SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              ---------------------
                                    FORM 10-K

             [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2002.

                                       OR

           [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        COMMISSION FILE NUMBER: 000-21953

                         ENVIRONMENTAL SAFEGUARDS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                     NEVADA                                87-0429198
          (State or other jurisdiction                   (IRS Employer
        of incorporation or organization)              Identification No.)

                             2600 SOUTH LOOP WEST,
                                   SUITE 645,
                              HOUSTON, TEXAS 77054
          (Address of principal executive offices, including zip code)

                                 (713) 641-3838
              (Registrant's telephone number, including area code)

         Securities registered under Section 12(b) of the Exchange Act:

                                                NAME OF EACH EXCHANGE
        TITLE OF EACH CLASS                      ON WHICH REGISTERED
        -------------------                      -------------------
   Common Stock, $.001 par value                 OTC Bulletin Board

        Securities registered pursuant to 12(g) of the Exchange Act: NONE

     Indicate  by  check  mark  whether the registrant (i) has filed all reports
required  to be filed by Section 13 or 15(d) of the Exchange Act during the past
12  months  (or for such shorter period that the registrant was required to file
such  reports),  and  (ii)  has been subject to such filing requirements for the
past  90  days.  Yes  [X]  No  [ ]

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.  [X]


<PAGE>
<TABLE>
<CAPTION>
                                      TABLE OF CONTENTS

                                                                                 PAGE
<S>         <C>                                                                  <C>

                                           PART I

Item 1.     Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1
Item 2.     Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5
Item 3.     Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .      6
Item 4.     Submission of Matters to a Vote of Security Holders. . . . . . . .      6

                                          PART II

Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters   8
Item 6.     Selected Financial Data. . . . . . . . . . . . . . . . . . . . . .      9
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations. . . . . . . . . . . . . . . . . . . . .      9
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk . . . .     17
Item 8.     Financial Statements and Supplementary Data. . . . . . . . . . . .     17
Item 9.     Changes in and Disagreements With Accountants on Accounting
            and Financial Disclosure . . . . . . . . . . . . . . . . . . . . .     17

                                         PART III

Item 10.    Directors and Executive Officers of the Registrant . . . . . . . .     19
Item 11.    Executive Compensation . . . . . . . . . . . . . . . . . . . . . .     19
Item 12.    Security Ownership of Certain Beneficial Owners and
            Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .     19
Item 13.    Certain Relationships and Related Transactions . . . . . . . . . .     19
Item 14.    Controls and Procedures. . . . . . . . . . . . . . . . . . . . . .     19

                                         PART IV

Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K .     20
</TABLE>


<PAGE>
                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     Environmental  Safeguards,  Inc.  is 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  its  wholly-owned  subsidiaries National Fuel &
Energy,  Inc.  ("NFE")  and  OnSite  Technology,  L.L.C.  ("OnSite").

     During  the  period  1996 - 2000 a substantial portion of our revenues were
generated  from  major  international oil and gas industry participants in Latin
America  (Columbia,  Venezuela  and  Mexico)  as well as from other domestic and
foreign industrial applications. As of April, 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.

     As  of April 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 closing down (liquidating) the OnSite
Colombia,  Inc.  and  OnSite  Mexico, L.L.C. subsidiaries. Onsite has completely
closed  down  its  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.

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., 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.

     In  January 1995, we entered into an agreement with Parker Drilling Company
("Parker"),  a  Delaware corporation, granting 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. In August 1995, we expanded our
agreement with Parker by forming OnSite, a joint company between NFE and Parker,
in  which  NFE  and  Parker  each owned 50%. In December 1997, we entered into a
Purchase Agreement (the "Purchase Agreement") with Parker which 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.


                                        1
<PAGE>
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 April 2003, we owned five ITD units outright, and had a 50% interest
in  two  additional  units owned by our 50%-owned subsidiary OnSite Arabia, Inc.

     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.

     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.


                                        2
<PAGE>
     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. Currently, we have no ITD units under
construction  by  fabricators.

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

     During  March 2003 the Company 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 August 15, 2003.  The initial funding of March 20,
2003 has 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,  the  Company 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  April  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. There can be no assurance that we will be competitive in
the  remediation  and  recycling  industry  in  the  future.


                                        3
<PAGE>
     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.


                                        4
<PAGE>
GOVERNMENTAL REGULATIONS -- 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 its
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. 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, 5 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.

ITEM 2. PROPERTIES

     Our  principal  executive  offices are located in leased facilities at 2600
South  Loop West, Suite 645, Houston, Texas 77054, which consist of 3,852 square
feet.  The  lease for the executive offices will expire in May, 2003. We believe
that our offices are adequate for our present needs and that suitable space will
be  available  to  accommodate  our  future  needs.

     We  incorporate  by  reference in response to this item the information set
forth  in  Note  6 of the Notes to Consolidated Financial Statements included in
item  8  of  this  report.


                                        5
<PAGE>
ITEM 3. 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.  The Defendants have filed an answer asserting that they do not
infringe  on  OnSite's  patent and that such patent is invalid.  Defendants also
deny  there  is  any  controversy  between  the  parties regarding the Heuer and
Reynolds'  patents.  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 and Conley Rose
P.C.,  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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There  were  no  matters submitted to a vote of security holders during the
fourth  quarter  of  2002.

EXECUTIVE OFFICERS OF THE REGISTRANT

     We  have presented the below information about our executive officers as of
March  2003.  Officers  are elected annually by the Board of Directors and serve
until  their  successors  are  chosen  or  until  their  resignation or removal.


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

     James S. Percell           59       Director, Chairman, CEO and President
     Michael D. Thompson        51      Chief Financial Officer and Secretary


                                        6
<PAGE>
BIOGRAPHIES

     JAMES  S.  PERCELL  serves  as  Director,  Chairman, CEO and President also
serves  as President of the our subsidiaries, NFE and OnSite. Mr. Percell became
a  director  and  President,  CEO  and  a director of NFE in November, 1995. Mr.
Percell  became  President  and CEO 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.

     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. 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.


CERTAIN SECURITIES FILINGS

     The  Company  believes  that  the  reports required by section 16(a) of the
Exchange  Act  have  been  filed  timely.




                                        7
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

     Our  Common  Stock  commenced  trading  on the OTC Bulletin Board under the
symbol  "ELSF"  on  October  17, 2002.  Prior thereto, 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

     On  March  24,  2003,  the  closing price of our Common Stock was $0.20 per
share.  On  the  same  date,  we had approximately 1,000 stockholders of record,
including  broker-dealers  holding shares beneficially owned by their customers.

<TABLE>
<CAPTION>
EQUITY  COMPENSATION  PLAN  INFORMATION


                                                                      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)
-------------------  ---------------------  ----------------------  ------------------------
<S>                  <C>                    <C>                     <C>
Equity compensation
plans approved by
security holders                   547,500  $                 1.69                   252,500

Equity compensation
plans not approved
by security holders              4,241,162                    1.34                         -
                     ---------------------  ----------------------  ------------------------

Total                            4,788,662  $                 1.38                   252,500
                     =====================  ======================  ========================
</TABLE>

      For  information  relating  to  the equity compensation plans reference is
made  to  footnote  8  to  our  Financial Statements, Stockholders' Equity-Stock
Options.


                                        8
<PAGE>
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, which may consider such
factors  as  our  results  of operations, financial condition, capital needs and
acquisition  strategy,  among  other  factors.

ITEM 6. SELECTED FINANCIAL DATA

     We  have  derived the following selected consolidated financial information
as  of  December  31, 2002, 2001 and 2000 and for the years then ended, from our
audited  consolidated  financial  statements  included  in item 8 of this annual
report.  You should read this information in conjunction with those consolidated
financial  statements  and  the  notes  thereto.  We  have  derived the selected
consolidated financial information as of December 31, 1999 and 1998, and for the
years  then  ended,  from  our  audited consolidated financial statements of the
Company, that are not included herein.  Please read "Management's Discussion and
Analysis  of  Financial  Condition  and Results of Operations" in item 7 of this
annual  report.

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                        -----------------------
                                         2002      2001      2000      1999      1998
                                       --------  --------  --------  --------  --------
<S>                                    <C>       <C>       <C>       <C>       <C>
                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA :

Revenue                                $   943   $ 2,987   $11,250   $13,514   $10,672

Income (loss) from operations           (3,176)   (3,683)    1,029     3,098     1,404

Net income (loss)                       (3,043)    1,507    (1,462)     (483)     (799)

Basic and diluted net income
  (loss) per share:
      Basic                            $ (0.33)  $  0.12   $ (0.19)  $ (0.12)  $ (0.17)
      Diluted                          $ (0.33)  $  0.05   $ (0.19)  $ (0.12)  $ (0.17)


BALANCE SHEET DATA:

Working capital surplus (deficit)      $(1,186)  $   766   $  (258)  $ 1,564   $ 5,431

Property and equipment, net              5,506     6,539     8,929    10,835     8,256

Total assets                             7,079    10,396    15,153    18,990    20,164

Long-term debt                               0         0     2,163     4,235     6,636

Minority Interest                        1,943     2,040     2,872     3,554     2,073

Shareholders' equity                     3,583     6,879     5,664     6,956     7,813
</TABLE>


ITEM 7. 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 related notes included in item 8 of this
annual  report,  and  our  "Forward-Looking  Statements" which discusses certain
limitations  inherent  in  such  statements.


                                        9
<PAGE>
INFORMATION REGARDING AND FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

     We  are  including  the following cautionary statement in this Form 10-K 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 which are other than statements
of  historical  facts.  Certain statements in this Form 10-K 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.

OVERVIEW

     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.


                                       10
<PAGE>
     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.

     On December 17, 1997, we acquired the remaining 50% interest in OnSite from
Parker Drilling Co. ("Parker"), giving us complete control of the ITD technology
owned  by OnSite, and providing us with a wholly-owned operating subsidiary that
forms  the  cornerstone  of  our operations. Total purchase consideration in the
OnSite acquisition was financed by us through a private placement of Convertible
Preferred  and  Preferred Stock, combined with senior secured notes and warrants
to  purchase  shares of our Common Stock. We included OnSite's operating results
in  our  statement  of operations for the year ended December 31,1997, as though
the  acquisition  took  place  at  the beginning of that year, and deducted as a
separate  line  item the pre-acquisition earnings attributable to the former 50%
owner  of  OnSite.

     We  have  focused  essentially all of our attention on our now wholly-owned
business  operations  in OnSite. OnSite was formed, as a 50%-owned joint company
with  Parker,  as  a  means  for  assembling  the capital necessary to build and
improve  the  ITD process and to generate market awareness and acceptance of ITD
technology.  We  expect that a substantial portion of our revenues will continue
to  be  generated  from  waste  management,  petrochemical,  and  industrial
applications.

     During  the  period  1996-2000  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  April 2003 we have for the most part
completed our foreign contract operations, and have in fact taken steps to close
down  certain  of  our  foreign  subsidiaries  as  outlined  below.  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  hazardous  waste markets -- including industrial, petroleum
and  petro-chemical  waste  streams.

     Highlights of our foreign operations follow:

     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 initiated formal procedures to close-down OSC. As of April
2003  the  close-down  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
close-down  of  this  entity  was  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  close-down  of  this  entity  was  completed.

     OnSite  Mexico LLC ("OSM"): In July 1999, we registered OSM, a wholly-owned
subsidiary,  for  operations  in  Mexico.  OSM  has completed operations and its
close-down  procedures  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 recently completed
all  operations  and  its  close-down  procedures  have  been  completed.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our  discussion  and  analysis  of  its  financial condition and results of
operations are based upon our consolidated financial statements, which 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.


                                       11
<PAGE>
     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 -- 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, $42,000 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.


                                       12
<PAGE>
COMPARISON OF OPERATING RESULTS -- YEARS ENDED DECEMBER 31, 2001 AND 2000

     Summary.  For  the  year  ended  December 31, 2001, we earned net income of
$1,507,000  as  compared  to  a  2000 net loss of $1,462,000. The $2,969,000 net
income  increase  was  primarily  due to the gain on sale of three ITD units and
certain technical rights during the fourth quarter of 2001, partly offset by 57%
lower  equipment  utilization  during  2001.  Additional  information  follows.

     Revenue and Gross Margin. Revenue of $2,987,000 for 2001 generated $559,000
negative  gross margin as compared to revenue of $11,250,000 and gross margin of
$5,219,000  in  2000.  The  decrease  in  revenue  and gross margin was due to a
substantial  drop  in  ITD  utilization during 2001, where on average we had 1.8
units  in  operation  as  compared  to  4.2 units during 2000. Nearly 80% of the
decreased  utilization  was  due  to  the  completion  of contract operations in
Colombia  at  the  end  of  2000.

     Selling,  General  and  Administrative ("SGA") Expense. SGA expenses during
2001  were  nearly  29%  below  the  prior  year  level  primarily  due  to  the
winding-down  of  contract  operations  in  Colombia.

     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 2001 is at
the  2000  level,  and  reflects ongoing R&D improvements to our Series 6000 ITD
system  design.

     Interest  Expense.  During  2001, $839,000 of interest expense was incurred
(including  amortization  of  debt  issuance  costs  of  $344,000),  compared to
interest  expense  of  $1,018,000  for  2000  (including  amortization  of  debt
issuance  costs  of $372,000). The $179,000 overall decrease in interest expense
for  2001  was  mainly due to lower interest rates during 2001, and to a lessser
degree,  to  less  amortization  of  debt  issuance  costs  as  noted  above.

     Other Income (Expense). Other income is mainly composed of foreign currency
translation  gains.  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 translation
adjustments  that  were  included in net income in each respective year 2001 and
2000.

     Income Taxes. 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. The tax provision in 2000 primarily related to foreign
income tax effects in our Colombia, Venezuela, Mexico and Scotland 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. We are implementing tax planning
strategies,  which  if  successful, may result in our recognizing these deferred
tax  assets  in  future  periods,  which  would  result in significantly reduced
effective tax rates. However, presently there can be no assurances that the NOLs
will  be  utilized.

     Minority  Interest.  Minority  interest  for 2001 reflects our 50% minority
partner's  interest in the net loss of OnSite Colombia and OnSite Arabia. During
2000,  minority interest reflects our 50% minority partner's interest in the net
income  of  OnSite  Colombia,  partly  offset  by the net loss of OnSite Arabia.

LIQUIDITY AND CAPITAL RESOURCES

     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.


                                       13
<PAGE>
     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.

     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.

     During  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 at 12% per year and are due in September 2003.

     During March 2003, the Company 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 August 15, 2003.  The initial funding of March 20,
2003  has 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.

     The  company  expects  that  its  existing  cash  reserves, cash flows from
operations,  and  financing  of  March  2003  will  be  sufficient  to cover the
Company's  cash  requirements  for 2003. However, there can be no assurance that
existing  sources  of cash will cover the Company's 2003 cash flow requirements.

     The  Company's  predecessor  auditor  included  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. The
Company's  current  auditors  issued  an  unqualified  opinion,  without a going
concern  explanatory paragraph, on the Company's 2002 financial statements based
upon  the  circumstances  set  forth  herein.

     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.

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.s 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.


                                       14
<PAGE>
     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.

     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, 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 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,"  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. We do SFAS No 146  to have a significant impact on
our  financial  position  or  results  of  operations.


                                       15
<PAGE>
     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.  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.

SUBSEQUENT EVENTS

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

     During March 2003, the Company 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 August 15, 2003.  The initial funding of March 20,
2003  has 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,  the  Company  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  judgement.  We  believe  the  most subjective and material
estimates  in  our financial statements are the reserve, if any, which 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.

     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.

     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).

     We  believe  that  all  of  the  estimates we used to prepare our financial
statements  were  reasonable  at  the  time  we made them, but circumstances may
change  requiring  us to revise our estimates in ways that could have a material
adverse  impact  on  our  results  of  operations  or  financial  position.


                                       16
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We  are  subject to market risk related to fluctuations in the value of the
U.S.  dollar  compared  to certain foreign currencies. We have a subsidiary that
operates  in  the  Arabian Gulf region. However, the functional currency used by
this  operating  unit is the U.S. dollar. Substantial portions of this operating
unit's  invoicing,  customer  receivables, imported equipment and many operating
cost  factors  are  denominated  in  dollars.  We  attempt to maintain a balance
between  assets and liabilities denominated in foreign currencies, however, such
currency  levels  are generally not significant. These factors serve to mitigate
the  impact  on  our  financial  statements  associated  with  foreign  exchange
fluctuations.

     A  hypothetical  10%  fluctuation  of  the  U.S.  dollar  relative  to  the
currencies  of  the  Arabian  Gulf  region  would  not have materially adversely
affected  our fiscal year ended December 31, 2002 financial position, results of
operations, or cash flows, regardless of the direction of the change in relation
to  the  U.S.  dollar.  Our  sensitivity  analysis  of the effects of changes in
foreign currency exchange rates does not factor in a potential change in revenue
levels.

     While  we are not a purchaser or producer of crude oil or related products,
our  customers  to  date  have  generally  been  large multinational oil and gas
producing companies which are directly impacted by the fluctuations in the price
of  crude  oil.  Decreases in the price of crude oil directly affect our current
customers'  cash  flows  and  may  therefore  affect  our  ability  to  collect
receivables  and  our  ability  to  generate  repeat  and  new  business.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  information required hereunder is included in this report as set forth
in  the  "Table  of  Contents"  on  page  F-1.

ITEM  9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
FINANCIAL  DISCLOSURE

     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
2000 and 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 audits for 2000 and 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  2000  and  2001  and  through  April  2,  2002,  there have been no
reportable  events  (as  defined  in  Regulation  S-K  Item  304(a)(1)(v)).

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


                                       17
<PAGE>
     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 have
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(a)(1)(iv) or
Regulation  S-K and the related instructions to Item 304 of Regulation S-K, or a
reportable  event,  as  that  term is defined in Item 304(a)(1)(v) of Regulation
S-K.


                                       18
<PAGE>
                                    PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The  information  required by this item is incorporated by reference to our
definitive  proxy  statement,  which  is  to  be  filed  with the Securities and
Exchange  Commission  (the "Commission") pursuant to the Securities Exchange Act
of  1934  (the "Exchange Act") within 120 days of our fiscal year ended December
31,  2002.

     Information  with  respect to our executive officers is set forth under the
caption  "Executive  Officers  of  the  Registrant"  in  Part  I  of the report.

ITEM 11. EXECUTIVE COMPENSATION

     The  information  required by this item is incorporated by reference to our
definitive  proxy  statement,  which  is  to  be  filed  with the Securities and
Exchange  Commission  (the "Commission") pursuant to the Securities Exchange Act
of  1934  (the "Exchange Act") within 120 days of our fiscal year ended December
31,  2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by this item is incorporated by reference to our
definitive  proxy  statement,  which  is  to  be  filed  with the Securities and
Exchange  Commission  (the "Commission") pursuant to the Securities Exchange Act
of  1934  (the "Exchange Act") within 120 days of our fiscal year ended December
31,  2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by  this  item  is  incorporated by reference to our
definitive  proxy  statement,  which  is  to  be  filed  with the Securities and
Exchange  Commission  (the "Commission") pursuant to the Securities Exchange Act
of  1934  (the "Exchange Act") within 120 days of our fiscal year ended December
31,  2002.

ITEM  14.     CONTROLS  AND  PROCEDURES

Mr.  James  S. Percell, our Chief Executive Officer and Mr. Michael D. Thompson,
our  Chief  Financial  Officer,  have concluded that our disclosure controls and
procedures are appropriate and effective. They have evaluated these controls and
procedures as of a date within 90 days of the filing date of this report on Form
10-K.  There  were  no  significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their  evaluation,  including  any corrective actions with regard to significant
deficiencies  and  material  weaknesses.


                                       19
<PAGE>
                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) FINANCIAL STATEMENTS

     Reports of Independent Accountants/Auditors                             F-2

     Consolidated Balance Sheet as of December 31, 2002 and 2001.            F-4

     Consolidated Statement of Operations for the years ended
       December 31, 2002, 2001 and 2000                                      F-5

     Consolidated Statement of Stockholders' Equity for the years
       ended December 31, 2002, 2001 and 2000                                F-6

     Consolidated Statement of Cash Flows for the years ended
       December 31, 2002, 2001 and 2000                                      F-7

     Notes to Consolidated Financial Statements.                             F-8

(B) EXHIBITS

<TABLE>
<CAPTION>
     Exhibit
      Number                        Description
     -------                        -----------
<S>              <C>
     3.1*        -- Certificate of Incorporation of the Registrant, as amended.
     3.2*        -- Bylaws of the Registrant.
     4.1*        -- 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*        -- Common Stock specimen.
     4.3.1**     -- Certificate of Designation, Preferences, Rights and
                 Limitations of Series B Convertible Preferred Stock.
     4.3.2**     -- Certificate of Designation, Preferences, Rights and
                 Limitations of Series C Preferred Stock.
     4.3.3*****  -- Certificate of Designation, Preferences, Rights and Limitations
                 of Series D Convertible Preferred Stock.
     4.4*        -- Form of Warrant Certificate dated December 17, 1997
                 (Included in Exhibit 4.8).
     4.5*        -- Form of Registration Rights Agreement pursuant to Private
                 Placement Memorandum dated September 18, 1996.
     4.6*        -- 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.
     4.7*        -- 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***      -- Form of Registration Rights Agreement dated December 7, 1998.
     10.1.1*****  -- Agreement in Principal dated August 17, 2000.
     10.1.2******  -- Agreement dated March 1, 2001.


                                       20
<PAGE>
     10.2*       -- 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*       -- Form of Registration Rights Agreement pursuant to Private
                 Placement Memorandum dated September 18, 1996.
     10.4*       -- 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*       -- 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*       -- Employment Agreement of James S. Percell.
     10.7****    -- 1998 Stock Option Plan
     21.1*       -- Subsidiaries
</TABLE>

---------------

     *    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.

    **    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.

   ***    Previously filed with Form  S-3  as  amended  effective  Feb  8, 1999.

  ****    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.

 *****    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.
******    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.



( C ) REPORTS ON FORM 8-K

     On  October  15,  2002 we filed a report on Form 8-K, which report included
information  under  item  5  "  Other  Events".

     On October 16, 2002 we filed a report on Form 8-K, which report included
                   information under item 5 " Other Events ".


                                       21
<PAGE>
                                   SIGNATURES

     In  accordance with the requirements of Section 13 of 15(d) of the Exchange
Act,  the  Registrant  has  caused this report to be signed on its behalf by the
undersigned,  thereunto  duly  authorized,  on  April 10,  2003.

                                   ENVIRONMENTAL SAFEGUARDS, INC.



                                   By:     /s/   JAMES S. PERCELL
                                           ---   ----------------
                                                 James S. Percell

                                         Director, Chairman of the Board,
                                         Chief Executive Officer and President

     Pursuant  to  the  requirements  of  the Exchange Act, this report has been
signed  below  by  the  following  persons  in  the  capacities and on the dates
indicated:

<TABLE>
<CAPTION>
         Signature                             Title                       Date
         ---------                             -----                       ----
<S>                                <C>                                <C>

     /s/   JAMES S. PERCELL        Director, Chairman of the Board,   April 10, 2003
     ---   ----------------          Chief Executive Officer
                                     and President

     /s/   THOMAS R. BRAY          Director                           April 10, 2003
     ---   --------------


     /s/   BRYAN SHARP             Director                           April 10, 2003
     ---   ----------


     /s/   ALBERT WOLFORD          Director                           April 10, 2003
     ---   -------------


     /s/   DAVID L. WARNOCK        Director                           April 10, 2003
     ---   ----------------


     /s/   MICHAEL D. THOMPSON     Chief Financial Officer            April 10, 2003
     ---   -------------------       and Secretary
</TABLE>


                                       22
<PAGE>
                                 CERTIFICATIONS

I, James S. Percell, certify that:

1.   I  have  reviewed  this  annual  report  on  Form  10-K  of  Environmental
     Sageguards,  Inc.;
2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  annual  report;
3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included in this annual report, fairly present in all material
     respects  the  financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules  13a-14  and  15d-14) for the registrant and have:
     a)   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;
     b)   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and
     c)   presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;
5.   The  registrant's  other certifying officers and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  functions):
     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and
     b)   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls;  and
6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether there were significant changes in internal controls
     or  in  other  factors  that  could  significantly affect internal controls
     subsequent  to  the  date  of  our  most  recent  evaluation, including any
     corrective  actions  with  regard  to significant deficiencies and material
     weaknesses.

Date: April 10, 200                         By: /s/ James S. Percell
                                                    James S. Percell
                                                    Chief Executive Officer


                                       23
<PAGE>
I, Michael D. Thompson, certify that:

1.   I  have  reviewed  this  annual  report  on  Form  10-K  of  Environmental
     Safeguards,  Inc.;
2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  annual  report;
3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included in this annual report, fairly present in all material
     respects  the  financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules  13a-14  and  15d-14) for the registrant and have:
     a)   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;
     b)   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and
     c)   presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;
5.   The  registrant's  other certifying officers and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  functions):
     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and
     b)   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls;  and
6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether there were significant changes in internal controls
     or  in  other  factors  that  could  significantly affect internal controls
     subsequent  to  the  date  of  our  most  recent  evaluation, including any
     corrective  actions  with  regard  to significant deficiencies and material
     weaknesses.

Date: April 10, 2003                           By: /s/ Michael D. Thompson
                                                       Michael D. Thompson
                                                       Chief Financial Officer


                                       24
<PAGE>
Certification of Chief Executive Officer of Environmental Safeguards, Inc.
--------------------------------------------------------------------------
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18
--------------------------------------------------------------------------------
U.S.C. 63.
----------

I,  James  S.  Percell, the Chief Executive Officer of Environmental Safeguards,
Inc.  hereby certify that Environmental Safeguards, Inc.'s annual report on Form
10-K  and  the  financial  statements  contained therein fully complies with the
requirements  of  Section  13(a) or 15(d) of the Securities Exchange Act of 1934
(15  U.S.C. 78m or 78o(d) and that information contained in the annual report on
Form  10-K  and the financial statements contained therein fairly represents, in
all  material respects, the financial condition and results of the operations of
Environmental  Safeguards,  Inc.

Date: April 10, 2003                     By: /s/ James S. Percell
                                                 James S. Percell
                                                 Chief Executive Officer




Certification of Chief Financial Officer of Environmental Safeguards, Inc.
--------------------------------------------------------------------------
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18
--------------------------------------------------------------------------------
U.S.C. 63.
----------


I, Michael D. Thompson, the Chief Financial Officer of Environmental Safeguards,
Inc.  hereby certify that Environmental Safeguards, Inc.'s annual report on Form
10-K  and  the  financial  statements  contained therein fully complies with the
requirements  of  Section  13(a) or 15(d) of the Securities Exchange Act of 1934
(15  U.S.C. 78m or 78o(d) and that information contained in the annual report on
Form  10-K  and the financial statements contained therein fairly represents, in
all  material respects, the financial condition and results of the operations of
Environmental  Safeguards,  Inc.


Date: April 10, 2003                         By: /s/ Michael D. Thompson
                                                     Michael D. Thompson
                                                     Chief Financial Officer


                                       25
<PAGE>




                         ENVIRONMENTAL SAFEGUARDS, INC.
                                   __________



                        CONSOLIDATED FINANCIAL STATEMENTS
                     WITH REPORT OF INDEPENDENT ACCOUNTANTS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000




<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

                                TABLE OF CONTENTS
                                   __________


                                                                            PAGE
                                                                            ----

Reports of Independent Accountants                                           F-2

Audited Financial Statements

  Consolidated Balance Sheet as of December 31,
    2002 and 2001                                                            F-4

  Consolidated Statement of Operations for the
    years ended December 31, 2002, 2001 and 2000                             F-5

  Consolidated Statement of Stockholders' Equity
    for the years ended December 31, 2002, 2001
    and 2000                                                                 F-6

  Consolidated Statement of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                             F-7

Notes to Consolidated Financial Statements                                   F-8



                                      F - 1
<PAGE>


                        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



                                      F - 2
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS



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


In  our  opinion,  the  accompanying  consolidated balance sheet and the related
consolidated  statement  of  operations,  stockholders'  equity  and  cash flows
present  fairly,  in  all  material  respects,  the  financial  position  of
Environmental  Safeguards,  Inc.  as  of December 31, 2001, and the consolidated
results  of  their  operations and their cash flows for each of the two years in
the  period  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 audits.  We
conducted  our  audits of these statements in accordance with auditing standards
generally  accepted  in the United States of America, which require that we plan
and  perform  the  audits  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 audits provide 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 - 3
<PAGE>
<TABLE>
<CAPTION>
                         ENVIRONMENTAL SAFEGUARDS, INC.

                           CONSOLIDATED BALANCE SHEET

                                   __________

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


                                                              DECEMBER 31,
                                                          -------------------
     ASSETS                                                 2002       2001
     ------                                               ---------  --------
<S>                                                       <C>        <C>
Current assets:
  Cash and cash equivalents                               $     97   $   798
  Accounts receivable                                           97     1,309
  Prepaid expenses                                             173       128
  Other assets                                                   -         8
                                                          ---------  --------

    Total current assets                                       367     2,243

Property and equipment, net                                  5,506     6,539
Acquired engineering design and technology, net of
  accumulated amortization of $1,756 and $1,348
  as of December 31, 2002 and 2001, respectively             1,203     1,611
Other assets                                                     3         3
                                                          ---------  --------

      Total assets                                        $  7,079   $10,396
                                                          =========  ========


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

Current liabilities:
  Notes payable to related parties                        $    250   $     -
  Accounts payable                                              31       146
  Dividends payable                                            617       364
  Accrued interest                                              63        20
  Other accrued liabilities                                    592       693
  Income taxes payable                                           -       254
                                                          ---------  --------

    Total current liabilities                                1,553     1,477
                                                          ---------  --------

Minority interest                                            1,943     2,040

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                                14,981    14,981
  Accumulated deficit                                      (11,412)   (8,116)
                                                          ---------  --------

    Total stockholders' equity                               3,583     6,879
                                                          ---------  --------

    Total liabilities and stockholders' equity            $  7,079   $10,396
                                                          =========  ========

                  The accompanying notes are an integral part
                  of these consolidated financial statements.
</TABLE>


                                      F - 4
<PAGE>
<TABLE>
<CAPTION>
                         ENVIRONMENTAL SAFEGUARDS, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

                                    __________

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                         YEAR ENDED DECEMBER 31,
                                                      ----------------------------
                                                        2002      2001      2000
                                                      --------  --------  --------
<S>                                                   <C>       <C>       <C>
Revenue                                               $   943   $ 2,987   $11,250
Cost of revenue                                         1,968     3,546     6,031
                                                      --------  --------  --------

  Gross margin                                         (1,025)     (559)    5,219

Selling, general and administrative expenses            1,713     2,645     3,711
Amortization of acquired engineering design and
  technology                                              408       408       408
Research and development                                   30        71        71
                                                      --------  --------  --------

    Income (loss) from operations                      (3,176)   (3,683)    1,029

Other income (expenses):
  Gain on sale of equipment                                 -     6,252         -
  Interest income                                           2        32        28
  Interest expense                                        (43)     (839)   (1,018)
  Other                                                    (2)       40       105
                                                      --------  --------  --------

Income (loss) before benefit (provision) for income
  taxes and minority interest                          (3,219)    1,802       144

Benefit (provision) for income taxes                       79      (536)   (1,117)
                                                      --------  --------  --------

Income (loss) before minority interest                 (3,140)    1,266      (973)

Minority interest                                          97       241      (489)
                                                      --------  --------  --------

Net income (loss)                                     $(3,043)  $ 1,507   $(1,462)
                                                      ========  ========  ========

Net income (loss) applicable to common stockholders   $(3,296)  $ 1,169   $(1,945)
                                                      ========  ========  ========

Net income (loss) per share-basic                     $ (0.33)  $  0.12   $ (0.19)
                                                      ========  ========  ========

Net income (loss) per share-diluted                   $ (0.33)  $  0.05   $ (0.19)
                                                      ========  ========  ========

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

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

                   The accompanying notes are an integral part
                   of these consolidated financial statements.
</TABLE>


                                      F - 5
<PAGE>
<TABLE>
<CAPTION>
                                               ENVIRONMENTAL SAFEGUARDS, INC.

                                       CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                        __________

                                             (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


                                                 SERIES B    SERIES C     SERIES D               ADDITIONAL
                                                PREFERRED    PREFERRED   PREFERRED     COMMON     PAID-IN    ACCUMULATED
                                                  STOCK        STOCK       STOCK        STOCK     CAPITAL      DEFICIT
                                                ----------  -----------  ----------  -----------  --------  -------------
<S>                                             <C>         <C>          <C>         <C>          <C>       <C>
Balance as of December 31, 1999                 $        3  $        1   $        -  $        10  $ 14,329  $     (7,387)

Issuance of 417,066 warrants to purchase
  common stock in connection with senior
  secured debt                                           -           -            -            -       438             -

Issuance of Series D Preferred Stock in
  exchange for Series C Preferred Stock                  -          (1)           1            -       168             -

Dividends of $287 and $149 on Series C and
  Series D Preferred Stock, respectively                 -           -            -            -         -          (436)

Net loss                                                 -           -            -            -         -        (1,462)
                                                ----------  -----------  ----------  -----------  --------  -------------

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

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

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

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

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

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

Net income                                               -           -            -            -         -        (3,043)
                                                ----------  -----------  ----------  -----------  --------  -------------

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


                                                  TOTAL
                                                  STOCK-
                                                 HOLDERS'
                                                  EQUITY
                                                ----------
<S>                                             <C>
Balance as of December 31, 1999                 $   6,956

Issuance of 417,066 warrants to purchase
  common stock in connection with senior
  secured debt                                        438

Issuance of Series D Preferred Stock in
  exchange for Series C Preferred Stock               168

Dividends of $287 and $149 on Series C and
  Series D Preferred Stock, respectively             (436)

Net loss                                           (1,462)
                                                ----------

Balance as of December 31, 2000                     5,664

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

Dividends on Series D Preferred stock                (338)

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

Balance as of December 31, 2001                     6,879

Dividends on Series D Preferred stock                (253)

Net income                                         (3,043)
                                                ----------

Balance as of December 31, 2002                 $   3,583
                                                ==========

  The accompanying notes are an integral part
  of these consolidated financial statements.
</TABLE>


                                      F - 6
<PAGE>
<TABLE>
<CAPTION>
                               ENVIRONMENTAL SAFEGUARDS, INC.

                            CONSOLIDATED STATEMENT OF CASH FLOWS

                                        __________

                                      (IN THOUSANDS)


                                                             YEAR ENDED DECEMBER 31,
                                                          ----------------------------
                                                            2002      2001      2000
                                                          --------  --------  --------
<S>                                                       <C>       <C>       <C>
Cash flows from operating activities:
  Net loss                                                $(3,043)  $ 1,507   $(1,462)
  Adjustment to reconcile net loss to net cash
    provided by (used in) operating activities:
    Minority interest                                         (97)     (241)      489
    Deferred tax expense                                        -        30         3
    Depreciation expense                                    1,218     2,080     2,245
    Amortization of acquired engineering design
      and technology                                          408       408       408
    Amortization of discount                                    -       344       372
    Gain on sale of equipment                                   -    (6,252)        -
    Changes in operating assets and liabilities:
      Accounts receivable                                   1,212      (286)    2,491
      Prepaid expenses and other assets                       (37)      (55)       88
      Accounts payable                                       (115)      (10)     (511)
      Accrued liabilities                                     (58)     (195)
      Income taxes payable                                   (254)       34      (398)
                                                          --------  --------  --------

        Net cash provided (used) by operating activities     (766)   (2,636)    3,962
                                                          --------  --------  --------

Cash flows from investing activities:
  Proceeds from sale of equipment                               -     6,900         -
  Purchases of equipment                                     (185)     (260)     (274)
                                                          --------  --------  --------

        Net cash provided (used) by investing activities     (185)    6,640      (274)
                                                          --------  --------  --------

Cash flows from financing activities:
  Proceeds from notes payable to stockholders                 250         -         -
  Payments on long-term debt                                    -    (5,406)   (1,081)
  Dividends paid on Series C and Series D
    preferred stock                                             -      (199)     (312)
  Distribution to minority interest                             -      (669)   (1,171)
                                                          --------  --------  --------

        Net cash provided (used) by financing activities      250    (6,274)   (2,564)
                                                          --------  --------  --------

Net increase (decrease) in cash and cash equivalents         (701)   (2,270)    1,124

Cash and cash equivalents, beginning of year                  798     3,068     1,944
                                                          --------  --------  --------

Cash and cash equivalents, end of year                    $    97   $   798   $ 3,068
                                                          ========  ========  ========


Supplemental disclosure of cash flow information:

  Cash paid for interest                                  $     -   $   695   $   476
                                                          ========  ========  ========

  Cash paid for income taxes                              $     -   $   472   $ 1,515
                                                          ========  ========  ========

                    The accompanying notes are an integral part
                    of these consolidated financial statements.
</TABLE>


                                      F - 7
<PAGE>
                         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 and 2001, 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 - 8
<PAGE>
                         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 unites
     (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  in  operations  currently.

     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. In the acquisition of OnSite, the purchase price was allocated to
     the assets acquired and liabilities assumed based on independent appraisal.
     This intangible asset is being amortized over an estimated useful life of 8
     years  using  the  straight-line  method.


                                      F - 9
<PAGE>
                         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 - 10
<PAGE>
                         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 - 11
<PAGE>
                         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

     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 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


                                     F - 12
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


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

     BACKGROUND AND 2001 CIRCUMSTANCES

     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.

     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.

     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 - 13
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


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

     Property and equipment consists of the following:

                                                              2002     2001
                                                             -------  -------
                                                              (IN THOUSANDS)

         ITD Remediation/Recycling Units and
           auxiliary equipment                               $11,962  $11,777
         Office furniture and equipment                           36       36
         Transportation and other equipment                       49       49
                                                             -------  -------

                                                              12,047   11,862
         Less accumulated depreciation                         6,541    5,323
                                                             -------  -------

         Property and equipment, net                         $ 5,506  $ 6,539
                                                             =======  =======


     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.


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.


                                     F - 14
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


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

     Other accrued liabilities consists of the following:

                                                           2002   2001
                                                           -----  -----
                                                          (IN THOUSANDS)

     Accrued warranty reserve                              $   -  $ 146
     Accrued property and franchise taxes                     15     76
     Accrued professional fees                                40     85
     Accrued joint-company expenses                          332    259
     Accrued foreign VAT and withholding taxes                 -     42
     Accrued capital improvements                             80      -
     Accrued executive salaries                              116      -
     Accrued operating costs                                   9     85
                                                           -----  -----

                                                           $ 592  $ 693
                                                           =====  =====

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,
     $100,000  and  $115,000  during the years ended December 31, 2002, 2001 and
     2000,  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
     were  as  follows:

                                                           2002     2001
                                                         --------  --------
                                                           (IN THOUSANDS)
     Deferred tax liabilities:
       Basis of property and equipment                   $   150   $   315
                                                         --------  --------

         Total deferred tax liabilities                      150       315
                                                         --------  --------

     Deferred tax assets:
       Net operating loss carryforwards                    2,040     1,170
       Undistributed foreign losses                            -       352
       All other, net                                        340       452
                                                         --------  --------

        Total deferred tax assets                          2,380     1,974
                                                         --------  --------

       Valuation allowance                                (2,230)   (1,659)
                                                         --------  --------

                                                             150       315
                                                         --------  --------

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


                                     F - 15
<PAGE>
                         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:

<TABLE>
<CAPTION>
                                                         2002      2001      2000
                                                       --------  --------  --------
<S>                                                    <C>       <C>       <C>
                                                               (IN THOUSANDS)

      United States                                    $(2,931)  $ 4,839   $(1,066)
       Foreign                                            (288)   (3,037)    1,210
                                                       --------  --------  --------

           Income (loss) before provision for income
             taxes and minority interest               $(3,219)  $ 1,802   $   144
                                                       ========  ========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                         2002    2001     2000
                                                         -----  ------  --------
<S>                                                      <C>    <C>     <C>
                                                             (IN THOUSANDS)
     Current:
       Federal                                           $  79  $(247)  $     -
       Foreign                                               -   (259)   (1,110)
                                                         -----  ------  --------

         Total current                                      79   (506)   (1,110)
                                                         -----  ------  --------

     Deferred:
       Federal                                               -      -         -
       Foreign                                               -    (30)       (7)
                                                         -----  ------  --------

         Total deferred                                      -    (30)       (7)
                                                         -----  ------  --------

             Benefit (provision) for income taxes        $  79  $(536)  $(1,117)
                                                         =====  ======  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                             2002   2001    2000
                                                             -----  -----  -------
<S>                                                          <C>    <C>    <C>
     Federal statutory rate                                    34%  (34%)    (34%)
     State income taxes                                         -    (9%)       -
     Foreign income taxes                                       -   (10%)   (776%)
     Foreign tax credits and other                           (16%)  (38%)       -
     Change in valuation allowance                           (18%)    61%      34%
                                                             -----  -----  -------

             Benefit (provision) for income taxes               2%  (30%)   (776%)
                                                             =====  =====  =======
</TABLE>


                                     F - 16
<PAGE>
                         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 - 17
<PAGE>
                         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 based on an independent appraisal.
     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.

     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.

     Proforma  information  regarding  net  income  and  earnings  per  share is
     required  by  Statement  123, and has been 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,  2001  or  2000  and,  accordingly,  no  option  pricing
     assumptions  are  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.


                                     F - 18
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


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

     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,  1999,  the  Company  had granted options for
     610,000  of a total of 800,000 shares of common stock reserved for issuance
     under the Option Plan. During 2000, 62,500 options were forfeited resulting
     in  a  547,500 of a total of 800,000 share of common stock reserved for the
     issuance  under  the  Option  Plan.

     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.

     PROFORMA DISCLOSURES
     --------------------

     For  purposes  of  proforma  disclosures,  the  estimated fair value of the
     options is included in expense over the option's vesting period or expected
     life.

     During  the  year  ended  December 31, 1999, 626,730 of the Company's stock
     options  were  repriced from original exercise prices ranging from $2.50 to
     $5.00  per  share  to  a  new  exercise  price  of $1.44 per share. The new
     exercise price was based on the quoted market value of the Company's common
     stock  at  the  date  of  repricing. The repricing of options significantly
     impacted  proforma  financial  information  in 1999. The Company's proforma
     information  follows:

                                                        2002     2001     2000
                                                      --------  ------  --------
                                                         (IN THOUSANDS, EXCEPT
                                                           PER SHARE AMOUNTS)

         Proforma net income (loss)                   $(3,043)  $1,507  $(1,637)
         Proforma net income (loss) available
           to common stockholders                     $(3,296)  $1,169  $(2,120)
         Proforma basic income (loss) per share       $ (0.33)  $ 0.12  $ (0.20)
         Dilutive income (loss) per share             $ (0.33)  $ 0.05  $ (0.20)

     A  summary  of  the Company's stock option activity and related information
     for the years ended December 31, 2002, 2001 and 2000 follows:

                                                   NUMBER OF
                                                     SHARES
                                                     UNDER     WEIGHTED-AVERAGE
                                                    OPTIONS     EXERCISE PRICE
                                                   ----------  -----------------
       Outstanding - December 31, 1999             4,851,162                1.38

       Granted                                             -                   -
       Exercised                                           -                   -
       Forfeited during 2000                         (62,500)               1.69
                                                   ----------

       Outstanding - December 31, 2002, 2001
         and 2000                                  4,788,662   $            1.38
                                                   ==========


                                     F - 19
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


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

     PROFORMA DISCLOSURES, CONTINUED
     -------------------------------

     No options were granted during the years ended December 31, 2002 or 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
     =================

     All  outstanding  stock  options are exercisable at December 31, 2002, 2001
     and  2000.

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

     Following is a summary of stock warrant activity:

                                        NUMBER OF  EXERCISE      WEIGHTED
                                        SHARES      PRICE    AVERAGE PRICE
                                        ---------  ---------  --------------
     Warrants outstanding as of
         December 31, 1999                707,143  $    0.01  $         0.01

         Issued                           417,066  $    0.01  $         0.01
         Canceled                               -          -               -
         Exercised                              -          -               -
                                        ---------

     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
                                        =========


                                     F - 20
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


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

     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
     or  2000  since  their  effect  was  antidilutive.

     The  following  table  sets  forth  the  computation  of  basic and diluted
     earnings  per  share:

                                                      2002      2001      2000
                                                    --------  --------  --------
                                                            (IN THOUSANDS)

     Numerator:
       Net income (loss)                            $(3,043)  $ 1,507   $(1,462)

       Less: Series C and D Preferred stock
              dividends ($0.63, $0.85 and $1.09
              per share) in 2001, 2000 and 1999,
              respectively                             (253)     (338)     (436)
          Accretion of discount on Series C
              preferred stock (Note 8)                    -         -       (47)
                                                    --------  --------  --------

       Net income (loss) applicable to common
         stockholders-numerator for basic and
         diluted earnings per share                 $(3,296)  $ 1,169   $(1,945)
                                                    ========  ========  ========

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

       Basic earnings per share                     $ (0.33)  $  0.12   $ (0.19)
                                                    ========  ========  ========

       Diluted earnings per share                   $ (0.33)  $  0.05   $ (0.19)
                                                    ========  ========  ========


                                     F - 21
<PAGE>
                         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:

                                                   2002     2001      2000
                                                 --------  -------  --------
                                                        (IN THOUSANDS)
     Numerator:
       Net income (loss)                         $(3,043)  $1,507   $(1,462)

       Less: Series C and D Preferred stock
               dividends ($0.63, $0.85 and $1.09
               per share) in 2001, 2000 and 1999,
               respectively                         (253)    (338)     (436)
             Accretion of discount on Series C
               preferred stock (Note 8)                -        -       (47)
                                                 --------  -------  --------

       Net income (loss) applicable to common
         stockholders-numerator for basic and
         diluted earnings per share              $(3,296)  $1,169   $(1,945)
                                                 ========  =======  ========


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,  2001  or  2000.


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. Defendants also deny there
     is  any  controversy  between the parties regarding the Heuer and Reynolds'
     patents.  This  case  is  in  the  early  stages  of  discovery.


                                     F - 22
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


11.  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. 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 and Conley Rose P.C., 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.


                                     F - 23
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


12.  RELATED PARTY TRANSACTIONS, CONTINUED
     -------------------------------------

     During 1998, the Company entered into a marketing assistance agreement (the
     "Marketing  Agreement")  with  the minority owners of OnSite Colombia, Inc.
     Under  the  terms of the Marketing Agreement, in exchange for assisting the
     Company  in  its  business  expansion  efforts, the minority owners and the
     Company  each  received  marketing assistance fees totaling $320,000 during
     the  year  ended  December  31,  2000.


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).

     During  2000 a significant portion of the Company's foreign operations were
     conducted by the Company's 50% owned joint company in Colombia. 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    2000
                                               ------  ------  -------
                                                   (IN THOUSANDS)

     Revenue:
       United States                           $   49  $  140  $ 1,464
       United Kingdom                               -       -       52
       Latin America                              894   2,847    9,734
                                               ------  ------  -------

         Total revenue                         $  943  $2,987  $11,250
                                               ======  ======  =======


     Depreciation and Amortization:
       United States                           $1,624  $1,810  $ 1,566
       United Kingdom                               -     259      253
       Latin America                                -     419      834
                                               ------  ------  -------

         Total depreciation and amortization   $1,624  $2,488  $ 2,653
                                               ======  ======  =======


                                     F - 24
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


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

                                                    2002      2001      2000
                                                  --------  --------  --------
                                                          (IN THOUSANDS)
       Income (Loss) From Operations:
         United States                            $(2,887)  $(2,930)  $(1,245)
         United Kingdom                                 -      (559)     (513)
         Latin America                                (94)       93     3,561
         Middle East                                 (194)     (286)     (452)
         Corporate                                     (1)       (1)     (322)
                                                  --------  --------  --------

           Total income (loss) from operations    $(3,176)  $ 3,683   $ 1,029
                                                  ========  ========  ========


       Interest Expense:
         Latin America                            $     -   $     -   $    15
         Corporate                                     42       839     1,003
                                                  --------  --------  --------

           Total interest expense                 $    42   $   839   $ 1,018
                                                  ========  ========  ========


       Benefit (Provision) For Income
         Taxes:
         United States                            $    79   $  (247)  $     -
         United Kingdom                                 -         -        70
         Latin America                                  -      (289)   (1,187)
                                                  --------  --------  --------

           Total benefit (provision) for income
             taxes                                $    79   $  (536)  $(1,117)
                                                  ========  ========  ========

       Number of Customers:
         United States                                  1         1         1
         United Kingdom                                 -         -         1
         Latin America                                  1         3         4
                                                  --------  --------  --------

                                                        2         4         6
                                                  ========  ========  ========

                                                               2002    2001
                                                              ------  -------
                                                               (IN THOUSANDS)
       Assets:
         United States                                        $3,400  $ 4,515
         United Kingdom                                            -      826
         Latin America                                           228    1,226
         Middle East                                           3,397    3,419
         Corporate                                                54      410
                                                              ------  -------

           Total assets                                       $7,079  $10,396
                                                              ======  =======


       Long Lived Assets:
         United States                                        $3,320  $ 4,083
         United Kingdom                                            -      677
         Latin America                                             2        3
         Middle East                                           3,390    3,390
                                                              ------  -------

           Total long lived assets                            $6,712  $ 8,153
                                                              ======  =======


                                     F - 25
<PAGE>
                         ENVIRONMENTAL SAFEGUARDS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   __________


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

                                                            2002    2001
                                                            -----  -------
                                                            (IN THOUSANDS)
       Capital Expenditures:
         United States                                      $ 185  $   260
                                                            -----  -------

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

     During  the  years  ended  December  31, 2002, 2001 and 2000, the Company's
     largest  customer  accounted for 95%, 93% and 50% of revenue, respectively.


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

     In  January  2003  the  Company  signed a contract to process various waste
     streams  at  a  facility  in  Arkansas.

     On  March  20, 2003, the Company completed a $1,500,000 loan agreement (the
     "Loan  Agreement")  with a private investor group. The Loan is to be funded
     in  three  $500,000  fundings on March 20,2003; May 15,2003; and August 15,
     2003.  The  initial  funding  of March 20, 2003 has been received. The Loan
     Agreement provided the creditor with a warrant to purchase 1,500,000 shares
     of  the  Company's  common stock at a price of $0.01 per share. The loan is
     collateralized  by  three  ITD units and bears interest at a stated rate of
     12%  per year. The effective interest rate on the loan is approximately 35%
     per  year.  Payments  are due in 20 quarterly installments of $75,000, plus
     accrued  interest, beginning in August 2003 with a final payment due in May
     2008.

     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)

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

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

                                                  2002   2001    2000
                                                  -----  -----  -------
                                                      (IN THOUSANDS)

     Dividends declared but not yet paid.         $ 253  $ 338  $     -

     Stock warrants issued to extend the due
       date of senior secured notes payable.          -     46      438

     Series D convertible preferred stock
       exchanged for Series C non-convertible
       preferred stock.                               -      -      168

     Property and equipment for settlement of
       accounts receivable                            -      -       65


                                     F - 26
<PAGE>