Tanknology-NDE International, Inc. and Subsidiaries
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(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, 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 March 31, 1999
-------------- -----------------------------------
Common 16,774,940
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Tanknology-NDE International, Inc. and Subsidiaries
The undersigned registrant hereby amends the following items, financial
statements, Notes to Condensed Consolidated Financial Statements (Unaudited),
and Management's Discussion and Analysis of Financial Condition and Results of
Operations of its Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999 as set forth in the pages attached hereto:
Condensed Consolidated Balance Sheet is hereby amended and replaced in
its entirety to reflect a change of the period covered by the Goodwill, net
of accumulated amortization and Patents, licenses and other intangible
assets, net of accumulated amortization.
Condensed Consolidated Statements of Operations and Condensed
Consolidated Statements of Cash Flows are hereby included in their entirety
without change.
Notes to Condensed Consolidated Financial Statements (Unaudited) is
hereby amended and replaced in its entirety to reflect a change in period
of the reconciliation of the Company's segment revenues and segment profit
to the corresponding consolidated amounts and a correction of the effective
date of the Note, Preferred Stock and Warrant Purchase Agreement with DH
Holdings Corp.
Item 2-Management's Discussion and Analysis of Financial Condition and
Results of Operations is hereby amended and replaced in its entirety to
reflect changes in the paragraphs titled "Results of Operations", "Cost of
Services", and "Selling, General and Administrative", and to correct an
error in the paragraph titled "Net Income (Loss)."
TANKNOLOGY-NDE INTERNATIONAL, INC.
(Registrant)
Date: May 21, 1999 /S/ A. DANIEL SHARPLIN
----------------- -------------------------------------
A. Daniel Sharplin
President and Chief Financial Officer
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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
March 31, 1999 (Unaudited) and December 31, 1998 ............4
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1999 and March 31, 1998.........5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1999 and March 31, 1998.........6
Notes To Condensed Consolidated Financial Statements (Unaudited)......7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................11
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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>
March 31, 1999 December 31, 1998
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and equivalents............................................... $ 178,055 $ 416,189
Trade accounts receivable, less allowance for doubtful accounts of
$1,374,699 at March 31, 1999 and
$1,798,044 at December 31, 1998........................... 13,093,531 18,071,273
Inventories........................................................ 1,216,332 1,218,271
Prepaid expenses and other current assets.......................... 356,054 521,909
-------------- -----------------
Total Current Assets...................................... 14,843,972 20,227,642
Restricted cash.................................................... 3,000,000 3,000,000
Equipment and improvements, net of accumulated depreciation of
$14,039,656 at March 31, 1999 and
$13,470,663 at December 31, 1998.......................... 7,983,012 8,109,097
Goodwill, net of accumulated amortization of $166,605 at
March 31, 1999 and $125,442 at December 31, 1998........ 2,359,953 2,401,115
Patents, licenses and other intangible assets, net of accumulated
amortization of $1,513,686 at March 31, 1999 and
$1,527,761 at December 31, 1998......................... 784,522 1,070,446
Deferred financing costs, net...................................... 617,198 674,531
-------------- -----------------
Total Assets.............................................. $ 29,588,657 $ 35,482,831
============== =================
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Accounts payable .................................................. $ 2,247,555 $ 4,874,180
Accrued liabilities................................................ 1,508,067 1,649,020
Accrued payroll and payroll taxes.................................. 2,602,127 4,363,312
Current portion of long-term debt.................................. 2,746,773 2,314,991
-------------- -----------------
Total Current Liabilities................................. 9,104,522 13,201,503
Long Term Debt, less current portion .............................. 17,687,623 18,271,743
Deferred License Revenue........................................... 173,047 207,135
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 March 31, 1999
and 16,735,040 shares at December 31, 1998.............. 1,677 1,674
Warrants...................................................... 321,000 321,000
Additional paid-in capital.................................... 27,699,900 27,733,366
Accumulated deficit........................................... (26,938,025) (25,755,500)
Cumulative foreign currency translation adjustment............ 38,913 1,910
-------------- -----------------
1,123,465 2,302,450
-------------- -----------------
Total Liabilities, Redeemable Convertible Preferred Stock
and Stockholders' Deficit............................ $ 29,588,657 $ 35,482,831
============== =================
<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, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues .................................................. $ 12,580,473 $ 11,697,947
Cost of services .......................................... 10,829,692 9,005,243
-------------- --------------
Gross Margin ..................................... 1,750,781 2,692,704
Selling, general and administrative ....................... 2,904,559 2,316,802
-------------- --------------
Operating Income (Loss) .......................... $ (1,153,778) $ 375,902
Other income (expense):
Interest income ................................... 29,335 32,020
Interest expense .................................. (464,712) (395,517)
Other income (expense), net ....................... 53,416 711
-------------- --------------
Net Income (Loss) Before Provision for Income Taxes (1,535,739) 13,116
Benefit (Provision) for income taxes ..................... 353,220 (4,400)
-------------- --------------
Net Income (Loss) ................................ (1,182,519) 8,716
Less - Preferred stock dividends ......................... (37,500) (37,500)
Net Loss Available to Common Stockholders ........ $ (1,220,019) $ (28,784)
============== ==============
Basic and Diluted Loss per Share ................ $ (0.07) $ --
============== ==============
Weighted Average Number of Shares Outstanding .... 16,739,151 16,044,166
============== ==============
<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, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ....................................... $(1,182,519) $ 8,716
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by
Operating Activities
Depreciation and amortization ........................... 752,830 690,787
Amortization of discounts and financing costs ........... 57,333 69,161
Deferred license revenue earned ......................... (34,088) (45,833)
Gain on sale of patent .................................. (95,000) --
Other ................................................... 37,003 (9,334)
Changes in Operating Assets and Liabilities
Trade accounts receivable ............................... 4,977,742 147,774
Inventories ............................................. 1,937 (116,200)
Prepaid expenses and other current assets ............... 165,855 373,368
Accounts payable ........................................ (2,626,625) (66,556)
Accrued liabilities ..................................... (140,953) 150,694
Accrued payroll and payroll taxes ....................... (1,761,185) (34,778)
-------------- --------------
Net cash provided in operating activities ............... 152,330 1,167,799
Cash Flows from Investing Activities
Additions to equipment and improvements ................. (504,657) (641,094)
-------------- --------------
Net cash used in investing activities ................... (504,657) (641,094)
Cash Flows from Financing Activities
Net activity in revolving line of credit ................ 650,000 (42,667)
Preferred stock dividends ............................... (37,500) (37,500)
Proceeds from issuance of common stock .................. 4,031 --
Proceeds from long-term debt ............................ 141,949 --
Payments on long-term debt .............................. (644,287) (496,502)
Deferred financing costs ................................ -- (143,663)
-------------- --------------
Net cash provided by (used in) financing activities ..... 114,193 (720,332)
Net decrease in cash and equivalents .................... (238,134) (193,627)
Cash and equivalents at beginning of period ............. 416,189 193,627
Cash and equivalents at end of period ................... 178,055 --
============== ==============
</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, 1999 and 1998 contain
all adjustments, consisting of only normal recurring accruals, necessary to
present fairly the financial position of the Company as of March 31, 1999 and
1998 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, 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:
Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Numerator:
Net income (loss) ................... $ (1,182,519) $ 8,716
Preferred stock dividends ........... (37,500) (37,500)
-------------- --------------
Numerator for basic income (loss) per
share -income available to common
shareholders ........................ (1,220,019) (28,784)
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Tanknology-NDE International, Inc. and Subsidiaries
Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Denominator:
Denominator for basic income (loss) per
share - weighted-average shares ....... 16,739,151 16,044,166
Effect of dilutive securities:
Stock options ......................... -- --
Warrants .............................. -- --
Convertible preferred stock ........... -- --
-------------- --------------
Dilutive potential common shares ...... -- --
Denominator for diluted earnings (loss)
per share - adjusted weighted- average
shares and assumed conversions ....... -- --
============== ==============
Basic income (loss) per share ......... $ (0.07) $ --
============== ==============
Diluted income (loss) per share ....... $ (0.07) $ --
============== ==============
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 periods ended March
31, 1999 and 1998 was as follows:
Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Net income (loss) ...................... $ (1,220,019) $ (28,784)
Foreign currency translation gain (loss) 37,003 (9,334)
-------------- --------------
Total comprehensive income (loss) ...... $ (1,183,016) $ (38,118)
============== ==============
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
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Tanknology-NDE International, Inc. and Subsidiaries
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 periods ended March 31,
1999 and 1998 is as follows:
1999 1998
---------------- ---------------
Field Services:
Segment revenues ................... $ 9,879,106 $ 9,243,113
Segment profit ..................... 1,916,892 2,035,691
Management Services:
Segment revenues ................... 2,911,842 2,471,067
Segment profit (loss) .............. $ (81,676) $ 444,474
A reconciliation of the Company's segment revenues and segment profit to
the corresponding consolidated amounts as of and for the quarters ended March
31, 1999 and 1998 is as follows:
1999 1998
---------------- ---------------
Segment revenues: ...................... $ 12,790,948 $ 11,714,180
Field Services revenues from
Management Services .................... (210,475) (16,233)
---------------- ---------------
Consolidated revenues .................. $ 12,580,473 $ 11,697,947
================ ===============
1999 1998
---------------- ---------------
Segment net profit: ...................... $ 1,835,216 $ 2,480,165
Corporate expenses ....................... (2,236,164) (1,413,476)
Depreciation and amortization ............ (752,830) (690,787)
Interest income .......................... 29,335 32,020
Interest expense ......................... (464,712) (395,517)
Other income/expense ..................... 53,416 711
Income taxes ............................. 353,220 (4,400)
Extraordinary gain ....................... -- --
---------------- ---------------
Net Income ............................... $ (1,182,519) $ 8,716
================ ===============
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Tanknology-NDE International, Inc. and Subsidiaries
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. 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 March 31, 1999, or the
results of operations for the period ended March 31, 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
March 31,1999, or the results of operations for the period ended March 31, 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.
NOTE 6: IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
None.
NOTE 7: SUBSEQUENT EVENTS
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.
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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, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues ................................................. 100% 100%
Cost of Sales ............................................ 86% 77%
-------------- --------------
Gross Margin ............................................. 14% 23%
Selling, General and Administrative ...................... 23% 20%
-------------- --------------
Operating Income ( Loss) ................................. (9)% 3%
Other Income (Expense) ................................... (3)% (3)%
Net Income (Loss) Before Provision for Income Taxes ...... (12)% --
Provision for Income Taxes ............................... 3% --
Net Income (Loss) ........................................ (9)% --
============== ==============
</TABLE>
Revenues
Revenues for the three months ended March 31, 1999 were $12,580,473
compared to $11,697,947 in the 1998 period, an increase of $882,526, or 8%. The
increase in revenues from 1998 is primarily due to the following factors; (i)
revenues of $373,246 generated by the Maintenace Management Division which did
not begin operations until the third quarter of 1998, (ii) an increase of 61% in
Compliance Management Services revenue, and (iii) an over 42% increase in
cathodic protection installation, maintenance, repair and inspection revenues.
Cost of Services
Cost of services for the three months ended March 31, 1999 were $10,829,692
or 86% of revenue compared to $9,005,243 or 77% of revenue in 1998, an increase
of $1,824,449, or 20%. Gross margin was $1,750,781 or 14% of revenue for 1998,
compared to $2,692,704 or 23% of revenue for 1998. The decrease in gross margin
percentage is largely due to the increase in cost of services in 1998 which were
sustained in the first quarter of 1999. During the first quarter of 1999 the
company realized a 44% drop in revenues compared to the fourth quarter of 1999.
Cost of services decreased disproportionately by 29% in first quarter of 1999
when compared to the fourth quarter of 1998. This was primarily due to under
absorption 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. These services were in great demand 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.
Management has implemented a plan to cut fixed costs and reduce day to day
expenses.
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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, 1999 was $2,904,559 or 23% of revenue compared to $2,316,802 or 20% of
revenue, an increase of $587,757 or 25% compared to the three months ended March
31, 1998. The increase in selling, general, and administrative expenses is due
to the addition of sales and administrative resources to support the anticipated
growth in revenue and to support an increase in the varieties of services
offered.
Earnings before Depreciation, Amortization, Interest and Taxes (EBITDA)
For the three months ended March 31, 1999, EBITDA was $(347,532) or (3)% of
revenues compared to $1,066,689 or 9% of revenues in 1998. The decrease in
EBITDA, was primarily due to the increased cost of services in the first quarter
of 1999 compared to the first 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.
Interest Expense
Interest expense for the three months ended March 31, 1999 was $464,712 or
4% of revenue compared to $395,517 or 3% of revenue in 1998, an increase of
$69,195 or 17%. The increase in interest expense is due to to the increase in
the amount outstanding on the line of credit compared to the same prior year
period.
Net Income (Loss)
For the three months ended March 31, 1999, the Company had a net loss of
$(1,182,519) before preferred stock dividend requirements compared to a net
income of $8,716 in 1998 for the same period, a decrease of $(1,191,235). The
decrease in net income (loss) was primarily due to the increase of cost of
services in the first quarter of 1999 compared to the first quarter of 1998 and
to the lower than expected level of first quarter revenues.
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of $5,739,450 compared
to working capital of $7,026,139 at December 31, 1998. Cash provided by
operating activities of $152,330 for the three months ended March 31, 1999
decreased by $1,015,469 as compared to Cash provided by operating activities of
$1,167,799 in 1998. Collections on accounts receivables of $4,977,742 during the
first quarter were used to pay down accounts payable and accrued liabilities.
Cash used in investing activities (consisting solely of capital
expenditures) totaled $504,657 for the three months ended March 31, 1999
compared to cash used for capital expenditures of $641,094 in the 1998 period.
At March 31, 1999, the Company had outstanding long-term debt (including
current maturities) of $20,434,396 compared to $20,586,734 at December 31, 1998.
Required term-loan principal repayments of $300,000, a net $650,000 addition on
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Tanknology-NDE International, Inc. and Subsidiaries
the revolving credit line and net other debt repayments of $202,338 were made
during the quarter. At March 31, 1999, the Company had $1,525,000 available for
additional borrowing under its revolving credit agreement. As of March 31, 1999,
the Company was in compliance with the financial debt covenants related to its
long-term financing agreements.
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 June 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 March 31, 1999, it had completed approximately 30% 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 70% of the initiatives are in process and expected to
be completed on or about June 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................. 8/98-5/99 85%
Remediation and testing regarding
departmental system issues............ 10/98-4/99 90%
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Tanknology-NDE International, Inc. and Subsidiaries
PERCENT
YEAR 2000 INITIATIVE TIME FRAME COMPLETE
-------------------------------------- ------------ ------------------
Remediation and testing regarding tank
Testing and truck equipment system
issues................................ 11/98-6/99 45%
Remediation and testing regarding
telephone/PBX......................... 11/98-12/98 100%
Electronic data interchange trading
partner conversions................... 10/98-4/99 70%
Identification, assessment, remediation,
and testing regarding desktop and
individual system issues.............. 10/98-4/99 90%
Identification and assessment regarding
non-IT system issues.................. 8/98-4/99 80%
Remediation and testing regarding non-
IT system issues...................... 10/98-6/99 40%
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 not begun 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 not been developed for
dealing with the most reasonably likely worst case scenario, and such scenario
has not yet been clearly identified. The Company currently plans to complete
such analysis and contingency planning by June 30, 1999.
The Company will engage 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
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.
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<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
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.