Tanknology-NDE International, Inc. and Subsidiaries


                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

   [X]    Quarterly Report Under Section 13 or 15(d) of the Securities  Exchange
          Act of 1934 for the quarterly period ended June 30, 1998.

   [ ]    Transition Report Under to Section 13 or 15(d) of the Exchange Act for
          the transition period from to .



                         Commission File Number 1-10361


                       Tanknology-NDE International, Inc.
        (Exact name of small business issuer as specified in its charter)


       Delaware                                           95-3634420
(State of Incorporation)                       (IRS Employer Identification No.)


              8900 Shoal Creek Blvd., Bldg. 200 Austin, Texas 78757
                    (Address of Principal Executive offices)


Issuer's telephone number, including area code (512) 451-6334





Checkwhether 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, 1998
       --------------          -----------------------------------

          Common                           16,154,166




Transitional Small Business Disclosure Format (check one):  Yes [  ]  No [X]

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               Tanknology-NDE International, Inc. and Subsidiaries




                                      INDEX

<TABLE>
<CAPTION>
<S>    <C>    <C>                                                                                          <C>

PART I        Financial Information
      Item 1. Financial Statements (Unaudited)

              Condensed Consolidated Balance Sheets
                  June 30, 1998 (Unaudited) and December 31, 1997 ...........................................3

              Condensed Consolidated Statements of Operations (Unaudited)
                  Three Months and Six Months Ended June 30, 1998 and June 30, 1997..........................4

              Condensed Consolidated  Statements of Cash Flows (Unaudited)
                  Six Months Ended June 30, 1998 and June 30, 1997...........................................5

              Notes To Condensed 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 6. Exhibits and Reports on Form 8-K..............................................................12

</TABLE>


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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, 1998    December 31, 1997
                                                                           -----------------  -----------------
ASSETS                                                                        (Unaudited)

<S>                                                                        <C>                 <C>
     Cash and equivalents................................................. $          76,729  $        193,627
     Trade accounts receivable, less allowance for doubtful accounts of
        $1,218,895 at June, 1998 and $1,066,331 at December 31, 1997......        11,603,399         9,856,826
     Inventories..........................................................           622,447           482,107
     Prepaid expenses and other current assets............................           795,409         1,149,950
                                                                           -----------------  -----------------
        Total Current Assets..............................................        13,097,984        11,682,510

     Restricted cash......................................................         3,000,000         3,000,000

     Equipment and improvements, net of accumulated depreciation of
        $12,296,000 at June 30, 1998 and $11,052,586 at 
        December 31, 1997.................................................         5,439,049         4,812,500
     Patents, licenses and other intangible assets, net of accumulated
        amortization of $1,416,322 at June 30, 1998 and $1,169,104 at
        December 31, 1997.................................................         1,214,673         1,604,194
     Deferred financing costs, net........................................           683,583           649,614
                                                                           -----------------  -----------------
        Total Assets...................................................... $      23,435,289  $     21,748,818
                                                                           =================  =================

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT

     Accounts payable .................................................... $       3,002,466  $      2,675,345
     Accrued liabilities..................................................         2,203,362         2,249,208
     Accrued payroll and payroll taxes....................................         2,344,514         1,959,273
     Current portion of long-term debt....................................         4,493,584         4,055,072
                                                                           -----------------  -----------------
        Total Current Liabilities.........................................        12,043,926        10,938,898

     Long term debt, less current portion ................................        10,529,543        10,589,252

     Deferred license revenue.............................................           228,334           525,000

     Redeemable convertible preferred stock, at redemption value..........         1,500,000         1,500,000

     Stockholders' Deficit:
        Series AAA Convertible  Preferred Stock, $.0001 par value; 
          authorized 400 shares; issued and outstanding 1 share stated 
          at liquidation, value of $5,000.................................             5,000             5,000
        Common stock, $.0001 par value; authorized, 50,000,000 shares;
          issued and outstanding 16,154,166 shares at June 30, 1998, 
          and 15,978,610 shares at  December 31, 1997.....................             1,615             1,598
        Warrants..........................................................           291,000           291,000
        Additional paid-in capital........................................        27,503,429        27,578,446
        Accumulated deficit...............................................       (28,650,521)      (29,659,297)
        Cumulative foreign currency translation adjustment................           (17,037)          (21,079)
                                                                           -----------------  -----------------
                                                                                    (866,514)       (1,804,332)
                                                                           -----------------  -----------------
        Total Liabilities, Redeemable Convertible Preferred Stock and       
        Stockholders' Deficit............................................. $      23,435,289  $     21,748,818
                                                                           =================  =================
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>

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               Tanknology-NDE International, Inc. and Subsidiaries


                 Condensed Consolidated Statements of Operations
                                   (Unaudited)


<TABLE>
<CAPTION>


                                                  Three Months Ended                 Six Months Ended
                                            ------------------------------    ------------------------------
                                            June 30, 1998    June 30, 1997    June 30, 1998    June 30, 1997
                                            -------------    -------------    -------------    -------------

<S>                                         <C>              <C>              <C>              <C>         
Revenues ................................   $ 15,409,481     $  8,055,755     $ 27,107,429     $ 15,518,398

Cost of services ........................     11,209,129        6,198,605       20,214,363       11,800,713
                                            -------------    -------------    -------------    -------------

     Gross Margin .......................      4,200,352        1,857,150        6,893,066        3,717,685

Selling, general and administrative .....      2,803,953        2,047,901        5,120,755        4,118,345
                                            -------------    -------------    -------------    -------------

     Operating Income (Loss) ............   $  1,396,399     $   (190,751)    $  1,772,311     $   (400,660)

Other income (expense):
     Interest income ....................         29,776             --             61,796             --
     Interest expense ...................       (400,822)        (826,218)        (796,339)      (1,671,364)
     Other income (expense), net ........          4,194             --              4,905             --
                                            -------------    -------------    -------------    -------------

     Net Income (Loss) Before Provision
     for Income Taxes ...................      1,029,547       (1,016,969)       1,042,673       (2,072,024)

Provision for income taxes ..............         29,497             --             33,897           25,300
                                            -------------    -------------    -------------    -------------

      Net Income (Loss) .................      1,000,050       (1,016,969)       1,008,776       (2,097,324)

Less - Preferred stock dividends ........         37,500             --             75,000             --
                                            -------------    -------------    -------------    -------------

     Net Income (Loss) Available to
     Common Shareholders ................   $    962,550     $ (1,016,969)    $    933,776     $ (2,097,324)
                                            =============    =============    =============    =============

     Basic income (loss) per share ......   $       0.06     $      (0.06)    $       0.06     $      (0.13)
                                            =============    =============    =============    =============


     Diluted income (loss) per share ....   $       0.04     $      (0.06)    $       0.04     $      (0.13)
                                            =============    =============    =============    =============


<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, 1998    June 30, 1997
                                                                     -------------    -------------

<S>                                                                  <C>              <C>           
Cash Flows from Operating Activities

     Net income (loss) ...........................................   $   1,008,776    $  (2,097,324)

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By
(Used in) Operating Activities
     Depreciation and amortization ...............................       1,435,403        2,020,060
     Amortization of discounts and financing costs ...............         138,698          727,978
     Deferred license revenue earned .............................         (91,666)            --
     Gain on sale of equipment ...................................            --            (29,758)
     Other .......................................................           4,042             (707)

Changes in Operating Assets and Liabilities

     (Increase)  in trade accounts receivable ....................      (1,746,573)        (740,463)
     (Increase) in inventories ...................................        (140,340)        (134,889)
     Decrease in prepaid expenses and other current assets .......         354,541           10,459
     Increase (decrease) in accounts payable .....................         327,121         (208,307)
     (Decrease) in accrued liabilities ...........................         (45,846)      (1,686,536)
     Increase (decrease) in accrued payroll and payroll taxes ....         385,241          (94,283)
                                                                     -------------    -------------
     Net cash provided by (used) in operating activities .........       1,629,397       (2,233,770)

Cash Flows from Investing Activities

     Proceeds from sale of USTMAN ................................            --          5,250,000
     Proceeds from sale of  licenses .............................            --          1,147,500
     Additions to equipment and improvements .....................      (1,872,022)        (837,193)
     Proceeds from sale of equipment .............................            --             79,758
     Other .......................................................          (5,409)          (5,456)
                                                                     -------------    -------------
     Net cash provided by (used in) investing activities .........      (1,877,431)       5,634,609

Cash Flows from Financing Activities

     Net proceeds from revolving line of credit ..................         807,333             --
     Preferred stock dividends ...................................         (75,000)            --
     Proceeds from long-term debt ................................         797,942        1,450,000
     Restricted cash .............................................            --         (3,000,000)
     Payments on long-term debt ..................................      (1,255,476)      (3,840,089)
     Deferred financing costs ....................................        (143,663)            --
                                                                     -------------    -------------
     Net cash provided by (used in) financing activities .........         131,136       (5,390,089)

     Net decrease in cash and equivalents ........................        (116,898)      (1,989,250)

     Cash and equivalents at beginning of period .................         193,627        2,412,233

                                                                     -------------    -------------
     Cash and equivalents at end of period .......................   $      76,729    $     422,983
                                                                     =============    =============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</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 and six month periods ended June 30, 1998 and
1997 contain all  adjustments,  consisting  of only normal  recurring  accruals,
necessary to present fairly the financial position of the Company as of June 30,
1998 and 1997 and the results of operations  and cash flows for the periods then
ended.  The results of  operations  for the  Company's  interim  periods are not
necessarily  indicative of the results to be expected for the entire year. It is
suggested  that  these  financial  statements  be read in  conjunction  with the
audited financial  statements and notes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1997.


     NOTE 2:      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,       June 30,         June 30,       June 30,
                                                       1998           1997             1998           1997
                                                   ------------   ------------    ------------   ------------
<S>                                                <C>            <C>             <C>            <C>         
Numerator:

Net income (loss) ...........................     $   1,000,050   $ (1,016,969)   $  1,008,776   $ (2,097,324)
Preferred stock dividends ...................            37,500           --            75,000           --
                                                   ------------   ------------    ------------   ------------
Numerator for basic income (loss) per share
 -income available to common shareholders ...           962,550     (1,016,969)        933,776     (2,097,324)

Effect of dilutive securities - preferred
 stock dividends ............................            37,500           --            75,000           --
                                                   ------------   ------------    ------------   ------------
Numerator for diluted income (loss) per
 share - income available to common
 shareholders ...............................     $   1,000,050   $ (1,016,969)   $  1,008,776   $ (2,097,324)

</TABLE>


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               Tanknology-NDE International, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                      Three Months Ended               Six Months Ended
                                                   ---------------------------    ---------------------------
                                                      June 30,       June 30,         June 30,       June 30,
                                                       1998           1997             1998           1997
                                                   ------------   ------------    ------------   ------------
<S>                                                <C>            <C>             <C>            <C>         
Denominator:

     Denominator for basic income (loss) per
       share - weighted-average shares .........   $ 16,154,166   $ 15,978,610    $ 16,150,286   $ 15,978,610

     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 ..................   $ 24,916,763           --        24,779,089           --
                                                   ============   ============    ============   ============

     Basic income (loss) per share .............   $       0.06   $      (0.06)   $       0.06   $      (0.13)
                                                   ============   ============    ============   ============


     Diluted income (loss) per share ...........   $       0.04   $      (0.06)   $       0.04   $      (0.13)
                                                   ============   ============    ============   ============
</TABLE>

     NOTE 3:      COMPREHENSIVE INCOME

     In the first quarter of 1998,  the Company  adopted  Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting  Comprehensive Income." SFAS 130
requires  disclosure  of total  non-stockholder  changes  in equity  in  interim
periods and additional disclosures of the components of non-stockholder  changes
in equity on an annual basis. Total  non-stockholder  changes in equity includes
all changes in equity during a period except those resulting from investments by
and distributions to stockholders.  Total comprehensive income for the three and
six month periods ended June 30, 1998 and 1997 was as follows:

<TABLE>
<CAPTION>
                                                      Three Months Ended               Six Months Ended
                                                   ---------------------------    ---------------------------
                                                      June 30,       June 30,         June 30,       June 30,
                                                       1998           1997             1998           1997
                                                   ------------   ------------    ------------   ------------
<S>                                                <C>            <C>             <C>            <C>         
Net income (loss) ...............................   $ 1,000,050   $(1,016,969)    $  1,008,776   $(2,097,324)
Foreign currency translation gain (loss).........        13,376        (5,462)           4,042       (17,103)
                                                   ------------   ------------    ------------   ------------
    Total comprehensive income (loss) ...........   $ 1,013,426   $(1,022,431)    $  1,012,818   $(2,114,427)
                                                   ============   ============    ============   ============

</TABLE>






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               Tanknology-NDE International, Inc. and Subsidiaries


      NOTE 4:     COMMITMENTS AND CONTINGENCIES

     There have been no  material  changes  in the  information  reported  as of
December  31, 1997 as reported  on Form 10-KSB in Footnote 12  accompanying  the
financial statements.


     NOTE 5:      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,  1998 and 1997.  The  results  of
operations  for the 1997  periods  include the results of  operations  of USTMAN
Industries ("USTMAN") which was sold in May 1997 and certain Canadian operations
("Canada") that were sold in February 1997.

<TABLE>
<CAPTION>

                                   Three Months Ended        Six Months Ended
                                  --------------------     ---------------------
                                  June 30,    June 30,     June 30,     June 30,
                                    1998        1997         1998         1997
                                  --------    --------     --------     --------
<S>                               <C>         <C>          <C>          <C> 
Revenues ......................      100%        100%         100%         100%

Cost of Sales .................       73%         77%          74%          76%
                                  --------    --------     --------     --------

Gross Margin ..................       27%         23%          26%          24%

Selling, General and
Administrative ................       18%         26%          19%          27%

                                  --------    --------     --------     --------
Operating Income (Loss) .......        9%         (3)%          7%          (3)%

Interest Expense ..............        3%         10%           3%          11%

                                  --------    --------     --------     --------
Net Income (Loss) .............        6%        (13)%          4%         (14)%
                                  ========    ========     ========     ========

</TABLE>


Revenues

     Revenues for the three months ended June 30, 1998 were $15,409,481 compared
to $8,055,755 in the 1997 period,  an increase of $7,353,726 or 91%. Revenues in
the 1997 period  included  $422,696  of  revenues  from  USTMAN.  Excluding  the
revenues from this sold entity,  comparable  revenues for 1997 were  $7,633,059.
The increase in comparable revenues of $7,776,422 or 102% from 1997 is primarily
due to the  following  factors;  i)  revenues  of  $2,221,492  generated  by the
Construction  Services  Division which did not begin  operations until the third
quarter  of  1997,  ii)  continuation  of a large  upgrade  program  for a major
customer  that began in the second half of 1997,  iii) an over 170%  increase in
cathodic protection  installation,  maintenance,  repair and inspection revenues
and iv) an over 250% increase in compliance management services revenues.

     For the six months ended June 30, 1998, revenues were $27,107,429  compared
to $15,518,398 in the 1997 period, an increase of $11,589,031,  or 75%. Revenues
in the six  months  of 1997  included  $105,787  of  revenues  from  Canada  and
$1,884,361 of revenues  from USTMAN.  Excluding the revenues from these two sold
entities,  comparable  revenues  for 1997  were  $13,528,250.  The  increase  in
comparable  revenues of  $13,579,179  or 100% from 1997 is primarily  due to the
following  factors;  i) revenues of  $4,008,215  generated  by the  Construction
Services  Division  which did not begin  operations  until the third  quarter of
1997,  ii)  continuation  of a large upgrade  program for a major  customer that
began in the  second  half of  1997,  iii) an over  200%  increase  in  cathodic
protection installation,  maintenance, repair and inspection revenues and iv) an
over 200% increase in compliance management services revenue.

Cost of  Services

     Cost of services for the three months ended June 30, 1998 were  $11,209,129
or 73% of revenue  compared to $6,198,605 or 77% of revenue in 1997, an increase
of $5,010,524, or 81%. Gross  margin  was $4,200,352 or 27% of revenue for 1998,

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               Tanknology-NDE International, Inc. and Subsidiaries


compared to $1,857,150 or 23% of revenue for 1997.  The increase in gross margin
percentage  is  primarily  due  to  lower   depreciation   and  higher  capacity
utilization.

     For  the  six  months  ended  June  30,  1998,  cost  of  services  totaled
$20,214,363  compared  to  $11,800,713  in  the  1997  period,  an  increase  of
$8,413,650  or 71%.  Gross  margin  was  $6,893,066  or 26% of  revenue in 1998,
compared to $3,717,685  or 24% of revenue in 1997.  The increase in gross margin
percentage  is  primarily  due  to  lower   depreciation   and  higher  capacity
utilization.

Selling, General and Administrative

     Selling,  general,  and  administrative  expense for the three months ended
June 30, 1998 was $2,803,953 or 18% of revenue compared to $2,047,901 in 1997 or
26% of revenue,  an increase  of  $756,052 or 37%  compared to the three  months
ended June 30,  1997.  The  increase in  selling,  general,  and  administrative
expenses is due to additional sales and administrative  resources to support the
growth in revenue and varieties of services offered. Adjusting for the disposals
of USTMAN and Canada,  comparable  SG&A expense in 1997 was $1,980,346 or 26% of
comparable  revenue.  The decrease in the percentage of sales from 26% to 18% is
due primarily to the growth in revenue without having to add  proportionately to
SG&A   expenses  and  to  a  lesser   extent   reductions   in   insurance   and
telecommunications costs.

     For  the  six  months  ended  June  30,   1998,   selling,   general,   and
administrative  expense were $5,120,755 or 19% of revenue compared to $4,118,345
in 1997 or 27% of revenue, an increase of $1,002,410 or 24% compared to the 1997
period. The increase in selling,  general, and administrative  expense is due to
the addition of sales and administrative resources to support both the growth in
revenue and the varieties of services offered by the Company.  Adjusting for the
disposals of USTMAN and Canada,  comparable  SG&A expense in 1997 was $3,957,228
or 29% of comparable  revenue.  The decrease in the percentage of sales from 29%
to 19%  is due  primarily  to  the  growth  in  revenue  without  having  to add
proportionately  to SG&A expenses and to a lesser extent reductions in insurance
and telecommunications costs.

Earnings before Depreciation, Amortization, Interest and Taxes (EBITDA)

     For the three months ended June 30, 1998,  EBITDA was  $2,141,016 or 14% of
revenues  compared to $859,352  or 11% of  revenues in 1997.  Adjusting  for the
disposals  of  USTMAN  and  Canada,  comparable  EBITDA in the 1997  period  was
$901,117 or 12% of revenues.  The increase in EBITDA, as adjusted, of $1,239,899
or 138% was primarily due to the increased  revenues in the 1998 period compared
to the 1997 period.

     For the six months ended June 30,  1998,  EBITDA was  $3,207,714  or 12% of
revenues  compared to $1,619,400  or 10% of revenues in 1997.  Adjusting for the
disposals  of USTMAN and  Canada,  comparable  EBITDA in the first six months of
1997 was $966,428 or 7% of revenues.  The  increase in EBITDA,  as adjusted,  of
$2,241,286 or 232% was primarily due to the increased  revenues in the first six
months of 1998 compared to the first six months of 1997.

     EDITDA represents net income before  depreciation,  amortization,  interest
expense and income  taxes.  The  Company  believes  that EDITDA is a  meaningful
measure of  performance  because it is  commonly  used to  analyze  and  compare
companies  on the  basis  of  operating  performance,  leverage  and  liquidity.
However,  EDITDA is not  intended  to be a  performance  measure  that should be
regarded as an alternative to, or more meaningful than,  either operating income
tor 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 June 30, 1998 was $400,822 or
3% of revenue  compared  to  $826,218  or 10% of revenue in 1997,  a decrease of
$425,396 or 51%. The decrease in interest  expense is due to; i) continued  pay-
down of long-term  debt, ii) the  refinancing of  subordinated  debt in December
1997  reduced  related  accretion  expense  for the  second  quarter  of 1998 by
$150,000,  reduced the interest  rate from 13% to 10% which  reduced  comparable
interest  costs by  approximately  $41,000,  and  replaced  $1.5  million of the
previous  debt with  convertible  redeemable  preferred  stock which  eliminated


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               Tanknology-NDE International, Inc. and Subsidiaries


approximately  $48,000 of interest  costs for the  comparable  period,  iii) the
retirement  of the  warrants  with put  options  which  occurred  as part of the
December 1997 refinancing eliminated related accretion expense totaling $200,250
in the second quarter of 1997.

     For the six months ended March 31, 1998,  interest  expense was $796,339 or
3% of revenue  compared to  $1,671,364  or 11% of revenue in 1997, a decrease of
$875,025  or 52%.  The  decrease  in  interest  expense is due to; i)  continued
pay-down of long-term debt, ii) the refinancing of subordinated debt in December
1997  reduced  related  accretion  expense for the first two quarters of 1998 by
$295,000, reduced the interest rate from 13% to 10% which reduced interest costs
by approximately $82,000, and replaced $1.5 million of the debt with convertible
redeemable  preferred stock which eliminated  approximately  $96,000 of interest
costs for the  comparable  period,  iii) the retirement of the warrants with put
options  which  occurred as part of the  December  1997  refinancing  eliminated
accretion expense totaling $400,500 in the first two quarters of 1997.

Net Income (Loss)

     For the three  months  ended June 30,  1998,  the Company had net income of
$1,000,050  before preferred stock dividend  requirements  compared to a loss of
$1,016,969 in 1997, an improvement of $2,017,019. Adjusting for the disposals of
USTMAN and Canada, the comparable net loss in the 1997 period was $873,062 or11%
of comparable revenues. The decrease in the net loss of $1,873,112 was primarily
due to the increased revenues in the 1998 period compared to the 1997 period and
the debt refinancing that occurred in December 1997.

     For the six  months  ended June 30,  1998,  the  Company  had net income of
$1,008,776  before preferred stock dividend  requirements  compared to a loss of
$2,097,324 in 1997, an improvement of $3,106,100. Adjusting for the disposals of
USTMAN and Canada,  the  comparable net loss in the first six months of 1997 was
$2,464,216  or 18% of  comparable  revenues.  The  decrease  in the net  loss of
$3,472,992  was primarily due to the increased  revenues in the first six months
of 1998 compared to the first six months of 1997 and the debt  refinancing  that
occurred in December 1997.

Liquidity and Capital Resources

     At June 30, 1998, the Company had working capital of $1,054,058 compared to
working  capital of $743,612 at December  31, 1997.  Cash  provided by operating
activities  of  $1,629,397  for the six months ended June 30, 1998  increased by
$3,863,167  as compared to cash used in operating  activities  of  $2,233,770 in
1997. The cash provided by operating activities in the six months ended June 30,
1998  increased  due to the  increase  in net  income  partially  offset  by the
decrease in depreciation and the increase in accounts receivable.

     Cash  used  in  investing  activities   (consisting  primarily  of  capital
expenditures) totaled $1,877,431 for the six months ended June 30, 1998 compared
to cash provided by investing  activities  of $5,634,609 in the 1997 period.  On
February 20, 1997, the Company sold substantially all of the operating assets of
its Canadian  operation.  The Company realized proceeds of $1,147,500 related to
the sale of the  business and  technology  licenses and $50,000 from the sale of
the fixed assets of the Canadian  operations.  On May 22, 1997, the Company sold
USTMAN realizing proceeds of $5,250,000.

     At June 30, 1998, the Company had  outstanding  long-term  debt  (including
current maturities) of $15,023,127 compared to $14,644,324 at December 31, 1997.
Required term-loan principal  repayments of $600,000,  a net $807,333 borrowings
on the  revolving  credit line and other debt  repayments  of $655,476 were made
during the first two  quarters.  At June 30,  1998,  the Company had  $2,155,000
available for additional  borrowing under its revolving credit agreement.  As of
June 30, 1998,  the Company was in compliance  with the financial debt covenants
related to its long-term financing agreements.

     In July 1998, the Company  renegotiated  its revolving credit facility with
its senior lender. Significant modifications included an increase in the maximum
borrowings under the credit facility to $9 million from $5 million, extension of
the  maturity of the credit line to December  31,  2000,  suspension  of monthly
payments due under the term loan agreement for six months, and a number of other
modifications that allow for continued expansion of the business.

     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

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<PAGE>


               Tanknology-NDE International, Inc. and Subsidiaries

Securities  Act of 1934.  All  forward  looking  statements  involve  risks  and
uncertainties.  The forward looking  statements in this document are intended to
be subject to the safe harbor protection provided by Sections 27A and 21E. For a
discussion identifying some important factors that could cause actual results to
differ materially from those anticipated in the forward looking statements,  see
the Company's Form 10-KSB page 13  "Management  Discussion and Analysis" for the
fiscal year ended December 31, 1997.

Year 2000 Risks

     The  Company  has  reviewed  its  software  for Year  2000  compliance.  In
conjunction  with that  review,  the  Company  has  determined  that its current
software is either Year 2000 compliant,  or there are projects planned to either
upgrade or replace  existing  software  prior to 2000.  In  accordance  with the
Emerging  Issues Task Force of the Financial  Accounting  Standards  Board,  the
projected costs associated with upgrading or revising the Company's  software to
be Year 2000  compliant will be recorded as an expense of the period rather than
capitalized. The Company currently estimates that the costs associated with such
upgrades projects will not be material to its operating results.

PART II       Other Information

Item 6.  Exhibits and Reports on Form 8-K

              The following exhibits are filed herewith:
                  None.

              Reports on Form 8-K:
                  None.


                                    SIGNATURE

     In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                      Tanknology-NDE International, Inc.
                                              (Registrant)

Date:    August 13, 1998                        /s/ DAVID G. OSOWSKI
      ------------------------        ------------------------------------------
                                      David G. Osowski
                                      Vice President and Chief Financial Officer


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