Tanknology-NDE International, Inc. and Subsidiaries
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 1998.
[ ] Transition Report Under to Section 13 or 15(d) of the Exchange Act for the
transition period from __________ to __________ .
Commission File Number 1-10361
Tanknology-NDE International, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 95-3634420
(State of Incorporation) (IRS Employer Identification No.)
8900 Shoal Creek Blvd., Bldg. 200 Austin, Texas 78757
(Address of Principal Executive offices)
Issuer's telephone number, including area code: (512) 451-6334
Check whether the Issuer (1) 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 (2) has been
subject to such filing requirements for the past ninety days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at March 31, 1998
- -------------- -----------------------------------
Common 16,154,166
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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Tanknology-NDE International, Inc. and Subsidiaries
INDEX
Page Number
PART I Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet
March 31, 1998 (Unaudited) and December 31, 1997 ............3
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1998 and March 31, 1997.........4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1998 and March 31, 1997.........5
Notes To Condensed Consolidated Financial
Statements (Unaudited).......................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .........................7
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K.................................9
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Tanknology-NDE International, Inc. and Subsidiaries
PART I Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and equivalents.................................................. $ - $ 193,627
Trade accounts receivable, less allowance for doubtful accounts of
$1,167,543 at March 31, 1998 and $1,066,331 at December 31, 1997.... 9,709,052 9,856,826
Inventories........................................................... 598,307 482,107
Prepaid expenses and other current assets............................. 776,582 1,149,950
-------------- -----------------
Total Current Assets.............................................. 11,083,941 11,682,510
Restricted cash....................................................... 3,000,000 3,000,000
Equipment and improvements, net of accumulated depreciation of $11,648,495
at March 31, 1998 and $11,052,586 at December 31, 1997.............. 4,857,727 4,812,500
Patents, licenses and other intangible assets, net of accumulated
amortization of $1,264,024 at March 31, 1998 and $1,169,104 at
December 31, 1997................................................... 1,509,274 1,604,194
Deferred financing costs, net......................................... 738,414 649,614
-------------- -----------------
Total Assets...................................................... $ 21,189,356 $ 21,748,818
============== =================
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
Accounts payable ..................................................... $ 2,608,789 $ 2,675,345
Accrued liabilities................................................... 2,399,902 2,249,208
Accrued payroll and payroll taxes..................................... 1,924,495 1,959,273
Current portion of long-term debt..................................... 3,722,272 4,055,072
-------------- -----------------
Total Current Liabilities......................................... 10,655,458 10,938,898
Long Term Debt, less current portion ................................. 10,397,181 10,589,252
Deferred License Revenue.............................................. 479,167 525,000
Redeemable Convertible Preferred Stock, at redemption value........... 1,500,000 1,500,000
Stockholders' Deficit:
Series AAA Convertible Preferred Stock, $.0001 par value;
authorized, 400 shares; issued and outstanding 1 share stated
at liquidation value of $5,000................................. 5,000 5,000
Common stock, $.0001 par value; authorized, 50,000,000 shares;
isssued and outstanding 16,154,166 shares at March 31, 1998,
and 15,978,610 shares at December 31, 1997.................... 1,598 1,598
Warrants......................................................... 291,000 291,000
Additional paid-in capital....................................... 27,540,946 27,578,446
Accumulated deficit.............................................. (29,650,581) (29,659,297)
Cumulative foreign currency translation adjustment............... (30,413) (21,079)
-------------- -----------------
(1,842,450) (1,804,332)
-------------- -----------------
Total Liabilities, Redeemable Convertible Preferred Stock and
Stockholders' Deficit.................................. $ 21,189,356 $ 21,748,818
============== =================
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues ........................................... $ 11,697,947 $ 7,462,643
Cost of services.................................... 9,005,243 5,602,108
-------------- --------------
Gross Margin................................... 2,692,704 1,860,535
Selling, general and administrative................. 2,316,802 2,070,444
-------------- --------------
Operating Income (Loss)........................ $ 375,902 $ (209,909)
Other income (expense):.............................
Interest income............................. 32,020 -
Interest expense............................ (395,517) (845,146)
Other income (expense), net................. 711 -
-------------- --------------
Net Income (Loss) Before Provision for
Income Taxes.............................. 13,116 (1,055,055)
Provision for income taxes......................... (4,400) (25,300)
-------------- --------------
Net Income (Loss).............................. 8,716 (1,080,355)
Less - Preferred stock dividends................... (37,500) -
-------------- --------------
Net Loss Available to Common Stockholders...... $ (28,784) $ (1,080,355)
============== ==============
Basic and Diluted Loss per Share.............. $ - $ (0.07)
============== ==============
Weighted Average Number of Shares Outstanding.. 16,044,166 15,978,610
============== ==============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss)................................................. $ 8,716 $ (1,080,355)
Adjustments to Reconcile Net Income (Loss) to Net Cash Used in
Operating Activities
Depreciation and amortization..................................... 690,787 972,279
Amortization of discounts and financing costs..................... 69,161 416,501
Deferred license revenue earned................................... (45,833) -
Gain on sale of equipment......................................... - (31,366)
Other............................................................. (9,334) -
Changes in Operating Assets and Liabilities
(Increase) decrease in trade accounts receivable.................. 147,774 (944,847)
Increase in inventories........................................... (116,200) (98,791)
Decrease in prepaid expenses and other current assets............. 373,368 615,272
Increase (decrease) in accounts payable........................... (66,556) 102,254
Increase (decrease) in accrued liabilities........................ 150,694 (1,277,532)
Increase (decrease) in accrued payroll and payroll taxes.......... (34,778) 176,073
-------------- --------------
Net cash provided by (used) in operating activities............... 1,167,799 (1,150,512)
Cash Flows from Investing Activities
Proceeds from sale of Canadian licenses........................... - 1,147,500
Additions to equipment and improvements........................... (641,094) (424,633)
Proceeds from sale of equipment................................... - 50,000
-------------- --------------
Net cash provided by (used in) investing activities............... (641,094) 772,867
Cash Flows from Financing Activities
Net activity in revolving line of credit.......................... (42,667) -
Preferred stock dividends......................................... (37,500) -
Payments on long-term debt........................................ (496,502) (1,002,936)
Deferred financing costs.......................................... (143,663) -
-------------- --------------
Net cash used in financing activities............................. (720,332) (1,002,936)
Net decrease in cash and equivalents.............................. (193,627) (1,380,581)
Cash and equivalents at beginning of period....................... 193,627 2,412,233
-------------- --------------
Cash and equivalents at end of period............................. - 1,031,652
============== ==============
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1: ACCOMPANYING UNAUDITED FINANCIAL STATEMENTS
Basis of Presentation: The consolidated financial statements of
Tanknology-NDE International, Inc. and its subsidiaries (the "Company") included
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission, and, in the opinion of management,
reflect all adjustments necessary to present fairly the results of operations
for such interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, management believes that the disclosures are adequate to
make the information presented not misleading. The accompanying unaudited
financial statements for the three months ended March 31, 1998 and 1997 contain
all adjustments, consisting of only normal recurring accruals, necessary to
present fairly the financial position of the Company as of March 31, 1998 and
1997 and the results of operations and cash flows for the three months then
ended. The results of operations for the Company's interim periods are not
necessarily indicative of the results to be expected for the entire year. It is
suggested that these financial statements be read in conjunction with the
audited financial statements and notes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1997.
NOTE 2: COMMITMENTS AND CONTINGENCIES
There have been no material changes in the information reported as of
December 31, 1997 as reported on Form 10-KSB in Footnote 12 accompanying the
audited financial statements.
NOTE 3: IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
None.
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Tanknology-NDE International, Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table reflects the percentage relationship to net revenue of
certain items included in the Company's statements of operations for the three
month periods ended March 31, 1998 and 1997. The results of operations for the
three months ended March 31, 1997 include the results of operations of USTMAN
Industries ("USTMAN") which was sold in May 1997 and certain Canadian operations
("Canada") that were sold in February 1997.
Three Months Ended
--------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Revenues............................... 100% 100%
Cost of Services....................... 77% 75%
-------------- --------------
Gross Margin........................... 23% 25%
Selling, General and Administrative.... 20% 28%
-------------- --------------
Operating Income ( Loss)............... 3% (3)%
Interest Expense....................... 3% 11%
Net Income (Loss)...................... - (14)%
============== ==============
Revenues
Revenues for the three months ended March 31, 1998 were $11,697,947
compared to $7,462,643 in the 1997 period, an increase of $4,235,304, or 57%.
Revenues in the first quarter of 1997 included $105,787 of revenues from Canada
and $1,461,665 of revenues from USTMAN. Excluding the revenues from these two
sold entities, comparable revenues for 1997 were $5,895,191. The increase in
comparable revenues of $5,802,756 or 98% from 1997 is primarily due to the
following factors; i) revenues of $1,786,724 generated by the Construction
Services Division which did not begin operations until the third quarter of
1997, ii) continuation of a large upgrade program for a major customer that
began in the second half of 1997 and iii) an over 300% increase in cathodic
protection installation, maintenance, repair and inspection revenues.
Cost of Services
Cost services for the three months ended March 31, 1998 were $9,005,243 or
77% of revenue compared to $5,602,108 or 75% of revenue in 1997, an increase of
$3,403,135, or 61%. Gross margin was $2,692,704 or 23% of revenue for 1998,
compared to $1,860,535 or 25% of revenue for 1997. The decrease in gross margin
percentage is due to the sale of USTMAN and Canada. Adjusting for these
disposals, gross margin percentage increased by four percentage points to 25% in
the first quarter of 1998 from 21% in 1997, primarily due to the increase in
revenues.
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Tanknology-NDE International, Inc. and Subsidiaries
Selling, General and Administrative
Selling, general, and administrative expense for the three months ended
March 31, 1998 was $2,316,802 or 20% of revenue compared to $2,070,444 in 1997
or 28% of revenue, an increase of $246,358 or 12% compared to the three months
ended March 31, 1997. The increase in selling, general, and administrative
expenses is due to the addition of additional sales and administrative resources
to support the growth in revenue and varieties of services offered. Adjusting
for the sales of USTMAN and Canada, comparable SG&A expense in 1997 was
$1,976,882 or 34% of comparable revenue. The decrease in the percentage of sales
from 34% to 20% is due primarily to the growth in revenue without having to add
to SG&A expenses proportionately and to a lesser extent reductions in insurance
and telecommunications costs.
Earnings before Depreciation, Amortization, Interest and Taxes (EBITDA)
For the three months ended March 31, 1998, EBITDA was $1,066,689 or 9% of
revenues compared to $762,470 or 10% of revenues in 1997. Adjusting for the
disposals of USTMAN and Canada, comparable EBITDA in the first quarter of 1997
was $58,960 or 1% of revenues. The increase in EBITDA, as adjusted, of
$1,007,729 was primarily due to the increased revenues in the first quarter of
1998 compared to the first quarter of 1997.
Interest Expense
Interest expense for the three months ended March 31, 1998 was $395,517 or
3% of revenue compared to $845,146 or 11% of revenue in 1997, a decrease of
$449,629 or 53%. The decrease in interest expense is due to; i) continued pay-
down of long-term debt, ii) the refinancing of subordinated debt that occurred
in December 1997 reduced the accretion expense associated with this debt for the
first quarter of 1998 by $145,000, reduced the interest rate from 13% to 10%
which reduced interest costs compared to the first quarter of 1997 by
approximately $41,000, and replaced $1.5 million of the previous debt with
convertible redeemable preferred stock which eliminated approximately $48,000 of
interest costs for the comparable period, iii) the retirement of the warrants
with put options which occurred as part of the December 1997 refinancing which
eliminated $200,250 of accretion expense associated with this instrument in the
first quarter of 1997.
Net Income (Loss)
For the three months ended March 31, 1998, the Company had net income of
$8,716 before preferred stock dividend requirements compared to a loss of
$(1,080,355) in 1997, an improvement of $1,089,071. Adjusting for the disposals
of USTMAN and Canada, the comparable net loss in the first quarter of 1997 was
$1,582,484 or 27% of comparable revenues. The decrease in the net loss of
$1,591,200 was primarily due to the increased revenues in the first quarter of
1998 compared to the first quarter of 1997 and the debt refinancing that
occurred in December 1997.
Liquidity and Capital Resources
At March 31, 1998, the Company had working capital of $428,483 compared to
working capital of $743,612 at December 31, 1997. Cash provided by operating
activities of $1,167,799 for the three months ended March 31, 1998 increased by
$2,318,311 as compared to cash used in operating activities of $1,150,512 in
1997. The cash provided by operating activities in the quarter ended March 31,
1998, was used to fund capital expenditures and debt repayments.
Cash used in investing activities (consisting solely of capital
expenditures) totaled $641,094 for the three months ended March 31, 1998
compared to cash provided by investing activities of $772,867 in the 1997
period. On February 20, 1997, the Company sold substantially all of the
operating assets of its Canadian operation. The Company realized proceeds of
$1,147,500 related to the sale of the business and technology licenses and
$50,000 from the sale of the fixed assets of the Canadian operations.
At March 31, 1998, the Company had outstanding long-term debt (including
current maturities) of $14,119,453 compared to $14,644,324 at December 31, 1997.
Required term-loan principal repayments of $300,000, a net $42,667 repayment on
the revolving credit line and other debt repayments of $182,204 were made during
the quarter. At March 31, 1998, the Company had $3,065,000 available for
additional borrowing under its revolving credit agreement. As of March 31, 1998,
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Tanknology-NDE International, Inc. and Subsidiaries
the Company was in compliance with the financial debt covenants related to its
long-term financing agreements.
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934. All forward looking statements involve risks and
uncertainties. The forward looking statements in this document are intended to
be subject to the safe harbor protection provided by Sections 27A and 21E. For a
discussion identifying some important factors that could cause actual results to
differ materially from those anticipated in the forward looking statements, see
the Company's Form 10-KSB page 13 "Management Discussion and Analysis" for the
fiscal year ended December 31, 1997.
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed herewith:
None.
Reports on Form 8-K:
The Company filed one report on Form 8-K or 8-K/A during the
quarter ended March 31, 1998.
On January 13, 1998, the Company filed a Form 8-K to disclose
that on December 23, 1997, it had entered into a strategic
alliance with Veeder-Root Company, issued a $6.5 million senior
subordinated note and $1.5 million of redeemable, convertible
preferred stock to Danaher Corporation, Veeder-Root's parent
company, and simultaneously retired $8,000,000 of existing debt
and repurchased warrants to purchase 13 million shares of the
Company's common stock.
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Tanknology-NDE International, Inc.
(Registrant)
Date: April 24, 1998 /s/ DAVID G. OSOWSKI
------------------- ------------------------------------------------
David G. Osowski
Vice President and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Tanknology-NDE International, Inc. financial statements as of the three months
ended March 31, 1998.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 10,876,595
<ALLOWANCES> 1,167,543
<INVENTORY> 598,307
<CURRENT-ASSETS> 11,083,941
<PP&E> 16,506,222
<DEPRECIATION> 11,648,495
<TOTAL-ASSETS> 21,189,356
<CURRENT-LIABILITIES> 10,655,458
<BONDS> 10,397,181
1,500,000
5,000
<COMMON> 1,598
<OTHER-SE> (1,849,048)
<TOTAL-LIABILITY-AND-EQUITY> 21,189,356
<SALES> 11,697,947
<TOTAL-REVENUES> 11,697,947
<CGS> 9,005,243
<TOTAL-COSTS> 2,316,802
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395,517
<INCOME-PRETAX> 13,116
<INCOME-TAX> 4,400
<INCOME-CONTINUING> 8,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,716
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
