Tanknology-NDE International, Inc. and Subsidiaries
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1999.
[ ] 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 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 June 30, 1999
- -------------- -----------------------------------
Common 16,771,940
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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 Sheets
June 30, 1999 (Unaudited) and December 31, 1998 .............3
Condensed Consolidated Statements of Operations (Unaudited)
Three Months and Six Months Ended June 30, 1999
and June 30, 1998............................................4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and June 30, 1998....5
Notes To Condensed Consolidated Financial Statements (Unaudited).....6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...............11
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K................................16
SIGNATURE.....................................................................16
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Tanknology-NDE International, Inc. and Subsidiaries
PART I Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
----------------- -----------------
ASSETS (Unaudited)
----------------- -----------------
<S> <C> <C>
Cash and equivalents............................................... $ 128,117 $ 416,189
Trade accounts receivable, less allowance for doubtful accounts of
$1,514,928 at June 30, 1999 and $1,798,044 at
December 31, 1998......................................... 12,408,316 18,071,273
Inventories........................................................ 1,237,085 1,218,271
Prepaid expenses and other current assets.......................... 547,615 521,909
----------------- -----------------
Total Current Assets...................................... 14,321,133 20,227,642
Restricted cash.................................................... -- 3,000,000
Equipment and improvements, net of accumulated depreciation of
$14,714,132 at June 30, 1999 and $13,470,663 at
December 31, 1998......................................... 7,828,890 8,109,097
Goodwill, net of accumulated amortization of $207,767 at
June 30, 1999 and $125,442 at December 31, 1998......... 2,318,790 2,401,115
Patents, licenses and other intangible assets, net of accumulated
amortization of $1,590,111 at June 30, 1999 and
$1,527,761 at December 31, 1998........................... 708,096 1,070,446
Deferred financing costs, net...................................... 715,168 674,531
----------------- -----------------
Total Assets.............................................. $ 25,892,077 $ 35,482,831
================= =================
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Accounts payable .................................................. $ 1,722,020 $ 4,874,180
Accrued liabilities................................................ 2,049,858 1,649,020
Accrued payroll and payroll taxes.................................. 2,412,607 4,363,312
Current portion of long-term debt.................................. 2,692,418 2,314,991
Total Current Liabilities................................. 8,876,903 13,201,503
Long Term Debt, less current portion .............................. 15,565,974 18,271,743
Deferred License Revenue........................................... 138,958 207,135
Redeemable Convertible Preferred Stock, at redemption value........ 1,500,000 1,500,000
Stockholders' Deficit:
Common stock, $.0001 par value; authorized 50,000,000 shares;
issued and outstanding 16,771,940 shares at June 30, 1999,
and 16,735,040 shares at December 31, 1998.............. 1,677 1,674
Warrants...................................................... 321,000 321,000
Additional paid-in capital.................................... 27,662,401 27,733,366
Accumulated deficit........................................... (28,188,192) (25,755,500)
Cumulative foreign currency translation adjustment............ 13,356 1,910
(189,758) 2,302,450
Total Liabilities, Redeemable Convertible Preferred Stock
and Stockholders' Deficit....................... $ 25,892,077 $ 35,482,831
================= =================
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues ................................................... $ 11,820,947 $ 15,409,481 $ 24,401,420 $ 27,107,429
Cost of services ........................................... 11,527,803 11,209,129 22,357,495 20,214,363
------------- ------------- ------------- -------------
Gross Margin ...................................... 293,144 4,200,352 2,043,925 6,893,066
Selling, general and administrative ........................ 1,097,121 2,803,953 4,001,680 5,120,755
------------- ------------- ------------- -------------
Operating Income (Loss) ........................... $ (803,977) $ 1,396,399 $ (1,957,755) $ 1,772,311
Other income (expense):
Interest income .................................... 1,852 29,776 31,187 61,796
Interest expense ................................... (396,661) (400,822) (861,373) (796,339)
Other income, net .................................. 11,199 4,194 64,615 4,905
------------- ------------- ------------- -------------
Income (Loss) Before Provision for Income
Taxes ............................................. (1,187,587) 1,029,547 (2,723,326) 1,042,673
Benefit (Provision) for income taxes ...................... (62,580) (29,497) 290,640 (33,897)
------------- ------------- ------------- -------------
Net Income (Loss) ................................. (1,250,167) 1,000,050 (2,432,686) 1,008,776
Less - Preferred stock dividends .......................... (37,500) (37,500) (75,000) (75,000)
Net Income (Loss) Available to
Common Stockholders ...................... $ (1,287,667) $ 962,550 $ (2,507,686) $ 933,776
============= ============= ============= =============
Basic income (loss) per Share .................... $ (0.08) $ 0.06 $ (0.15) $ 0.06
============= ============= ============= =============
Diluted income (loss) per Share ................... $ (0.08) $ 0.04 $ (0.15) $ 0.04
============= ============= ============= =============
<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>
Six Months Ended
------------------------------
June 30, 1999 June 30, 1998
------------- -------------
Cash Flows from Operating Activities
<S> <C> <C>
Net income (loss) ....................................... $ (2,432,686) $ 1,008,776
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by
(Used in) Operating Activities
Depreciation and amortization ........................... 1,544,894 1,435,403
Amortization of discounts and financing costs ........... 114,666 138,698
Deferred license revenue earned ......................... (68,177) (91,666)
Gain on sale of patent .................................. (95,000) --
Other ................................................... 11,441 4,042
Changes in Operating Assets and Liabilities
Trade accounts receivable ............................... 5,662,957 (1,746,573)
Inventories ............................................. (18,814) (140,340)
Prepaid expenses and other current assets ............... (25,706) 354,541
Accounts payable ........................................ (3,152,161) 327,121
Accrued liabilities ..................................... 400,838 (45,846)
Accrued payroll and payroll taxes ....................... (1,950,705) 385,241
------------- -------------
Net cash provided by (used in) operating activities ..... (8,453) 1,629,397
Cash Flows from Investing Activities
Additions to equipment and improvements ................. (1,025,012) (1,872,022)
Other ................................................... (155,303) (5,409)
------------- -------------
Net cash used in investing activities ................... (1,180,315) (1,877,431)
Cash Flows from Financing Activities
Net activity in revolving line of credit ................ (1,100,000) 807,333
Preferred stock dividends ............................... (75,000) (75,000)
Proceeds from issuance of common stock .................. 4,039 --
Proceeds from long-term debt ............................ 301,750 797,942
Restricted cash ......................................... 3,000,000 --
Payments on long-term debt .............................. (1,230,093) (1,255,476)
Deferred financing costs ................................ -- (143,663)
------------- -------------
Net cash provided by (used in) financing activities ..... 900,696 131,136
Net decrease in cash and equivalents .................... (288,072) (116,898)
Cash and equivalents at beginning of period ............. 416,189 193,627
Cash and equivalents at end of period ................... $ 128,117 $ 76,729
============= =============
</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 and six months ended June 30, 1999 and
1998 contain all adjustments, consisting of only normal recurring accruals,
necessary to present fairly the financial position of the Company as of June 30,
1999 and 1998 and the results of operations and cash flows for the three and six
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, 1998. In
1999, the Company is required to file Form 10-Q and Form 10-K in accordance with
Regulation S-X under the 1933 and 1934 Securities Acts. The Company no longer
meets the definition of a "Small Business Issuer" as defined in Regulation S-B
under the 1933 and 1934 Acts.
NOTE 2: INCOME (LOSS) PER SHARE CALCULATIONS
The following table sets forth the calculation of basic and diluted income
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- -----------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (1,250,167) $ 1,000,050 $ (2,432,686) $ 1,008,776
Preferred stock dividends (37,500) (37,500) (75,000) (75,000)
------------- ------------- ------------- -------------
Numerator for basic income (loss)
per share -income available to
common shareholders (1,287,667) 962,550 (2,507,686) 933,776
Effect of dilutive securities -
preferred stock dividends -- 37,500 -- 75,000
Numerator for dilutive income
(loss) per share -income available
to common shareholders (1,287,667) 1,000,050 (2,507,686) 1,008,776
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- -----------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Denominator:
Denominator for basic income
(loss) per share - weighted-
average shares 16,771,940 16,154,166 16,755,636 16,150,286
Effect of dilutive securities:
Stock options -- 3,983,344 -- 3,916,003
Warrants -- 3,288,687 -- 3,251,433
Convertible preferred stock -- 1,490,566 -- 1,461,367
------------- ------------- ------------- -------------
Dilutive potential common shares -- 8,762,597 -- 8,628,803
Denominator for diluted earnings
(loss) per share - adjusted
weighted- average shares and
assumed conversions 16,771,940 24,916,763 16,755,636 24,779,089
============= ============= ============= =============
Basic income (loss) per share
$ (0.08) $ 0.06 $ (0.15) $ 0.06
============= ============= ============= =============
Diluted income (loss) per share $ (0.08) $ 0.04 (0.15) $ 0.04
============= ============= ============= =============
</TABLE>
The effect of potentially dilutive securities has not been included for the
three and six month periods ended June 30, 1999, because their effect would be
anti-dilutive.
NOTE 3: COMPREHENSIVE INCOME
Total non-stockholder changes in equity include all changes in equity
during a period except those resulting from investments by and distributions to
stockholders. Total comprehensive income for the three month and six month
periods ended June 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $ (1,250,167) $ 1,000,050 $ (2,432,686) $ 1,008,776
Foreign currency translation gain
(loss) (25,557) 13,376 11,446 4,042
-------------- -------------- -------------- --------------
Total comprehensive income (loss) $ (1,275,724) $ 1,013,426 $ (2,421,240) $ 1,012,818
============== ============== ============== ==============
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
NOTE 4: SEGMENT INFORMATION
The Company manages its business segments primarily along two lines of
business, Field Services and Management Services. Field Services comprises all
services that are typically performed out of the Company's regional offices by
field technicians operating from the Company's fleet of rolling stock.
Management Services comprises all Compliance Management Services, International,
Remote Monitoring, Maintenance Management and Construction Services. These
services are primarily "back office" functions whereby the Company manages
customers' information, oversees compliance or construction projects or performs
technology licensing. These services are primarily performed out of the
Company's corporate office in Texas (Compliance Management, Remote Monitoring,
International) or offices in California (Maintenance Management) and Georgia
(Construction Management).
The accounting policies of the two segments are the same as those described
in the "Summary of Significant Accounting Policies" in Note 1 to the 1998
financial statements. The Company evaluates the performance of its segments
based on segment profit. Segment profit is defined as segment revenues less
those direct costs associated with the operations and does not include
depreciation, amortization, interest expense, income taxes or certain corporate
expenses that are managed outside the reportable segment such as the costs of
the finance, marketing, information technology, legal, executive management and
national sales groups. The Company does not allocate and manage its assets by
segment. Accordingly, the Company considers all assets to be corporate assets
and as such no allocation of assets has been made.
Summary information by segment as of and for the three and six month
periods ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Field Services:
Segment revenues $ 18,613,675 $ 21,866,331 $ 8,734,580 $ 12,623,215
Segment profit 3,472,474 5,500,986 1,555,581 3,465,287
Management Services:
Segment revenues 6,271,885 5,431,158 3,360,045 2,960,092
Segment profit $ 164,636 $ 984,787 $ 246,308 $ 540,313
</TABLE>
A reconciliation of the Company's segment revenues and segment profit to
the corresponding consolidated amounts as of and for the three and six month
periods ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Segment revenues: $ 24,885,560 $ 27,297,489 $ 12,094,625 $ 15,583,307
Field Services revenues
from Management
Services (484,140) (190,060) (273,665) (173,826)
-------------- -------------- -------------- --------------
Consolidated revenues $ 24,401,420 $ 27,107,429 $ 11,820,960 $ 15,409,481
============== ============== ============== ==============
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
--------------------------------------- -------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Segment net profit: $ 3,637,110 $ 6,485,773 $ 1,801,889 $ 4,005,600
Corporate expenses (4,049,971) (3,278,059) (1,938,962) (1,864,585)
Depreciation and
amortization (1,544,894) (1,435,403) (792,064) (744,616)
Interest income 31,187 61,796 1,852 29,776
Interest expense (861,373) (796,339) (396,661) (400,822)
Other income/expense 64,615 4,905 11,199 4,194
Income taxes 290,640 (33,897) (62,580) (29,497)
Extraordinary gain -- -- -- --
------------------ ------------------ ----------------- -----------------
Net Income (Loss) $ (2,432,686) $ 1,008,776 $ (1,375,327) $1,000,050
================== ================== ================= =================
</TABLE>
NOTE 5: COMMITMENTS AND CONTINGENCIES
Veeder-Root Company and DH Holdings Corp.
On February 8, 1999, the Company invoked the dispute resolution provision
of the Distribution, Services and Marketing Agreement, dated as of December 23,
1997, by and between the Company and Veeder-Root Company (the "DSM Agreement").
In response to the Company's notice, on February 12, 1999, Veeder-Root Company's
counsel advised the Company's counsel that DH Holdings and Veeder-Root Company
may have certain claims against the Company and that Veeder-Root Company
intended to invoke the dispute resolution provisions of the DSM Agreement. On
April 14, 1999, the Company filed a demand for arbitration in which it sought an
interpretation of the DSM. In response to the Company's filing, Veeder- Root
Company filed an answer and counterclaims regarding both declaratory judgement
matters and allegations for damages. On July 22, 1999, the arbitration panel
entered an order confirming that the Company's requested interpretation was
correct. This order effectively rejected one of Veeder-Root's counterclaims. The
remaining Veeder-Root claims are pending further proceedings. The Company
believes that the result of these arbitration proceedings with Veeder-Root
Company will not have a significant adverse effect on the balance sheet at June
30, 1999, or the results of operations for the period ended June 30, 1999.
Additionally, the Company believes any potential claims DH Holdings Corp.
may have regarding the Note, Preferred Stock and Warrant Purchase Agreement,
dated as of December 23, 1997, and the associated Note Payable, Preferred Stock
and Warrants will not have a significant adverse effect on the balance sheet at
June 30,1999, or the results of operations for the period ended June 30, 1999.
Gilbarco Note
In November 1995, in consideration of the assignment of certain Gilbarco
patents, the Company entered into a note to pay Gilbarco an additional $300,000.
The $300,000 note was outstanding at December 31, 1998 and was due in October
2000. In the first quarter of 1999, the Company entered into an agreement to
reassign the patents back to Gilbarco in exchange for the note and the accrued
interest thereon. The Company recorded a small gain from the sale of these
patents in the first quarter 1999.
There have been no material changes in the information reported as of
December 31, 1998, as reported on Form 10-KSB in Footnote 11 accompanying the
audited financial statements.
Revolving Line of Credit
During April 1999, the Company renegotiated certain terms of the Revolving
Line of Credit to increase the maximum borrowings from $9 million to $12.5
million. The expiration date of the facility is December 31, 2000. This $3
million increase in the revolving line of credit will not be effective until
approved by DH Holdings Corp. which, as of the date of this filing, has not been
received.
There have been no material changes in the information reported as of
December 31, 1998, as reported on Form 10-KSB in Footnote 11 accompanying the
audited financial statements.
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Tanknology-NDE International, Inc. and Subsidiaries
NOTE 6: 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 and six month periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
------------------------------- -------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues .............................. 100% 100% 100% 100%
Cost of Sales ......................... 98% 73% 92% 74%
-------------- -------------- -------------- --------------
Gross Margin .......................... 2% 27% 8% 26%
Selling, General and Administrative ... 9% 18% 16% 19%
-------------- -------------- -------------- --------------
Operating Income (Loss) ............... (7)% 9% (8)% 7%
Other Income (Expense) ................ (3)% (3)% (3)% (3)%
Net Income (Loss) Before Provision for (10)% 6% (11)% 4%
Income Taxes...........................
Provision for Income Taxes ............ 0% -- 1% --
Net Income (Loss) ..................... (10)% 6% (10)% 4%
============== ============== ============== ==============
</TABLE>
Revenues
Revenues for the three months ended June 30, 1999 were $11,820,947 compared
to $15,409,481 in the 1998 period, a decrease of $3,588,534 or 23%. For the six
months ended June 30, 1999, revenues were $24,401,420 compared to $27,107,429 in
the 1998 period, a decrease of $2,706,009, or 10%. The decrease in revenues from
1998 is primarily due to the decrease in demand for the Company's Underground
Storage Tank (UST) services. These services were in great demand during 1998 due
to the December 22, 1998 deadline set by the Environmental Protection Agency
that required UST facilities to be tested and upgraded by the deadline. Most of
the carryover work associated with the deadline was completed during the first
quarter of 1999. In an effort to increase revenues, the Company is now focusing
its efforts on increasing productivity and sales in new and existing service
areas..
Cost of Services
Cost of services for the three months ended June 30, 1999 were $11,527,803
or 98 % of revenue compared to $11,209,129 or 73 % of revenue in 1998, an
increase of $ 318,674, or 3%. Gross margin was $293,144 or 2 % of revenue for
1999, compared to $4,200,352 or 27 % of revenue for 1998. The decrease in gross
margin percentage is largely due to the 23% drop in revenues over the prior
period. The sharp decrease in revenues was caused by the drop in demand for the
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<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Company's Underground Storage Tank (UST) services. The increase in cost of
services was primarily due to a change in product mix and under utilization of
fixed costs in the second quarter of 1999. The Company had brought more capacity
online over the last six months of 1998 to keep pace with the demand for the
Company's Underground Storage Tank (UST) which resulted in an increase in cost
of services. The Company has implemented a plan during the quarter to cut fixed
costs and reduce day to day expenses.
For the six months ended June 30, 1999, cost of services totaled
$22,357,495 or 92% of revenues compared to $20,214,363 or 75% of revenues in the
1998 period, an increase of $2,143,132 or 11%. Gross margin was $2,043,925 or 8%
of revenue in 1999, compared to $6,893,066 or 25% of revenue in 1998. The
decrease in gross margin percentage is largely due to the 10% drop in revenues
over the prior period while Costs of Services increased by 11% over the prior
period. The decrease in revenues was the result of a drop in demand for the
Company's Underground Storage Tank (UST) services. The increase in cost of
services was primarily due to a change in product mix and under utilization of
fixed costs in the first quarter of 1999, which had been increased over the last
six months of 1998 to keep pace with the demand for the Company's Underground
Storage Tank (UST) services. The Company has implemented a plan to cut fixed
costs and reduce day to day expenses.
Selling, General and Administrative
Selling, general, and administrative expense for the three months ended
June 30 1999 was $1,097,121 or 9% of revenue compared to $2,803,953 or 18% of
revenue, a decrease of $1,706,832 or 61% compared to the three months ended June
30, 1998. For the six months ended June 30, 1999, selling, general, and
administrative expenses were 4,001,680 or 16% of revenue compared to $5,120,755
in 1998 or 19% of revenue, a decrease of $1,119,075 or 22% compared to the 1998
period. The decrease in selling, general, and administrative expenses is due to
the on-going effort of the Company to cut fixed costs and reduce overall
operational costs. Reduction in costs included reduction in workforce, the
closing of administrative offices, and renegotiation of contracts with vendors
and service providers.
Earnings before Depreciation, Amortization, Interest and Taxes (EBITDA)
For the three months ended June 30, 1999, EBITDA was $(714) or 0% of
revenues compared to $2,141,016 or 14% of revenues in 1998. The decrease in
EBITDA, was primarily due to the increased in cost of services and the decrease
in revenues in the 2nd quarter of 1999 compared to the 2nd quarter of 1998. The
Company believes that EBITDA is an important measure of the Company's financial
performance as it is an indication of the funds generated by operations
available for debt service, capital expenditures and payment of taxes. It is
commonly used to analyze and compare companies on the basis of operating
performance, leverage and liquidity. However, EBITDA is not intended to be a
performance measure that should be regarded as an alternative to, or more
meaningful than, either operating income or net income as an indicator of
operating performance or cash flows as a measure of liquidity, as determined in
accordance with generally accepted accounting principles. Also, EBITDA, as
computed by the Company, is not necessarily comparable to similarly titled
amounts of other companies.
For the six months ended June 30, 1999, EBITDA was ($348,246) or 1% of
revenues compared to $3,207,714 or 12% of revenues in 1998. The decrease in
EBITDA, was primarily due to the increased in cost of services and the decrease
in revenues in the first half of 1999 compared to the first half of 1998.
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<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Interest Expense
Interest expense for the three months ended June 30, 1999 was $396,661 or
3% of revenue compared to $400,822 or 3% of revenue in 1998, a decrease of
$4,161 or 1%. The increase in interest expense is due to to the increase in the
average amount outstanding on the line of credit compared to the same prior year
period.
For the six months ended June 30, 1999, interest expense was $861,373 or 4%
of revenue compared to $796,339 or 3% of revenue in 1998, an increase of $65,034
or 8%.
Net Income (Loss)
For the three months ended June 30, 1999, the Company had a net loss of
($1,187,587) before preferred stock dividend requirements compared to a net
income of $1,029,547 in 1998 for the same period, a decrease of $2,217,134. The
decrease in net income was primarily due to a 23% decrease in revenues over the
same prior period while cost of sales increased by 3% over the prior period.
For the six months ended June 30, 1999, the Company had net loss of
($2,432,686) before preferred stock dividend requirements compared to a net
income of 1,008,776 in 1998, a decrease in net income of $3,441,462. The
decrease in the net income was primarily due to the decrease in revenues and
increase in cost of sales in the first six months of 1999 compared to the first
six months of 1998. To mitigate increased losses in future quarters, the Company
has implemented cost cutting programs to reduce operating costs. The Company is
also offering new and upgraded services to its customers which can potentially
generate future revenues.
Liquidity and Capital Resources
At June 30, 1999, the Company had working capital of $5,444,230 compared to
working capital of $7,026,139 at December 31, 1998. Cash used in operating
activities totaled $8,453 for the six months ended June 30, 1999 compared to
cash provided by operating activities of $1,629,397 in 1998. The cash provided
by operating activities for the six months ended June 30, 1999 decreased due to
the decrease in net income while operating costs increased over the same period
of the prior year.
Cash used in investing activities (consisting primarily of capital
expenditures) totaled $1,180,315 for the six months ended June 30, 1999 compared
to cash used in investing activities of $1,877,431 in the 1998 period.
At June 30, 1999, the Company had outstanding long-term debt (including
current maturities) of $18,258,392 compared to $20,586,734 at December 31, 1998.
Required term-loan principal repayments of $600,000, a net $1,100,000 repayments
on the revolving credit line and net other debt repayments of $328,343 were made
during the first two quarters of the year. At June 30, 1999, the Company had
$1,045,377 available for additional borrowing under its revolving credit
agreement. As of June 30, 1999, the Company was in compliance with the financial
debt covenants related to its long-term financing agreements.
- 13 -
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company's
computer equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
Tanknology has undertaken various initiatives intended to ensure that its
computer equipment and software will function properly with respect to dates in
the year 2000 and thereafter. For this purpose, the term "computer equipment and
software" includes systems that are commonly thought of as information
technology ("IT") systems, including accounting, data processing, and
telephone/PBX systems, scanning equipment and other miscellaneous systems, as
well as systems that are not commonly thought of as IT systems, such as alarm
systems, fax machines or other miscellaneous systems. Both IT and non-IT systems
may contain imbedded technology, which complicates the Company's Year 2000
identification, assessment, remediation and testing efforts. Based upon its
identification and assessment efforts to date, the Company believes that certain
of the computer equipment and software it currently uses will require
replacement or modification. In addition, in the ordinary course of replacing
computer equipment and software, the Company attempts to obtain replacements
that it believes are Year 2000 compliant. Utilizing both internal and external
resources to identify and assess needed Year 2000 remediation, the Company
currently anticipates that its Year 2000 identification, assessment,
remediation, and testing efforts, which began in February 1998, will be
completed by September 30, 1999, and that such efforts will be completed prior
to any currently anticipated impact on its computer equipment and software. The
Company estimates that as of June 30, 1999, it had completed approximately 90%
of the initiatives that it believes will be necessary to fully address potential
Year 2000 issues relating to its computer equipment and software. The projects
comprising the remaining 10% of the initiatives are in process and expected to
be completed on or about September 30, 1999.
The company is currently evaluating field service equipment, test equipment
and gauges at remote sites for Year 2000 compliance. The company's Year 2000
identification, assessment, remediation, and testing efforts will include the
current and future evaluation of all products, equipment and gauges used in the
field.
The Company's primary systems are at less risk of date related problems
due, primarily, to the fact that the average age of the systems is less than 5
years and were developed to operate beyond the year 2000.
PERCENT
YEAR 2000 INITIATIVE TIME FRAME COMPLETE
- ----------------------------------------------- ------------- -----------
Initial IT systems identification and
assessment..................................... 2/98-12/98 100%
Remediation and testing regarding
central system issues.......................... 8/98-9/99 95%
Remediation and testing regarding
departmental system issues..................... 10/98-9/99 95%
- 14 -
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
PERCENT
YEAR 2000 INITIATIVE TIME FRAME COMPLETE
- ----------------------------------------------- ------------- -----------
Remediation and testing regarding tank
testing and truck equipment system issues...... 11/98-9/99 75%
Remediation and testing regarding
telephone/PBX.................................. 11/98-12/98 100%
Electronic data interchange trading
partner conversions............................ 10/98-4/99 100%
Identification, assessment, remediation,
and testing regarding desktop and
individual system issues....................... 10/98-4/99 100%
Identification and assessment regarding
non-IT system issues........................... 8/98-9/99 95%
Remediation and testing regarding non-
IT system issues............................... 10/98-9/99 95%
The Company has also mailed letters to its significant vendors and service
providers and has verbally communicated with strategic customers to determine
the extent to which interfaces with such entities are vulnerable to Year 2000
issues and whether the products and services purchased from or by such entities
are Year 2000 compliant.
The Company believes that the cost of its Year 2000 identification,
assessment, remediation and testing efforts, as well as currently anticipated
costs to be incurred by the Company with respect to Year 2000 issues of third
parties, will not exceed $150,000, which expenditures will be funded from
operating cash flows. All of the $150,000 relates to analysis, repair or
replacement of existing software, upgrades to existing software, or evaluation
of information received from significant vendors, service providers or
customers. The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's results of operations or adversely affect the Company's
relationships with customers, vendors or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on the Company's systems or results of operations.
The Company has completed a comprehensive analysis of the operational
problems that would be reasonably likely to result from the failure by the
Company and certain third parties to complete efforts to achieve Year 2000
compliance on a timely basis. A contingency plan has been developed for dealing
with the most reasonably likely worst case scenarios.
The Company has engaged an independent expert to evaluate its Year 2000
identification, assessment, remediation, and testing efforts.
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
- 15 -
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Securities Exchange 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 15 "Management's Discussion and
Analysis or Result of Operations" for the fiscal year ended December 31, 1998.
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed herewith:
No. Exhibit
--------- -----------------------------------------------
27.01 Selected Financial Data
Reports on Form 8-K:
None.
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tanknology-NDE International, Inc.
(Registrant)
Date: August 16, 1999 /s/ T. PETER DeWEESE, JR.
------------------------------------------
Vice President and Chief Financial Officer
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Tanknology-NDE International, Inc. financial statements as of and for the period
ended June 30, 1999.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 128,117
<SECURITIES> 0
<RECEIVABLES> 13,923,244
<ALLOWANCES> 1,514,928
<INVENTORY> 1,237,085
<CURRENT-ASSETS> 14,321,133
<PP&E> 22,543,022
<DEPRECIATION> 14,714,132
<TOTAL-ASSETS> 25,892,077
<CURRENT-LIABILITIES> 8,876,903
<BONDS> 15,565,974
1,500,000
0
<COMMON> 1,677
<OTHER-SE> (191,435)
<TOTAL-LIABILITY-AND-EQUITY> 25,892,077
<SALES> 24,401,420
<TOTAL-REVENUES> 24,401,420
<CGS> 22,357,495
<TOTAL-COSTS> 26,359,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 861,373
<INCOME-PRETAX> (2,723,326)
<INCOME-TAX> 290,640
<INCOME-CONTINUING> (2,432,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,432,686)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
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