that is fully vested and immediately exercisable. Excludes an
option to purchase 15,000 shares of our common stock at $0.21 per share
which vests March 6, 2004.

(11) Includes an option to purchase 10,000 shares of our common stock at $0.21
per share that is fully vested and immediately exercisable. Excludes an
option to purchase 10,000 shares of our common stock at $0.21 per share
which vests March 6, 2004.

(12) Represents common stock underlying 1,500,000 warrants that are immediately
exercisable.

(13) Represents common stock underlying 1,500,000 warrants issued to Rineco
Recycling, LLC that are immediately exercisable. Mr. Erwin has the
exclusive right, subject to certain restrictions, to vote or direct a vote
of and to dispose of or direct the disposition of all of the shares
beneficially owned by Rineco Recycling, LLC.

(14) Includes an option to purchase 15,000 shares of our common stock at $0.175
per share that is fully vested and immediately exercisable. Excludes an
option to purchase 15,000 shares of our common stock at $0.175 per share
which vests July 2, 2004.

We know of no arrangement or understanding which may at a subsequent date
result in a change of control.

PLAN OF DISTRIBUTION

The selling stockholder and any of its pledgees, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market, or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. There is no assurance that the selling stockholder will sell
any or all of the common stock in this offering. The selling stockholder may
use any one or more of the following methods when selling shares:

- - Ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers.

- - Block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction.

- - Purchases by a broker-dealer as principal and resale by the broker-dealer
for its own account.

- - An exchange distribution following the rules of the applicable exchange.

- - Privately negotiated transactions.

- - Short sales or sales of shares not previously owned by the seller.

- - Broker-dealers may agree with the selling stockholder to sell a specified
number of such shares at a stipulated price per share.

- - A combination of any such methods of sale.

- - Any other lawful method.

- - The selling stockholder may also engage in:

- - Short selling against the box, which is making a short sale when the seller
already owns the shares.

- - Buying puts, which is a contract whereby the person buying the contract may
sell shares at a specified price by a specified date.

- - Selling calls, which is a contract giving the person buying the contract
the right to buy shares at a specified price by a specified date.

- - Selling under Rule 144 under the Securities Act, if available, rather than
under this prospectus.

- - Other transactions in our securities or in derivatives of our securities
and the subsequent sale or delivery of shares by the stock holder.

- - Pledging shares to their brokers under the margin provisions of customer
agreements. If a selling stockholder defaults on a margin loan, the broker
may, from time to time, offer and sell the pledged shares.

Broker-dealers engaged by the selling stockholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholder in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
stockholder does not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.

The selling stockholder and any broker-dealers or agents that are involved
in selling the shares may be considered to be "underwriters" within the meaning
of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities Act.

We are required to pay all fees and expenses incident to the registration
of the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.

If we are notified by the selling stockholder that it has a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholder and the broker-dealer.

SELLING STOCKHOLDER

Rineco Recycling, LLC presently owns 1,500,000 warrants to purchase our
common stock at an exercise price of $0.01 per share. We issued the warrants to
Rineco Recycling, LLC when they loaned us $1,500,000 in March 2003 pursuant to a
promissory note that we gave to Rineco Recycling, LLC. Each warrant entitles
Rineco Recycling, LLC to purchase one share of our common stock. The warrants
are immediately exercisable and the warrants expire on April 30, 2005. Under
the rules of the Commission, Rineco Recycling, LLC is deemed to be the
beneficial owner of a similar number of shares of common stock, even though none
of the warrants have been exercised as of September 8, 2003. The 1,500,000
shares of common stock being offered are issuable by us upon the exercise of the
warrants. Upon exercise of the warrants, Rineco Recycling, LLC will be able to
resell the common stock through public secondary trading for all or a portion of
the common stock from time to time. Rineco Recycling, LLC does not beneficially
own any other shares of common stock. Rineco Recycling, LLC presently
beneficially owns approximately 12% of our common stock. If Rineco Recycling,
LLC sells all the shares of common stock in this offering, then Rineco will not
own any shares of our common stock.

Rineco Recycling, LLC is not a broker dealer or an affiliate of a broker
dealer. Rineco Recycling, LLC does not have an existing short position in our
security.

In January 2003 we signed a contract to process various waste streams for
Rineco Chemical Industries, Inc., an entity related to Rineco Recycling, LLC.

DESCRIPTION OF SECURITIES

Our authorized capital stock consists of 50,000,000 shares of common stock,
$0.001 par value, and 10,000,000 shares of preferred stock $0.001 par value. As
of the date of this Prospectus, we have outstanding 10,745,091 shares of common
stock, 2,733,686 shares of Series B Preferred Stock and 400,000 shares of Series
D Preferred Stock.

COMMON STOCK

The holders of common stock are entitled to one vote per share with respect
to all matters required by law to be submitted to our stockholders. The holders
of common stock have the sole right to vote, except as otherwise provided by law
or by the Articles, including provisions governing any Preferred Stock. The
common stock does not have any cumulative voting, preemptive, subscription or
conversion rights. Election of directors and other general stockholder action
requires the affirmative vote of a majority of shares represented at a meeting
in which a quorum is represented. The outstanding shares of common stock are,
and the shares of common stock offered hereby will be, upon payment therefor as
contemplated herein, validly issued, fully paid and non-assessable.

Subject to the rights of any outstanding shares of Preferred Stock, the
holders of common stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
However, our Series B Preferred Stock is entitled to receive dividends at such
time, if any, that we declare dividends on our common stock, in an amount equal
to the number of shares of common stock that the Series B Preferred Stock could
be converted into at the time a dividend is declared, which could hinder our
ability to pay dividends on our common stock.

In the event of liquidation, dissolution or winding up of our affairs, the
holders of common stock are entitled to share ratably in all assets remaining
available for distribution to them after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock then
outstanding.

PREFERRED STOCK

We are authorized to issue 10,000,000 shares of Preferred Stock, par value
$0.001, of which there are outstanding, 2,733,686 shares of Series B Preferred
Stock and 400,000 shares of Series D Preferred Stock. The Articles provide that
the Board of Directors is authorized, without action by the holders of the
common stock, to provide for the issuance of the authorized but unissued shares
of Preferred Stock in one or more series, to establish the number of shares to

be included in each series and to fix the designations, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions thereof. This includes, among other things, voting rights,
conversion privileges, dividend rates, redemption rights, sinking fund
provisions and liquidation rights which shall be superior to the common stock.
The issuance of one or more series of the Preferred Stock could adversely affect
the voting power of the holders of the common stock and could have the effect of
discouraging or making more difficult any attempt by a person or a group to
attain control of us.

Our Series B Preferred Stock is entitled to receive dividends at such time,
if any, that we declare dividends on our common stock, in an amount equal to the
number of shares of common stock that the Series B Preferred Stock could be
converted into at the time a dividend is declared.

Our Series D Convertible Preferred Stock is entitled to receive cash
dividends, of which $820,062 through July 31, 2003 (including accrued interest
thereon) have been deferred by the holders until October 1, 2003.

The holders of Series D Convertible Preferred Stock are entitled to receive
out of funds legally available therefor, dividends in an annual amount equal to
the prime rate plus one and one-half percent (1.5%) as reported by The Wall
Street Journal on the outstanding stated value of the Series D Convertible
Preferred Stock (which presently is $4,000,000.00). The dividends are calculated
as of the last day of each quarter, and are payable quarterly in arrears (the
"Dividend Payment"). Dividend Payments are due five (5) days after the close of
each quarter. The initial quarterly dividend began accruing on October 1, 2000,
for the quarter ending December 31,2000, and was not be due until five days
after the close of the quarter ending December 31, 2000.

The holders of Series D Convertible Preferred Stock were entitled to
receive a one time special dividend of $75,777.78 ("Special Dividend") along
with the quarterly payment due for the quarter ending March 31, 2001. The
Special Dividend had interest calculated on the basis of actual days elapsed and
a 360-day year, at the prime rate, as reported in the Wall Street Journal five
(5) business days prior to the end of each calendar month or if not reported on
such date then the closest business day thereto, plus one and five-tenths
percent (1.5%). This special dividend has been deferred until October 1, 2003.

WARRANTS AND OPTIONS

We presently have outstanding an aggregate of 7,453,495 options and
warrants to purchase common stock. Approximately 2,418,583 of these warrants
and options are in, at or within 5% of being in the money and are immediately
exercisable.

LEGAL MATTERS

The legality of the issuance of shares hereby will be passed upon for us
by Axelrod, Smith & Kirshbaum, an Association of Professional Corporations,
Houston, Texas. Robert D. Axelrod, Esq. owns 26,759 shares of our common stock.

LEGAL PROCEEDINGS

In July 2002, OnSite filed a lawsuit styled OnSite Technology LLC v.
Duratherm, Inc., Duratherm Group, Inc., Steven R. Heuer and Victor R. Reynolds;
Civil Action No. H-02-2624; In the United States District Court for the Southern
District of Texas against Duratherm, Inc. and Duratherm Group, Inc., Steven R.
Heuer and Victor R. Reynolds. OnSite's lawsuit alleges that Duratherm's
remediation operations at its Galveston County, Texas facility infringed on
OnSite's U.S. Patent No. 5,738,031 and requested a declaratory judgment that
OnSite's operation of its remediation process does not infringe either of Heuer
and Reynolds' U.S. Patent Nos. 4,990,237 and 5,269,906 over which Duratherm
alleges control. OnSite is seeking a declaratory judgement that it does not
infringe on either the Heuer or Reynolds patents. OnSite is also seeking damages
for patent infringement, injunctive relief to prevent further patent
infringement, and other relief that the court finds appropriate. The Defendants
have filed an answer asserting that they do not infringe on OnSite's patent and
that such patent is invalid. The Defendants' denial that there is any
controversy between the parties regarding the Heuer and Reynolds' patents, has
been rejected by the court. The defendants have not alleged in their pleadings
that OnSite infringes on either patent. This case is in the early stages of
discovery. An opposed motion is pending by Duratherm to amend its counterclaim.

In July 2002, OnSite also initiated litigation styled OnSite Technology,
LLC v. Duratherm, Inc. et al.; Cause No. 02CV0801; In the 56th Judicial District
Court of Galveston County, Texas, against Duratherm, Inc., Duratherm Group,
Inc., Barry Hogan and Jim Hogan. This lawsuit alleges that in November 1999,
OnSite and Waste Control Specialists, L.L.C. ("WCS") entered into a contract
wherein OnSite would, among other things, provide the necessary services,
supplies and equipment to perform recycling and remediation services utilizing
an indirect thermal desorption unit as specified therein. OnSite alleges that,
in late July or early August 2000, Defendants, acting in concert through
Duratherm, Inc., sent or caused to be sent a letter(s) and/or other
communication(s) to WCS, which OnSite alleges contained statements that were
false and intended to deceive WCS as to OnSite and OnSite's technology and
indirect thermal desorption unit. OnSite also alleges that a suit filed by
Duratherm in August 2000 for patent infringement against OnSite and WCS in the
United States District Court for the Southern District of Texas under Civil
Action No. H-00-2727, which was subsequently dismissed with prejudice by the
United States District Judge, was malicious and contained false statements and
allegations about OnSite and OnSite's technology and indirect thermal desorption
unit. OnSite alleges that as a result of such alleged false, deceptive and
malicious statements, WCS terminated its contract with OnSite. In February 2003
OnSite amended its petition to add John C. Hilliard as a defendant and to add as
a claim against the defendants, the loss of a contract or prospective contract
with ExxonMobil. OnSite has also amended its petition to include as a defendant
Duratherm's counsel, Conley Rose P.C. The causes of action alleged by OnSite
against the Defendants are (i) interference with contract and prospective
business relations; (ii) unfair competition and business disparagement; (iii)
unjust enrichment; and (iv) injury to OnSite's business reputation. OnSite is
seeking actual, consequential, incidental and compensatory damages, including,
but not limited to, disgorgement, pre- and post-judgment interest, attorney's
fees and costs, and exemplary and punitive damages. OnSite is also seeking to
enjoin these defendants and Duratherm's counsel, Conley Rose P.C., from
interfering with the current and prospective business relationships of OnSite
with regard to the thermal desorption units. The Defendants in this litigation
have filed an answer denying the allegations contained in OnSite's petition.
This case is in the early stages of discovery.

EXPERTS

Our Consolidated Balance Sheet as of December 31, 2002 and the related
Consolidated Statements of Operations, Stockholders' Equity and Cash Flow for
the year then ended have been audited by Ham, Langston & Brezina, L.L.P.,
independent auditors, as set forth in their report, incorporated by reference
herein, in reliance upon such report and the authority of Ham, Langston &
Brezina L.L.P. as experts in accounting and auditing.

The consolidated financial statements as of December 31, 2001 and for the
year ended December 31, 2001 included in this Registration Statement have been
so included in reliance on the report (which contains an explanatory paragraph
relating to the Company's ability to continue as a going concern as described in
Note 2 to the consolidated financial statements) of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

CHANGES IN OUR CERTIFYING ACCOUNTANT

There have been no disagreements with our independent accountants regarding
accounting and financial disclosure matters.

On April 2, 2002, we dismissed PricewaterhouseCoopers, LLP as our
independent accountants. Our audit committee and board of directors participated
in and approved the decision to change independent accountants.

The reports of PricewaterhouseCoopers LLP on the financial statements for
2001 contained no adverse opinion or disclaimer of opinion and were not
qualified as to audit scope or accounting principle, however such reports for
each of the years were modified to express substantial doubt with respect to our
ability to continue as a going concern.

In connection with the audit for 2001 and through April 2, 2002, there were
no disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their report on the financial statements for such years.

During 2001 and through April 2, 2002, there were no reportable events (as
defined in Regulation S-K Item 304.

PricewaterhouseCoopers LLP has furnished a letter addressed to the SEC
stating it agrees with the above statements.

We engaged Ham, Langston & Brezina, LLP as our new independent accountants
as of April 3, 2002. During 2000 and 2001 and through April 3, 2002, we had not
consulted with Ham, Langston & Brezina, LLP regarding either (i) the application
of accounting principles to a specified transaction, either completed or
proposed; or the type of audit opinion that might be rendered on our financial
statements, and neither a written report was provided to us or oral advice was
provided that Ham, Langston & Brezina, LLP concluded was an important factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was either the subject of a
disagreement, as that term is defined in Item 304 of Regulation S-B and the
related instructions to Item 304 of Regulation S-B, or a reportable event, as
that term is defined in Item 304 of Regulation S-B.

CONSOLIDATED FINANCIAL STATEMENTS
ENVIRONMENTAL SAFEGUARDS, INC.
TABLE OF CONTENTS
__________

PAGE
----

Reports of Independent Accountants F-3

Audited Financial Statements

Consolidated Balance Sheet as of December 31,
2002 F-5

Consolidated Statement of Operations for the
years ended December 31, 2002 and 2001 F-6

Consolidated Statement of Stockholders' Equity
for the years ended December 31, 2002 and 2001 F-7

Consolidated Statement of Cash Flows for the
years ended December 31, 2002 and 2001 F-8

Notes to Consolidated Financial Statements F-9

Unaudited Consolidated Condensed Financial Statements

Consolidated Condensed Balance Sheet as of June 30, 2003
(unaudited) and December 31, 2002 F-29

Unaudited Consolidated Condensed Statement of
Operations for the three months and six months
ended June 30, 2003 and 2002 F-30

Unaudited Consolidated Condensed Statement of
Stockholders' Equity for the six months ended
June 30, 2003 and 2002 F-31

Unaudited Consolidated Condensed Statement of Cash
Flows for the six months ended June 30,
2003 and 2002 F-32

Notes to Unaudited Consolidated Condensed Financial
Statements F-33

F-1

ENVIRONMENTAL SAFEGUARDS, INC.
__________

CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

F-2

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Environmental Safeguards, Inc.

We have audited the accompanying consolidated balance sheet of Environmental
Safeguards, Inc. as of December 31, 2002 and the related consolidated statements
of operations, stockholders' deficit and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Environmental Safeguards, Inc. as of December 31, 2002, and the consolidated
results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Ham, Langston & Brezina, L.L.P.

Houston, Texas
March 20, 2003, except for Note 14,
As to which the date is June 20, 2003

F-3

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Environmental Safeguards, Inc.

In our opinion, the accompanying consolidated statement of operations,
stockholders'' equity and cash flows present fairly, in all material respects,
the consolidated results of operations and cash flows of Environmental
Safeguards, Inc. for the year ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements included in the Company's Form 10-K for the
year ended December 31, 2001, the Company has incurred losses from operations
and has not generated sufficient business backlog. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
February 28, 2002

F-4

ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
__________
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS
------

Current assets:
Cash and cash equivalents $ 97
Accounts receivable 97
Prepaid expenses 173
---------

Total current assets 367

Property and equipment, net 5,506
Acquired engineering design and technology, net of
accumulated amortization of $1,756 1,203
Other assets 3
---------

Total assets $ 7,079
=========

LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------

Current liabilities:
Notes payable to related parties $ 250
Accounts payable 31
Dividends payable 617
Accrued interest 63
Other accrued liabilities 592
---------

Total current liabilities 1,553
---------

Minority interest 1,943

Commitments and contingencies

Stockholders'' equity:
Preferred stock; Series B convertible; voting,
$.001 par value (aggregate liquidation
value - $2,898) 5,000,000 shares authorized;
2,733,686 shares issued and outstanding 3
Preferred stock; Series D convertible, non-voting,
cumulative $.001 par value (aggregate liquidation
value $4,000); 400,000 shares authorized, issued
and outstanding 1
Common stock; $.001 par value; 50,000,000 shares
authorized; 10,112,144 shares issued and outstanding 10
Additional paid-in capital 14,981
Accumulated deficit (11,412)
---------

Total stockholders' equity 3,583
---------

Total liabilities and stockholders'' equity $ 7,079
=========

The accompanying notes are an integral part
of these consolidated financial statements.

F-5

ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
__________
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEAR ENDED
DECEMBER 31,
------------------
2002 2001
------------------

Revenue $ 943 $ 2,987
------------------
Cost of revenue 1,968 3,546
-------- --------

Gross margin (1,025) (559)
-------- --------

Selling, general and administrative expenses 1,713 2,645
------------------
Amortization of acquired engineering design and
technology 408 408
Research and development 30 71
------------------

Loss from operations (3,176) (3,683)

Other income (expenses):
Gain on sale of equipment - 6,252
Interest income 2 32
Interest expense (43) (839)
Other (2) 40
------------------

Income (loss) before benefit (provision) for income
taxes and minority interest (3,219) 1,802

Benefit (provision) for income taxes 79 (536)
------------------

Income (loss) before minority interest (3,140) 1,266

Minority interest 97 241
------------------

Net income (loss) $(3,043) $ 1,507
==================

Net income (loss) applicable to common stockholders $(3,296) $ 1,169
==================

Net income (loss) per share-basic $ (0.33) $ 0.12
==================

Net income (loss) per share-diluted $ (0.33) $ 0.05
==================

Weighted average shares outstanding-basic 10,112 10,112
==================

Weighted average shares outstanding-diluted 10,112 23,142
==================

The accompanying notes are an integral part
of these consolidated financial statements.

F-6

ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS'' EQUITY
__________
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

TOTAL
SERIES B SERIES C SERIES D ADDITIONAL STOCK-
PREFERRED PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED HOLDERS'
STOCK STOCK STOCK STOCK CAPITAL DEFICIT EQUITY
------------------------------------------------------------------------------------

Balance as of December 31, 2000 3 - 1 10 14,935 (9,285) 5,664

Issuance of 188,571 warrants to pur-
chase common stock in connection
with senior secured debt (Note 4) - - - - 46 - 46

Dividends on Series D Preferred stock - - - - - (338) (338)

Net income - - - - - 1,507 1,507
------------------------------------------------------------------------------------

Balance as of December 31, 2001 3 - 1 10 14,981 (8,116) 6,879

Dividends on Series D Preferred stock - - - - - (253) (253)

Net loss - - - - - (3,043) (3,043)
------------------------------------------------------------------------------------

Balance as of December 31, 2002 $ 3 $ - $ 1 $ 10 $ 14,981 $ (11,412) $ 3,583
====================================================================================

The accompanying notes are an integral part
of these consolidated financial statements.

F-7

ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
__________
(IN THOUSANDS)

YEAR ENDED
DECEMBER 31,
------------------
2002 2001
------------------

Cash flows from operating activities:
Net income (loss) $(3,043) $ 1,507
Adjustment to reconcile net loss to net cash used by
operating activities:
Minority interest (97) (241)
Deferred tax expense - 30
Depreciation expense 1,218 2,080
Amortization of acquired engineering design and
technology 408 408
Amortization of discount - 344
Gain on sale of equipment - (6,252)
Changes in operating assets and liabilities:
Accounts receivable 1,212 (286)
Prepaid expenses and other assets (37) (55)
Accounts payable (115) (10)
Accrued liabilities (58) (195)
Income taxes payable (254) 34
------------------

Net cash used by operating activities (766) (2,636)
------------------

Cash flows from investing activities:
Proceeds from sale of equipment - 6,900
Purchases of equipment (185) (260)
------------------

Net cash provided (used) by investing activities (185) 6,640
------------------

Cash flows from financing activities:
Proceeds from notes payable to stockholders 250 -
Payments on long-term debt - (5,406)
Dividends paid on Series C and Series D preferred
stock - (199)
Distribution to minority interest - (669)
------------------

Net cash provided (used) by financing activities 250 (6,274)
------------------

Net decrease in cash and cash equivalents (701) (2,270)

Cash and cash equivalents, beginning of year 798 3,068
------------------

Cash and cash equivalents, end of year $ 97 $ 798
==================

Supplemental disclosure of cash flow information:

Cash paid for interest $ - $ 695
==================

Cash paid for income taxes $ - $ 472
==================

The accompanying notes are an integral part
of these consolidated financial statements.

F-8

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------

Environmental Safeguards, Inc. (the "Company") provides environmental
remediation and hydrocarbon reclamation/recycling services principally to
oil and gas companies, using proprietary Indirect Thermal Desorption
("ITD") technology. To date the primary service offered by the Company has
been the remediation of soil contaminated by oil-based drill cuttings and
the subsequent recovery of diesel and synthetic oils.

PRINCIPLES OF CONSOLIDATION
-----------------------------

The consolidated financial statements include the accounts of the Company
and its majority owned or controlled subsidiaries after elimination of all
significant intercompany accounts and transactions.

MANAGEMENT ESTIMATES
---------------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. These estimates
mainly involve the useful lives of property and equipment, the valuation of
deferred tax assets and the realizability of accounts receivable.

RESEARCH AND DEVELOPMENT
--------------------------

Research and development activities are expensed as incurred, including
costs relating to patents or rights which may result from such
expenditures.

REVENUE RECOGNITION
--------------------

Revenue is recognized at the time services are performed, or in the event
of the sale of an ITD unit, when the equipment is shipped.

CONCENTRATIONS OF CREDIT RISK
--------------------------------

Financial instruments which subject the Company to concentrations of credit
risk include cash and cash equivalents and accounts receivable. The Company
maintains its cash and cash equivalents with major financial institutions
selected based upon management's assessment of the banks' financial
stability. Balances periodically exceed the $100,000 federal depository
insurance limit. The Company has not experienced any losses on deposits.
Accounts receivable generally arise from sales of services to customers
operating in the United States and Latin America. Collateral is generally
not required for credit granted. As of December 31, 2002 all of the
Company's trade receivables were due from two customers for services
performed in the United States and Mexico. The Company has in place
insurance to cover certain exposure in its foreign operations and provides
allowances for potential credit losses when necessary.

F-9

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------

CASH EQUIVALENTS
-----------------

The Company considers all short-term investments with an original maturity
of three months or less when purchased to be cash equivalents.

PROPERTY AND EQUIPMENT
------------------------

Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of 8 years for ITD
Units and 3 to 5 years for office furniture and equipment and
transportation and other equipment. Effective October 1, 2002, the Company
changed the estimated useful lives of ITD units from 5 to 8 years to more
accurately reflect the Company's experience with useful lives of ITD units
(See Note 3). Additions or improvements that increase the value or extend
the life of an asset are capitalized. Expenditures for normal maintenance
and repairs are expensed as incurred. Disposals are removed from the
accounts at cost less accumulated depreciation and any gain or loss from
disposition is reflected currently in other income/expenses in the
statement of operations.

INCOME TAXES
-------------

The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and income tax carrying amounts of
assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. A
valuation allowance, if necessary, is provided against deferred tax assets,
based upon management's assessment as to their realization.

STOCK-BASED COMPENSATION
-------------------------

Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") established financial accounting and
reporting standards for stock-based employee compensation plans. It defined
a fair value based method of accounting for an employee stock option or
similar equity instrument and encouraged all entities to adopt that method
of accounting for all of their employee stock compensation plans and
include the cost in the income statement as compensation expense. However,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees". The Company accounts for compensation cost for stock
option plans in accordance with APB Opinion No. 25.

ACQUIRED ENGINEERING DESIGN AND TECHNOLOGY
----------------------------------------------

Acquired engineering design and technology represents the intangible value
associated with certain proprietary equipment and process designs acquired
by the Company in the acquisition of OnSite Technology, L.L.C. ("OnSite")
in 1997. This intangible asset is being amortized over an estimated useful
life of 8 years using the straight-line method.

F-10

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------

IMPAIRMENT OF LONG-LIVED ASSETS
----------------------------------

In the event facts and circumstances indicate the carrying value of a
long-lived asset, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying
amount to determine if a write-down to market value or discounted cash flow
is required. Given the homogeneous nature and geographic deployment
flexibility of such assets, and based upon a recent evaluation by
management, an impairment write-down of the Company's long-lived assets
was not deemed necessary.

Management has evaluated the carrying value of long-lived assets, including
associated intangibles. An evaluation of recoverability is performed by
comparing the estimated future undiscounted cash flows associated with the
asset to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow is required. Given the homogeneous nature and
geographic deployment flexibility of such assets, and based upon this
evaluation by management, impairment of the Company's long-lived assets has
not been deemed necessary.

TRANSLATION OF FOREIGN CURRENCIES
------------------------------------

The financial statements of foreign subsidiaries are measured as if the
functional currency were the U.S. dollar. The remeasurement of local
currencies into U.S. dollars creates translation adjustments which are
included in net income.

FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------

The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different
from the book value. When the book value approximates fair value, no
additional disclosure is made.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
--------------------------------------------

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," which requires all business combinations initiated after
June 30, 2001 be accounted for using the purchase method. In addition, SFAS
No. 141 further clarifies the criteria to recognize intangible assets
separately from goodwill. Specifically, SFAS No. 141 requires that an
intangible asset may be separately recognized only if such an asset meets
the contractual-legal criterion or the separability criterion. The
implementation of SFAS No. 141 did not have a material impact on the
Company's results of operations or financial position.

F-11

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------------

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS, CONTINUED
--------------------------------------------------------

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," under which goodwill and intangible assets with indefinite useful
lives are no longer amortized but will be reviewed for impairment annually,
or more frequently if certain events or changes in circumstances indicate
that the carrying value may not be recoverable. The impairment test for
goodwill involves a two-step process: step one consists of a comparison of
the fair value of a reporting unit with its carrying amount, including the
goodwill allocated to each reporting unit. If the carrying amount is in
excess of the fair value, step two requires the comparison of the implied
fair value of the reporting unit goodwill with the carrying amount of the
reporting unit goodwill. Any excess of the carrying value of the reporting
unit goodwill over the implied fair value of the reporting unit goodwill
will be recorded as an impairment loss. The impairment test for intangible
assets with indefinite useful lives consists of a comparison of fair value
to carrying value, with any excess of carrying value over fair value being
recorded as an impairment loss. Intangible assets with finite useful lives
will continue to be amortized over their useful lives and will be reviewed
for impairment in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The implementation of SFAS
No. 142 at did not have a material impact on the Company's results of
operations or financial position.

In August 2001, the FASB issued SFAS No. 144, which supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and certain provisions of APB Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 related to: (i) the recognition and measurement
of the impairment of long-lived assets to be held and used, and (ii) the
measurement of long-lived assets to be disposed by sale. It provides more
guidance on estimating cash flows when performing recoverability tests,
requires long-lived assets to be disposed of other than by sale to be
classified as held and used until disposal, and establishes more
restrictive criteria to classify long-lived assets as held for sale. In
addition, SFAS No. 144 supersedes the accounting and reporting provisions
of APB Opinion No. 30 for the disposal of a segment of a business. However,
it retains the basic provisions of APB Opinion No. 30 to report
discontinued operations separately from continuing operations and extends
the reporting of a discontinued operation to a component of an entity. The
implementation of SFAS No. 144 did not have a material impact on the
Company's results of operations or financial position.

F-12

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS, CONTINUED
--------------------------------------------------------

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal
activities and supersedes Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. In addition,
SFAS No. 146 establishes that fair value is the objective for initial
measurement of the liability. SFAS No. 146 is effective for exit or
disposal activities initiated after December 31, 2002, but early adoption
is permitted. The Company is currently evaluating the adoption date;
however the impact of its adoption is not expected to have a significant
impact on the Company's financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation", which amends SFAS No. 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method
of accounting for stock based employee compensation. It also amends the
disclosure provisions of SFAS No. 123 to require prominent disclosure about
the effects on reported net income of an entity's accounting policy
decisions with respect to stock based employee compensation. Finally, SFAS
No. 148 amends APB Opinion No. 28, "Interim Financial Reporting", to
require disclosure of those effects in interim financial statements. SFAS
No. 148 is effective for fiscal years ended after December 15, 2002, but
early adoption is permitted. The Company will adopt SFAS No. 148 on January
1, 2003; however, the Company does not expect that adoption will have a
significant impact on its financial reporting.

2. LIQUIDITY ISSUES
-----------------

During the year ended December 31, 2002 and 2001, the Company faced
significant liquidity issues that caused the Company's prior independent
accountants to include an explanatory paragraph in their auditor's report
on the Company's consolidated financial statements, as of December 31,
2001 and for the two years in the period then ended, describing the
uncertainty about the Company's ability to continue as a going concern.
Below is an analysis of the circumstances that led to a going concern
explanatory paragraph in the Company's 2001 financial statements, followed
by a description of changes in circumstances that resulted in the current
auditors issuing an unqualified opinion, without a going concern
explanatory paragraph, on the Company's 2002 financial statements.

BACKGROUND AND 2001 CIRCUMSTANCES
------------------------------------

F-13

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

2. LIQUIDITY ISSUES, CONTINUED
-----------------------------

BACKGROUND AND 2001 CIRCUMSTANCES, CONTINUED
------------------------------------------------

technology. With the exception of the profitability impact from the
Company's sale of three ITD units and certain licensing rights in late 2001
(as noted below and in Note 3), the Company has incurred recurring net
losses and has been dependent on revenue from a limited customer base to
provide cash flows. These factors were the basis for the Company's
predecessor auditor's conclusion that at December 31, 2001, substantial
doubt existed about the Company's ability to continue as a going concern.

At December 31, 2001, the Company's predecessor auditor believed that the
Company's long-term viability as a going concern was dependent on the
repositioning of its asset base and the achievement of a sustaining level
of profitability. To the extent the Company's cash reserves and future cash
flows from operations were insufficient to meet future cash requirements,
the Company would need to raise funds through the infusion of equity, the
issuance of debt securities or the sale of ITD units. Doubt existed as to
whether such financing would be available on terms acceptable to the
Company or at all. Further, the sale of additional equity or convertible
debt securities may result in dilution to the Company's stockholders. The
accompanying financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.

NEW DEVELOPMENTS SUBSEQUENT TO DECEMBER 31, 2002
------------------------------------------------

In January and March 2003, the Company entered into two important
agreements that management believes will provide cash resources sufficient
to cover the Company's 2003 cash requirements. The first agreement is a
processing contract with a major waste management and disposal contractor
for services at a facility in Arkansas. The second agreement is a
$1,500,000 long-term financing arrangement collateralized by certain of the
Company's ITD units. (See Note 14)

OTHER
-----

Management has evaluated the carrying value of long-lived assets, including
associated intangibles. An evaluation of recoverability is performed by
comparing the estimated future undiscounted cash flows associated with the
assets to their carrying amount to determine if a write-down to market
value or discounted cash flow is required. Given the homogeneous nature and
geographic deployment flexibility of such assets, and based upon this
evaluation by management, impairment of the Company's long-lived assets has
not been deemed necessary.

F-14

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

3. PROPERTY AND EQUIPMENT
------------------------

Property and equipment consists of the following at December 31, 2002 (in
thousands):

ITD Remediation/Recycling Units and
auxiliary equipment $11,962
Office furniture and equipment 36
Transportation and other equipment 49
-------

12,047
Less accumulated depreciation 6,541
-------

Property and equipment, net $ 5,506
=======

On October 1, 2002, the Company changed the depreciable lives of its ITD
units from five to eight years. This change in estimate was made to more
accurately reflect the Company's experience concerning the useful life of
its equipment and to conform with industry practices for similar equipment.
The change in estimate, which is being applied on a prospective basis,
resulted in a decrease in depreciation expense and net loss of $215,000 for
the year ended December 31, 2002. The change reduced basic and diluted loss
per share by $0.02 and, accordingly, if the change in estimate had not been
adopted by the Company, basic and diluted net loss per share for the year
ended December 31, 2002 would have been $0.35 per share.

On August 23, 2001, the Company entered into a contract to sell three of
its used ITD units to a customer in Mexico. The total sales price for the
ITD units was $6,900,000 and the Company recognized a gain on the sale of
$6,252,000, which is presented in other income in the accompanying
statement of operations. In connection with the sale, the Company granted
its customer in Mexico an exclusive license for, and right to use, ITD
technology in Mexico (subject to an existing agreement) and an option to
acquire a fourth ITD unit from the Company

F-15

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

4. NOTES PAYABLE TO RELATED PARTIES
------------------------------------

In July 2002, the Company obtained uncollateralized loans totaling $250,000
from Cahill Warnock Strategic Partners, L.P. and Strategic Associates, L.P.
These loans bear interest of 12% per year and were originally due in
January 2003 but have been extended to September 2003. David Warnock, a
director of the Company, is a general partner of Cahill Warnock Strategic
Partners, L.P. and a managing member of the general partner of Strategic
Associates, L.P.

5. OTHER ACCRUED LIABILITIES
---------------------------

Other accrued liabilities consists of the following at December 31, 2002
(in thousands):

Accrued property and franchise taxes $ 15
Accrued professional fees 40
Accrued joint-company expenses 332
Accrued capital improvements 80
Accrued executive salaries 116
Accrued operating costs 9
----

$592
====

6. LEASE COMMITMENTS
------------------

The Company leases office space and a storage and maintenance area for its
equipment under operating leases. The leases have a remaining term of less
than one year. Management intends to replace these leases in the normal
course of business. Rental expense under operating leases was $52,000 and
$100,000 during the years ended December 31, 2002 and 2001, respectively.

7. INCOME TAXES
-------------

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 2002 were as follows (in thousands):

Deferred tax liabilities:
Basis of property and equipment $ 150
--------

Total deferred tax liabilities 150
--------

Deferred tax assets:
Net operating loss carryforwards 2,040
All other, net 340
--------

Total deferred tax assets 2,380
--------

Valuation allowance (2,230)
--------

150
--------

Net deferred tax assets $ -
========

F-16

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

7. INCOME TAXES, CONTINUED
-------------------------

For financial reporting purposes, income before provision for income taxes
and minority interest includes the following components (in thousands):

2002 2001
------------------

United States $(2,931) $ 4,839
Foreign (288) (3,037)
------------------

Income (loss) before provision for income
taxes and minority interest $(3,219) $ 1,802
==================

Significant components of the benefit (provision) for income taxes are as
follows (in thousands):

2002 2001
-------------

Current:
Federal $ 79 $(247)
Foreign - (259)
-------------

Total current 79 (506)
-------------

Deferred:
Federal - -
Foreign - (30)
-------------

Total deferred - (30)
-------------

Benefit (provision) for income taxes $ 79 $(536)
=============

The differences between the statutory income tax rate and the Company's
effective income tax rate are as follows:

2002 2001
------------

Federal statutory rate 34% (34%)
State income taxes - (9%)
Foreign income taxes - (10%)
Foreign tax credits and other (16%) (38%)
Change in valuation allowance (18%) 61%
------------

Benefit (provision) for income taxes 2% (30%)
============

F-17

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

7. INCOME TAXES, CONTINUED
-------------------------

As of December 31, 2002, for U.S. federal income tax reporting purposes,
the Company has approximately $6,000,000 of unused net operating losses
("NOLs") available for carryforward to future years. The benefit from
carryforward of such NOLs will expire during the years ended December 31,
2003 to 2022. Because United States tax laws limit the time during which
NOL carryforwards may be applied against future taxable income, the Company
may be unable to take full advantage of its NOL for federal income tax
purposes should the Company generate taxable income. Based on such
limitation, the Company has significant NOL carryforwards for which
realization of tax benefits is uncertain. Further, the benefit from
utilization of NOL carryforwards could be subject to limitations if
material ownership changes occur in the Company. Based on such limitations,
the Company has significant NOL's for which realization of tax benefits is
uncertain.

8. STOCKHOLDERS' EQUITY
----------------------

The Company's articles of incorporation authorize the issuance of up to
10,000,000 shares of preferred stock with characteristics determined by the
Company's board of directors. Effective December 17, 1997, the board of
directors authorized the issuance and sale of up to 5,000,000 shares of
Series B convertible preferred stock and up to 400,000 shares of Series C
non-voting non-convertible preferred stock. During the year ended December
31, 2000, the board of directors authorized the issuance of up to 400,000
shares of Series D convertible preferred stock.

SERIES B CONVERTIBLE PREFERRED STOCK
----------------------------------------

In 1997, the Company issued 3,771,422 shares of $0.001 par value Series B
convertible preferred stock for $4,000,000, or $1.06 per share. Dividends
are paid at the same rate as common stock based upon the conversion rate.
The Series B convertible preferred stock can be converted to common stock
at any time at the option of the holder. The initial rate is 1 common share
for each preferred share; however, the conversion rate is subject to
adjustments to prevent dilution. The holders of the Series B convertible
preferred stock have essentially the same voting rights as the holders of
common stock. The Series B convertible preferred stock has a liquidation
preference of $1.06 per share plus any unpaid dividends.

SERIES C PREFERRED STOCK
---------------------------

In 1997, the Company issued 400,000 shares of Series C non-voting preferred
stock with a $0.001 per share par value and a $10 per share stated value.
The Series C preferred stock carried a quarterly dividend payable in
arrears of prime plus 1.5% based on the stated value of the stock. The
Series C preferred stock was redeemable at the option of the Company at a
price of $10 per share plus any unpaid dividends. Proceeds of $4,000,000
from the Series C preferred stock were recorded net of a discount of
$809,000, which included related offering costs incurred and the allocation
of a portion of the proceeds to the warrants issued to the same investors.
The Series C preferred stock was accreted to its liquidation value over a
period of 26 months to February 17, 2000. The accretion of the Series C
preferred stock was deducted from the net loss to derive the net loss
applicable to common stockholders in the calculation of earnings per share
(See Note 9). As described below, during 2000, Series C preferred stock was
exchanged for Series D convertible preferred stock.

F-18

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

8. STOCKHOLDERS' EQUITY, CONTINUED
---------------------------------

SERIES D PREFERRED STOCK
---------------------------

During 2000, the Company exchanged 400,000 newly issued shares of Series D
convertible Preferred Stock for Series C non-convertible Preferred Stock
held by the Company's primary lender. The newly issued shares of Series D
Preferred stock are convertible into common stock at a conversion price of
$2.25 per share until December 31, 2002, and a conversion price of $1.00
after December 31, 2002.

In the event of a default under the loan agreement, the conversion price
was originally the lesser of $1.00 per share or the averaging thirty-day
trailing price; however, in March 2001, the conversion price was fixed at
$0.37. The conversion feature associated with the 400,000 shares of Series
D Preferred Stock was valued at $168,000. The value of the conversion
feature, representing unaccreted discount, was amortized to expense over
the remaining term of the debt using the effective interest method. Other
than the conversion feature of the Series D Preferred Stock, its features
and preferences are the same as the Series C Preferred Stock.

The Series D preferred stock carried a quarterly dividend payable in
arrears of prime (4.25% at December 31, 2002) plus 1.5% based on the stated
value of the stock. The Series D preferred stock is redeemable at the
option of the Company at a price of $10 per share plus any unpaid
dividends. The holders of Series D preferred stock have deferred their
dividend payments, totaling $617,000 at December 31, 2002, until October
31, 2003.

STOCK OPTION PLAN
-------------------

The Company has adopted the 1998 Stock Option Plan (the "Option Plan")
under which incentive stock options for up to 800,000 shares of the
Company's common stock may be awarded to officers, directors and key
employees. The Option Plan is designed to attract and reward key executive
personnel. At December 31, 2002, 547,500 of the 800,000 shares of common
stock reserved for the issuance under the Option Plan have been granted and
remain outstanding.

Stock options granted pursuant to the Option Plan expire not more than ten
years from the date of grant and typically vest over two years, with 50%
vesting after one year and 50% vesting in the succeeding year. All of the
options granted by the Company were granted at an option price equal to the
fair market value of the common stock at the date of grant.

STOCK OPTIONS
--------------

The Company periodically issues incentive stock options to key employees,
officers, and directors to provide additional incentives to promote the
success of the Company's business and to enhance the ability to attract
and retain the services of qualified persons. The issuance of such options
are approved by the Board of Directors. The exercise price of an option
granted is determined by the fair market value of the stock on the date of
grant.

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation", requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options is greater than or equals the market price
of the underlying stock on the date of grant, no compensation expense has
been recognized.

F-19

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

8. STOCKHOLDERS' EQUITY, CONTINUED
---------------------------------

STOCK OPTIONS, CONTINUED
--------------------------

Proforma information regarding net income and earnings per share is
required by Statement 123, is determined as if the Company had accounted
for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model. No options were granted
in 2002 or 2001 and, accordingly, no option pricing assumptions or proforma
information is presented.

The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

There were no stock options granted, exercised, expired or forfeited during
the years ended December 31, 2002 or 2001. The weighted average exercise
price of options outstanding at December 31, 2002 and 2001 was $1.38 per
share. All outstanding stock options are exercisable at December 31, 2002
and 2001. A summary of outstanding stock options at December 31, 2002,
follows:

REMAINING
NUMBER OF COMMON CONTRACTUAL
STOCK EQUIVALENTS EXPIRATION DATE LIFE (YEARS) EXERCISE PRICE
----------------- --------------- ------------ ---------------

2,470,300 November 2005 2.9 $ 0.60
112,500 March 2007 4.2 1.44
480,000 March 2007 4.2 2.50
35,000 November 2007 4.9 1.44
356,813 December 2007 5.0 1.44
613,831 December 2007 5.0 3.00
1,053 January 2008 5.1 2.38
800 January 2008 5.1 3.12
770 January 2008 5.1 3.25
625 January 2008 5.1 4.00
47,053 April 2008 5.7 5.00
122,417 April 2008 5.7 1.44
547,500 December 2008 6.0 1.69
-----------------

4,788,662
=================

F-20

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

8. STOCKHOLDERS'' EQUITY, CONTINUED
----------------------------------

STOCK WARRANTS
--------------

Following is a summary of stock warrant activity:

NUMBER OF EXERCISE WEIGHTED
SHARES PRICE AVERAGE PRICE
------------------------------------

Warrants outstanding as of
December 31, 2000 1,124,209 $ 0.01 $ 0.01

Issued 188,571 $ 0.01 $ 0.01
Canceled - - -
Exercised - - -
---------

Warrants outstanding as of
December 31, 2001 1,312,780 $ 0.01 $ 0.01

Issued - - -
Canceled - - -
Exercised - - -
---------

Warrants outstanding as of
December 31, 2002 1,312,780 $ 0.01 $ 0.01
=========

All warrants outstanding were issued in connection with the funding of
certain notes payable that were repaid in 2001. All warrants bear an
exercise price of $0.01 per share, are currently exercisable, and expire in
December 2007.

9. EARNINGS PER SHARE
--------------------

Basic earnings per common share are based on the weighted average number of
common shares outstanding in each year and after preferred stock dividend
requirements. Diluted earnings per common share assume that any dilutive
convertible debentures and convertible preferred shares outstanding at the
beginning of each year were converted at those dates, with related
interest, preferred stock dividend requirements and outstanding common
shares adjusted accordingly. It also assumes that outstanding common shares
were increased by shares issuable upon exercise of those stock options for
which market price exceeds exercise price, less shares which could have
been purchased by the Company with related proceeds. The convertible
preferred stock and outstanding stock options and warrants were not
included in the computation of diluted earnings per common share for 2002
since their effect was antidilutive.

F-21

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

9. EARNINGS PER SHARE, CONTINUED
--------------------------------

The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share information):

2002 2001
------------------

Numerator:
Net income (loss) $(3,043) $ 1,507

Less: Series C and D Preferred stock dividends
($0.63 and $0.85 per share in 2002 and
2001, respectively) (253) (338)
------------------

Net income (loss) applicable to common
stockholders-numerator for basic and diluted
earnings per share $(3,296) $ 1,169
==================

Denominator:
Denominator for basic earnings per share-
weighted average shares 10,112 10,112

Effect of dilutive securities:
Warrants - 1,069
Convertible Series B preferred stock - 2,734
Convertible Series D preferred stock - 9,227
------------------

Dilutive potential common shares - 13,030
------------------

Denominator for diluted earnings per share-
adjusted weighted average shares and assumed
conversions 10,112 23,142
==================

Basic earnings per share $ (0.33) $ 0.12
==================

Diluted earnings per share $ (0.33) $ 0.05
==================

The following table sets forth the computation of basic and diluted
earnings per share (in thousands):

2002 2001
-----------------

Numerator:
Net income (loss) $(3,043) $1,507
Less: Series C and D Preferred stock dividends
($0.63 and $0.85 per share) in 2002 and
2001, respectively (253) (338)
-----------------
Net income (loss) applicable to common
stockholders-numerator for basic and diluted
earnings per share $(3,296) $1,169
=================

F-22

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

10. 401(K) SALARY DEFERRAL PLAN
------------------------------

The Company has a 401(k) salary deferral plan (the ""Plan"") which became
effective on January 1, 1998, for eligible employees who have met certain
service requirements. The Plan does not provide for Company matching or
discretionary contributions and, accordingly, the Company recognized no
expense under the Plan in 2002 or 2001.

11. LITIGATION
----------

In July 2002, OnSite filed a lawsuit styled OnSite Technology LLC v.
Duratherm, Inc., Duratherm Group, Inc., Steven R. Heuer and Victor R.
Reynolds; Civil Action No. H-02-2624; In the United States District Court
for the Southern District of Texas against Duratherm, Inc. and Duratherm
Group, Inc., Steven R. Heuer and Victor R. Reynolds. OnSite's lawsuit
alleges that Duratherm's remediation operations at its Galveston County,
Texas facility infringed on OnSite's U.S. Patent No. 5,738,031 and
requested a declaratory judgment that OnSite's operation of its remediation
process does not infringe either of Heuer and Reynolds' U.S. Patent Nos.
4,990,237 and 5,269,906 over which Duratherm alleges control. The
Defendants have filed an answer asserting that they do not infringe on
OnSite's patent and that such patent is invalid. The defendants'' denial
that any controversy exists between the parties regarding the Heuer and
Reynolds'' patents has been rejected by the court. This case is in the
early stages of discovery.

In July 2002, OnSite also initiated litigation styled OnSite Technology,
LLC v. Duratherm, Inc. et al.; Cause No. 02CV0801; In the 56th Judicial
District Court of Galveston County, Texas, against Duratherm, Inc.,
Duratherm Group, Inc., Barry Hogan and Jim Hogan. This lawsuit alleges that
in November 1999, OnSite and Waste Control Specialists, L.L.C. ("WCS")
entered into a contract wherein OnSite would, among other things, provide
the necessary services, supplies and equipment to perform recycling and
remediation services utilizing an indirect thermal desorption unit as
specified therein. On information and belief, in late July or early August
2000, Defendants, acting in concert through Duratherm, Inc., sent or caused
to be sent a letter(s) and/or other communication(s) to WCS, which OnSite
alleges contained statements that were false and intended to deceive WCS,
as to OnSite and OnSite's technology and indirect thermal desorption unit.
As a result of such false, deceptive and malicious statements, WCS
terminated its contract with OnSite.In August 2000, Duratherm, Inc. filed
suit against OnSite and WCS in the United States District Court for the
Southern District of Texas under Civil Action No. H-00-2727, which suit was
subsequently dismissed with prejudice by the United States District Judge.
OnSite alleges that such suit was malicious and contained false statements
and allegations about OnSite and OnSite''s technology and indirect thermal
desorption unit. In February 2003 OnSite amended its petition to add John
C. Hilliard as a defendant and to add as a claim against the defendants,
the loss of a prospective contract with ExxonMobil. OnSite has also amended
its petition to include as a defendant Duratherm's counsel, Conley Rose
P.C., (for purposes of injunctive relief). The causes of action alleged by
OnSite against the Defendants are (i) interference with contract; (ii)
unfair competition and business disparagement; (iii) unjust enrichment; and
(iv) injury to OnSite's business reputation. OnSite is seeking actual,
consequential, incidental and compensatory damages, including, but not
limited to, disgorgement, pre- and post-judgment interest, attorney's fees
and costs and exemplary and punitive damages. OnSite is also seeking to
enjoin these defendants and Duratherm's counsel, Conley Rose P.C., from
interfering with the current and prospective business relationships of
OnSite with regard to the thermal desorption units. The Defendants in this
litigation, other than John C. Hilliard,

F-23

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

11. LITIGATION, CONTINUED
----------------------

have filed an answer denying the allegations contained in OnSite''s
petition. The answers from John C. Hilliard and Conley Rose P.C. are not
yet due as of March 26, 2003. This case is in the early stages of
discovery.

The Company is from time to time involved in other litigation incidental to
its business, which at times involves claims for significant monetary
amounts, some of which would not be covered by insurance. Presently the
Company has no existing litigation.

12. RELATED PARTY TRANSACTIONS
----------------------------

In July 2002, the Company obtained uncollateralized loans totaling $250,000
from certain stockholders (See Note 4). In March 2001 and September 2000,
the Company entered into agreements with its primary lenders and holders of
its outstanding preferred stock to defer various principal and interest
payments on its senior debt. The senior debt was fully repaid in December
2001.

13. SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMERS INFORMATION
--------------------------------------------------------

The Company currently operates in the environmental remediation and
hydrocarbon reclamation/recycling services. Substantially all revenues
result from the sale of services using the Company's ITD units. The
Company's reportable segments are based upon geographic area and all
intercompany revenue and expenses are eliminated in computing revenues and
operating income (loss).

All foreign subsidiaries of the Company operate with the U.S. dollar as
their functional currency and, accordingly, no cumulative translation
adjustment is presented in the accompanying balance sheet.

The Company and OnSite share office facilities and certain employees.
Shared costs are generally specifically identified by company; however,
certain costs must be allocated based upon management's estimates.

The corporate component of operating income (loss) represents corporate
general and administrative expenses. Corporate assets include cash and cash
equivalents, and restricted cash investments.

Following is a summary of segment information:

2002 2001
-------------

Revenue (in thousands):
United States $ 49 $ 140
Latin America 894 2,847
-------------

Total revenue $ 943 $2,987
=============

F-24

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

13. SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION, CONTINUED
-------------------------------------------------------------

2002 2001
------------------

Depreciation and Amortization (in thousands):
United States $ 1,624 $ 1,810
United Kingdom - 259
Latin America - 419
------------------

Total depreciation and amortization $ 1,624 $ 2,488
==================

Income (Loss) From Operations (in thousands):
United States $(2,887) $(2,930)
United Kingdom - (559)
Latin America (94) 93
Middle East (194) (286)
Corporate (1) (1)
------------------

Total income (loss) from operations $(3,176) $ 3,683
==================

Interest Expense (in thousands):
Corporate $ 42 $ 839
------------------

Total interest expense $ 42 $ 839
==================

Benefit (Provision) For Income Taxes (in thousands):
United States $ 79 $ (247)
Latin America - (289)
------------------

Total benefit (provision) for income
taxes $ 79 $ (536)
==================

Capital Expenditures (in thousands):
United States $ 185 $ 260
------------------

Total capital expenditures $ 185 $ 260
==================

Number of Customers:
United States 1 1
Latin America 1 3
------------------

2 4
==================

F-25

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

13. SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION, CONTINUED
-------------------------------------------------------------

2002
------

Assets (in thousands):
United States $3,400
Latin America 228
Middle East 3,397
Corporate 54
------

Total assets $7,079
======

Long Lived Assets (in thousands):
United States $3,320
Latin America 2
Middle East 3,390
------

Total long lived assets $6,712
======

During the years ended December 31, 2002 and 2001, the Company's largest
customer accounted for 95% and 93% of revenue, respectively.

14. SUBSEQUENT EVENTS
------------------

In January 2003 we signed a contract to process various waste streams for
Rineco Chemical Industries, Inc., an entity related to Rineco Recycling,
LLC. The contract progresses in two phases. The pilot phase began upon the
Company's delivery of its ITD Units to the site in Arkansas with all
necessary permits and approvals. During the pilot phase the operating
results of the ITD Unit were evaluated for performance and suitability for
processing needs. The pilot phase, began on March 15, 2003 and, based on
the results of the ITD Unit's performance, the contract moved into the
operating phase on June 13, 2003. In the operating phase, the contract
became a two year contract that automatically renews on a year-to-year
basis unless sixty days advance notice is given by either party. The
contract is subject early termination upon ninety days upon written notice
by either party. The Company received a fixed fee for the pilot phase and
the operating phase includes on a monthly base rate plus a flat rate per
ton for waste processing in excess of amounts considered in the base rate.

In March 2003 we obtained a loan of $1,500,000 from Rineco Recycling, LLC.
The loan is to be funded in three $500,000 fundings (less $40,000 in
origination fees per funding) on March 20, 2003 ; May 15, 2003; and July
15, 2003. The fundings have all been received. The loan is collateralized
by three of our ITD units and bears interest at a stated rate of 12% per
year. Principal payments are due in 20 quarterly installments of $75,000
beginning in August 2003 with the final payment due in May 2008. We issued
1,500,000 warrants to purchase shares of our common stock at an exercise
price of $0.01 per share in connection with this loan and these warrants
were valued at $345,000. The loan origination fees and warrants results in
an effective interest rate on the loan of approximately 35% per year. This
transaction made Rineco Recycling, LLC a related party and the beneficial
owner of 13% of our common stock, although none of the warrants have been
exercised.

Also during March 2003, the Company negotiated an extension of the maturity
date of $250,000 of un-collateralized related party notes payable to
September 16, 2003 (See Note 4).

F-26

ENVIRONMENTAL SAFEGUARDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
__________

15. NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------

The Company engaged in certain non-cash investing and financing activities
as follows (in thousands):

2002 2001
------------

Dividends declared but not yet paid. $ 253 $ 338

Stock warrants issued to extend the due date of
senior secured notes payable. - 46

F-27

ENVIRONMENTAL SAFEGUARDS, INC.
__________

UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002

F-28

ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
__________
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

JUNE 30,
2003 DECEMBER 31,
ASSETS (UNAUDITED) 2002
- -------------------------------------------------------- ------------ -------------

Current assets:
Cash and cash equivalents $ 303 $ 97
Accounts receivable 381 97
Prepaid expenses 144 173
------------ -------------

Total current assets 828 367

Property and equipment, net 5,272 5,506
Intangible asset - acquired engineering design
and technology, net 1,001 1,203
Other assets 2 3
------------ -------------

Total assets $ 7,103 $ 7,079
============ =============

LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Notes payable to related parties $ 250 $ 250
Accounts payable 107 31
Dividends payable 733 617
Accrued interest 125 63
Other accrued liabilities 784 592
------------ -------------

Total current liabilities 1,999 1,553

Long-term debt 575 -

Minority interest 1,930 1,943

Commitments and contingencies

Stockholders' equity:
Preferred stock; Series B convertible; voting, $.001
par value (aggregate liquidation value - $2,898);
5,000,000 shares authorized; 2,733,686 shares issued
and outstanding 3 3
Preferred stock; Series D convertible, non-voting,
cumulative $.001 par value (aggregate liquidation
value $4,000); 400,000 shares authorized, issued and
outstanding 1 1
Common stock; $.001 par value; 50,000,000 shares
authorized; 10,112,144 shares issued and outstanding 10 10
Additional paid-in capital 15,332 14,981
Accumulated deficit (12,747) (11,412)
------------ -------------

Total stockholders' equity 2,599 3,583
------------ -------------

Total liabilities and stockholders' equity $ 7,103 $ 7,079
============ =============

F-29

The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.

ENVIRONMENTAL SAFEGUARDS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
__________
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
2003 2002 2003 2002
--------- --------- --------- ---------

Revenue $ 470 $ 237 $ 523 $ 739
Cost of revenue 307 454 526 1,389
--------- --------- --------- ---------

Gross margin 163 (217) (3) (650)

Selling, general and administrative
expenses 470 521 932 1,181
Amortization of intangible asset-
acquired engineering design and
technology 102 102 204 204
Research and development 15 5 30 20
--------- --------- --------- ---------

Loss from operations (424) (845) (1,169) (2,055)

Interest income - 1 - 2
Interest expense (45) (6) (63) (12)
Other - (2) - (3)
--------- --------- --------- ---------

Loss before provision for income taxes
and minority interest (469) (852) (1,232) (2,068)

Benefit (provision) for income taxes - 79 - 79
--------- --------- --------- ---------

Loss before minority interest (469) (773) (1,232) (1,989)

Minority interest 7 31 13 69
--------- --------- --------- ---------

Net loss $ (462) $ (742) $ (1,219) $ (1,920)
========= ========= ========= =========

Net loss applicable to common stock-
holders $ (520) $ (805) $ (1,335) $ (2,045)
========= ========= ========= =========

Net loss per share-basic and diluted $ (0.05) $ (0.08) $ (0.12) $ (0.20)
========= ========= ========= =========

Weighted average shares outstanding-basic
and diluted 10,745 10,112 10,745 10,112
========= ========= ========= =========

F-30

The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.

ENVIRONMENTAL SAFEGUARDS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
__________
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

TOTAL
SERIES B SERIES D ADDITIONAL STOCK-
PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED HOLDERS'
STOCK STOCK STOCK CAPITAL DEFICIT EQUITY
---------- ---------- ------- -------- ------------- ----------

Balance as of December 31, 2002 $ 3 $ 1 $ 10 $ 14,981 $ (11,412) $ 3,583

Issuance of a warrant to purchase
1,500,000 shares of common stock
in connection with long-term
debt (Note 4) - - - 345 - 345

Exercise of warrants to purchase 632,947
shares of common stock at $0.01 per share - - - 6 - 6

Dividends on Series D Preferred stock - - - - (116) (116)

Net loss - - - - (1,219) (1,219)
---------- ---------- ------- -------- ------------- ----------

Balance as of June 30, 2003 $ - 3 $ 1 $ 10 $ 15,332 $ (12,747) $ 2,599
========== ========== ======= ======== ============= ==========

F-31

The accompanying notes are an integral part
of these consolidated financial statements.

ENVIRONMENTAL SAFEGUARDS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
__________
(IN THOUSANDS)

SIX MONTHS
ENDED JUNE 30,
------------------
2003 2002
-------- --------

Cash flows from operating activities:
Net loss $(1,219) $(1,920)
Adjustment to reconcile net loss to net cash provided
by operating activities 499 1,557
-------- --------

Net cash used by operating activities (720) (363)
-------- --------

Cash flows from investing activities:
Purchases of equipment - (101)
-------- --------

Net cash used by investing activities - (101)
-------- --------

Cash flows from financing activities:
Net proceeds from note payable 920 -
Proceeds from sale of common stock upon exercise
of warrants 6 -
-------- --------

Net cash provided by financing activities 926 -
-------- --------

Net increase (decrease) in cash and cash equivalents 206 (464)

Cash and cash equivalents, beginning of period 97 798
-------- --------

Cash and cash equivalents, end of period $ 303 $ 334
======== ========

F-32

The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.

ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
__________
1. GENERAL
-------

The unaudited consolidated condensed financial statements included herein
have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted, pursuant to such rules
and regulations. These unaudited consolidated condensed financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto of Environmental Safeguards, Inc.
(the "Company") included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.

In the opinion of management, the unaudited consolidated condensed
financial information included herein reflect all adjustments, consisting
only of normal, recurring adjustments, which are necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows for the interim periods presented. The results of operations for
the interim periods presented herein are not necessarily indicative of the
results to be expected for a full year or any other interim period.

2. LIQUIDITY AND CAPITAL RESOURCES
----------------------------------

During the years ended December 31, 2002 and 2001, the Company faced
significant liquidity issues that caused the Company's prior independent
accountants to include an explanatory paragraph in their auditor's report
on the Company's consolidated financial statements, as of December 31, 2001
and for the two years in the period then ended, describing the uncertainty
about the Company's ability to continue as a going concern. Below is an
analysis of the circumstances that led to a going concern explanatory
paragraph in the Company's 2001 financial statements, followed by a
description of changes in circumstances that resulted in the current
auditors issuing an unqualified opinion, without a going concern
explanatory paragraph, on the Company's 2002 financial statements.

BACKGROUND AND 2001 CIRCUMSTANCES

Since its inception, the Company has expended a significant portion of its
resources to develop markets and industry awareness of the capabilities of
its indirect thermal desorption ("ITD") recycling process. The Company's
efforts have been focused on the development, production and sale of
environmental recycling technologies and services to oil and gas industry
participants, waste management companies and other industrial customers.
The Company's efforts to develop markets and produce equipment have
required significant amounts of capital including long-term debt secured by
the Company's ITD units and related ITD technology. In 1995, the Company
formed Onsite Technology, L.L.C. with a 50% partner, Parker Drilling
Company ("Parker"). In 1997, the company purchased Parker's 50% interest
for $8,000,000 and repaid a loan of $3,000,000 from an affiliate of Parker.
The sources of funds for the acquisition came from the issuance of Series B
and C Preferred Stock and a secured loan of $6,000,000. The Series C
Preferred Stock was exchanged for Series D Preferred Stock in 2000.

With the exception of the profitability impact from the Company's sale of
three ITD units and certain licensing rights in late 2001 (as noted below),
the Company has incurred recurring net losses and has been dependent on
revenue from a limited customer base to provide cash flows. These factors
were the basis for the Company's predecessor auditor's conclusion that at
December 31, 2001, substantial doubt existed about the Company's ability to
continue as a going concern.

F-33

Continued

ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
__________

2. LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
----------------------------------------------

NEW DEVELOPMENTS IN 2003

In January and March 2003, the Company entered into two important
agreements that management believes will provide cash resources sufficient
to cover the Company's 2003 cash requirements. The first agreement is a
processing contract with a major waste management and disposal contractor
as disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002. The contract is currently in the long term operation
phase. The second agreement is a $1,500,000 long-term debt arrangement
collateralized by certain of the Company's ITD units. (See Note 4)

Other

Management has evaluated the carrying value of long-lived assets, including
associated intangibles. An evaluation of recoverability is performed by
comparing the estimated future undiscounted cash flows associated with the
assets to their carrying amount to determine if a write-down to market
value or discounted cash flow is required. Given the homogeneous nature and
geographic deployment flexibility of such assets, and based upon this
evaluation by management, impairment of the Company's long-lived assets has
not been deemed necessary.

3. INCOME TAXES
-------------

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company has provided for a deferred tax valuation allowance for cumulative
net operating tax losses to the extent that the net operating losses may
not be realized. The difference between the federal statutory income tax
rate and the Company's effective income tax rate is primarily attributed to
foreign income taxes and changes in valuation allowances for deferred tax
assets related to U.S. net operating losses.

The differences between the Federal statutory income tax rates and the
Company's effective income tax rates were as follows:

F-34

Continued

ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
__________

3. INCOME TAXES, CONTINUED
-------------------------

THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- -------------------
2003 2002 2003 2002
---------- --------- -------- ---------

Federal statutory rate (34)% (34)% (34)% (34)%
Change in valuation allowance 34 34 34 34
---------- --------- -------- ---------

- % - % - % - %
========== ========= ======== =========

As of June 30, 2003, for U.S. federal income tax reporting purposes, the
Company has approximately $ 8,000,000 of unused net operating losses
("NOLs") to future years. The Company's NOLs do not include the
undistributed losses from certain controlled foreign corporations. The
benefit from such NOLs will expire during the years ending December 31,
2017 to 2023. Because U.S. federal income tax laws limit the time during
which NOLs may be applied against future taxable income, the Company may be
unable to take full advantage of its NOLs for federal income tax purposes
should the Company generate taxable income. Based on such limitation, the
Company has significant NOLs for which realization of tax benefits is
uncertain. The benefit from utilization of NOLs could be subject to
limitations if material ownership changes occur in the Company.

4. LONG-TERM DEBT
---------------

In March 2003 the Company received the first draw under a $1,500,000
long-term loan agreement. The loan is to be funded in three $500,000 draws
(less $40,000 in origination fees associated with each draw). The Company
has received $1,000,000 of the funding under this agreement as of June 30,
2003. The loan is collateralized by three ITD units and bears interest at a
stated rate of 12% per year. Principal payments are due in 20 quarterly
installments of $75,000 beginning in August 2003 with the final payment due
in May 2008. In connection with this long-term loan, the Company issued
1,500,000 warrants to purchase shares of its common stock at an exercise
price of $0.01 per share and these warrants were valued at $345,000. The
loan origination fees and warrants results in an effective interest rate on
the loan of approximately 35% per year. (See Note 10)

Long-term debt as of June 30, 2003 consists of amounts due under the
long-term debt agreement as described in the previous paragraph. The
long-term debt has an original face value of $1,000,000 and is carried net
of unamortized loan costs of approximately $425,000 as of June 30, 2003.
Such loan costs are being amortized over the term of the long-term debt
using the interest method.

Following is an analysis of long-term debt as of June 30, 2003, (In
thousands):

Contractual balance $ 1,000

Less unamortized loan costs (425)
--------

Long-term debt 575

Less current maturities -
--------

Long-term debt, net of current portion $ 575
========

F-35

Continued

ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
__________

5. LOSS PER SHARE
----------------

The Company computes basic earnings per share based on the weighted average
number of shares of common stock outstanding for the period, and includes
common stock equivalents outstanding for the computation of diluted
earnings per share. As a result of incurred net losses, for the three
months and six months ended June 30, 2003 and 2002 all common stock
equivalents have been excluded from the calculation of earnings per share
as their effect is anti-dilutive. In future periods, the calculation of
diluted earnings per share may require that the Company's common stock
equivalents (totaling 22,921,334 shares at June 30, 2003) be included in
the calculation of the weighted average shares outstanding for periods in
which net income is reported. Following is a reconciliation of net loss to
the net loss available to common stockholders:

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ----------------------
2003 2002 2003 2002
---------- ------------ --------- -----------
(IN THOUSANDS) (IN THOUSANDS)

Net loss $ (462) $ (742) $ (1,219) $ (1,920)
Series D preferred stock
dividends (58) (63) (116) (125)
---------- ------------ --------- -----------

Net loss available to common
stockholders $ (520) $ (805) $ (1,335) $ (2,045)
========== ============ ========= ===========

6. SEGMENT INFORMATION
--------------------

The Company operates in the environmental remediation and hydrocarbon
reclamation/recycling services industry. Substantially all revenue results
from the sale of services using the Company's ITD units. The Company's
reportable segments are based upon geographic area. All intercompany
revenue and expenses have been eliminated.

Following is a summary of segment information:

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ------------ -----------
(IN THOUSANDS) (IN THOUSANDS)

Revenue:
United States $ 470 $ - $523 $-
Latin America - 237 - 739
----------- ----------- ------------ -----------

Total revenue $ 470 $ 237 $ 523 $ 739
=========== =========== ============ ===========

Loss from operations:
United States $ (330) $ (716) $ (1,003) $ (1,676)
Latin America (5) (7) (11) (136)
Middle East (14) (63) (26) (139)
Corporate (75) (59) (129) (104)
----------- ----------- ------------ -----------

Total loss from operations $ (424) $ (845) $ (1,169) $ (2,055)
=========== =========== ============ ===========

F-36

Continued

ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
__________

6. SEGMENT INFORMATION, CONTINUED
--------------------------------

JUNE 30, DECEMBER
2003 31, 2002
---------- ---------
(IN THOUSANDS)

Assets:
United States $ 3,497 $ 3,400
Latin America 201 228
Middle East 3,393 3,397
Corporate 12 _____54
---------- ---------

Total assets $ 7,103 $ 7,079
========== =========

7. REVENUE
-------

During the three months and six months ended June 30, 2003, service revenue
was derived from full-service contract utilization of ITD units owned by
the Company. During the three months and six months ended June 30, 2002,
revenue was derived from an operations and maintenance contract covering
the three ITD units sold to a customer in Mexico in the fourth quarter of
2001.

8. SUPPLEMENTAL NON-CASH TRANSACTIONS
------------------------------------

SIX MONTHS ENDED
JUNE 30,
---------------------
2003 2002
---------- ---------
(IN THOUSANDS)

Dividends declared but not yet paid $ 116 $ 125

Stock warrants issued to obtain long-term debt $ 345 $ -

9. LITIGATION
----------

In July 2002, OnSite filed a lawsuit styled OnSite Technology LLC v.
Duratherm, Inc., Duratherm Group, Inc., Steven R. Heuer and Victor R.
Reynolds; Civil Action No. H-02-2624; In the United States District Court
for the Southern District of Texas against Duratherm, Inc. and Duratherm
Group, Inc., Steven R. Heuer and Victor R. Reynolds. OnSite's lawsuit
alleges that Duratherm's remediation operations at its Galveston County,
Texas facility infringed on OnSite's U.S. Patent No. 5,738,031 and
requested a declaratory judgment that OnSite's operation of its remediation
process does not infringe either of Heuer and Reynolds' U.S. Patent Nos.
4,990,237 and 5,269,906 over which Duratherm alleges control. OnSite is
seeking a declaratory judgement that it does not infringe on either the
Heuer or Reynolds patents. OnSite is also seeking damages for patent
infringement, injunctive relief to prevent further patent infringement, and
other relief that the court finds appropriate. The Defendants have filed an
answer asserting that they do not infringe on OnSite's patent and that such
patent is invalid. The Defendants' denial that there is any controversy
between the parties regarding the Heuer and Reynolds' patents, has been
rejected by the court. The defendants have not alleged in their pleadings
that OnSite infringes on either patent. This case is in the early stages of
discovery. An opposed motion is pending by Duratherm to amend its
counterclaim.

F-37

Continued

ENVIRONMENTAL SAFEGUARDS, INC.
SELECTED NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
__________

9. LITIGATION, CONTINUED
----------------------

In July 2002, OnSite also initiated litigation styled OnSite Technology,
LLC v. Duratherm, Inc. et al.; Cause No. 02CV0801; In the 56th Judicial
District Court of Galveston County, Texas, against Duratherm, Inc.,
Duratherm Group, Inc., Barry Hogan and Jim Hogan. This lawsuit alleges that
in November 1999, OnSite and Waste Control Specialists, L.L.C. ("WCS")
entered into a contract wherein OnSite would, among other things, provide
the necessary services, supplies and equipment to perform recycling and
remediation services utilizing an indirect thermal desorption unit as
specified therein. OnSite alleges that, in late July or early August 2000,
Defendants, acting in concert through Duratherm, Inc., sent or caused to be
sent a letter(s) and/or other communication(s) to WCS, which OnSite alleges
contained statements that were false and intended to deceive WCS as to
OnSite and OnSite's technology and indirect thermal desorption unit. OnSite
also alleges that a suit filed by Duratherm in August 2000 for patent
infringement against OnSite and WCS in the United States District Court for
the Southern District of Texas under Civil Action No. H-00-2727, which was
subsequently dismissed with prejudice by the United States District Judge,
was malicious and contained false statements and allegations about OnSite
and OnSite's technology and indirect thermal desorption unit. OnSite
alleges that as a result of such alleged false, deceptive and malicious
statements, WCS terminated its contract with OnSite. In February 2003
OnSite amended its petition to add John C. Hilliard as a defendant and to
add as a claim against the defendants, the loss of a contract or
prospective contract with ExxonMobil. OnSite has also amended its petition
to include as a defendant Duratherm's counsel, Conley Rose P.C. The causes
of action alleged by OnSite against the Defendants are (i) interference
with contract and prospective business relations; (ii) unfair competition
and business disparagement; (iii) unjust enrichment; and (iv) injury to
OnSite's business reputation. OnSite is seeking actual, consequential,
incidental and compensatory damages, including, but not limited to,
disgorgement, pre- and post-judgment interest, attorney's fees and costs,
and exemplary and punitive damages. OnSite is also seeking to enjoin these
defendants and Duratherm's counsel, Conley Rose P.C., from interfering with
the current and prospective business relationships of OnSite with regard to
the thermal desorption units. The Defendants in this litigation have filed
an answer denying the allegations contained in OnSite's petition. This case
is in the early stages of discovery.

10. RELATED PARTY TRANSACTIONS
----------------------------

In July 2002, the Company obtained uncollateralized loans totaling $250,000
from Cahill Warnock Strategic Partners, L.P. and Strategic Associates, L.P.
These loans bear interest of 12% per year and were originally due in
January 2003 but have been extended to September 2003. David L. Warnock,
one of the Directors of the Company, is a general partner of Cahill Warnock
Strategic Partners, L.P. and a managing member of the general partner of
Strategic Associates, L.P.

In March 2003 the Company obtained a loan of $1,500,000 (See Footnote 4).
The Company issued 1,500,000 warrants to purchase shares of its common
stock at an exercise price of $0.01 per share in connection with this loan.
This transaction resulted in the lender becoming a related party and the
beneficial owner of 12% of the Company's common stock, although none of the
warrants have been exercised as of August 1, 2003.

In January 2003, the Company signed a contract to process various waste
streams with an entity affiliated with the lender described in the previous
paragraph.

F-38

Continued

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION

Our Articles of Incorporation ("Articles") provide, as permitted by governing
Nevada law, that our Directors shall not be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
with certain exceptions. These provisions may discourage stockholders from
bringing suit against a director for breach of fiduciary duty and may reduce the
likelihood of derivative litigation brought by stockholders on behalf of us
against a director.

The Articles provide that we will indemnify our directors and officers against
expenses and liabilities they incur to defend, settle, or satisfy any civil
litigation or criminal action brought against them on account of their being or
having been our directors or officers unless, in such action, they are adjudged
to have acted with gross negligence or willful misconduct.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.

In the event that a claim for indemnification against such liabilities (other
than the payment by a small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The inclusion of this provision in the Articles may have the effect of reducing
the likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited us and our stockholders.

The Articles provide for the indemnification of our executive officers and
directors, and the advancement to them of expenses in connection with any
proceedings and claims, to the fullest extent permitted by the Nevada law. The
Articles include related provisions meant to facilitate the indemnities' receipt
of such benefits. These provisions cover, among other things: (i) specification
of the method of determining entitlement to indemnification and the selection of
independent counsel that will in some cases make such determination, (ii)
specification of certain time periods by which certain payments or
determinations must be made and actions must be taken, and (iii) the
establishment of certain presumptions in favor of an indemnitee.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. All of the
expenses shall be paid by us, and shall not be borne by the Selling Stockholder.

Reason Amount
- ------------------------------------------------------------

SEC Registration Fee $ 26.73
Printing and Engraving Expenses $ 300.00 *
Legal Fees and Expenses $ 25,000.00 *
Accounting Fees and Expenses $ 10,000.00 *
Transfer Agent Fees $ 300.00 *
--------------

Total $ 35,626.73 *
==============
______________________________
(*) Estimated.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

During the three year period ended August 13, 2003, we issued unregistered
securities in transactions summarized below.

The following transactions were effected on reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof or, upon exemptions from registration under the Act as
provided in Regulation D thereof. Each certificate issued for unregistered
securities contained a legend stating that the securities have not been
registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did we pay any commissions or fees to any underwriter in connection with any
of these transactions.

In March 2003, we issued 1,500,000 warrants to purchase our common stock to
Rineco Recycling, LLC as part of the consideration for Rineco Recycling, LLC
loaning us $1,500,000. We gave Rineco Recycling, LLC a promissory note for the
loan proceeds. We valued this transaction at $345,000. These warrants have an
exercise price of $.01 per share. We issued these securities in reliance on
Section 4(2) of the Act. This transaction did not involve a public offering.
The investor was knowledgeable about our operations and financial condition. We
believe that the investor had knowledge and experience in financial and business
matters that allowed it to evaluate the merits and risk of receipt of these
securities.

In 2000, we issued 400,000 shares of our Series D Convertible Preferred
Stock in exchange for all outstanding shares of our Series C Non-Convertible
Preferred Stock. This transaction was with our primary lenders. The newly issued

shares of Series D Preferred stock are convertible into common stock at a
present conversion price of $0.37 per share. We valued this transaction at
$168,000. We issued these securities in reliance on Section 4(2) of the Act.
These transactions did not involve a public offering. The investor was
knowledgeable about our operations and financial condition. We believe that the
investor had knowledge and experience in financial and business matters that
allowed them to evaluate the merits and risk of receipt of these securities.

In 2001, we issued an aggregate of 188,571 warrants to purchase common
stock to the holders of our senior debt. We valued these transactions at
$46,000. These warrants have an exercise price of $0.01 per share. We issued
these securities in reliance on Section 4(2) of the Act. These transactions did
not involve a public offering. The investor was knowledgeable about our
operations and financial condition. We believe that the investor had knowledge
and experience in financial and business

In 2000, we issued an aggregate of 417,066 warrants to purchase common
stock to the holders of our senior debt. We valued these transactions at
$438,000. These warrants have an exercise price of $0.01 per share. We issued
these securities in reliance on Section 4(2) of the Act. These transactions did
not involve a public offering. The investor was knowledgeable about our
operations and financial condition. We believe that the investor had knowledge
and experience in financial and business matters that allowed them to evaluate
the merits and risk of receipt of these securities.

ITEM 27. EXHIBITS

The following exhibits are filed as part of this Registration Statement:

Exhibit
Number Description
- --------------------------------------------------------------------------------

Please note:

The registrant has requested that portions of exhibits with the notation (J) be
given confidential treatment and the registrant has filed a confidential
treatment request with the Secretary of the Commission. In these exhibits, the
registrant has omitted such material and the registrant has marked this exhibit
with a mark " ***** "to indicate where material has been omitted.

3.1 (A) Certificate of Incorporation of the Registrant, as amended.

3.2 (A) Bylaws of the Registrant.

4.1 (A) See Exhibits 3.1 and 3.2. for provisions of the Articles of
Incorporation and Bylaws of the Registrant defining rights of
holders of common stock of the Registrant.

4.2 (A) Common Stock specimen.

4.3.1 (B) Certificate of Designation, Preferences, Rights and Limitations
of Series B Convertible Preferred Stock.

4.3.2 (B) Certificate of Designation, Preferences, Rights and Limitations
of Series C Preferred Stock.

4.3.3 (E) Certificate of Designation, Preferences, Rights and Limitations
of Series D Convertible Preferred Stock.

4.4 (A) Form of Warrant Certificate dated December 17, 1997
(Included in Exhibit 4.8).

4.5 (A) Form of Registration Rights Agreement pursuant to Private
Placement Memorandum dated September 18, 1996.

4.6 (A) Form of Registration Rights Agreement dated December 17, 997,
between the Company and Cahill, Warnock Strategic Partners
Fund, L.P., Strategic Associates, L.P., Newpark Resources, Inc.
and James H. Stone.

4.7 (A) Form of Warrant Agreement dated December 17, 1997, between
the Company and Cahill, Warnock Strategic Partners Fund, L.P.,
Strategic Associates, L.P., Newpark Resources, Inc. and
James H. Stone.

4.8 (C) Form of Registration Rights Agreement dated December 7, 1998.

4.9 (H) Warrant Certificate of Rineco Recycling, LLC.

4.10 (H) Registration Rights Agreement of Rineco Recycling, LLC.

4.11 (H) Waiver of recalculation of conversion price by holders of
Series B Preferred Stock.

5.1 (H) Opinion of Axelrod, Smith & Kirshbaum.

10.1.1 (E) Agreement in Principal dated August 17, 2000.

10.1.2 (F) Agreement dated March 1, 2001.

10.2 (A) Loan and Security Agreement dated December 17, 1997 by and
among the Company, National Fuel & Energy, and OnSite
Technology, L.L.C. as Borrowers and Cahill, Warnock Strategic
Partners Fund, L.P., Strategic Associates, L.P., Newpark
Resources, Inc. and James H. Stone, as Lenders.

10.3 (A) Form of Registration Rights Agreement pursuant to Private
Placement Memorandum dated September 18, 1996.

10.4 (A) Form of Registration Rights Agreement dated December 17, 1997,
between the Company and Cahill, Warnock Strategic Partners
Fund, L.P., Strategic Associates, L.P., Newpark Resources, Inc.
and James H. Stone.

10.5 (A) Form of Warrant Agreement dated December 17, 1997, between
the Company and Cahill, Warnock Strategic Partners Fund, L.P.,
Strategic Associates, L.P., Newpark Resources, Inc.
and James H. Stone.

10.6 (A) Employment Agreement of James S. Percell.

10.7 (D) 1998 Stock Option Plan

10.8 (H) Promissory Note payable to Rineco Recycling, LLC.

10.9 (H) Security Agreement for Promissory Note payable to Rineco
Recycling, LLC.

10.10.1 (I)(J) Contract to process various waste streams
for Rineco Chemical Industries, Inc.

10.11.1 (I)(J) Amendment to contract to process various waste streams
for Rineco Chemical Industries, Inc.

10.12 (H) Loan commitment letter

16.1 (G) Letter from PricewaterhouseCoopers LLP

21.1. (H) Subsidiaries

23.1 (H) Consent of Axelrod, Smith & Kirshbaum
(included in Exhibit 5.1).

23.2 (I) Consent of Ham, Langston & Brezina L.L.P.

23.3 (I) Consent of PricewaterhouseCoopers LLP
_________________________________________
<FN>

(A) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB as amended for the fiscal year ended December 31, 1997, and
incorporated by reference thereto.

(B) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated December 17, 1997 and filed December 30, 1997, and incorporated
herein by reference thereto.

(D) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB as amended for the fiscal year ended December 31, 1998, and
incorporated by reference thereto.

(E) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated August 17, 2000, and filed August 28, 2000, and incorporated herein
by reference thereto.

(F) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated March 1, 2001, and filed March 6, 2001, and incorporated herein by
reference thereto.

(G) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated April 2, 2002 and filed April 9, 2002 and incorporated herein by
reference thereto.

(H) Previously filed as an exhibit to the Company's Form SB-2 Registration
Statement, file number 333-104883, as filed on May 1, 2003.

(I) Submitted herewith.

(J) The registrant has requested that portions of exhibits with the notation
(J) be given confidential treatment and the registrant has filed a
confidential treatment request with the Secretary of the Commission. In
these exhibits, the registrant has omitted such material and the registrant
has marked this exhibit with a mark " ***** "to indicate where material has
been omitted.

ITEM 28. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offer or sales are being made, a
post-effective amendment to this registration statement:

i. To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;

ii. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and

iii. To include any additional or changed material information with respect to
the plan of distribution.

(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.

(4)

i. That, for the purpose of determining liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.

ii. That, for the purpose of determining liability under the Securities Act of
1933, each post- effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, County of Harris, State of Texas, on
September 10, 2003.

ENVIRONMENTAL SAFEGUARDS, INC.

(signed) _________________
By: /s/ JAMES S. PERCELL
JAMES S. PERCELL
Director, Chairman of the Board,
Chief Executive Officer and President

In accordance with the requirements of the Securities Act of 1933, this
registration statement was been signed by the following persons in the
capacities and on the dates indicated:

Signature Title Date
- --------------------------------------------------------------------------------

(signed) ____________________
/s/ JAMES S. PERCELL Director, September 10, 2003
JAMES S. PERCELL Chairman of the Board,
Chief Executive Officer
and President

(signed) ____________________
/s/ Thomas R. Bray Director September 10, 2003
THOMAS R. BRAY

(signed) ____________________
/s/ BRYAN SHARP Director September 10, 2003
BRYAN SHARP

(signed) ____________________
/s/ ALBERT WOLFORD Director September 10, 2003
ALBERT WOLFORD

(signed) ____________________
/s/ DAVID L. WARNOCK Director September 10, 2003
DAVID L. WARNOCK

(signed) ____________________
/s/ MICHAEL D. THOMPSON Chief Financial Officer September 10, 2003
MICHAEL D. THOMPSON and Secretary