<PAGE> 1
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 September 30, 1996.
/ / Transition Report Under to Section 13 or 15(d) of the Exchange Act
for the transition period from ____________ to_____________ . _______
Commission File Number 1-10361
NDE ENVIRONMENTAL CORPORATION
-----------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-3634420
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
</TABLE>
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 issuer 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 NOVEMBER 8, 1996
----- -------------------------------
Common 7,978,610
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
PART I Financial Information............................................................... 3
ITEM 1 Financial Statements (Unaudited).................................................... 3
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995............................................ 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1996 and 1995...................................... 5
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1996 and 1995....................................... 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995....................................... 7
Notes to Condensed Consolidated Financial Statements................................ 9
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 13
PART II Other Information................................................................... 18
ITEM 6 Exhibits and Reports on Form 8K..................................................... 18
Signatures.......................................................................... 19
</TABLE>
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
ASSETS (Unaudited) (Note)
<S> <C> <C>
CURRENT ASSETS
Cash $20,575 $327,035
Trade accounts receivable, less allowance for
doubtful accounts of $363,564 in 1996 and $289,512 in 1995 1,715,792 2,162,593
Inventories 232,401 175,173
Prepaid expenses and other current assets 192,913 245,645
---------- ----------
TOTAL CURRENT ASSETS 2,161,681 2,910,446
EQUIPMENT AND IMPROVEMENTS, net of
accumulated depreciation of $6,980,246 in 1996
and $6,004,770 in 1995 2,544,564 4,027,037
INTANGIBLE ASSETS
Patents, net of accumulated amortization of $288,363
in 1996 and $232,042 in 1995 398,032 454,353
License, net of accumulated amortization of $302,106
in 1996 and $215,940 in 1995 617,011 703,177
Other Intangibles, net of accumulated amortization of
$190,300 in 1996 and $130,265 in 1995 259,472 42,371
Deposits and other assets 68,496 92,459
---------- ----------
$6,049,256 $8,229,843
========== ==========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) (Note)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $1,233,603 $751,944
Accrued liabilities 637,811 1,322,457
Accrued payroll and payroll taxes 488,933 636,369
Current maturities of notes payable and
financing agreement 2,854,461 2,018,442
---------- ----------
TOTAL CURRENT LIABILITIES 5,214,808 4,729,212
Long Term Debt, less Current Portion (See Note 3) 1,056,086 3,739,653
---------- ----------
TOTAL LIABILITIES 6,270,894 8,468,865
---------- ----------
STOCKHOLDERS' EQUITY (SEE NOTE 2)
Series AAA Convertible Preferred Stock, $.0001 par
value; authorized, 400 shares; issued and outstanding 1
share stated at liquidation value of $5,000 per share. 5,000 5,000
Common stock, $.0001 par value; authorized, 50,000,000
shares; issued and outstanding 7,978,610 shares at
September 30, 1996, and 2,274,420 December 31, 1995. 799 227
Common stock subscribed, 8,000,000 shares at September 1,035,882 1,303,410
30, 1996, 5,482,254 shares at December 31, 1995 (Note 2)
Additional paid-in capital 26,524,624 25,115,717
Accumulated deficit (27,787,943) (26,663,376)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (221,638) (239,022)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,049,256 $8,229,843
========== ==========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 30, 1996 September 30, 1995
-------------- -------------
<S> <C> <C>
REVENUES - Testing services $ 2,911,029 $2,976,560
Other 186,868 173,400
COSTS AND EXPENSES
Cost of sales and testing services 1,915,355 1,859,656
Selling, general and administrative 1,674,841 1,649,497
Provision for doubtful accounts 54,879 83,332
----------- ----------
TOTAL COSTS AND EXPENSES 3,645,075 3,592,485
Non-recurring charge (Note 4) 833,321 --
----------- ----------
OPERATING LOSS ($1,380,499) ($442,525)
Interest expense (225,808) (206,881)
----------- ----------
NET LOSS BEFORE EXTRAORDINARY ITEM (1,606,307) ($649,406)
Extraordinary Item (Note 3) 1,813,149 --
----------- ----------
NET INCOME (LOSS) $206,842 ($649,406)
=========== ==========
NET LOSS BEFORE EXTRAORDINARY ITEMS, PER SHARE ($0.20) ($0.29)
Extraordinary Item, per Share 0.23 --
----------- ----------
NET INCOME (LOSS) PER SHARE $0.03 ($0.29)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,978,610 2,273,420
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
REVENUES - Testing services $ 8,042,588 $ 7,978,751
Other 595,915 257,510
COSTS AND EXPENSES
Cost of sales and testing services 5,447,412 5,153,481
Selling, general and administrative 4,532,631 4,373,181
Provision for doubtful accounts 169,607 198,665
----------- -----------
TOTAL COSTS AND EXPENSES 10,149,650 9,725,327
Non-recurring charge (Note 4) 833,321 -
----------- -----------
OPERATING LOSS ($2,344,468) ($1,489,066)
Other income (expense):
Interest income 37 158
Interest expense (593,285) (613,174)
NET LOSS BEFORE EXTRAORDINARY ITEM (2,937,716) ($2,102,082)
Extraordinary Item (Note 3) 1,813,149 -
----------- -----------
NET (LOSS) ($1,124,567) ($2,102,082)
NET LOSS BEFORE EXTRAORDINARY ITEM,
PER SHARE ($0.64) ($1.11)
Extraordinary Item, per Share 0.40 -
----------- -----------
NET INCOME (LOSS) PER SHARE ($0.24) ($1.11)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,558,601 1,898,651
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Operating activities
Net loss ($1,124,567) ($2,102,082)
Adjustments to reconcile net loss to net cash
used in operating activities:
Extraordinary (Gain) (1,813,149) -
Write-down of assets 833,321 -
Depreciation 991,476 1,003,993
Amortization of discount on notes
payable 82,679 128,276
Amortization of intangibles 124,568 123,577
Gain on Settlement of Accounts Payable (12,380) -
Provision for doubtful accounts 169,607 204,556
Gain on Sale of Equipment (199,711) (182,231)
Changes in operating assets and liabilities:
Trade receivables 278,029 (697,843)
Inventories (167,572) (51,204)
Prepaid expenses 87,970 227,157
Deposits 23,963 (25,641)
Accounts payable 481,659 196,316
Accrued liabilities (236,300) (19,607)
Accrued payroll and accrued payroll taxes (147,436) 111,970
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ($627,843) ($1,082,763)
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
INVESTING ACTIVITIES
Purchase of Licenses - (4,300)
Proceeds from sale of equipment 253,590 272,410
Additions to equipment and improvements (458,597) (326,411)
---------- ----------
Net cash provided by investing (205,007) (58,301)
activities
FINANCING ACTIVITIES
Proceeds from Line of Credit 244,384 1,055,210
Principal payments under note and capital
lease payable (717,994) (628,770)
Proceeds from issuance of notes payable 1,000,000 571,615
Proceeds from Issuance of Preferred Stock - 250,000
---------- ----------
Net cash provided by financing activities 526,390 1,248,055
Net (decrease) in cash (306,460) 106,991
Cash and cash equivalents at beginning of
period 327,035 244,491
---------- ----------
Cash and cash equivalents at end of period $20,575 $351,482
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $208,665 $422,044
========== ==========
Income taxes - -
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: ACCOMPANYING CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
Basis of Presentation: The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with the instructions
to Form 10-QSB. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited financial statements
as of September 30, 1996 and for the three- and nine-months ended September 30,
1996 and 1995 contain all adjustments, consisting of only normal recurring
accruals, necessary to present fairly the financial position of the Company as
of September 30, 1996, and the results of operations and cash flows for the
periods presented.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995. The results of operations for the Company's interim
periods are not necessarily indicative of the results to be expected for the
entire year.
Certain amounts shown in the 1995 financial statements have been reclassified
to conform to the 1996 presentation.
NOTE 2: Stockholders' Equity
As discussed in Note 3, in March 1996 the Company entered into Secured
Promissory Notes with Proactive Partners, L.P. ("Proactive") and Lagunitas
Partners, L.P. ("Lagunitas") in the amounts of $425,000 and $175,000,
respectively. In May, June, and August 1996, the Company entered into
additional Secured Promissory Notes with Proactive in the amounts of $150,000,
$100,000, and $150,000, respectively. These notes are all due April 1, 1997,
bear interest at a rate of 8% per annum and are immediately convertible into a
new series of Preferred Stock. The new series of Preferred Stock is
convertible at a price of $0.125 per share into a total of 8,000,000 shares of
Common Stock. Proactive and Lagunitas have agreed to convert these notes to
common stock, and the Company is in the process of effecting this conversion.
The principal amount of the notes, which aggregate $1,000,000, along with
accrued interest of $35,882, are shown as "common stock subscribed" on the
consolidated financial statements for the period ended September 30, 1996.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
NOTE 3: Debt
In April 1994, the Company purchased certain assets, primarily
vehicles and test equipment, from Gilbarco Environmental Services Division
("Gilbarco"). This purchase was financed in part by a $2,450,000 six-year
note bearing interest at prime minus 1%, collateralized by the assets acquired.
In March 1996 the Company entered into an agreement with Gilbarco to amend the
$2,450,000 note agreement. This amendment provided for revised terms including
an immediate down payment of $256,000. This down payment was funded by
additional debt obtained from Proactive (see Note 2 above). Per the amendment,
the remaining Gilbarco debt would be forgiven in total upon the receipt by
Gilbarco of any one of the prepayment incentive amounts as of the indicated
dates. If none of the following prepayment incentive amounts were paid by the
indicated dates, the balance of the Gilbarco note would become due in full on
July 1, 1997. The prepayment incentive amounts were as follows: $256,000 by
June 30, 1996; $384,000 by September 30, 1996; $512,000 by December 31, 1996;
$640,000 by March 31, 1997; or $768,000 by June 30, 1997. On September 15, 1996
the Company entered into a revision to the prepayment agreement with Gilbarco
(the "Revision"). Under the terms of the Revision, the Company could settle
payment of the note in full for the sum of $300,000 by September 30, 1996. In
September 1996 the Company borrowed an additional $300,000 under its Financing
Agreement with Silicon Valley Financial Services. This amount was guaranteed by
Proactive. The Company paid the $300,000 settlement amount of the note to
Gilbarco in full on September 30, 1996. The debt had a carrying value at that
date of $2,349,145 and was settled for $546,000; therefore, the Company has
recorded an extraordinary gain of $1,813,149 for settlement of this debt. This
amount is reflected as an extraordinary item in the accompanying unaudited
condensed consolidated financial statements. Also see Note 4.
In September 1996, the Company reached an agreement with outside
patent counsel to the Company to extend payment of $127,395 in fees for patent
litigation services. These fees were formerly recognized as current payables.
The agreement was evidenced by a promissory note, in the face amount of the
outstanding payables, at a 0% interest rate, due in monthly installments ending
in August 1998. The time value of the extension of the payment terms was
recognized as a gain of $12,380, based upon the timing and amount of the
installments at a 10% annual interest rate. The gain is included as "Revenue,
Other" in the accompanying unaudited condensed consolidated financial
statements.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
NOTE 4: Asset Write-down
In the third quarter of 1996, the Company recorded a special
non-recurring charge of $833,321 relating to the write-down of vehicles and
test equipment obtained from Gilbarco. This write-down was based on a periodic
review of all of the Company's assets, including vehicles and test equipment
obtained from Gilbarco to determine whether there had been any permanent decline
in values of any assets.
NOTE 5: Compliance Management Services
In December 1995, the Company established its Compliance Management
Services Division ("CMS"). The division provides turn-key compliance
management to underground storage tank owners, including administrative,
managerial, technical, data processing, and regulatory liaison services. For
the quarter ended September 30, 1996, CMS revenues were $174,488. For the nine
months ended September 30, 1996, CMS revenues were $383,824. CMS revenue is
included as "Revenue, Other" in the accompanying financial statements.
NOTE 6: Subsequent Event
On October 25, 1996, the Company completed the acquisition (the
"Acquisition") of three underground storage tank service subsidiaries
(collectively, the "Subsidiaries") of Tanknology Environmental, Inc., ("TEI").
The Subsidiaries acquired are Tanknology Corporation International, located in
Houston, Texas ("TCI"), USTMAN Industries, Inc., located in Denver, Colorado,
and Tanknology Canada (1988), Inc., located in Mississauga, Ontario, Canada.
Immediately following the Acquisition, the Company caused its wholly owned
subsidiary, NDE Testing & Equipment, Inc., to merge with and into TCI, which
changed its name to Tanknology/NDE Corporation.
The assets acquired by the Company as a result of the Acquisition
include the inventories, equipment and facilities used by the Subsidiaries to
service underground storage tanks. The Company generally expects to continue
to use the assets of the Subsidiaries for such purpose, however, the Company
may consider, from time to time, the disposition of certain of the assets which
are not strategic to the Company's ongoing business.
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
The Acquisition was accomplished by means of the Company's purchase of
all of the issued and outstanding capital stock of the Subsidiaries. The
Company paid an aggregate purchase price of $12,000,000 in cash for such
capital stock. The Company and TEI reached the purchase price after
arm's-length negotiations. The Stock Purchase Agreement provides that the
purchase price shall be adjusted (i) downward if and to the extent the
Company's post-closing audit of the Subsidiaries reveals that the net assets of
the Subsidiaries are less than the net assets reflected in the August 31, 1996
Balance Sheets of the Subsidiaries and (ii) upward (A) for interest on the
$12,000,000 purchase price from August 31, 1996 through October 25, 1996 at 8%
per annum and (B) for certain interim period tax adjustments. Any upward
adjustment and any downward adjustment would be offset against the other to
determine the final purchase price.
In connection with the Acquisition, the Company obtained a total of
$19 million of financing from Bank One, Texas, N.A. ("BOT") and Banc One
Capital Partners, L.P. ("BOCP") under two separate financing agreements. The
Company's agreement with BOT provides for a $5 million revolving credit line
(of which $2 million was funded at the closing of the Acquisition) at prime
plus .75%, and a $6 million 5-year term note at prime plus 1.5%. The agreement
with BOCP is for $8 million of senior subordinated debt with a 5-year maturity
and interest at 13% per annum. The Company pledged substantially all of its
assets and the assets of its subsidiaries as security for the debt. In
connection with the financings, a major stockholder of the Company, Proactive
Partners, L.P. of San Francisco, California, provided a $1 million standby
commitment in the event of a payment deficit by the Company and, together with
its affiliate Lagunitas Partners, L.P., have agreed to convert $1 million of
prior indebtedness to an additional 8,000,000 shares of the Company's common
stock. BOCP received from the Company 13,022,920 warrants each to purchase one
share of the Company's common stock at an initial exercise price of $.325 per
warrant subject to downward adjustment (but not less than $.125 per warrant)
based on the Company's financial performance during the 12 month period prior to
exercise of the warrants. The Company also used proceeds of the financings to
retire indebtedness of approximately $2.6 million. The retired debt carried
interest rates averaging approximately 18% per annum. The remaining financing
proceeds were used for general working capital and to pay fees and expenses of
approximately $800,000 related to the Acquisition and the financings.
Page 12
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company experienced a net loss, before extraordinary items, of $1,606,307
for the three months ended September 30, 1996, compared to a net loss of
$649,406 for the three months ended September 30, 1995. The Company incurred a
net loss of $1,124,567 for the nine months ended September 30, 1996, compared
to $2,102,082 for the nine months ended September 30, 1995.
The following table reflects the percentage relationship to net sales of
certain items included in the Company's statement of operations for the three-
and nine-month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
3 Months Ended
--------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Revenues 100% 100%
Costs and Expenses
Cost of Sales and Testing 62% 59%
Selling, General and Administrative 54% 52%
Provision for Doubtful Accounts 2% 3%
Interest Expense 7% 7%
------------------ ------------------
Total Costs and Expenses 125% 121%
Non-recurring Charge (27)% -
------------------ ------------------
------------------ ------------------
Net Loss Before Extraordinary Item (52%) (21%)
------------------ ------------------
Extraordinary Item 59% -
------------------ ------------------
Net (Loss) Income After Extraordinary Item 7% (21%)
------------------ ------------------
</TABLE>
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
9 Months Ended
--------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Revenues 100% 100%
Costs and Expenses
Cost of Sales and Testing 63% 63%
Selling, General and Administrative 52% 53%
Provision for Doubtful Accounts 2% 2%
Interest Expense 7% 7%
------------------ ------------------
Total Costs and Expenses 125% 126%
Non-recurring Charge (9%) -
------------------ ------------------
Net Loss Before Extraordinary Item (34%) (26%)
Extraordinary Item 21% -
------------------ ------------------
Net Loss After Extraordinary Item (13%) (26%)
------------------ ------------------
</TABLE>
Revenues
Revenues for the three months ended September 30, 1996 were $3,097,897, a
decrease of $52,063, or 2%, compared to revenues of $3,149,960 for the three
months ended September 30, 1995. Revenues for the nine months ended September
30, 1996 were $8,638,503, an increase of $402,242, or 5%, compared to revenues
of $8,236,261 for the nine months ended September 30, 1995. The decrease for
the three months ended September 30, 1996 was due to lower average pricing
for the Field Services division, mostly offset by an increase in sites tested,
and by billings from the CMS division, which did not exist in the prior year.
The decline in average pricing, as well as the increase in sites tested, was the
result of a third quarter shift in marketing mix, as the division moved to
expand its service offerings (see below.)
Page 14
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Average revenue per van day (revenue from domestic UST testing and related
field services divided by van days worked) decreased by $81 or 8% from
approximately $1,050 for the three months ended September 30, 1995 to $969 for
the three months ended September 30, 1996, while total volume increased by 3%
from 2,744 van days worked during the three months ended September 30, 1995 to
2,832 van days worked during the three months ended September 30, 1996. For
the nine months ended September 30, 1996 average revenue per van day was
$1,004, a decrease of $29 or 3% from the $1,033 achieved during the nine months
ended September 30, 1995. Total volume increased by 239 van days worked, or
3% for the nine month period. The decrease in revenue per van day was due to
an increase in the proportion of lower-priced services sold, such as site
surveys and line tests, as compared to tank tests.
Cost of Sales and Testing Services
Cost of sales and testing services for the three months ended September 30,
1996 was $1,915,355 (62% of revenue), an increase of $55,699, or 3%, compared
to $1,859,656 (59% of revenue), for the three months ended September 30, 1995.
The increase in cost of sales was due primarily to the increase in sites tested
and use of subcontractors. The cost of sales for the nine months ended
September 30, 1996 was $5,447,412, an increase of $293,931, or 6%, compared to
$5,153,481 for the nine months ended September 30, 1995. This increase also is
due to an increase in the number of sites tested. As a percent of sales, cost
of sales was 63% for the nine months ended September 30, 1996, compared to 63%
for the nine months ended September 30, 1995.
Selling, General and Administrative
Selling, general and administrative expense for the three months ended
September 30, 1996 was $1,674,841 (54% of revenue), an increase of $25,344 or
2%, compared to $1,649,497 for the three months ended September 30, 1995.
Selling, general and administrative expense for the nine months ended September
30, 1996 was $4,532,631 (52% of revenue), an increase of $159,450 compared to
$4,373,181 (52% of revenue) for the nine month period ended September 30,
1995. The increase in selling, general and administrative expenses was due to
the addition of staff for the CMS division.
Page 15
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NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Provision for Doubtful Accounts
In April 1996, as a result of a management review of the history of
uncollectable accounts, the determination was made to decrease the amount
reserved for doubtful accounts from 2.5% to 1.25% of domestic sales and from
25% to 10% of foreign sales. The provision for doubtful accounts for the three
months ended September 30, 1996 was $54,879, or 1.8% of sales, a decrease of
$28,453, or 34%, compared to $83,332, or 2.6% of sales, for the three months
ended September 30, 1995. For the nine months ended September 30, 1996, the
provision for doubtful accounts was $169,607 or 2.0% of sales, a decrease of
$29,058 compared to $198,665 or 2.4 % of sales for the nine months ended
September 30, 1995. The decreases of $28,453 for the three month period and
$29,058 for the nine month period are due to the change in the Company's
accounting policies referred to above.
Interest Expense
Interest expense for the three months ended September 30, 1996 was $225,808
(7% of revenue), an increase of $18,927, or 9%, compared to $206,881 (7% of
revenue) for the three months ended September 30, 1995. For the nine months
ended September 30, 1996, interest expense was $593,285 (7% of revenue), a
decrease of $19,889, or 3%, compared to $613,174 (7% of revenue) for the nine
months ended September 30, 1995. The decreases are due primarily to reduced
interest rates on the Company's line of credit line with Silicon Valley Bank
Financial Services, offset by a higher average line balance during the third
quarter of 1996.
Net Loss
For the three months ended September 30, 1996, the Company incurred a net
loss, before extraordinary item, of $1,606,307 (52% of sales), an increase of
$956,901, or 147%, compared to the net loss of $649,406 (21% of sales) for the
three months ended September 30, 1995. For the nine months ended September 30,
1996, the Company experienced a net loss of $2,937,716 (93% of sales) compared
to a net loss of 2,102,082 (26% of sales) for the nine months ended September
30, 1995. The increased loss was due primarily to the write-down of assets
acquired in the April 1994 Gilbarco transaction. See Note 4 to the
accompanying unaudited condensed consolidated financial statements.
Acquisition of Certain Tanknology Environmental, Inc. Subsidiaries
On October 25, 1996, the Company completed the acquisition (the
"Acquisition") of three underground storage tank service subsidiaries
(collectively, the "Subsidiaries") of Tanknology Environmental, Inc. The
Subsidiaries acquired are Tanknology Corporation International, located in
Houston, Texas ("TCI"), USTMAN Industries, Inc., located in Denver, Colorado,
and Tanknology Canada (1988), Inc., located in Mississauga, Ontario, Canada.
The Acquisition was accomplished by means of the Company's purchase of all of
the issued and outstanding capital stock of the Subsidiaries. The Company paid
an aggregate purchase price of $12,000,000 in cash for such capital stock. In
connection with the Acquisition, the Company obtained a total of $19 million of
financing from Bank One, Texas, N.A. ("BOT") and Banc One Capital Partners,
L.P. ("BOCP") under two separate financing agreements. See Note 6 to the
accompanying unaudited condensed consolidated financial statements.
Page 16
<PAGE> 17
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
At September 30, 1996, the Company had a working capital deficit of
$3,053,127 compared to a working capital deficit of $1,818,766 at December 31,
1995. The increase of $1,234,361 is due primarily to a reclassification to
current liabilities of the Term Loan from Silicon Valley Bank of $750,000, and
an increase of approximately $244,000 in the amount outstanding under the line
of credit from Silicon Valley Financial Services.
At September 30, 1996, the Company had outstanding long-term debt
(including current maturities) of $3,910,547, compared to $5,758,095 at
December 31, 1995. During the nine months ended September 30, 1996, the
Company received $825,000 from Proactive and $175,000 from Lagunitas in
exchange for promissory notes from the Company. These notes bear interest at
the rate of 8% per annum and are due April 1, 1997. It is the intention of the
Company to convert these notes to common stock. The aggregate principal amount
of $1,000,000, plus accrued interest of $35,882, are reflected as common stock
subscribed in the financial statements for the period ended September 30, 1996.
These funds were used to finance the operations of the Company and to provide
the payment required under the Gilbarco restructure agreement. See Note 3 to
the accompanying unaudited condensed consolidated financial statements.
The Company has been able to restructure much of its long-term debt,
including the amounts payable to Gilbarco. See Notes 3 and 6 to the
accompanying unaudited condensed consolidated financial statements. The
Company also was able to restructure the payment schedule of its subordinated
debt; annual payments are now due in October as opposed to April.
At September 30, 1996 the Company had $1,132,870 of debt that matures
within the next twelve months, not including amounts due under the Financing
Agreement. Management of the Company expects that additional cash would be
required to fund the operations of the Company without a significant change in
the structure of the Company. On October 25, 1996, the Company completed the
Acquisition. The Acquisition expands the fleet size, number of service
employee and service offerings of the Company.
Although there can be no assurances, the Company believes that its
cash flows from operations and its existing credit facilities will provide the
Company with sufficient resources to meet its current obligations as they become
due through at least the end of 1997.
Page 17
<PAGE> 18
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
OTHER INFORMATION
PART II OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated herein by
reference:
No. Exhibit
- ----- -------
10.1 Revised Agreement to NDE Environmental Corporation's Secured
Promissory Note, between the Registrant and Gilbarco, Inc., dated
as of September 15, 1996.
(b) There were no reports on Form 8-K filed during the quarter ended September
30, 1996. On November 12, 1996, Registrant filed a Current Report on Form 8-k
dated October 25, 1996 reporting its acquisition of three underground storage
tank service subsidiaries of Tanknology Environmental, Inc.
Page 18
<PAGE> 19
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
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.
NDE ENVIRONMENTAL CORPORATION
(Registrant)
<TABLE>
<S> <C>
Date: November 12, 1996 /s/ A. DANIEL SHARPLIN
--------------------------------------------
A. Daniel Sharplin
President and Chief Executive Officer
Date: November 12, 1996 /s/ ERIC J. HOPKINS
--------------------------------------------
Eric J. (Rick) Hopkins
Vice President and Chief Financial Officer
</TABLE>
Page 19
<PAGE> 20
EXHIBIT INDEX
No. Exhibit
- ----- -------
10.1 Revised Agreement to NDE Environmental Corporation's Secured
Promissory Note, between the Registrant and Gilbarco, Inc., dated
as of September 15, 1996.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
REVISED AGREEMENT TO NDE ENVIRONMENTAL CORPORATION'S
SECURED PROMISSORY NOTE
This Revised Agreement to the Secured Promissory Note, is dated
September 15, 1996, and is made by and between NDE Environmental Corporation, a
Delaware corporation ("NDE"), and Gilbarco Inc., a Delaware corporation
("Gilbarco") referred to as the "Parties."
I. RECITALS:
1.1 ASSET PURCHASE. Whereas, Gilbarco and NDE entered into an Asset
Purchase Agreement dated February 24, 1994.
1.2 SECURED PROMISSORY NOTE. Whereas, NDE executed a Secured
Promissory Note ("Note") in the amount of Two Million Four Hundred Fifty
Thousand and no/100 Dollars ($2,450,000.00) on April 11, 1994, for a
portion of the purchase price.
1.3 FIRST AMENDMENT. Whereas, on February 28, 1995, the Parties
entered into the First Amendment revising the principal amortization
schedule.
1.4 SECOND AMENDMENT. Whereas, on March 22, 1996, the Parties entered
into the Second Amendment providing, among other matters, for NDE to have
the right to make a prepayment pursuant to Section 2.3 on or before June
30, 1996.
1.5 EXTENSION AGREEMENT. Whereas, on June 28, 1996, the Parties
entered into an Extension Agreement from June 30, 1996 to July 12, 1996.
1.6 REVISED AGREEMENT. Whereas, it is in the best interest of the
Parties to revise the terms of the current Extension Agreement.
Now, therefore, in consideration of the above recitals, the mutual
covenants herein and other good and valuable consideration, the Parties
agree:
II. REVISED TERMS
2.1 PREPAYMENT RIGHTS. The right to make prepayment for
extinguishment of the Note pursuant to Section 2.3 of the second
Amendment dated March 22, 1996, shall be modified to an amount of Three
Hundred Thousand and no/100 Dollars ($300,000.00) for the period ending
September 30, 1996.
III. OTHER PROVISIONS
3.1 APPLICABLE LAWS. This Revised Agreement shall be construed in
accordance with the laws of the State of New York.
<PAGE> 2
3.2 ENTIRE AGREEMENT. The terms of this Revised Agreement are the
only changes to the Secured Promissory Note, and all other provisions of
the Note as amended previously and Security Agreement shall remain in full
force and effect.
3.3 COUNTERPARTS. This Revised Agreement may be entered into in any
number of counterparts, each of which will be deemed an original and all of
which, taken together, constitute one and the same agreement.
NDE ENVIRONMENTAL CORPORATION
By: /s/ JAY ALLEN CHAFFEE
------------------------------------------
Jay Allen Chaffee, Chairman of the Board
Address: 8900 Shoal Creek Blvd., Bldg. 200
Austin, TX 78758
GILBARCO INC.
By: /s/ J.L. JOHNSON
-------------------------------------------
Name: J.L. Johnson
--------------------------------------
Title: CFO, Gilbarco Inc.
-------------------------------------
Address: Gilbarco North America
7300 W. Friendly Avenue
Greensboro, NC 27420-2087
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,575
<SECURITIES> 0
<RECEIVABLES> 2,079,356
<ALLOWANCES> 363,564
<INVENTORY> 232,401
<CURRENT-ASSETS> 2,161,681
<PP&E> 9,524,810
<DEPRECIATION> 6,980,246
<TOTAL-ASSETS> 6,049,256
<CURRENT-LIABILITIES> 5,214,808
<BONDS> 3,910,547
<COMMON> 799
5,000
0
<OTHER-SE> 1,263,319
<TOTAL-LIABILITY-AND-EQUITY> 6,049,256
<SALES> 0
<TOTAL-REVENUES> 8,638,503
<CGS> 0
<TOTAL-COSTS> 5,447,412
<OTHER-EXPENSES> 5,295,523
<LOSS-PROVISION> 169,607
<INTEREST-EXPENSE> 593,285
<INCOME-PRETAX> (2,937,716)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,813,149
<CHANGES> 0
<NET-INCOME> (1,124,567)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.24)
</TABLE>
