-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DRrX/r5tsEj/OxZsidBO9EKXUtr8v8wfEbD1klQ++5lVyaRyO2ljBs+EQt70cP2s rngWZaV9iGYU5zi9PeoLHw== 0000867888-96-000015.txt : 19960814 0000867888-96-000015.hdr.sgml : 19960814 ACCESSION NUMBER: 0000867888-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANKNOLOGY ENVIRONMENTAL INC /TX/ CENTRAL INDEX KEY: 0000867888 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 760284783 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18899 FILM NUMBER: 96610492 BUSINESS ADDRESS: STREET 1: 5225 HOLLISTER CITY: HOUSTON STATE: TX ZIP: 77040 BUSINESS PHONE: 7136908265 MAIL ADDRESS: STREET 1: 5225 HOLLISTER CITY: HOUSTON STATE: TX ZIP: 77040 10-Q 1 FORM 10-Q - 2ND QTR SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (mark one) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1996, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file No. 0-18899 Tanknology Environmental, Inc. (Exact name of registrant as specified in its charter) Texas 76-0284783 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5225 Hollister 77040-6294 Houston, Texas (Zip Code) (Address of principal executive office) Registrant's telephone number, including area code: (713) 690-8265 Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Common Stock, par value $0.01 per share, outstanding as of August 1, 1996 was 14,237,012. Page 1 Index to Exhibits appears on page 13 TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES INDEX
Page(s) PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet as of June 30, 1996 (unaudited) and December 31, 1995.................. 3 Condensed Consolidated Statement of Operations for the Three and Six Months Ended June 30, 1996 and 1995 (unaudited)............................................. 4 Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1996 and 1995 (unaudited).... 5 Notes to Consolidated Financial Statements (unaudited).. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................... 13 Item 4. Submission of Matters to a Vote of Security Holders..... 13 Item 6. Exhibits and Reports on Form 8-K........................ 13 PART III. SIGNATURES....................................................... 14
2 PART I FINANCIAL INFORMATION Item 1. Financial Statements TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
June 30, December 31, 1996 1995 ------------ ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents.......................................... $ 16,195,556 $ 14,967,107 Short-term investments ............................................ 1,989,917 3,694,873 Accounts receivable, net .......................................... 4,602,376 5,023,019 Inventories, net .................................................. 244,997 350,275 Current deferred tax asset ........................................ 768,578 576,002 Income tax receivable ............................................. 2,347,320 2,106,678 Other current assets .............................................. 429,952 789,627 ------------ ------------ Total current assets ..................................... 26,578,696 27,507,581 PROPERTY AND EQUIPMENT, NET .......................................... 9,269,087 9,049,510 INTANGIBLE ASSETS, LESS ACCUMULATED AMORTIZATION ..................... 3,576,764 3,765,400 DEFERRED TAX ASSET ................................................... 647,926 872,610 NET ASSETS OF DISCONTINUED OPERATIONS AND OTHER ASSETS ................................................ 1,973,662 1,081,509 ------------ ------------ Total assets....................................................... $ 42,046,135 $ 42,276,610 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable...................................................... $ -- $ 28,939 Accounts payable .................................................. 752,485 1,009,814 Accrued liabilities ............................................... 1,726,976 1,552,564 ------------ ------------ Total current liabilities ................................ 2,479,461 2,591,317 DEFERRED INCOME ...................................................... 10,080 20,160 ------------ ------------ Total liabilities ................................................. 2,489,541 2,611,477 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $.10 par value; 10,000,000 shares authorized; no shares issued and outstanding ..................... -- -- Common stock, $.01 par value; 100,000,000 shares authorized; 15,192,237 and 15,185,237 shares issued at June 30, 1996 and December 31, 1995, respectively ................. 151,922 151,852 Additional paid-in capital ........................................ 33,109,657 33,096,987 Retained earnings ................................................. 10,482,686 10,603,965 Treasury stock at cost, 955,225 shares, at June 30, 1996 and December 31, 1995 ........................................ (4,187,671) (4,187,671) ------------ ------------ Total shareholders' equity ........................................ 39,556,594 39,665,133 ------------ ------------ Total liabilities and shareholders' equity......................... $ 42,046,135 $ 42,276,610 ============ ============ The accompanying notes are an integral part of the consolidated financial statements.
3 TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- ---------------------------- 1995 1995 1996 (Restated) 1996 (Restated) ------------ ------------ ------------ ------------ REVENUES ........................... $ 6,484,464 $ 6,029,079 $ 11,838,405 $ 12,269,009 COST OF SERVICES ................... 3,707,892 4,087,890 7,423,007 7,508,199 ------------ ------------ ------------ ------------ Gross profit .................... 2,776,572 1,941,189 4,415,398 4,760,810 SELLING, GENERAL & ADMINISTRATIVE EXPENSES ........................ 2,592,613 2,587,412 5,014,324 5,348,956 ------------ ------------ ------------ ------------ Income (loss) from operations ... 183,959 (646,223) (598,926) (588,146) OTHER INCOME ....................... 198,294 194,766 482,131 393,091 ------------ ------------ ------------ ------------ Income (loss) from continuing operations before income taxes 382,253 (451,457) (116,795) (195,055) INCOME TAX PROVISION (BENEFIT) ..... 160,412 (216,167) 4,484 (122,684) ------------ ------------ ------------ ------------ Income (loss) from continuing operations ................... 221,841 (235,290) (121,279) (72,371) LOSS FROM DISCONTINUED OPERATIONS .. -- (4,955,980) -- (5,304,484) ------------ ------------ ------------ ------------ Net income (loss) ............ $ 221,841 $ (5,191,270) $ (121,279) $ (5,376,855) ============ ============ ============ ============ Earnings (loss) per share from continuing operations ......... $ 0.02 $ (0.02) $ (0.01) $ (0.01) Loss per share from discontinued operations .................... -- (0.35) -- (0.37) ------------ ------------ ------------ ------------ NET EARNINGS (LOSS) PER SHARE ...... $ 0.02 $ (0.37) $ (0.01) $ (0.38) ============ ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ..................... 14,284,578 14,230,012 14,239,379 14,230,012 ============ ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements.
4 TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Six Months Ended June 30, ---------------------------- 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ............................. $ (121,279) $ (5,376,855) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for disposition of discontinued operations ................ -- 6,375,591 Depreciation and amortization ............ 1,539,617 2,002,203 Net amortization of premiums and discounts on short-term investments .... (65,050) (111,521) Loss on disposal of assets ............... 18,038 -- Deferred income taxes .................... 32,108 47,344 Deferred income .......................... (10,080) (10,080) Change in assets and liabilities: Decrease in accounts receivable, net .... 420,643 2,160,431 Increase in costs and estimated earnings in excess of billings on uncompleted contracts .................. -- (207,370) Decrease in inventories, net ............ 105,278 718,953 Increase in income tax receivable ....... (240,642) (2,146,621) Decrease (increase) in other current assets ................................. 359,675 (30,307) Increase in net assets of discontinued operations ............................. (1,007,655) -- Decrease in accounts payable and accrued liabilities .................... (82,917) (118,032) ------------ ------------ Total adjustments .................... 1,069,015 8,680,591 ------------ ------------ Net cash provided by operating activities ........................... 947,736 3,303,736 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures .......................... (1,548,072) (693,413) Proceeds from the sale of assets .............. 108,443 -- Purchase of short-term investments ............ (2,163,188) (7,142,127) Proceeds from maturities of short-term investments ................................. 3,933,194 7,788,494 Increase in intangible assets ................. (20,725) (92,416) ------------ ------------ Net cash provided by (used in) investing activities .............. 309,652 (139,462) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable ........... (28,939) (32,331) ------------ ------------ Net cash used in financing activities ........................ (28,939) (32,331) ------------ ------------ Net increase in cash and cash equivalents ....................... 1,228,449 3,131,943 ------------ ------------ CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................................... 14,967,107 6,249,636 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ....... $ 16,195,556 $ 9,381,579 ============ ============ The accompanying notes are an integral part of the condensed consolidated financial statements.
5 TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The unaudited condensed consolidated financial statements include the accounts of Tanknology Environmental, Inc. and its wholly owned subsidiaries (the "Company"). The unaudited condensed consolidated financial statements have been prepared consistent with the accounting policies reflected in the audited consolidated financial statements included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 27, 1996, and should be read in conjunction therewith. In management's opinion, the unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of the Company's consolidated financial position at June 30, 1996, the consolidated results of its operations for the three-month and six-month periods ended June 30, 1996 and 1995, and its consolidated cash flows for the six-month periods ended June 30, 1996 and 1995. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. Principles of Consolidation The consolidated financial statements of the Company include the accounts of Tanknology Environmental, Inc. and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Prior year amounts in the consolidated statement of operations and related notes thereto have been restated to reflect the Company's Mankoff, Inc. ("Mankoff") and Engineered Systems, Inc. ("ESI") subsidiaries as discontinued operations as discussed in Note 4. All amounts related to the statement of operations are from continuing operations unless otherwise indicated. Short-Term Investments Short-term investments are those with maturities greater than three months when purchased. The Company has classified all investments as available-for-sale. When purchased, securities are recorded at cost and adjusted for unrealized holding gains and losses due to market fluctuations. Gains and losses are recorded upon the sales of short-term investments based upon the specific identification method. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Reserves are established against inventories for excess, slow moving and obsolete items and for items where net realizable value is less than cost. At June 30, 1996 and December 31, 1995, the inventory reserve balance was $510,480. Income Taxes The provision for income taxes includes federal, foreign, state, and local income taxes currently payable and those deferred because of temporary differences between the financial statements and tax bases of assets and liabilities. The difference between the statutory tax rate and the rate reflected on the statement of operations for each period presented, is due to the nondeductibility of certain expenses. 6 TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued Earnings Per Common Share Primary earnings per share is based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect of stock options or warrants reflected under the treasury stock method. Fully diluted earnings per share are not presented because such amounts would be the same as amounts computed for primary earnings per share. New Accounting Standards Effective January 1, 1996, the Company adopted SFAS No. 121, entitled "Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed of." The effect of this adoption was not material to the Company's financial position or results of operations. The Financial Accounting Standards Board issued SFAS No. 123, entitled "Accounting for Stock- Based Compensation," in October 1995. Effective January 1, 1996, the Company has elected to adopt the disclosure requirements of SFAS No. 123. 2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS: Additional information regarding certain balance sheet accounts at June 30, 1996 and December 31, 1995 is presented below:
June 30, December 31, 1996 1995 ----------- ---------- (unaudited) Other current assets: Interest receivable ...................... $ 29,496 $ 53,800 Prepaid expenses ......................... 194,817 563,641 Employee travel advances ................. 66,604 85,267 Deposits ................................. 17,869 20,219 Other .................................... 121,166 66,700 ---------- ---------- Total other current assets ......... $ 429,952 $ 789,627 ========== ========== Accrued liabilities: Compensation ............................. $ 567,650 $ 630,265 Litigation and claims reserves ........... 761,500 630,000 Other taxes .............................. 87,664 86,019 Other .................................... 310,162 206,280 ---------- ---------- Total accrued liabilities .......... $1,726,976 $1,552,564 ========== ==========
3. NOTES PAYABLE: The Company has a $10 million unsecured revolving credit facility with a bank. The Company is required to maintain certain financial covenants regarding net worth and debt to cash flow. No borrowings were outstanding under such bank credit facility at June 30, 1996. The amounts available under the credit facility are reduced by amounts outstanding under letters of credit issued on behalf of the Company by the same bank. At June 30, 1996, $106,000 was issued under letter of credit agreements. This credit facility matured in July 1996. 7 TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued At December 31, 1995, the Company had outstanding notes payable of $28,939 issued for the financing of insurance premiums. The notes matured in February 1996. 4. DISCONTINUED OPERATIONS: During 1995, the Board of Directors of the Company elected to discontinue operations at its Mankoff and ESI subsidiaries and put the assets of the businesses up for sale. Mankoff's operations were discontinued as of June 30, 1995. Mankoff's revenues were $6,353,000 for the year ended December 31, 1995. Mankoff was sold on December 21, 1995, for $1,500,000 in cash and two twenty-four month non-interest bearing notes receivable totalling $805,000. The purchaser has also assumed the performance of all contract obligations of Mankoff. A provision for loss on disposition of Mankoff of $3,610,000 net of an income tax benefit of $1,892,000 has been recorded as a result of the sale. ESI's operations were discontinued as of December 31, 1995. ESI's revenues were $3,718,000, for the year ended December 31, 1995. A provision for estimated loss on disposition of ESI of $3,715,000, including write-off of goodwill and estimated losses through the expected date of sale, has been recorded net of an income tax benefit of $1,914,000. The amounts the Company will ultimately realize could differ materially from the amounts assumed in arriving at the estimated loss from discontinued operations. The remaining net assets of ESI principally consist of accounts receivable, inventories and property, plant and equipment offset by accrued liabilities including estimated losses through the expected date of sale. The Company will fulfill all contract obligations of ESI unless a buyer of the business assumes performance of its contracts. ESI's operating losses for the six months ended June 30, 1996 totaled $1,352,000 and were netted against the reserve for estimated loss on disposition. 5. COMMON STOCK AND STOCK OPTIONS: On January 1, 1996, the Company issued 7,000 shares of Restricted Stock with a market value of $12,740 to seven directors of the Company, in accordance with its 1991 Nonemployee Director Plan. 6. COMMITMENTS AND CONTINGENCIES: The Company is involved in litigation and routine claims from time to time. Certain of the Company's litigation and claims are covered by insurance with a maximum deductible of $150,000, or in some cases, $200,000. In Management's opinion, the total estimated litigation liability and related insurance claims are not material to the Company's consolidated financial position, results of operations or cash flows. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995 Revenues from continuing operations increased 7.5% to $6,484,000 during the three months ended June 30, 1996 from $6,029,000 during the three months ended June 30, 1995. Cathodic protection service revenues increased by $372,000 from $281,000 during the April-June 1995 period to $653,000 during the same period in the current year as the Company's major corrosion protection customers increased purchases of these systems. Gross profit increased $835,000 to $2,776,000 during the second three months of 1996 from $1,941,000 during the second quarter of 1995. When measured as a percentage of revenues, the gross margin improved to 42.8% in 1996 from 32.2% in 1995. Such gross profit increase and gross margin improvement are principally the result of higher revenues during the 1996 period compared to 1995, as well as inventory write downs during the second quarter of 1995 totalling $420,000 due to the Company's decision to abandon certain leak detection techniques. The increase in revenues is primarily due to the increase in cathodic protection revenues coupled with increased sales of other testing services provided by the Company. Selling, general and administrative expenses remained relatively flat, increasing from $2,587,000 during the second quarter of 1995 to $2,593,000 during the same period in the current year. Other income and expense increased to $198,000 during the April-June 1996 quarter from $195,000 in the prior year period. During the second three months of 1995, the Company's discontinued operations of Mankoff, Inc. and Engineered Systems, Inc. recorded losses totalling $4,956,000. The assets of Mankoff were sold in December of 1995, while Engineered Systems is currently owned by Tanknology but is treated as a discontinued operation. The Company reported no income or loss from discontinued operations during the second three months of 1996, as estimated losses through the expected date of sale were previously accrued. During the three months ended June 30, 1996, the Company earned $222,000 (3.4% of revenues) from continuing operations compared to a loss of $235,000 (3.9% of revenues) for the three months ended June 30, 1995. After consideration of losses from discontinued operations, the Company recorded a net loss of $5,191,000 during the second quarter of 1995. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Revenues from continuing operations declined 3.5% from $12,269,000 during the first six months of 1995 to $11,838,000 during the six months ended June 30, 1996. Underground storage tank ("UST") testing service revenues declined by $680,000 to $9,569,000 during the first two quarters of 1996 from $10,249,000 during the same period in 1995. The number of USTs tested using the Company's VacuTect process dropped to 13,670 during the first half of 1996 from 15,599 during the prior year period, primarily due to a change in method of compliance with EPA regulations to monthly monitoring of tanks rather than annual tightness testing by some owners and operators of USTs, as well as a dwindling number of USTs in service that require release detection. Revenues declined to $1,931,000 during the January-June 1996 period from $2,103,000 during the same period in 1995 at the Company's USTMAN subsidiary, principally due to the sale of a license 9 that occurred during the 1995 first quarter and was not repeated in the current year. Revenues from cathodic protection services increased $346,000 to $1,165,000 during the first two quarters of 1996 from $819,000 during the comparable period in 1995 as the Company's major corrosion protection customers increased purchases of these systems. Gross profit fell $346,000 to $4,415,000 during the first six months of 1996 from $4,761,000 during the first two quarters of 1995, mainly due to a revenue decline in UST testing services, but partially offset by a revenue increase in cathodic protection services. Additionally, inventory write downs totalling $420,000 were recorded during the first half of 1995 reflecting the Company's decision to abandon certain leak detection techniques. No such write downs were recorded during the first half of 1996. Selling, general and administrative expenses declined $335,000 to $5,014,000 during the first two quarters of 1996 from $5,349,000 during the first half of 1995, chiefly due to expense reductions made in the UST testing services area. Other income and expense, consisting mainly of interest earned on the Company's investments, and gains and losses on the disposition of fixed assets grew from $393,000 during the first six months of 1995 to $482,000 during the comparable 1996 period, principally due to an increase in the amount invested during 1996 compared to 1995. During the six months ended June 30, 1996, the Company recorded a net loss from continuing operations of $121,000 (1% of revenues) compared to a net loss of $72,000 (0.6% of revenues) for the six months ended June 30, 1995. After consideration of losses totalling $5,305,000 from the discontinued operations of Mankoff and Engineered Systems, the Company recorded a net loss of $5,377,000 during the first six months of 1995. The Company reported no income or loss from discontinued operations during the first half of 1996, as estimated losses through the expected date of sale were previously accrued. Seasonality The Company experiences certain seasonal fluctuations in its business. Management believes that revenues are weakest in the first fiscal quarter and improve in the second and third quarters, with the peak demand occurring during the fall. Management believes this seasonality is due in part to the yearly phase-in of EPA regulations, which require compliance by December 22 of each year, cold weather conditions during the early months of the year, which inhibit construction activities, and to the internal capital budgeting procedures of the Company's major customers, which entail lower levels of expenditures for environmental services by such customers in the first quarter of each year and higher levels of expenditures during subsequent quarters. Liquidity and Capital Resources At June 30, 1996, the Company had cash, cash equivalents and short-term investments of $18,185,000. Additionally, the Company has a $10 million unsecured revolving credit facility with a bank. The Company is required to maintain certain financial covenants regarding net worth and debt to cash flow. No borrowings were outstanding under such bank credit facility at June 30, 1996, or subsequently. The amounts available under the credit facility are reduced by amounts outstanding under letters of credit issued on behalf of the Company by the same bank. At June 30, 1996, $106,000 was issued under letter of credit agreements. The credit facility matured in July 1996. The Company has made arrangements to extend this credit agreement through September 1996 and is currently evaluating its options for a longer term line of credit commitment. 10 For the six months ended June 30, 1996, net cash flow from operations totaled $948,000 versus $3,304,000 during the same period in 1995. The decline in cash flow resulted principally from a decrease in earnings from continuing operations before interest, taxes, and depreciation of approximately $400,000 and a large reduction of accounts receivable in 1995 that increased cash flow for that period. The decline in prior year accounts receivable is due to a decrease in revenues from continuing operations to $6,949,000 during the second quarter of 1995 from $8,240,000 during the fourth quarter of 1994. Capital expenditures for the first half of 1996 totaled $1,548,000, compared to $693,000 during the first half of the prior year. Expenditures in both periods are mainly for the construction of a new facility that will expand the Company's wastewater treatment capacity at its ERRI subsidiary. Capital expenditures for the next year are expected to be approximately $1,000,000, primarily for the purchase and construction of machinery and the expansion of the Company's wastewater treatment capacity at ERRI. Possible additional expenditures to buy back the Company's Common Stock and to acquire new service technologies are not expected to exceed $10 million during the next year. The Company expects to be able to finance its working capital requirements and future acquisitions during the next 12 months through its cash flow from operations, cash and cash equivalents, short-term investments and bank credit facility. Factors That May Affect Future Results EPA regulations require that owners and operators of USTs must conduct leak detection testing through one of the following three methods: (i) monthly release detection, (ii) monthly inventory control and annual tank tightness testing (with this alternative only being available until December 1998), or (iii) monthly inventory control and tank tightness testing once every five years (with this alternative only being available for USTs that have been upgraded with corrosion protection and spill and overfill prevention equipment and then only until 10 years after such upgrade or until December 1998, whichever is later). By December 22, 1998, owners and operators of all USTs (other than upgraded USTs that have been installed after December 22, 1988) must monitor tanks at least once every 30 days to detect leaks. During the first half of 1996, the Company derived 79.4% of total revenues from UST testing services. Approximately 79.0% of such testing service revenue resulted from tank tightness testing utilizing the Company's patented VacuTect process. The VacuTect process is principally used as a form of annual tank tightness testing. The Company continues to experience a decline in demand for annual tank testing using its VacuTect process as a result of an apparent change in the method of compliance with EPA regulations to monthly monitoring of tanks rather than annual tightness testing by some owners and operators of USTs. The Company expects that such revenues will continue to decline from year to year as the industry approaches the December 22, 1998 date. The Company has retained the investment banking firm of Raymond James and Associates, Inc. to evaluate strategic and financial alternatives for maximizing shareholder value. This may 11 include, but is not limited to, a sale of part or all of the Company, an acquisition or merger with another company that may or may not be in a business complementary to that of the Company, a "going private" transaction in which current Directors and/or management would acquire the outstanding publicly-held shares of the Company, or some combination of the above alternatives. The Company has not necessarily determined to pursue any of the above alternatives at this time. Accounting Standards Effective January 1, 1996, the Company adopted SFAS No. 121, entitled "Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed of." The effect of this adoption was not material to the Company's financial position or results of operations. The Financial Accounting Standards Board issued SFAS No. 123, entitled "Accounting for Stock-Based Compensation," in October 1995. Effective January 1, 1996, the Company has elected to adopt the disclosure requirements of SFAS No. 123. 12 PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in litigation and routine claims from time to time. Certain of the Company's litigation and claims are covered by insurance with a maximum deductible of $150,000, or in some cases, $200,000. In Management's opinion, the total estimated litigation liability and related insurance claims are not material to the Company's consolidated financial position, results of operations, or cash flows. Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting of shareholders on April 25, 1996. At such meeting, the shareholders elected directors of the Company and no other matters were voted on at the meeting. The tabulation for the nominees is as follows:
Nominee For Against Abstained Non votes ------------- ----------- ------------ ------------ ------------ T. G. Bogle 10,335,950 0 356,870 0 James H. Greer 10,606,119 0 86,701 0 R. L. Waltrip 10,606,119 0 86,701 0
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11.1A Computation of Earnings Per Common Share for the Three and Six Months Ended June 30, 1996 and 1995. Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the three-month period ended June 30, 1996. 13 PART III. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TANKNOLOGY ENVIRONMENTAL, INC. By /s/ RICK BERRY ----------------------------- Rick Berry Executive Vice President, Chief Financial Officer and Treasurer Date August 12, 1996 ----------------------------- By /s/DONALD R. CAMPBELL ----------------------------- Donald R. Campbell President, Chief Executive Officer and Chief Operating Officer Date August 12, 1996 ----------------------------- 14 Exhibit 11.1A TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE for the Three and Six Months Ended June 30, 1996 and 1995 (unaudited)
1996 1995 ------------ ------------ Computation of earnings per common share for the three months ended June 30: Net income (loss) applicable to common stock .......... $ 221,841 $ (5,191,270) ============ ============ Weighted average number of common shares outstanding ......................................... 14,237,012 14,230,012 Common shares issuable under employee stock option plan ......................................... 780,000 -- Less shares assumed repurchased with proceeds ......... (732,434) -- ------------ ------------ Weighted average common shares outstanding ......... 14,284,578 14,230,012 ============ ============ Net earnings (loss) per common share ........... $ 0.02 $ (0.37) ============ ============ 1996 1995 ------------ ------------ Computation of earnings per common share for the six months ended June 30: Net loss applicable to common stock ................... $ (121,279) $ (5,376,855) ============ ============ Weighted average number of common shares .............. 14,237,012 14,230,012 outstanding Common shares issuable under employee stock ........... 145,000 -- option plan Less shares assumed repurchased with proceeds ......... (142,633) -- ------------ ------------ Weighted average common shares outstanding ......... 14,239,379 14,230,012 ============ ============ Loss per common share .......................... $ (0.01) $ (0.38) ============ ============
15 EX-27 2 FDS -- ARTICLE 5 FIN. DATA SCHEDULE, 2ND QTR
5 This schedule contains summary financial information extracted from Tanknology Environmental, Inc.'s financial statements as of and for the six month period ended June 30, 1996, and is qualified in its entirety by reference to such financial statements. 0000867888 Rick Berry 1 6-MOS Dec-31-1996 Jan-01-1996 Jun-30-1996 16,195,556 1,989,917 5,019,645 417,269 244,997 26,578,696 19,670,207 10,401,120 42,046,135 2,479,461 0 0 0 151,922 0 42,046,135 0 11,838,405 7,423,007 12,437,331 0 0 (482,131) (116,795) 4,484 (121,279) 0 0 0 (121,279) (0.01) (0.01)
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