<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 2054/9
FORM 10-KSB
(Mark One)
/X/ Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended December 31, 1995
/ / Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from to
---------------- ---------------
Commission File Number: 1-10361
NDE ENVIRONMENTAL CORPORATION
(Name of small business issuer in its charter)
State or other jurisdiction of (IRS Employer
incorporation or organization: Delaware Identification No.) 95-3634420
Address of principal executive offices: 8906 Wall Street, Suite 306
Austin, Texas 78754
Issuer's telephone number, including area code: (512)719-4633
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 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 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /X/
The Issuer's revenues for the fiscal year ended December 31, 1995 were
$11,347,591
The aggregate market value of voting stock held by non-affiliates of the Issuer
as of April 10, 1996 was approximately $139,222.
As of April 10, 1996, there were 7,978,610 outstanding or subscribed shares of
Common Stock, $.0001 par value, of the Issuer.
DOCUMENTS INCORPORATED BY REFERENCE:
The following document is incorporated by reference in Part III items 9, 10, 11
and 12 of Form 10-KSB: The Issuer's proxy statement for its 1996 Annual Meeting
of Stockholders to be filed by April 30, 1996.
Transitional Small Business Disclosure Format (check one): Yes No X
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NDE ENVIRONMENTAL CORPORATION
1995 ANNUAL REPORT ON FORM 10-KSB
Table of Contents
<TABLE>
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Page
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PART I
Item 1. Description of Business 3
Item 2. Description of Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 11
Item 6. Management's Discussion and Analysis or Plan of Operation 12
Item 7. Financial Statements 16
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 17
Item 10. Executive Compensation 17
Item 11. Security Ownership of Certain Beneficial Owners and Management 17
Item 12. Certain Relationships and Related Transactions 17
Item 13. Exhibits, List and Reports on Form 8-K 17
Signatures 23
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
NDE Environmental Corporation (the "Company" or "NDE") was incorporated
in Delaware in 1988. The Company's wholly-owned subsidiaries include NDE Testing
& Equipment Inc., d/b/a NDE Environmental Corporation, NDE Canada, Corporation.
("NDE Canada"), and ProEco, Inc. ("ProEco"), EcoAm, Inc. and ProEco, Ltd.
("ProEco Ltd."). Through its nationwide infrastructure and international
licensees, the Company provides environmental compliance, information, and
management services to owners and operators of underground storage tanks
("USTs"). The Company has three principal lines of business:
- Domestic Field Services
- Domestic Compliance Management Services
- International UST Testing
MERGERS AND ACQUISITIONS
In March, 1990, the Company acquired Pan American Environmental
Services, Inc. ("PAES"). PAES was the Company's major licensee and operated 14
vehicles primarily in the Eastern United States.
On April 1, 1991, the Company acquired the principal tank testing
assets of Kaneb Metering Corporation ("Kaneb"). The Kaneb assets included 32
testing vehicles, customer lists, and technology for detecting leaks in the
space above a UST's liquid level.
On January 8, 1993, the Company acquired the principal assets of the
domestic UST testing business of ProEco. The ProEco assets included (1) 17 fully
equipped tank testing vehicles, (2) 80 robotic tank testing probes, as well as
ancillary equipment and customer lists; (3) an exclusive license to utilize the
Sure Test system in the United States and Puerto Rico, and (4) covenants not to
compete in the United States and Puerto Rico from ProEco, ProEco's affiliate
EcoAm, Inc., and ProEco's stockholders.
In October 1993, the Company formed a subsidiary in Canada, NDE Canada,
in an effort to expand it's business into international markets.
On December 11, 1993, the Company purchased all of the outstanding
stock of ProEco and its affiliates, EcoAm, Inc. and ProEco, Ltd. ProEco has two
service agreements, with service providers located in Mexico and Brazil. ProEco,
Ltd. (a United Kingdom corporation) has service agreements with seven service
providers located throughout the European economic community.
On April 11, 1994, the Company acquired the principal assets of the
Environmental Services Division of Gilbarco, Inc. ("GB ESD"), a division engaged
in testing USTs. The Company acquired 31 fully-equipped tank testing vehicles,
related tank testing equipment, certain ancillary equipment and intangible
assets, including systems approvals, intellectual property rights, customer
information, and supplier and distributor information.
LINES OF BUSINESS
The Company's Field Services division provides precision testing, Stage
II testing, specialty testing and other value added services through
approximately 70 company owned and operated service vehicles across the United
States.
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The Company's principal field service is the precision testing of
petroleum UST's. The Company provides domestic UST related services, and its
primary service is called tank tightness testing, tank integrity testing, or
precision testing. This service examines UST's and associated piping to
determine whether or not they are leaking. In general, UST testing has the
following characteristics:
- it is a periodic test.
- the test systems are mobile and moved between locations by van, truck,
or trailer.
- the tank must be shut down, from four to 24 hours, while testing (i.e.,
no deliveries or dispensing of product).
- the test is precise -- capable of reliably detecting leaks smaller than
0.1 gallons per hour.
Tank owners or operators require testing in the following
circumstances:
- to comply with regulations.
- to certify the system as tight after work is performed on the system.
- to investigate inventory discrepancies.
- to satisfy environmental liability concerns regarding property
transfers.
- to investigate the site in response to some evidence of local
pollution/fire hazard.
NDE utilizes its UST Testing personnel and assets to provide "Stage II
Testing" services to its domestic customers. The Clean Air Act requires that
Stage II vapor recovery systems be installed in ozone non-attainment areas
designated by the Environmental Protection Agency ("EPA") which are mostly large
metropolitan areas. Stage II vapor recovery equipment collects vapor emissions
(which contribute to ozone pollution) from the fill pipe of a car's gasoline
tank during refueling and returns them to the UST. These systems must be tested
to ensure functionality.
NDE maintains a "Specialty Testing" unit which provides pipeline and
container leak detection services. Currently, Specialty Testing operates two
trucks, one equipped to perform hydrostatic pipeline testing and one equipped to
perform acoustic pipeline testing and large storage tank testing.
The Company uses seven proprietary systems to provide domestic UST
testing services. All systems have been certified by independent laboratories as
meeting EPA standards for UST testing systems.
Field service revenue approximated $10,350,000 in 1995.
Since 1993, the Company has provided certain "Compliance Management
Services" to its domestic customer base; compliance management refers to the
provision of services required to achieve the following objectives
- get the UST system in compliance with regulations
- keep the UST system in compliance with regulations
- coordinate the provision of services and installation of products
- manage the liabilities associated with the operation of USTs and
storage of hazardous material
- manage the tank owner's relationships with regulatory agencies
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Prior to 1995, the Company provided compliance management services
primarily to differentiate its core business; inclusion of CMS services enabled
NDE to charge premium prices for its core UST services.
In 1995, the Company established its Compliance Management Services
("CMS") division to provide a turn-key compliance management service to certain
domestic customers on an outsourced basis. The Company's CMS division provides
administrative, managerial, technical, data processing, and regulatory liaison
services to tank owners. Such services include:
- acquisition and maintenance of operating and regulatory permits
- environmental incident response, reporting and management
- environmental notice of violation resolution
- hazwaste manifest tracking
- SARA III/community right-to-know reporting
- construction/maintenance/testing contractor oversight
- management reporting/capital budgeting
At December 31, 1995 the Company's CMS division was managing the
environmental compliance for approximately 10,000 tanks in the United States.
1995 compliance management revenues approximated $600,000.
In 1995, NDE made the decision to phase out its operations in Canada.
NDE has instead entered into a licensing agreement similar to those in its other
international markets for the western part of Canada and is currently trying to
secure a licensee for the eastern part of Canada. Canadian revenues were
approximately $130,000 (USD) in 1995 compared to approximately $400,000 in 1994.
Through its wholly owned subsidiaries, ProEco, Inc., and ProEco, Ltd.,
NDE licenses its Sure-Test technology to foreign service providers in the United
Kingdom, Ireland, France, Spain, Portugal, Italy, Brazil, and Mexico. Service
providers receive a license for a specific country and purchase or lease
equipment from NDE; NDE reviews the data, issues the test report, provides
technical support, and receives processing fees on each test. Data analysis
revenues for 1995 were approximately $260,000.
DISTRIBUTION
The Company distributes services to its North American customers
through fourteen service centers called Customer Service Teams ("CSTs"). CSTs
are semi-autonomous small business units which confine their activities to a
limited geographical area and are composed of the following:
- One Customer Service Representative ("CSR")
- Two to eight field service crews/vehicles
CST responsibilities include:
- Most sales/service activities within a territory
- Most communication with customer regarding NDE relationship
- Management of inventory (van-days)
- Scheduling of services
- Provision of services
- Follow-up with customer and NDE "back-room" operations
- Quality control of testing, reporting, and invoicing
- Monitoring of environmental regulations
- Management of local contractors
- Liaison for customer with regulatory agencies
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By utilizing the CST approach, NDE is responsive to customers' needs
and operates with a high degree of efficiency. Scheduling is restricted to a
small geographic area. Field morale is higher, as technicians spend fewer nights
away from home. Most importantly, the CST distribution system simplifies the
customers' contact with the Company, and lowers cost to the customers.
INFORMATION SYSTEMS AND PRODUCTS
NDE has developed proprietary information systems named NDEOE and
USTLine. NDEOE is the Company's integrated computer and MIS system, where
USTLine is an information management product offered to customers that link them
to the NDEOE system. NDEOE and USTLine are the trade names for a group of
information products that facilitate the environmental compliance of UST
installations. NDEOE and USTLine were developed in response to the burdensome
(and growing) information management challenges facing tank owners as they
attempt to comply with myriad complex and, oftentimes, conflicting compliance
requirements.
NDEOE and USTLine consist of the following:
- A wide area network (WAN) digitally linking all NDE employees to
customers.
- A local area network (LAN) operating at NDE's corporate headquarters in
Austin, Texas.
- Proprietary database management software with specialized management
reports, regulatory information, analysis tools, and translation
programs.
- An integrated electronic-mail system.
- Customized communication software to ensure the rapid and accurate
transmission of data across the WAN and LAN.
- Assorted computers, modems, scanners, digital cameras, printers, and
electronic data storage devices.
The systems add value for UST owners in the following ways:
- Increased responsiveness through real-time access to test results, site
surveys, and testing schedules.
- Increased efficiency and speed through computerized storage, filing,
sorting, and data retrieval.
- Lower costs resulting from diminished paper processing and archival
requirements.
- Enhanced communication between customers and NDE through integrated
E-Mail.
- Increased efficiency in planning, budgeting, and scheduling due to the
integrated data-base management tools.
- Decreased administrative burdens resulting from re-keying relevant
data; the USTLine database system will export to virtually any hardware
platform and/or software program.
- More efficient response in the face of emergencies (e.g., earthquakes);
the USTLine system can sort the data by proximity to a particular
landmark and site characteristics in just a few minutes.
NDE installed the first USTLine system in a customer's office
in March 1994. Since that time NDE has installed approximately 30 systems at
customers facilities.
NDE's database management system features the flexibility
necessary to efficiently build a bank of information obtained from a variety of
sources. For example, information regarding ground water level might best be
obtained by NDE's technician while visiting the site, while regulatory
information would be maintained on an associated database by NDE regulatory
affairs personnel and tied to a particular site location via zip codes.
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Customer-specific information could either be entered by the customer via
USTLine or supplied to NDE personnel on either disk or in hard copy.
Master databases are centrally managed at NDE's Austin headquarters.
Customized reports are generated which meet the needs of each particular client
or regulator. The NDE database management systems have the built-in flexibility
required to generate specific report formats based on the needs of the
individual customer.
Reports can be faxed or hard copies printed and mailed to the customer
and/or regulatory agency; or the customer may utilize NDE's USTLine service
which provides him with instant access to up-to-date information regarding all
of his sites. USTLine also allows the customer to print reports in his office
whenever he requires a hard copy.
COMPETITION
The Company's primary business, domestic UST testing, is marked by
rapid technological change, fragmented competition, and declining total demand.
(See Government Regulation section, which follows.)
The primary demand for the Company's UST testing services is from tank
owners who are continuing to operate UST's which were installed prior to 1988
and have not been upgraded to meet the 1998 requirements. Numerous tank owners
have elected to close their UST's, and other tank owners are upgrading their UST
systems prior to the 1998 deadline. It is anticipated that the upgrade and
closure trends will intensify as the 1998 deadline approaches. These trends
reduce overall demand and thereby increase the competitive nature of the testing
business. Though the Company has only one primary competitor on a nationwide
scale -- Tanknology International, Inc. -- the market for the Company's UST
testing services has become saturated by the introduction of inexpensive
technology available to smaller local testing companies. These smaller testing
companies normally service local or regional customers. Also, there are
substitutes for the Company's testing services. Pricing declined by
approximately 30% during 1994 as a result of the above factors. In the future,
competitors may refine existing technologies or develop new systems that render
the Company's technology obsolete or less competitive. There can be no assurance
that the Company will be able to compete successfully.
SUPPLIERS
The Company does not depend upon any single supplier for spare parts
for any of its technologies, and all repair, diagnostic, and maintenance
functions are performed in-house.
MAJOR CUSTOMERS
The Company provides UST services to oil companies, convenience store
operators, independently owned gasoline retailers, trucking companies,
manufacturing concerns, military facilities, government facilities, and other
operators of UST's. However, since 1992, the Company has focused primarily on
large oil companies, which currently provide over 60% of the Company's revenues.
In 1995, Mobil Oil and Shell Oil accounted for approximately 13% and 10% of the
Company's 1995 revenues respectively. In addition to Mobil and Shell, the
company's customers include Exxon, Chevron, Texaco, and UNOCAL.
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PATENTS
Primarily through acquisitions, NDE owns or has rights to enforce
through licensing agreements and 15 patents. These patents focus on UST testing,
leak detection systems, and tank construction. NDE has expended considerable
effort to catalog these materials and commence a systematic effort to identify
potential infringers, and is currently working with its counsel to pursue
infringers. A list of NDE's patents follows.
<TABLE>
<CAPTION>
Expiration Patent Topic
- ------------- ------------- -----------------------------------------------
<S> <C> <C>
Sept 1999 4,404,842 Product line leak detection apparatus
- ------------- ------------- -----------------------------------------------
Feb 2006 4,817,415 Product line leak detection apparatus
- ------------- ------------- -----------------------------------------------
June 2005 4,748,846 Ultrasonic tank gauging apparatus
- ------------- ------------- -----------------------------------------------
Feb 2006 4,805,453 Ultrasonic tank gauging method
- ------------- ------------- -----------------------------------------------
Feb 1997 4,186,591 Precision tank test apparatus
- ------------- ------------- -----------------------------------------------
Aug 2008 4,281,534 Mass measurement tank gauging apparatus
- ------------- ------------- -----------------------------------------------
May 2002 4,300,388 Improvements of 4,281,534
- ------------- ------------- -----------------------------------------------
Dec 1999 4,362,403 Temperature and level tank test
- ------------- ------------- -----------------------------------------------
June 2000 4,386,525 Improvements to 4,186,591
- ------------- ------------- -----------------------------------------------
July 2006 4,850,223 Infrared tank testing apparatus
- ------------- ------------- -----------------------------------------------
July 2006 4,852,054 VPLT precision testing apparatus
- ------------- ------------- -----------------------------------------------
Apr 2007 5,107,699 Area converter apparatus
- ------------- ------------- -----------------------------------------------
Feb 1995 4,073,193 Transducer-based measuring apparatus
- ------------- ------------- -----------------------------------------------
June 2003 4,592,386 Tank overfill protection apparatus
- ------------- ------------- -----------------------------------------------
Mar 2004 4,651,893 Double-wall tank apparatus
- ------------- ------------- -----------------------------------------------
</TABLE>
There can be no assurance that any of the above patents will be
enforceable or will provide the Company any competitive advantage.
GOVERNMENT REGULATIONS
In response to concerns about ground water contamination, Congress
included UST amendments in the 1984 Resource Conservation and Recovery Act
("RCRA") regarding authorization. The RCRA amendments lead to Federal UST
regulations that went into effect in late 1988.
The 1988 federal regulations required that test methods be able to
detect a 0.10-gallon-per-hour leak with at least a 95% probability of detection
and no more than a 5% probability of false alarm. This represented what the EPA
believed to be the best demonstrated available technology.
EPA regulations provide that all owners and operators of USTs installed
prior to December 22, 1988 must comply with leak detection requirements. The
regulations further provide that owners and/or operators of UST's must conduct
leak detection testing through the use of one of the following procedures:
(i) monthly monitoring, which requires the installation of continuous
monitoring equipment;
(ii) monthly inventory control and annual tank tightness testing; or
(iii) monthly inventory control and tank tightness testing once every five
years (this alternative is available only for UST's that have added
corrosion protection and overflow spill protection).
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Tanks installed after December 22, 1988 must have monthly monitoring or
monthly inventory control and tank tightness testing once every five years.
After December 1, 1998, all UST's must be upgraded to have corrosion protection,
overflow spill protection and continuous monitoring.
EPA regulations now require all tank testing methods to be able to
detect a leak as small as 0.1 gallon per hour, with at least a 95% probability
of detection and no more than a 5% probability of incorrectly indicating a leak.
Tests conducted by independent laboratories indicate that all of the Company's
technologies meet these EPA requirements. The Alert technology was last
certified by an independent laboratory on February 28, 1994; the Suretest, on
September 9, 1994; and the VPLT on March 30, 1993.
Some state and local jurisdictions have adopted regulations regarding
testing of UST's which are stricter than EPA regulations. The failure of the
Company's testing systems to comply with any such current or future regulations
or the failure of the Company to obtain any necessary certifications could have
a material adverse impact on the revenues and the operating results of the
Company. The Company believes it is in full compliance with all existing
regulations which could have a material impact on the operating results of the
Company. In a number of states, authorities have not actively enforced current
regulations for testing UST's, and a number of states have not yet adopted
regulations that are in accordance with EPA guidelines.
Because the Company's business is largely driven by government
regulations, the failure of such states to adopt or enforce effective UST
testing regulations is believed to adversely affect the Company's business.
RESEARCH AND DEVELOPMENT
The company incurred no significant expenses for research and
development during 1994 and 1995.
INSURANCE
The Company's testing activities, consistent with the industry, present
risks of substantial liability. Spills of petroleum products and hazardous
substances, or the creation or exacerbation of a contamination problem through
errors or omissions in tank testing, could result in substantial liability under
federal and state anti-pollution statutes and regulations or from tort claims by
those suffering personal injury or property damage as a result of such
contamination. In addition, many of the Company's tank testing services involve
UST's containing volatile substances such as gasoline. The Company or its former
licensees could be held liable for damage to persons or property caused by any
resulting fire or explosion.
The Company carries comprehensive general liability and pollution
insurance of up to $1,000,000 per occurrence; product liability insurance of up
to $1,000,000; and professional liability insurance of up to $2,000,000. The
Company's insurance for multiple claims is limited to $1,000,000 annually. The
Company's claims history as paid by its insurance carrier is as follows over the
past three years: during 1993 $1,400; in 1994, $0; and in 1995, $0. These
amounts are in addition to the Company's deductible amount of $10,000 per
occurrence. During 1995, the Company's deductibles were raised to $50,000 for
Pollution and Professional Liability. There currently are four
pollution/professional liability claims pending with the Company's insurance
carrier. It is not possible at this point to estimate the amount of the probably
settlement of these claims. In addition, there can be no assurance that all
possible types of liabilities that may be incurred by the Company are covered by
its insurance or that the dollar amount of such liabilities will not exceed the
Company's policy limits.
PERSONNEL
As December 31, 1995, the Company employed approximately 122 people: 72
test technicians, 13 CSR's, 3 regional sales managers ("RSMs"), 2 international,
3 electronic technicians and 29 central office personnel. None of the Company's
personnel are represented by a labor union. The Company believes its employee
relations are satisfactory.
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ITEM 2. DESCRIPTION OF PROPERTY
During 1994, The Company moved its headquarters from its leased
facility in Torrance, California to Austin, Texas. The Torrance facility, which
is in excellent condition, has been leased through October 1996. The Company has
subleased the property through this same date. The subleases, to two separate
tenants, are for amounts totaling approximately 76% of the Company's master
lease cost. Although the sublease agreements have been approved by the landlord,
they do not release the Company of its obligations under the master lease.
Management believes that losses on sublease rentals have been adequately accrued
in the financial statements of the Company.
In December, 1993, the Company entered into a one year lease agreement
beginning January 1, 1994 for 2,000 square feet of office and warehouse
facilities in Austin, Texas. This lease was amended in May 1994 to extend this
agreement through April 30, 1999 and added an additional 6,000 square feet of
space.
The Company also leases a sales office of approximately 500 square feet
in Redondo Beach, California. The monthly expense is $560. This lease expires in
May 1996 and is expected to be renewed.
ITEM 3. LEGAL PROCEEDINGS
In August, 1994 the Company was sued in the Superior Court of
California by Protank, Inc., a company owned and controlled by John R.
Mastandrea, NDE's founder and former chairman. Protank, Inc.'s complaint alleged
breach of contract and intentional misrepresentation regarding NDE's performance
under a license arrangement in Southern California. The complaint sought
specific performance of the license, injunctive relief, declamatory relief, and
money damages in excess of $1,000,000.
Effective November 30, 1995, the Company entered into a binding
settlement agreement with Protank, the primary terms of which are:
1.) The Company agreed to pay to Protank the sum of $92,500 as
follows: $40,000 on or before January 31, 1996; $20,000 on June 1,
1996; $20,000 on December 1, 1996; and $12,500 on June 1, 1997. At
April 8, 1996, the Company has complied with this schedule.
2.) The Company will waive all royalties due from Protank.
3.) On or before January 31, 1996, the Company will deliver to Protank
3 VPLT testing systems and 4 ullage testing systems. The book
value of these systems is approximately $82,000. This equipment
was shipped in February 1996.
4.) The Company will transfer to Protank 20,000 shares of NDE common
stock. These shares were transferred in February 1996.
The parties also agreed to binding arbitration proceedings in the event
of any future dispute arising out of the agreement.
In February 1995, U.S. Test, Inc. brought suit against NDE
Environmental Corporation in the United States Federal District Court, Western
District of Louisiana. The lawsuit is for a declaratory judgment that certain
patents owned by NDE are invalid, unenforceable and/or that certain U.S. Test
tank testing systems do not infringe
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such patents. The relief U.S. Test is seeking includes a final determination on
the above issues, a preliminary injunction regarding actions taken by NDE and
attorneys' fees and costs. In May, 1995 NDE filed a counterclaim alleging that
(1) the NDE patents are valid and enforceable, (2) the U.S. Test tank testing
systems are infringing upon such patents, and (3) NDE is owed damages for such
infringement. The amount of damages owed by U.S. Test, if any, has not been
specifically alleged. The patents at issue were transferred from Gilbarco, Inc.
in the 1994 acquisition by NDE of Gilbarco's Environmental Services Division.
The parties have entered into a joint scheduling order providing for a trial in
1996. There have been no dispositive rulings to date.
The Company is also subject to various claims and litigation in the
normal course of business. In the opinion of management, the ultimate resolution
of such matters will not have a material adverse affect on the Company's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth high and low bid prices of the shares of
Common Stock of the Company for each quarterly fiscal period within the last two
fiscal years. Quotations reflect inter-dealer prices, without retail markups,
markdowns or commissions and may not represent actual transactions.
On August 31, 1994, the Company effected a 1 for 10 reverse stock
split. The bid prices below reflect the actual reported prices per share by the
NASDAQ Bulletin Board, and have not been adjusted for the possible effects of
the 1 for 10 reverse stock split. All other share and per share amounts included
in this Annual Report on Form 10-KSB have been adjusted to reflect the reverse
stock split.
On July 20, 1995 the Company was delisted from the NASDAQ Stock Market
for failure to meet listing requirements. These requirements include maintaining
a minimum bid price, minimum capital surplus and minimum market value of public
float. On December 22, 1995 the Company voluntarily delisted from the Boston
Stock Exchange for similar reasons. The Company's common stock continues to be
traded on the OTC Bulletin Board under the symbol `NDEC'.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
1994
First Quarter $15/16 $5/8
Second Quarter $7/8 $1/2
Third Quarter $2 1/2 $5/16
Fourth Quarter $1 $5/16
1995
First Quarter $9/16 $5/16
Second Quarter $5/8 $1/4
Third Quarter $1/4 $1/8
Fourth Quarter $3/16 $1/20
</TABLE>
As of March 23, 1996, there were approximately 150 holders of record of
the Company's Common Stock, including those shares held in "street name."
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The Company did not declare or pay Common Stock dividends during 1994
or 1995. The Company's line of credit agreement prohibits the Company from
paying cash dividends without the lenders consent. The Company currently intends
to retain all of its earnings, if any, to finance the development and expansion
of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues
Revenues for 1995 were $11,347,591, an increase of $1,315,443, or 13%,
compared to $10,032,148 for 1994. Average revenue per van day (revenue from
domestic UST testing and tank management divided by van days worked) increased
4% to $1,022 per van day in 1995 compared to $984 in 1994, while total volume
increased by 8%, from 10,095 days in 1994 to 10,862 days in 1995. Pricing
continues to be extremely competitive due to an increase in the number of
smaller testing companies. Revenues per van day increased primarily through the
Company's efforts to test, when possible, multiple sites per van day. NDE's
increased volume (van days sold) was due primarily to the increased capacity
obtained from the acquisition of GB ESD in April 1994.
Cost of Testing
Cost of testing services for 1995 was $7,062,456 (62% of revenue), an
increase of $462,217, or 7%, compared to $6,600,239 (66% of revenue), for 1994.
The increased cost of testing is due to the increased number of van days sold.
The gross margin was $4,285,135 (38% of revenue) for 1995, compared to
$3,431,909 (34% of revenue) for 1994. The increased margins are due increased
revenue per van day and to a lower cost achieved through a more efficient
geographic coverage of a larger fleet.
Selling, General and Administrative
Selling, general and administrative expenses for 1995 were $6,194,980
(55% of revenue), a decrease of $26,627, or 0%, compared to $6,221,607 (62% of
revenue) for 1994. This decrease is primarily due to the elimination of goodwill
amortization ($2,562,000 of Goodwill was written off in 1994), decreased net
rent associated with the Torrance California facility (loss on lease/sublease
was recognized in 1994) and decreased insurance expense, offset by increased
litigation expenses (Protank, Inc. and U.S. Test, Inc.). Insurance expenses
decreased primarily because the Company decreased its Pollution & Professional
Liability limits from $2,000,000 to $1,000,000 and increased its deductible
amount under this coverage from $10,000 to $50,000.
Provision for Doubtful Accounts
For the year ended 1995, the provision for doubtful accounts was
$233,453, an increase of $137,288, or 143%, compared to $96,165 for the year
ended 1994. This increase is due to higher sales volume in 1995 and an increase
in the allowance rate associated with foreign receivables.
12
<PAGE> 13
Interest Expense
Interest expense for 1995 was $905,682, an increase of $376,210, or
71%, compared to $529,472 for 1994. This increase is due to higher interest
rates and higher average balance maintained on the Company's working capital
financing agreement and to a full year's interest charge on the Gilbarco $2.45
million notes payable.
Net Loss
The Company recorded a net loss for 1995 of $2,892,639 as compared to a
net loss of $5,963,872 for 1994. The decrease in the net loss is due to the
write-off of goodwill included in the 1994 loss ($2,562,000), and to the
increased sales and gross margins realized in 1995 as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since its initial public offering in 1989, the Company's operational
strategy has been to increase its fleet size to the approximately 70 vehicles
necessary to establish and maintain a national presence. This goal was achieved
in 1994, and at December 31, 1995 the Company's fleet numbered 72 operational
testing vehicles. The Company has grown primarily through acquisitions,
beginning with the Pan American Environmental Services, Inc. acquisition in
1990, pursuant to which the Company acquired 14 vehicles; the Kaneb Metering
Corporation transaction in 1991, (32 vehicles), and continuing with the domestic
ProEco transaction in January 1993 (17 vehicles and related testing equipment),
the ProEco international transaction in December 1993 (80 probes and other
related testing equipment), and the GB ESD transaction in 1994 (31 vehicles and
related equipment). The Company has disposed of vehicles as necessary when they
have exceeded their useful lives. A significant amount of debt has been incurred
in following this strategy of growth through acquisition. In addition, the
Company has utilized cash provided from the issuance of debt and equity
instruments in order to satisfy its operational and working capital needs.
At December 31, 1995, the Company had $5,758,095 of long-term debt:
<TABLE>
<S> <C>
Gilbarco, Inc. (Acquisition) $2,096,703 (1)
SVFS 1,477,207 (2)
SVB 750,000 (3)
Subordinated Notes Payable 517,365 (4)
Former Stockholders of ProEco 466,636 (5)
Gilbarco (Patent) 300,000 (6)
Ford Motor Credit 111,013 (7)
Enterprise Leasing 39,171 (8)
-------
Total $5,758,095
</TABLE>
(1) Promissory note to Gilbarco, Inc. ("Gilbarco") for the 1994
acquisition of GB ESD, less discount of $353,297. Note is collateralized by the
assets acquired. Interest is prime rate less 1% payable quarterly; principal,
originally due quarterly through March 2000, was renegotiated in March 1996. See
below for details.
(2) Working Capital Financing Agreement with Silicon Valley Financial
Services ("SVFS"), an affiliate of Silicon Valley Bank ("SVB"). Amount is
collateralized by certain of the Company's accounts receivable. Fees are .5% per
invoice plus a monthly charge of 1.75% (amended to 1.25% effective January 1996)
of the amount outstanding under the line. Agreement automatically renews
annually in March unless canceled by SVFS or the Company.
(3) Term Loan payable to SVB (the "Term Loan"). Interest is prime
rate, payable monthly. Amount is fully collateralized with a certificate
of deposit by Proactive Partners, L.P. ("Proactive"), a significant
shareholder. Loan is due July 1, 1997
13
<PAGE> 14
(4) Subordinated Notes payable to: Riverbank Partners ("Riverbank") -
$274,609; Spears, Benzak, Soloman, & Farrell ("SBSF") - $50,000; Dan Purjes -
$96,379; Peter Sheib - $44,977; Lawrence Rice - $32,126; and Joan Taylor -
$19,274. Interest is payable quarterly at 8%; principal is payable annually in
equal amount over five years.
(5) In 1993, the Company issued four notes in order to effect the
ProEco transaction. The first two, each in the original amount of $225,000, are
payable annually in equal amounts over seven years and are collateralized by the
Company's common stock. The second two, each in the original amount of $40,461,
are payable annually in equal amounts over three years and are collateralized by
the shares purchased. All four notes bear interest at the rate of 7.5%. The
notes are payable to the former owners of ProEco.
(6) In November 1995, in order to acquire a patent from Gilbarco, Inc.,
the Company issued to Gilbarco its promissory note in the amount of $300,000.
Interest at 6.11% is payable annually; principal is due October 1, 2000.
(7) Promissory notes payable to Ford Motor Credit for vehicle
financing, due May 1998, bearing interest at 8.0% to 8.7%.
(8) Promissory note payable to Enterprise Leasing, due May 1997,
collateralized by 17 of the Company's vehicles, bearing interest at 31%.
Two notes were issued by the Company in connection with the GB ESD
transaction. Both were payable to Gilbarco. The first note, in the principal
amount of $400,000 and with no stated interest rate, became due on March 31,
1995 and was paid in full by the Company via its credit line with SVFS. SVB held
the Company's credit line prior to the current arrangement with SVFS, and
continues to hold the Company's $750,000 term loan. The second note, in the
principal amount of $2,450,000, remains outstanding at December 31, 1995. This
note is collateralized by the assets acquired, and carries interest at the prime
rate less 1%. Because this rate is not representative of the Company's true cost
of funds, an additional interest rate (bringing the effective rate to 12%) has
been imputed from the principal amount of this note; its net carrying value at
December 31, 1995 was $2,096,703. In February 1995, Gilbarco extended the 1995
maturities of $367,500 due under this note to the end of the payment period, or
March 31, 2000. In March 1996, the Company reached an agreement with Gilbarco
which further restructured this note. The restructured note to Gilbarco (the
"Restructured Note") provides that on or before March 29, 1996, the Company
shall (I) pay Gilbarco $256,000 in cash, or (II) issue a separate note in the
amount of $256,000 due on or before June 30, 1996, collateralized by an
irrevocable letter of credit payable to Gilbarco. The entire amount of the
Restructured Note ($2,450,000 less the $256,000 deposit, plus all accrued
interest) will become due July 1, 1997. Gilbarco also agreed to allow the
Company to prepay the note, including accrued interest, at a discounted basis.
The prepayment amounts, which are in addition to the deposit, are as follows:
$256,000 if prepaid by June 30, 1996; $384,000 if prepaid by September 30, 1996;
$512,000 if prepaid by December 31, 1996; $640,000 if prepaid by March 31, 1997;
and $768,000 if prepaid by June 30, 1997. Proactive funded the deposit amount of
$256,000 in exchange for 51 shares of the Company's Series DDD Preferred Stock.
(This Series DDD Preferred Stock was never issued - See Below.) Though the
Company believes that it will be able to raise the remaining $256,000 required
in order to achieve the June 30, 1996 prepayment date through the sale of a
portion of the collateral involved in the GB ESD transaction, there can be no
guarantees that this will be the case.
14
<PAGE> 15
In September, 1993, the Company entered into a Loan and Security
Agreement (the "Prior Agreement") with SVB for borrowing up to a maximum of
$750,000. This loan carried an interest rate of prime plus 4%, and was
collateralized by the Company's accounts receivable. On April 7, 1994, the Prior
Agreement was amended (the "Amendment") to increase the maximum borrowings under
the Prior Agreement to $1,500,000 and to extend the expiration date to May,
1995. In addition, under the Amendment, SVB provided the Company with a $750,000
term loan due November 1995. On September 11, 1996, the Company amended the
$750,000 Term Loan with SVB to extend the maturity to June 30, 1997. The Term
Loan bears interest at the prime rate, and is collateralized by a certificate of
deposit supplied by Proactive. Proactive has also agreed to extend the
collateralization of the Term Loan to June 30, 1997. See Note 4 of Notes to the
Consolidated Financial Statements. On March 27, 1995, the Company entered into a
financing agreement (the "Financing Agreement") with SVB that will provide a
line of credit up to $1,000,000 based on qualified and eligible accounts
receivable balances not to exceed 80% of gross receivable balances. On May 1,
1995, the maximum amount available under the Financing Agreement was increased
to $1,500,000. At December 31, 1995, the financing agreement was fully drawn at
80% of available receivables. The initial advance under this Financing Agreement
was used to pay off the existing line of credit with SVB in the amount of
approximately $340,000 and to pay off the one-year note to Gilbarco in the
amount of $400,000. Each March, the Financing Agreement is automatically renewed
for one year unless terminated by either SVFS or the Company. The Financing
Agreement originally provided for a charge by SVFS of 1.75% per month of the
receivable involved, plus a .5% per invoice administrative fee. On July 24,
1995, the monthly charge was reduced to 1.5%. In December 1995, the monthly
charge was further reduced to 1.25%.
In April and August, 1993, the Company raised $550,000 from three of
the Company's principal stockholders, SBSF, Proactive, and individuals
associated with Josephthal Lyon & Ross Incorporated, in return for the issuance
by the Company to such stockholders of unsecured promissory notes in the
aggregate principal amount of $550,000. SBSF had previously provided the Company
with $50,000 pursuant to a promissory note agreement. In March 1995, the Company
entered into new note agreements with the unsecured note holders, (the
"Subordinated Debt") aggregating approximately $740,000 that comprised the
principal balances due under the April and August 1993 notes along with accrued
interest. The Subordinated Debt notes are due in five equal annual installments
from 1996 through 2000. Interest accrues at 8% per annum, and is payable
quarterly.
In June, 1994, the Company raised an additional $300,000 through the
issuance to Proactive and SBSF of 60 shares of Series CCC Preferred Stock at
$5,000 per share.
In January 1995, the Company raised $500,000 from Proactive and
Lagunitas Partners L.P. ("Lagunitas"), a significant shareholder, in exchange
for its promissory notes (the "1995 Bridge Notes"). These notes carried an
interest rate of prime plus 4%, and became due on April 30, 1995. Also in
January 1995, this note was extended to May 31, 1995. In June 1995, the Company
completed a restructuring of the 1995 Bridge Note and Proactive's portion of the
Subordinated Debt (the "June Refinancing"). Proactive and Lagunitas agreed to
exchange (I) the 1995 Bridge Note of $500,000 plus accrued interest of $25,644;
(II) Proactive's portion of the Subordinated Debt, which was $273,038 plus
accrued interest of $4,728; and (III) cash of $500,000 for 261 newly issued
shares of the Company's Series DDD Preferred Stock. The Company received
$250,000 of the cash at the time of the June Refinancing; the balance was
received in December 1995. The Series DDD Preferred Stock was never issued. In
March 1996, the Company, Proactive and Lagunitas agreed, instead of issuing the
Series DDD Preferred Stock, to convert the June Refinancing directly into a
total of 5,482,256 shares of Common Stock.
In May 1995, the Company received $53,500 from Enterprise Leasing
Corporation in exchange for its note of the same amount. The note carries
interest at the rate of 31% and is payable in 24 equal monthly installments
beginning in May 1995. The note is collateralized by an interest in 17 of the
Company's vehicles.
The Company also had outstanding at December 31, 1995 $113,119 in notes
payable to Ford Motor Credit representing installment loans for testing vehicles
purchased. Principal is payable monthly through 1998.
15
<PAGE> 16
In February 1996, the Company raised $175,000 from Proactive and an
additional $175,000 from Lagunitas in exchange for the Company's promissory
notes (the "1996 Bridge Notes"). The notes bear interest at the rate of prime
plus 2%. In addition, in March 1996, the Proactive note was increased to
$425,000 to specifically provide the company with funds necessary to complete
the Gilbarco note restructure (see GB ESD section above). Principal and interest
on these notes is due April 1, 1997. These notes are immediately convertible
into a new series of preferred shares having a conversion into 4,800,000 shares
of common stock.
At December 31, 1994, the Company had a working capital deficit of
($537,473). At December 31, 1995, the Company had a working capital deficit of
($1,818,766). The increase in the deficit was due primarily to the
classification of the Company's Financing Agreement as a current liability. Cash
used in operating activities during 1995 was $1,181,393. At December 31, 1995,
the Company's debt maturities for 1996 were $541,235 (excluding the Company's
Financing Agreement). The Company believes that it will have sufficient cash
flow from operations to satisfy the principal 1996 maturities.
The Company's debt maturities for 1997, including the SVFS line of
credit and the remainder of the amount due under the Gilbarco $2,450,000 note,
are $4,324,564. The Company plans to pursue various alternatives to meet the
debt maturities, including seeking additional financing, refinancing debt
through new lenders or negotiating an extension of the maturity dates of the
present debt.
The Company has incurred recurring operating losses and negative cash
flows from operations. At December 31, 1995, the accumulated deficit is
approximately $26.7 million. The Company has utilized cash proceeds from the
issuance of debt and equity securities to satisfy its cash requirements from
operations. The Company's viability is dependent upon the restructuring of its
debt obligations and ultimately, realizing profitable operations. During 1995
and subsequent to year end, management has been able to restructure much of the
Company's obligations into future periods or convert the obligations into
capital. In addition, the Company has received a commitment from a major
stockholder to supplement its cash requirements to enable the Company to meet
its financial obligations during 1996. Management's plans also include revenue
growth through higher utilization of testing equipment and the offering of new
products and services. Management will also continue to devote substantial
efforts to secure additional funding sources and/or restructure existing
obligations. Management believes that the restructuring already effected and
other plans discussed above will provide the Company adequate cash resources
throughout 1996.
IMPACT OF INFLATION
Inflation does not have a material effect on the Company's results of
operations.
ITEM 7. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of NDE Environmental
Corporation and Subsidiaries are attached hereto.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets - December 31, 1995 and 1994 F-2
Consolidated Statements of Operations - Years Ended December 31, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1995 and 1994 F-5
Consolidated Statements of Cash Flows - Years Ended December 31, 1995 and 1994 F-6
Notes to Consolidated Financial Statements - December 31, 1995 F-8
</TABLE>
16
<PAGE> 17
Consolidated Financial Statements
NDE Environmental Corporation
and Subsidiaries
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
<PAGE> 18
NDE Environmental Corporation and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ........................................... F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................... F-2
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) ................ F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
<PAGE> 19
Report of Independent Auditors
Stockholders and Board of Directors
NDE Environmental Corporation
We have audited the accompanying consolidated balance sheets of NDE
Environmental Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NDE Environmental
Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
------------------------------
Austin, Texas
March 21, 1996, except for Notes 1, 4 and 5,
as to which the date is April 12, 1996
F-1
<PAGE> 20
NDE Environmental Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------------
<S> <C> <C>
ASSETS (Note 4)
Current assets:
Cash $ 327,035 $ 244,491
Trade accounts receivable, less allowance for doubtful
accounts of $289,512 in 1995 and $425,077 in 1994 2,162,593 1,459,631
Inventories 175,173 128,032
Prepaid expenses and other current assets 245,645 408,136
--------------------------
Total current assets 2,910,446 2,240,290
Equipment and improvements, less accumulated
depreciation and amortization (Note 3) 4,027,037 5,110,632
Intangible assets:
Patents, net of accumulated amortization of $232,042
in 1995 and $186,947 in 1994 454,353 199,448
Licenses, net of accumulated amortization of $215,940
in 1995 and $143,971 in 1994 703,177 779,621
Other intangible assets, net of accumulated
amortization of $130,265 in 1995 and $82,411
in 1994 42,371 90,225
--------------------------
1,199,901 1,069,294
Deposits 92,459 50,983
--------------------------
Total assets $8,229,843 $8,471,199
==========================
</TABLE>
F-2
<PAGE> 21
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 751,944 $ 709,559
Accrued liabilities 1,322,457 915,587
Accrued payroll and payroll taxes 636,369 521,489
Current portion of long-term debt and financing
agreements (Note 4) 2,018,442 530,807
Current portion of capital lease obligations -- 100,321
-------------------------------
Total current liabilities 4,729,212 2,777,763
Long-term debt, less current portion (Note 4) 3,739,653 4,301,589
Other accrued liabilities -- 41,640
Stockholders' equity (deficit):
Series AAA Convertible Preferred Stock, $.0001 par
value; authorized 400 shares; issued and outstanding
1 share in 1995 and 257.5 shares in 1994; stated
at liquidation value of $5,000 per share 5,000 1,287,500
Series BBB Convertible Preferred Stock, $.0001 par
value; authorized, issued and outstanding 253 shares
in 1994 and none in 1995; 100 shares stated at
liquidation value of $5,000 per share; 153 shares
stated at liquidation value of $7,516.34 per share -- 1,650,000
Series CCC Convertible Preferred Stock, $.0001 par
value; authorized, issued and outstanding 60 shares in
1994 and none in 1995; stated at liquidation value
of $5,000 per share -- 300,000
Common Stock, $.0001 par value; authorized
10,000,000 shares; issued and outstanding 2,274,420
shares in 1995 and 1,462,420 shares in 1994 227 146
Common Stock Subscribed; 5,482,254 shares (Notes 4
and 5) 1,303,410 --
Additional paid-in capital 25,115,717 21,883,298
Accumulated deficit (26,663,376) (23,770,737)
-------------------------------
Total stockholders' equity (deficit) (239,022) 1,350,207
-------------------------------
$ 8,229,843 $ 8,471,199
===============================
</TABLE>
See accompanying notes
F-3
<PAGE> 22
NDE Environmental Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
------------------------------
<S> <C> <C>
Revenues $ 11,347,591 $ 10,032,148
Costs and expenses:
Cost of testing services 7,062,456 6,600,239
Selling, general and administrative 6,194,980 6,221,607
Provision for doubtful accounts 233,453 96,165
Write-off of goodwill (Note 1) -- 2,561,606
------------------------------
Total costs and expenses 13,490,889 15,479,617
------------------------------
(2,143,298) (5,447,469)
Other income (expense):
Interest income 138 1,609
Interest expense (905,682) (529,472)
Other income, net 156,203 11,460
------------------------------
Net loss $ (2,892,639) $ (5,963,872)
===============================
Net loss per common share $ (1.45) $ (4.56)
===============================
Weighted average number of common shares
outstanding 1,991,820 1,308,519
===============================
</TABLE>
See accompanying notes.
F-4
<PAGE> 23
NDE Environmental Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------------------- --------------------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Subscribed Amount
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 626 $ 3,515,000 12,314,196 $1,231 - $ -
1-for-10 reverse stock split - - (11,082,776) (1,108) - -
Issuance of Series CCC
Preferred Stock 60 300,000 - - - -
Conversion of Series AAA
Convertible Preferred
Stock to Common Stock (115.5) (577,500) 231,000 23 - -
Net loss - - - - - -
-----------------------------------------------------------------------------------------------
Balance at December 31, 1994 570.5 3,237,500 1,462,420 146 - -
Conversion of Series AAA
Convertible Preferred
Stock to Common Stock (256.5) (1,282,500) 511,000 51 - -
Conversion of Series BBB
Convertible Preferred
Stock to Common Stock (253) (1,650,000) 253,000 25 - -
Conversion of Series CCC
Convertible Preferred
Stock to Common Stock (60) (300,000) 48,000 5 - -
Subscription of Common
Stock (Notes 4 and 5) - - - - 5,482,254 1,303,410
Net loss - - - - -
-----------------------------------------------------------------------------------------------
Balance at December 31, 1995 1 $ 5,000 2,274,420 $ 227 5,482,254 $ 1,303,410
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity (Deficit)
------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993 $21,304,713 $(17,806,865) $ 7,014,079
1-for-10 reverse stock split 1,108 - -
Issuance of Series CCC
Preferred Stock - - 300,000
Conversion of Series AAA
Convertible Preferred
Stock to Common Stock 577,477 - -
Net loss - (5,963,872) (5,963,872)
------------------------------------------------
Balance at December 31, 1994 21,883,298 (23,770,737) 1,350,207
Conversion of Series AAA
Convertible Preferred
Stock to Common Stock 1,282,449 - -
Conversion of Series BBB
Convertible Preferred
Stock to Common Stock 1,649,975 - -
Conversion of Series CCC
Convertible Preferred
Stock to Common Stock 299,995 - -
Subscription of Common
Stock (Notes 4 and 5) - - 1,303,410
Net loss - (2,892,639) (2,892,639)
------------------------------------------------
Balance at December 31, 1995 $25,115,169 $(26,663,376) $ (239,022)
================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 24
NDE Environmental Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1995 1994
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,892,639) $(5,963,872)
Adjustments to reconcile net loss to net cash used in
operating activities:
Write-off of goodwill -- 2,561,606
Depreciation 1,429,339 1,358,394
Amortization of discount on notes payable 159,534 154,396
Amortization of intangibles 164,918 386,948
Provision for doubtful accounts 233,453 96,165
(Gain) loss on disposal of equipment and vehicles (187,708) 148,997
Changes in operating assets and liabilities net of effects from
acquisition:
Trade accounts receivable (936,395) (161,255)
Inventories (47,141) 182,133
Prepaid expenses, deposits and other assets 144,836 (11,867)
Accounts payable 42,385 147,457
Accrued liabilities 593,145 258,478
Accrued payroll and payroll taxes 114,880 31,505
-----------------------------
Net cash used in operating activities (1,181,393) (810,915)
INVESTING ACTIVITIES
Additions to equipment and improvements (464,608) (335,499)
Proceeds from sale of equipment 242,294 84,081
Purchase of licenses -- (45,704)
-----------------------------
Net cash used in investing activities (222,314) (297,122)
</TABLE>
F-6
<PAGE> 25
NDE Environmental Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1995 1994
-----------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from Financing Agreements $ 1,477,207 --
Proceeds from issuance of Series CCC Preferred Stock -- $ 300,000
Proceeds from Common Stock subscriptions 500,000 --
Proceeds from issuance of long-term debt 529,679 750,000
Proceeds from (payments on) line of credit, net (429,368) 321,705
Principal payments on long-term debt and capital lease
obligations (591,267) (314,254)
-----------------------------
Net cash provided by financing activities 1,486,251 1,057,451
Net increase (decrease) in cash 82,544 (50,586)
Cash at beginning of year 244,491 295,077
-----------------------------
Cash at end of year $ 327,035 $ 244,491
=============================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 631,231 $ 120,481
=============================
Income taxes $ -- $ --
=============================
</TABLE>
See accompanying notes.
F-7
<PAGE> 26
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION AND HISTORY OF BUSINESS
NDE Environmental Corporation and subsidiaries (the Company) provides regulatory
compliance and related services for underground storage tanks (USTs) and
associated pipelines.
The Company has grown significantly through acquisitions, financed primarily by
sellers, through the issuance of notes payable, convertible notes payable,
common stock, and warrants to purchase common stock, and the assumption of
liabilities at the date of acquisition.
The Company has incurred recurring operating losses and negative cash flows from
operations. At December 31, 1995, the accumulated deficit is approximately $26.7
million. The Company has utilized cash proceeds from the issuance of debt and
equity securities to satisfy its cash requirements from operations. The
Company's viability is dependent upon the restructuring of its debt obligations
and ultimately, realizing profitable operations. As discussed in Note 4, during
1995 and subsequent to year end, management has been able to restructure much of
the Company's obligations into future periods or convert the obligations into
capital. In addition, the Company has received a commitment from a major
stockholder to supplement its cash requirements to enable the Company to meet
its financial obligations during 1996. Management's plans also include revenue
growth through higher utilization of testing equipment and the offering of new
products and services. Management will also continue to devote substantial
efforts to secure additional funding sources and/or restructure existing
obligations. Management believes that the restructuring already effected and
other plans discussed above will provide the Company adequate cash resources
throughout 1996.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and operations of NDE
Environmental Corporation and its wholly-owned subsidiaries: NDE Testing &
Equipment, Inc., d/b/a NDE Environmental Corp.; NDE Canada, Inc. (NDE Canada);
and ProEco, Inc.; EcoAm, Inc.; and EcoAm, Ltd. All significant intercompany
accounts have
F-8
<PAGE> 27
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
been eliminated in consolidation. Certain amounts in the consolidated financial
statements for years prior to December 31, 1995 have been reclassified to
conform to the current year presentation.
REVENUE RECOGNITION
Tank testing, line testing and consulting service revenues are recognized when
services are performed and a report is issued to the customer. Revenues for
contracts extending more than 30 days are recognized on a percentage of
completion basis. Equipment sales are recognized upon delivery to the customer.
CONCENTRATIONS OF CREDIT RISK
Accounts receivable potentially expose the Company to concentrations of credit
risk, as defined by Statement of Financial Accounting Standard No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk."
The Company's customers are principally major oil companies, local and national
chains of gasoline stations, and other companies with underground storage tanks.
Generally, accounts receivable are due within 30 days and are not
collateralized. Credit losses historically have been within management's
expectations.
INVENTORIES
Inventories consist principally of finished parts sold by the Company in
connection with the performance of testing services or the maintenance of its
testing equipment and are valued at lower of cost (first-in, first-out) or
market.
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements, including capital leases, are stated at cost.
Depreciation and amortization is computed using the straight-line method over
the estimated useful
F-9
<PAGE> 28
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
lives of the assets. Capital leases and leasehold improvements are amortized
over the estimated useful lives, or the term of the related leases, whichever is
shorter, using the straight-line method. Amortization of capital leases is
included in depreciation expense.
The estimated useful lives used in computing depreciation and amortization are
as follows:
<TABLE>
<S> <C>
Tank testing equipment 8 years
Other equipment 5 - 6 years
Furniture and fixtures 5 years
Vehicles 3 - 5 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Patents 5 - 10 years
Licenses 15 years
Other intangible assets 3 - 5 years
</TABLE>
The carrying value of intangible assets are reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates the
intangible assets will not be recoverable as determined based on the
undiscounted cash flows related to the intangible asset over the remaining
amortization period, the Company's carrying value of the intangible assets is
reduced by the estimated shortfall of cash flows.
In 1994, due to the acquisition of more efficient and effective tank testing
systems, management began discontinuing the use of the tank testing technology
acquired from Kaneb Metering Corporation, and future undiscounted cash flows
related to using this technology were not expected to be significant.
Accordingly, in the fourth quarter of 1994 management wrote off the remaining
balance of approximately $2,562,000 of cost in excess of fair value of assets
acquired.
F-10
<PAGE> 29
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
balances recognized for financial reporting purposes and income tax purposes,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Management establishes a valuation
allowance for deferred tax assets that are not expected to be realized.
LOSS PER SHARE DATA
Loss per share is computed by dividing net loss for the year by the weighted
average number of common shares outstanding during each year. The effect of the
Convertible Preferred Stock, options and warrants are not considered as the
effect would be antidilutive. The computation of fully diluted loss per share
was antidilutive and, therefore, not presented.
In August 1994, the Company effected a 1-for-10 reverse stock split. All share
and per share amounts included in the consolidated financial statements and
notes to the consolidated financial statements, except as indicated in the
statement of stockholders' equity (deficit), have been restated to reflect the
reverse stock split.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those results.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, Accounting for Impairment
ofLong-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of
F-11
<PAGE> 30
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. Statement
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt Statement 121 in 1996 and, has not completed
the analysis to determine the impact, if any, of the adoption.
STOCK BASED COMPENSATION
The Company accounts for its stock incentive plans in accordance with Accounting
Principle Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
intends to continue to do so.
2. BUSINESS ACQUISITIONS
On April 11, 1994, the Company acquired the principal assets of the
Environmental Services Division of Gilbarco, Inc. ("GB ESD" or "Gilbarco"). The
Company acquired 31 fully equipped tank testing vehicles, related tank testing
and ancillary equipment, and certain intangible assets, including system
approvals, intellectual properties, customer information, and supplier and
distributor information. The Company also has obtained a license from the
manufacturer of the equipment, Alert, Inc. ("Alert"), to utilize the equipment
in all areas of the world other than Canada, the United Kingdom, Australia and
New Zealand. The license agreement provides for a royalty payment to Alert of 2%
of revenues from tank tests utilizing the Alert equipment.
In consideration for the acquisition, the Company issued two notes in the
aggregate amount of $2,850,000: a $2,450,000 six-year note bearing interest at
prime minus 1%, collateralized by the purchased assets; and a $400,000 one-year
noninterest bearing note collateralized by a $400,000 standby letter of credit
issued by Silicon Valley Bank. These notes were recorded at their estimated
discounted present value at the date of acquisition of approximately $2,178,000.
In addition, the Company issued five-year warrants to purchase 20,000 shares of
NDE Common Stock at the NASDAQ closing price as of the closing date of the
agreement. There was no value assigned to the warrants.
F-12
<PAGE> 31
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. BUSINESS ACQUISITIONS (CONTINUED)
The Gilbarco acquisition has been recorded using the purchase method of
accounting and, accordingly, the purchase price of $2,178,000, was allocated to
the assets based on their estimated fair values at the date of acquisition. The
operating results of Gilbarco are included in the Company's results of
operations commencing April 11, 1994.
The following summarized unaudited pro forma results of operations for the year
ended December 31, 1994 assume the Gilbarco acquisition occurred as of January
1, 1994. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations that
actually would have resulted had the acquisition occurred at the beginning of
the periods presented, or that may result in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994
(UNAUDITED)
------------
<S> <C>
Revenues $ 10,608,000
------------
Net loss (7,070,000)
------------
Net loss per common share $ (5.40)
------------
</TABLE>
3. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------------------------
<S> <C> <C>
Equipment $ 9,448,292 $ 9,336,193
Furniture and fixtures 278,954 278,682
Vehicles 244,413 116,573
Leasehold improvements 60,148 60,148
------------------------------
10,031,807 9,791,596
Less accumulated depreciation and amortization (6,004,770) (4,680,964)
------------------------------
$ 4,027,037 $ 5,110,632
==============================
</TABLE>
F-13
<PAGE> 32
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT AND FINANCING AGREEMENTS
Long-term debt and financing agreements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------------
<S> <C> <C>
Loan and Security Agreement with Silicon Valley Bank (SVB) $ -- $ 429,368
Financing Agreement with SVB 1,477,207 --
Term Loan Payable to SVB 750,000 750,000
Promissory notes payable to stockholders 517,365 600,000
Convertible promissory notes to the former stockholders of
ProEco and affiliates, payable in annual installments of
$64,286 through January 2001, bearing interest at 7.5% 385,714 450,000
Promissory notes to the former stockholders of ProEco and
affiliates, payable in annual installments of $40,460 through
January 1997, bearing interest at 7.5%, collateralized by all
the Common Shares of ProEco and affiliates 80,922 121,382
Promissory note payable to Gilbarco, less discount of $353,297
in 1995 and $501,060 in 1994 2,096,703 1,948,940
Promissory note payable to Gilbarco, less discount of $14,458
in 1994 -- 385,542
Promissory notes payable to Ford Motor Credit due May 1998,bearing 111,013 147,164
interest at 8.0% to 8.7%
Promissory note to Gilbarco due October 2000 bearing interest at
the mid-term applicable federal rate as published by the IRS 300,000 --
Other 39,171 --
-----------------------------
5,758,095 4,832,396
Less current portion (2,018,442) (530,807)
-----------------------------
$ 3,739,653 $ 4,301,589
=============================
</TABLE>
In 1994, the Company had a Loan and Security Agreement ("Agreement") with
Silicon Valley Bank ("SVB") providing for maximum borrowings to $1,500,000.
Under the Agreement, the Company's assets were pledged as collateral and
borrowings were limited to 60% of eligible accounts receivable, as defined. The
Agreement also allowed for the issuance of letters of credit up to $500,000
which reduce the amount of available borrowings. There were letters of credit
outstanding at December 31, 1994 totaling $400,000. In connection with the
Agreement, the Company issued five-year warrants to SVB to purchase 5,000 of the
Company's Common Stock at $7.50 per share.
F-14
<PAGE> 33
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT AND FINANCING AGREEMENTS (CONTINUED)
On March 27, 1995, the Company entered into a new financing agreement (the
"Financing Agreement") with SVB that provides for the financing of accounts
receivable up to $1,500,000 based on eligible accounts receivable balances, as
defined, not to exceed to 80% of gross receivable balances. Advances under the
Financing Agreement accrue interest at 1.75% per month, plus an administrative
fee of 0.5% per month. The initial advance under the Financing Agreement was
received in April 1995, and was used to pay off the existing Loan and Security
Agreement with SVB, and pay off the $400,000 promissory note payable to
Gilbarco. The Financing Agreement expires in March 1997. At December 31, 1995,
the Company's maximum available borrowings were approximately $1,477,000, of
which all had been borrowed. Effective January 25, 1996 the advances under the
Financing Agreement accrue interest at 1.25% per month, plus an administrative
fee of 0.5% per month.
The Loan and Security Agreement, but not the Financing Agreement, prohibited the
payment of dividends and contained certain restrictive covenants, including
minimum amounts of tangible net worth and profitability. At December 31, 1994,
the Company was not in compliance with certain covenants under the Loan and
Security Agreement; however, these covenant violations were remedied upon
entering into the new Financing Agreement which paid off all amounts outstanding
under the Loan and Security Agreement.
In addition, SVB provided the Company with a $750,000 term loan in 1994, with
payment guaranteed by Proactive Partners, L.P. ("Proactive"), a significant
stockholder. The term loan bears interest at prime, and matures in June 1997.
At December 31, 1994, the Company had promissory notes payable in the amount of
$600,000 to principal stockholders that were scheduled to mature in 1995. In
March 1995, the Company amended these note agreements. The outstanding principal
balances and accrued interest were converted into new notes with balances
totaling $740,000, which are due in five equal annual installments from 1996
through 2000, and accrue interest at 8% per annum, payable quarterly. In
conjunction with the refinancing of this subordinated debt, $273,038 of this
subordinated debt plus accrued interest due to Proactive was to be converted
into approximately 55.6 shares of Series DDD Convertible Preferred Stock, but
was ultimately converted into common stock (see Note 5).
F-15
<PAGE> 34
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT AND FINANCING AGREEMENTS (CONTINUED)
In consideration for the Gilbarco acquisition (see Note 2), the Company issued
two notes in the aggregate amount of $2,850,000: a $2,450,000 six-year note
bearing interest at prime minus 1%, collateralized by the purchased assets; and
a $400,000 one-year noninterest bearing note collateralized by a $400,000
standby letter of credit. These notes were recorded at their discounted present
value at the date of acquisition of approximately $2,178,000, using an estimated
fair market rate of 15% per annum. In February 1995, the Company amended the
$2,450,000 note agreement with Gilbarco to defer $367,500 of principal payments
scheduled for 1995 into the year 2000. In connection with this amendment, the
Company issued 3,675 warrants to Gilbarco with a term of five years and an
exercise price equal to fair market value of the underlying stock at the date of
issuance. In March 1996, the Company entered into the Second Amendment to the
$2,450,000 note agreement with Gilbarco. This Second Amendment provided for
revised terms including a down payment of $256,000 due on or before March 29,
1996. This down payment was funded by additional subordinated debt obtained from
Proactive Partners (see below). Per the Second Amendment, the remaining Gilbarco
debt will be forgiven in total upon the receipt of any one of the following
repayment incentive amounts as of the indicated dates by Gilbarco. If none of
the following repayment incentive amounts are paid by the indicated dates, the
balance on the Gilbarco note becomes due in full on July 1, 1997. The repayment
incentive amounts are 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.
In November 1995, in consideration for the assignment of certain Gilbarco
patents, the Company entered into an agreement to pay Gilbarco $300,000 on or
before October 1, 2000. Interest is due on an annual basis at October 1 and the
interest rate is stated at the mid-term applicable federal rate (5.91% at
December 31, 1995).
The $450,000 of convertible promissory notes, issued to five former ProEco
stockholders, are convertible into Common Stock at any time at a conversion
price of $13.00 per Common Share. These convertible promissory notes payable had
an aggregate outstanding balance of $385,714 as of December 31, 1995.
F-16
<PAGE> 35
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT AND FINANCING AGREEMENTS (CONTINUED)
In January 1995, the Company received $500,000 in cash from Proactive under a
promissory note that was due in April 1995. The Company was to convert this note
plus accrued interest into 100 shares of Series DDD Convertible Preferred Stock,
but was ultimately converted into common stock (see Note 5).
In February 1996, Proactive and Lagunitas Partners, L.P. ("Lagunitas") entered
into Secured Promissory Notes in the amount of $175,000 each. In addition, the
Proactive Secured Promissory Note was increased to $425,000 to specifically
provide the Company with $250,000 to use for the Gilbarco Note Second Amendment
down payment due on or before March 29, 1996 as explained above. These notes
have an interest rate of 8% and provide for payment of accrued interest and
principal on April 1, 1997. These notes are convertible into a new series of
preferred stock which is convertible into 4,800,000 shares of common stock (upon
stockholder approval of an increase in the number of authorized common shares)
(see Note 5).
The carrying amounts of the Financing Agreement with SVB and the Promissory Note
to Gilbarco approximate fair value because of the short-term nature of the
Agreement or the variable interest rate. The fair values of other long-term debt
has not been determined due to impracticability of such a calculation due to the
debt being issued to stockholders or issued to the sellers as consideration in a
business combination.
The aggregate annual maturities of long-term debt and financing agreements at
December 31, 1995, after giving effect to the refinancings discussed herein, are
as follows:
<TABLE>
<S> <C>
1996 $2,018,442
1997 2,847,357
1998 192,492
1999 167,759
2000 532,045
Thereafter -
----------
$5,758,095
==========
</TABLE>
F-17
<PAGE> 36
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY
The Company's Series AAA Preferred Stock may be converted into Common Stock at
any time at the initial conversion price of $2.50 per share (subject to
adjustment pursuant to antidilution provisions). The holders of the Series AAA
Preferred Stock are entitled to elect two of the Company's six directors.
Conversion of Series AAA Preferred Stock into Common Stock: In September 1994,
115.5 shares of the Series AAA Preferred Stock with a liquidation value of
$577,500 were converted into an aggregate of 231,000 shares of Common Stock at a
conversion price per share of $2.50.
Issuance of Series CCC Preferred Stock: In May 1994, the Company raised $300,000
through the issuance of 60 shares of Series CCC Preferred Stock and five-year
warrants to purchase 24,000 shares of Common Stock at an exercise price of $7.50
per share.
Conversion of Series AAA Preferred Stock into Common Stock: In May 1995, 256.5
shares of the Series AAA Preferred Stock with a liquidation value of $1,282,500
were converted into an aggregate of 511,000 shares of Common Stock at a
conversion price per share of $2.50.
Conversion of Series BBB Preferred Stock into Common Stock: In May 1995, 203
shares of the Series BBB Preferred Stock with a liquidation value of $1,400,000
were converted into an aggregate of 203,000 shares of Common Stock at a
conversion price per share of $6.90. In addition, in May 1995, 50 shares of the
Series BBB Preferred Stock with a liquidation value of $250,000 were converted
into an aggregate of 50,000 shares of Common Stock at a conversion price per
share of $5.00.
Conversion of Series CCC Preferred Stock into Common Stock: In May 1995, 60
shares of the Series CCC Preferred Stock with a liquidation value of $300,000
were converted into an aggregate of 48,000 shares of Common Stock at a
conversion price per share of $6.25.
F-18
<PAGE> 37
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Series DDD Preferred Stock: In January 1995, the Company raised $500,000 from
Proactive in exchange for a promissory note ("Bridge Note"). The note bore
interest at prime plus 4% and became due, after extension, on May 31, 1995. In
June of 1995, the Company completed a restructuring of the Bridge Note and
Proactive's and Lagunitas' portion of the promissory notes payable to
stockholders. Proactive and Lagunitas agreed to exchange the Bridge Note of
$500,000 plus accrued interest of $25,644, their promissory note, which was
$273,038 plus accrued interest of $4,728, and cash of $500,000 for 260.7 shares
of the Company's Series DDD Preferred Stock. This Series DDD Preferred Stock was
never issued. In March 1996, pursuant to the 1995 Recapitalization Agreement
Amendment between the Company and Proactive and Lagunitas, Common Stock shall be
issued in lieu of the Series DDD Convertible Preferred Stock identified above.
As a result of this Amendment, the Company shall issue 2,741,127 shares of
Common Stock to Proactive and 2,741,127 shares of Common Stock to Lagunitas.
These transactions have been recorded in the accompanying financial statements
as Common Stock Subscribed.
As discussed in Note 4, in March 1996, the Company entered into Secured
Promissory Notes with Proactive and Lagunitas in the amounts of $425,000 and
$175,000, respectively, which are due April 1, 1997. The debentures bear
interest at a rate of 8%. These notes are immediately convertible into a new
series of preferred stock, having a conversion into 4,800,000 shares of common
stock upon approval by the shareholders of an increase in the total authorized
common shares.
F-19
<PAGE> 38
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
As of December 31, 1995, the Company had the following rights outstanding for
the purchase of its Common Stock related to the issuance of warrants,
convertible Preferred Stock and stock options, after giving effect for the
antidilution adjustments related to the Series AAA/BBB Financing and the effects
of the Reverse Stock Split (see Note 1, "Loss Per Share Data"):
<TABLE>
<CAPTION>
Number of
Shares Exercise
Description Expiration Date Issuable Price
- ---------------------------------------------- ------------------------ ---------------- ---------------
<S> <C> <C> <C>
WARRANTS:
Series AA Preferred Stock May 1996 1,364 $ 115.00
Series AA Preferred Stock May 1996 3,172 7.50
Series B Preferred Stock November 1996 18,078 0.15
Series B Preferred Stock November 1996 6,308 7.50
Series B Fee November 1996 6,020 0.15
Bridge Financing Fee July 1997 2,652 7.50
Bridge Financing Fee July 1997 5,375 7.50
Stockholder Note Revision July 1997 6,333 7.50
Underwriter December 1996 32,219 25.80
Underwriter December 1996 31,667 21.00
Underwriter December 1996 58,334 11.40
Series AAA/BBB Financing February 1996 49,400 3.00
Series AAA/BBB Financing February 1996 75,500 2.50
Series AAA/BBB Financing February 1996 49,700 0.15
Silicon Valley Bank September 1998 5,000 7.50
Gilbarco April 1999 20,000 7.50
Gilbarco April 1999 3,675 0.75
Series CCC May 1999 12,000 7.50
Series CCC May 1999 12,000 0.15
Proactive Financing January 1998 175,000 0.375
Proactive Guaranty of SVB Term
Note January 1998 50,000 0.15
-------
623,797
</TABLE>
F-20
<PAGE> 39
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Number of
Shares Exercise
Description Expiration Date Issuable Price
- ----------------------------------------- --------------- --------- --------
<S> <C> <C> <C>
CONVERSION OF PREFERRED STOCK:
Series AAA - 2,000 -
COMMON STOCK SUBSCRIBED - 5,482,254 -
STOCK OPTIONS:
1989 Stock Option Plan:
Executive Compensation Plan September 2002 180,000 $ 3.80
Former officers/employees December 1996 1,350 30.00
Former officers/employees July 1997 5,000 7.50
John R. Mastandrea December 1996 12,500 12.50
Directors June 1997 4,000 12.50
Directors June 1997 12,000 7.50
---------
214,850
OTHER:
Shares accrued and reserved for
issuance to the Employee
Benefit Plan - 201,936 -
Shares reserved for the settlement
of a lawsuit - 20,000 -
Shares reserved for the conversion
of certain Promissory Notes to
former stockholders - 29,670 -
Shares reserved for issuance under
the 1995 Incentive Plan for
Nonmanagement Employees - 250,000 -
---------
501,606
Total number of shares of Common
Stock issuable 6,824,507
=========
</TABLE>
F-21
<PAGE> 40
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
Stock Option Plan: The Company has adopted the NDE Environmental Corporation
1989 Stock Option Plan (the Stock Option Plan). The purpose of the Stock Option
Plan is to establish a compensatory plan to attract, retain and provide equity
incentives to selected employees, consultants and directors, and to promote the
financial success of the Company. The Company may grant up to 248,250 options
which meet the requirements of Section 422A of the Internal Revenue Code of 1986
(incentive stock options) and options which are not qualified as incentive stock
options.
The Stock Option Plan is administered by the Board of Directors or a Committee
(the Committee) appointed by the Board of Directors. The exercise price of
options (as determined by the Committee) may not be less than 85% of the fair
market value of the Common Stock on the date the option is granted. In the case
of incentive stock options, the exercise price may not be less than the fair
market value of the Common Stock on the date of grant (or, in the case of
holders of 10% or more of the outstanding Common Stock, 110% of the fair market
value on such date). Options may not be exercisable after ten years from the
date of grant (five years from the date of grant in the case of options issued
to holders of 10% or more of the outstanding Common Stock).
Executive Compensation Plan: Under the 1989 Stock Option Plan, the Company
adopted a Senior Executive Compensation Plan (the Executive Compensation Plan).
Under the plan, the Company's officers and certain other key management
employees were granted options to purchase, in the aggregate, 180,000 shares of
Common Stock at $3.80 per share, all of which were vested at December 31, 1995.
Effective June 1995, the Company adopted the 1995 Incentive Plan for
Nonmanagement Employees (the "Nonmanagement Plan"). The Nonmanagement Plan is
administered by a Committee appointed by the Board of Directors. The Company has
reserved an aggregate of 250,000 shares for issuance pursuant to the
Nonmanagement Plan.
F-22
<PAGE> 41
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Also effective June 1995, the Company adopted the 1995 Long-Term Incentive Plan
(the "Incentive Plan"). The Incentive Plan is administered by a committee
appointed by the Board of Directors. The Company has reserved an aggregate of
1,100,000 shares for issuance pursuant to the Incentive Plan. This plan is
pending approval by the stockholders of the Company.
6. RELATED PARTY TRANSACTIONS
The Company is substantially reliant upon its stockholders for financing of the
Company (see Note 4 for various financing transactions).
Under an exclusive license agreement to utilize ProEco's proprietary Sure Test
System (see Note 2), the Company paid two significant stockholders, who were
also stockholders of ProEco, royalties of approximately $10,000 in 1995 and
$29,000 in 1994.
See also Notes 4 and 9.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 8,636,000 $ 7,372,000
Allowance for doubtful accounts 98,000 150,000
Nondeductible accruals 145,000 128,000
-------------------------------
Total deferred tax assets 8,879,000 7,650,000
Less valuation allowance (8,377,000) (7,400,000)
-------------------------------
Net deferred tax asset 502,000 250,000
Deferred tax liability:
Book over tax basis of depreciable assets 502,000 250,000
-------------------------------
Deferred taxes - net $ - $ -
===============================
</TABLE>
F-23
<PAGE> 42
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The valuation allowance for deferred tax assets increased by $977,000 during
1995 as a result of additional net operating losses. At December 31, 1995, for
income tax purposes, the Company had net operating loss carryforwards of
$24,304,000, which will expire beginning in 2004. Due to a change in ownership
of the Company's stock, as defined for federal income tax purposes, the
Company's future utilization of the net operating loss carryforward will be
subject to an annual limitation.
The Company's provision for income taxes differs from the expected tax expense
(benefit) amount computed by applying the statutory federal income tax rate of
34% to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1995 1994
------------------------------
<S> <C> <C>
Income taxes at the statutory rate $(984,000) $(2,028,000)
Change in valuation allowance 977,000 1,077,000
Effect of nondeductible amortization
of intangible assets - 948,000
Nondeductible items 49,000 -
State and other (42,000) 3,000
------------------------------
Effective tax rate $ - $ -
==============================
</TABLE>
F-24
<PAGE> 43
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. LEASES
The Company's premises and certain equipment and vehicles are under
noncancelable operating leases which expire on various dates through 1999. Under
the terms of most of the leases, the Company is required to pay all taxes,
insurance and maintenance.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more, consist of
the following at December 31, 1995:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1996 $232,477
1997 72,954
1998 75,411
1999 23,371
--------
Total minimum lease payments $404,213
========
</TABLE>
In May 1994, the Company moved its headquarters from Torrance, California to
Austin, Texas. The Company pays monthly rentals of approximately $15,000
(approximately $12,000 on a straight-line basis) under a noncancelable lease on
its Torrance facility that expires in October 1996. In 1994, the Company began
subleasing the Torrance facility for approximately $11,000 per month under two
separate agreements that expire in October 1996.
Total rent expense for all operating leases amounted to $159,283 and $249,872 in
1995 and 1994, respectively. Aggregate future minimum rentals to be received
under noncancelable subleases as of December 31, 1995 are approximately
$119,000.
F-25
<PAGE> 44
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
Jay Allen Chaffee: The Company has an agreement with Bunker Hill Associates,
Inc. (Bunker Hill) to retain Mr. Chaffee as the Company's Chairman. The current
term of the agreement is on a month-to-month basis and can be terminated by
either party without cause. Mr. Chaffee and/or his affiliate, Bunker Hill,
received $192,286 and $114,000 in cash compensation in 1995 and 1994,
respectively.
POTENTIAL LIABILITY AND INSURANCE
The Company's and its licensees' tank testing activities, consistent with the
industry, present risks of substantial liability. Spills of petroleum products
and hazardous substances, or the creation or exacerbation of a contamination
problem through errors or omissions in tank testing, could result in liability
under federal and state anti-pollution statutes and regulations or from tort
claims by those suffering personal injury or property damage as a result of such
contamination. In addition, many of the Company's tank testing services involve
volatile substances such as gasoline. The Company or its licensees could be held
liable for damage to persons or property caused by any resulting fire or
explosion.
The Company currently carries comprehensive general liability insurance of up to
$1,000,000 per occurrence, professional liability insurance of $1,000,000 per
occurrence, and accidental and sudden pollution coverage of $1,000,000 per
occurrence. The aggregate annual limit excluding product liability claims is
$1,000,000. There can be no assurance that all possible types of liabilities
that may be incurred by the Company are covered by its insurance or that the
dollar amount of such liabilities will not exceed the Company's policy limits.
The Company believes it operates professionally and prudently. The Company also
believes the level of accuracy of its testing systems, which exceeds EPA
standards, is such that this exposure is minimized.
F-26
<PAGE> 45
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
The Company is the defendant in litigation involving a major competitor claiming
patent infringements. The Company owns rights under two patents acquired from
Gilbarco in the Gilbarco acquisition of 1994. Subsequent to the acquisition, the
Company embarked upon a licensing program for the existing users of this patent
technology, as the existing users were then infringing on the patent rights
owned by the Company. Some or all of the said suspected infringers were
customers of the plaintiff. Thus, the plaintiff filed a preemptive suit against
the Company. The Company has responded by filing patent infringement
counter-claims against the plaintiff. Significant discovery has been completed,
and a trial date has been established. Management believes that the Company
cannot be held liable to the plaintiff for monetary damages and, accordingly, no
litigation liability estimates have been accrued.
The Company is also subject to various claims and litigation in the normal
course of business. In the opinion of management, the ultimate solution of such
matters will not have a material adverse effect on the consolidated financial
position or results of operations of the Company.
10. MAJOR CUSTOMERS
The Company provides UST services to oil companies, convenience store operators,
independently owned gasoline retailers, trucking companies, manufacturing
concerns, military facilities, government facilities, and other operators of
UST's. However, since 1992, the Company has focused primarily on large oil
companies, which currently provide over 60% of the Company's revenues. In 1995,
Mobil Oil and Shell Oil accounted for approximately 13% and 10% of the Company's
1995 revenues respectively. During the year ended December 31, 1994, there were
no sales to one customer that exceeded 10% of total 1994 revenues.
F-27
<PAGE> 46
NDE Environmental Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan covering all full-time
employees. Employees are eligible to participate in the plan after six months of
service. Currently, approximately 88 employees are eligible to participate in
the plan. The Company matches annually at its discretion, with equivalent value
of Company stock (using the market value as of December 31), 50% of a
participant's voluntary contributions, up to 3% of a participant's compensation,
and 100% for contributions between 3% to 6% of a participant's compensation. The
Company's expense for the plan totaled $-0- and $88,800 in 1995 and 1994,
respectively.
F-28
<PAGE> 47
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by April 30, 1996.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's proxy statement to be filed by April 30, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by April 30, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by April 30, 1996.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or
incorporated herein by reference:
<TABLE>
<CAPTION>
No. Exhibit
--- -------
<S> <C>
10.36 Rights Agreement, dated July 10, 1990, between NDE Testing and
the Series A Purchasers (incorporated by reference from
Exhibit 28.9 to the July, 1990 8-K)
10.37 Registration Rights Agreement, dated July 10, 1990, between
the registrant and the Series A Purchasers (incorporated by
reference from Exhibit 28.10 to the July, 1990 8-K).
10.59 Series AAA and BBB Preferred Stock and Secured Convertible
Note Purchase Agreement (the "Purchase Agreement"), dated as
of May 26, 1992, among the Registrant, its subsidiary, JLR
Holdings, Inc. ("JLR"),Spears Benzak Salomon & Farrell
("SBSF"), Proactive Partners, L.P. ("Proactive"), Lagunitas
Partners, L.P. ("Lagunitas"), and other purchasers of the
Initial Convertible Secured Notes issued by the Registrant
pursuant to the Purchase Agreement (the "Purchasers"); and the
Approval and Addendum, dated as of June 22, 1992, among the
Registrant, and other Purchasers represented by it, Proactive,
Lagunitas, JLR, Josephthal Lyon & Ross Incorporated
("Josephthal"), John R. Mastandrea, Kaneb Services, Inc.
("KSI"), and Kaneb Metering Corporation ("KMC"); together with
the following exhibits to that Purchase Agreement
(incorporated by reference from Exhibit to the Registrants
current report on Form 8-K filed July 17, 1992, the ("July
1992 8-K")).
</TABLE>
17
<PAGE> 48
<TABLE>
<CAPTION>
No. Exhibit
--- -------
<S> <C>
10.60 Conversion and Exchange Agreement and Consent, dated as of May
26, 1992, among the Registrant and holders of the Registrant's
outstanding Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock (incorporated by reference from
Exhibit 10.02 to the July 1992 8-K).
10.61 Voting Agreement, dated as of May 26, 1992, among the
Registrant, RLR, Josephthal, SBSF, Proactive, Lagunitas, KSI,
KMC and SBSF NDE Group, Limited Partnership; Cancellation of
Voting Agreement and Release, dated May 26, 1992, among KSI,
KMC and John R. Mastandrea; and Modification Agreement and
Consent, dated as of May 26, 1992, among the Registrant, its
subsidiary, KSI and KMC (incorporated by reference to Exhibit
10.03 from the July 1992 8-K).
10.62 Settlement Agreement dated as of May 26, 1992, among the
Registrant, its subsidiary and John R. Mastandrea; together
with the following exhibits thereto (incorporated by reference
to Exhibit 10.04 to the July 1992 8-K).
10.63 Non-Competition and Non-Solicitation Agreement, dated as of
May 26, 1992, among the Registrant, its subsidiary and John R.
Mastandrea (incorporated by reference to Exhibit 10.05 to the
July 1992 8-K).
10.64 Consulting and Services Agreement, dated as of May 26, 1992,
among the Registrant, John R. Mastandrea and Advanced Leak
Detection Corporation ("LAD"); and Addendum to Consulting
Services Agreement, dated as of June 4, 1992, among the
Registrant, John R. Mastandrea and LAD --- (incorporated by
reference to Exhibit 10.06 to the July 1992 8-K).
10.65 Third Amended and Restated Registration Rights Agreement,
dated as of May 26, 1992, among the Registrant and certain
holders of the Registrant's securities (incorporated by
reference to Exhibit 10.07 to the July 1992 8-K).
10.66 Security Agreement, dated as of May 26, 1992, among the
Registrant, its subsidiary and the Purchasers (incorporated by
reference to Exhibit 10.08 to the July 1992 8-K).
10.67 Form of Initial Convertible Secured Note of the Registrant
(incorporated by reference to Exhibit 10.09 to the July 1992
8-K).
10.68 Form of Secured Convertible Note of the Registrant
(incorporated by reference to Exhibit 10.10 to the July 1992
8-K).
10.69 Form of Warrant Certificate with respect to the warrants to be
issued by the Registrant pursuant to the Purchase Agreement
(incorporated by reference to Exhibit 10.11 to the July 1992
8-K).
</TABLE>
18
<PAGE> 49
<TABLE>
<CAPTION>
No. Exhibit
--- -------
<S> <C>
10.70 1989 New Warrant Agreement, dated as of April 30, 1992, among
the Registrant, Josephthal and other holders of warrants
issued by the Registrant in connection with its initial public
offering in 1989; together with (a) Exhibit A, the form of New
Warrant Certificate for the warrants issued pursuant to the
foregoing agreement; and (b) Exhibit B, Third Amended and
Restated Registration Rights Agreement (incorporated by
reference to Exhibit 10.12 to the July 1992 8-K).
10.71 Form of BBB Convertible Secured Note issued by the Registrant
pursuant to the Purchase Agreement; and BBB Security
Agreement, dated as of May 26, 1992, among the Registrant, its
subsidiary and the holders of the foregoing secured notes
incorporated by reference to Exhibit 10.13 to the July 1992
8-K).
10.72 Asset Purchase Agreement dated January 8, 1993 between the
Registrant and ProEco. The Registrant will furnish
supplementally to the Commission upon request a copy of any
omitted schedule or exhibit to this Exhibit 2.1 and Exhibits
2.2 and 2.3 (incorporated by reference to Exhibit 2.1 to the
Registrant's current report on Form 8-K filed January 22,
1993, the ("January 1993 8-K")).
10.73 License Agreement dated January 8, 1993 between the Registrant
and ProEco (incorporated by reference to Exhibit 2.2 to the
January 1993 8-K).
10.74 Form of Non competition Agreement dated January 8, 1993
entered into between the Registrant and each of ProEco,
ProEco's stockholders and ProEco's affiliate, EcoAm, Inc.
(incorporated by reference to Exhibit 2.3 to the January 1993
8-K).
10.75 Shareholder Rights Agreement dated January 8,1993, between the
Registrant and ProEco (incorporated by reference to Exhibit
28.2 to the January 1993 8-K).
10.76 Stock Purchase Agreement, dated as of December 11, 1993, among
the Registrant, Jim R. Clare and Donald Valverde.
10.77 Loan and Security Agreement, dated September 27, 1993, between
the Registrant and Silicon Valley Bank.
10.78 Amendment to Loan Agreement, dated April 7, 1994 between the
Registrant and Silicon Valley Bank.
10.79 Asset Purchase Agreement, dated as of February 24, 1994,
between the Registrant and Silicon Valley Bank.
10.80 Warrant Certificate to purchase 200,000 shares of the
Registrant's Common Stock issued by the Registrant to Gilbarco
Inc. on April 11, 1994.
10.81 Non-Interest Bearing Promissory Note, dated April 11, 1994,
issued by the Registrant to Gilbarco Inc. in the principal
amount of $400,000.
10.82 Irrevocable Standby Letter of Credit, dated April 11, 1994,
issued by Silicon Valley Bank to Gilbarco Inc. securing
payment of the Non-Interest Bearing Promissory Note attached
hereto as Exhibit 10.81.
</TABLE>
19
<PAGE> 50
<TABLE>
<CAPTION>
No. Exhibit
--- -------
<S> <C>
10.83 Secured Promissory Note, dated April 11, 1994, issued by the
Registrant to Gilbarco Inc. in the principal amount of
$2,450,000.
10.84 Security Agreement, dated as of April 11, 1994, between the
Registrant and Gilbarco Inc. securing payment of the Secured
Promissory Note attached hereto as Exhibit 10.83.
10.85 Sub license Agreement, dated as of April 11, 1994, between the
Registrant and Gilbarco Inc.
10.86 Patent License Agreement, dated as of April 11, 1994, between
the Registrant and Gilbarco Inc.
10.87 Amendment to Loan and Security Agreement, dated as of May 17,
1995, between the Registrant and Silicon Valley Bank.
10.88 Third Amendment to NDE Environmental Corporation's Secured
Notes, Dated as of March 31, 1995, between the Registrant and
Proactive Partners; Spears, Benzak, Salomon, & Farrell; Dan
Purjes; Peter Sheib; Lawrence Rice; and Joan Taylor.
10.89 Second Amendment to NDE Environmental Corporation's
Subordinated Note, dated as of March 31, 1995, between the
Registrant and Spears, Benzak, Salomon, and Farrell.
10.90 First Amendment to NDE Environmental Corporation's
Subordinated Secured Promissory Note, dated as of February 28,
1995, between the Registrant and Gilbarco, Inc.
10.91 Certificate of Designations, Preferences and Rights of Series
CCC Preferred Stock of NDE Environmental Corporation
10.92 Proxy materials for August 2, 1994 annual meeting of the
shareholders of NDE Environmental Corporation, including
1-for-10 Reverse Stock Split and Conversion of Series AAA
Preferred Stock
10.93 Lease agreements dated December 10, 1993, April 1, 1994 and
April 20, 1994 between the registrant and MV Wall Street, LTD.
10.94 Promissory note, dated as of January 17, 1995, between the
Registrant and Proactive Partners, L.P.
10.95 Financing Agreement, dated as of March 27, 1995, between the
registrant and Silicon Valley Financial Services.
10.96 First Amendment of The Promissory Note dated January 17, 1995,
Amendment dated April 30, 1995, between the registrant and the
Proactive Partners L. P.
</TABLE>
20
<PAGE> 51
<TABLE>
<CAPTION>
No. Exhibit
--- -------
<S> <C>
10.97 First Amendment of the Financing Agreement between the
registrant and Silicon Valley Financial Services, dated June
20, 1995.
10.98 Notice of Conversion regarding Series AAA Preferred Stock
between the registrant and Proactive Partners, L.P.; Lagunitas
Partners, L.P.; and A. Daniel Sharplin, dated as of April 17,
1995.
10.99 Notice of Conversion regarding Series BBB Preferred Stock
between the registrant and Proactive Partners, L.P.; Lagunitas
Partners, L.P.; and A. Daniel Sharplin, dated as of April 17,
1995.
10.100 Notice of Conversion regarding Series CCC Preferred Stock
between the registrant and Proactive Partners, L.P.; Lagunitas
Partners, L.P.; and A. Daniel Sharplin, dated as of April 17,
1995.
10.101 Certificate of Designation, Preferences and Rights of Series
DDD Preferred Stock of NDE Environmental Corporation.
10.102 Promissory Note, dated as of November 6, 1995, between the
Registrant and Gilbarco, Inc.
10.103 Promissory Note, dated as of , February 13, 1996, between the
Registrant and Proactive Partners, L. P.
10.104 Promissory Note, dated as of , February 13, 1996, between the
Registrant and Lagunitas Partners, L. P.
10.105 Second Amendment to NDE Environmental Corporation's Secured
Promissory Note, dated as of March 22, 1996, between
Registrant and Gilbarco, Inc.
10.106 Settlement Agreement dated as of November 30, 1995 between the
Registrant and Protank, Inc.
10.107 1996 Funding Agreement, dated as of, March 27, 1996, between
the Registrant, Proactive Partners and Lagunitas Partners, L.
P.
(b) There were no reports filed on form 8-K for the quarter ended
December 31, 1995.
</TABLE>
21
<PAGE> 52
Exhibit 21
SUBSIDIARIES OF REGISTRANT
NDE Testing & Equipment, Inc., a Florida corporation, incorporated on
December 23, 1987, is a wholly owned subsidiary of NDE Environmental Corporation
and does business under the name NDE Testing & Equipment, Inc.
NDE Environmental Canada Corporation was incorporated on May 21, 1993
under the Business Corporations Act of Alberta, is a wholly owned subsidiary of
NDE Environmental Corporation and does business under the name NDE Environmental
Canada Corporation.
ProEco, Inc., a Delaware corporation, incorporated as Tank Testing
International, Inc. on March 19, 1990, changed its name to ProEco, Inc. on July
26, 1991, is a wholly owned subsidiary of NDE Environmental Corporation and does
business under the name ProEco, Inc.
EcoAm, Inc., a Florida corporation, incorporated on July 15, 1991, is a
wholly owned subsidiary of NDE Environmental Corporation and does business under
the name EcoAm, Inc.
ProEco, Ltd., a United Kingdom corporation, incorporated in October 16,
1992, as EcoAm, Ltd., is a wholly owned subsidiary of NDE Environmental
Corporation and does business under the name ProEco, Ltd.
22
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be filed on
its behalf by the undersigned, thereunto duly authorized.
NDE ENVIRONMENTAL CORPORATION
By: /s/ A. DANIEL SHARPLIN
----------------------
A. Daniel Sharplin
President, Chief Executive Officer and Director
Date: April 10, 1996
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ JAY ALLEN CHAFFEE Dated: April 10,1996
- --------------------------- -------------
Jay Allen Chaffee
Chairman of the Board of Directors
/s/ RICK J. HOPKINS Dated: April 10,1996
- --------------------------- -------------
Rick J. Hopkins
Vice President and
Chief Financial Officer
/s/ CHARLES C. MCGETTIGAN Dated: April 10,1996
Charles C. McGettigan
- --------------------------- -------------
Director
/s/ MICHAEL S. TAYLOR Dated: April 10,1996
- --------------------------- -------------
Michael S. Taylor
Director
/s/ MYRON A. WICK, III Dated: April 10,1996
- --------------------------- -------------
Myron A. Wick, III
Director
23
<PAGE> 1
EXHIBIT 10.102
"NON-RECOURSE" SECURED PROMISSORY NOTE
$300,000.00 NOVEMBER 6, 1995
FOR VALUE RECEIVED, the undersigned maker, NDE ENVIRONMENTAL
CORPORATION, a Delaware corporation ("Maker"), promises to pay to the order of
GILBARCO INC., a Delaware corporation ("Payee"), the principal sum of Three
Hundred Thousand and No/100 Dollars ($300,000), together with simple interest on
the principal balance from time to time remaining unpaid at the mid-term
applicable federal rate (AFR) as published by the United States Internal Revenue
Service compounded annually. All interest due under this Note shall be
calculated on the basis of the actual number of days elapsed over a 365 day
year.
Payments shall be made hereunder as follows:
(a) During the sixty (60) month period after the date hereof, interest only
shall be payable on the principal amount outstanding in five (5)
payments on October 1, 1996, October 1, 1997, October 1, 1998, October
1, 1999, and October 1, 2000.
(b) Thereafter, payment of principal in the amount of Three hundred
thousand dollars ($300,000). All accrued and unpaid interest and the
principal balance outstanding under this Note shall be due and payable
in full on October 1, 2000.
All payments made hereunder shall be applied first to interest and then
to principal. All installments of principal and interest due hereunder are
payable at 7300 West Friendly Avenue, Greensboro, North Carolina 27410, or at
such other place as the holder hereof may, from time to time designate in
writing, in lawful money of the United States of America which shall be legal
tender for public and private debts at the time of payment.
This Note is secured by a Patent Security Interest Transfer executed by
Maker and Payee and dated of even date herewith (the "Collateral Document"), to
which reference is made for additional rights as to acceleration of the
indebtedness and rights as to collateral.
At the option of the holder hereof, this Note (including all unpaid
principal and accrued interest) shall become immediately due and payable without
further notice or demand upon the happening of any one or more of the following
events (each an "Event of Default") for which written notice has been delivered
and a thirty (30) day cure period, beginning on the date of delivery, has
expired:
1
<PAGE> 2
(a) Any default in the payment of principal or interest when due hereunder;
(b) The admission by Maker of its inability to pay its debts as they become
due, or any assignment for the benefit of the creditors of the Maker;
(c) Any transfer of property by Maker under circumstances which would
entitle a trustee in bankruptcy or similar fiduciary to avoid such
transfer under the Federal Bankruptcy Code, as amended, or under any
other laws, whether state or federal, or for the relief of debtors, now
or hereafter existing;
(d) The commencement of proceedings in bankruptcy, or for the
reorganization of Maker or for the readjustment of any of the debts of
Maker, under the Federal Bankruptcy Code, as amended, or any part
thereof, or under any other laws, whether state or federal, for the
relief of debtors, now or hereafter existing by Maker or against Maker
which shall not be discharged within thirty (30) days of their
commencement;
(e) The appointment of a receiver, trustee or custodian for Maker or for
any substantial part of the assets or any proceedings for the
dissolution or the full or partial liquidation of Maker, and such
receiver or trustee shall not be discharged within thirty (30) days of
his or its appointment, or such proceedings shall not be discharged
within thirty (30) days of their commencement, or the discontinuance of
the business or a material change in the nature of the business of
Maker; and
(f) Maker takes any steps, without the Payee's prior written consent, to
liquidate or dissolve for any reason.
Maker hereby waives protest, demand, presentment and notice of
dishonor, the right of exemption, notice of maturity, nonpayment and all other
notices, demands and requirements necessary to hold it liable as Maker. No delay
or omission on the part of the holder hereof in exercising any right or remedy
to enforce this Note or to accelerate the debt by reason of the occurrence of an
Event of Default shall be construed as a novation or a waiver of the right of
the holder to thereafter insist upon strict compliance with the terms of this
Note. No modification or waiver of any term or provision of this Note shall be
effective unless such modification or waiver is in writing and signed by the
holder hereof on the reverse side of the original of this Note.
This Note and any and all associated obligations shall be non-recourse
to the Maker. The Holder's exclusive remedy shall be the enforcement of its
security interests in any and all collateral.
The indebtedness evidenced by this Note may be prepaid in part or in
full at any time without penalty with interest to date of payment only.
Prepayments shall be applied to installments due hereunder in the order that
they fall due.
2
<PAGE> 3
The Maker promises to pay to the holder hereof all costs of collection
on failure to pay any principal or interest when due on this Note, whether or
not litigation is commenced. Such costs shall include, but not be limited to,
reasonable attorneys' fees incurred by the holder hereof in any and all judicial
proceedings, including appellate and bankruptcy foreclosure and related
proceedings (such as an action for relief from an automatic stay in bankruptcy),
arising out of enforcement or collection of this obligation or obligations
contained in the Collateral Document securing this indebtedness, whether such
costs and expenses arise before or after entry of final judgment.
The holder hereof shall have all of the rights and remedies available
to a creditor under, and this Note shall be construed in accordance with, the
laws of the State of North Carolina.
The Maker represents and warrants to the holder hereof that:
(a) The Maker is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full power
and authority to carry on its business as now being conducted and to
own its properties;
(b) The execution, delivery and performance by the Maker of this Note and
the Collateral Document are within the Maker's power, have been duly
authorized by all necessary corporation action and will not contravene,
or constitute a default under, any provision of applicable law or
regulation or the certificate of incorporation or bylaws of the Maker,
or of any judgment, order decree, agreement or instrument binding on
the Maker or result in the creation of any lien upon any of Maker's
property or assets, other than as contemplated by the Collateral
Document;
(c) This Note and the Collateral Document constitute the legal, valid and
binding obligations of the Maker enforceable against Maker in
accordance with their respective terms.
In case any one or more of the provisions contained in this Note shall
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby, and this Note shall be interpreted as if
such invalid, illegal or unenforceable provision was not contained herein.
IN WITNESS WHEREOF, the undersigned Maker has duly executed this Note
as of the day and year first above mentioned.
NDE ENVIRONMENTAL CORPORATION
3
<PAGE> 4
By:
-------------------------------------
A. Daniel Sharplin, President
4
<PAGE> 1
EXHIBIT 10.103
SECURED PROMISSORY NOTE
$175,000.00 FEBRUARY 13, 1996
FOR VALUE RECEIVED, the undersigned maker, NDE ENVIRONMENTAL
CORPORATION, a Delaware corporation, ("Maker"), promises to pay to the order of
PROACTIVE PARTNERS L.P. ("Payee"), the principal sum of One Hundred Seventy-Five
Thousand and No/100 Dollars ($175,000), together with interest on the principal
balance remaining unpaid at the rate of prime rate plus two percent (2%) per
annum. The prime rate shall be that rate published from time to time by the
Silicon Valley Bank.
Payment shall be make hereunder as follows:
(a) a payment of all outstanding principal shall be made, together with
interest accrued thereon at the aforesaid rate, on June 12, 1996.
Payments made hereunder shall be applied first to interest and then to
principal.
Payment of principal and interest due hereunder are payable at 50
Osgood Place, Penthouse, San Francisco, CA 94153, or at such other place as the
holder hereof may, from time to time designate in writing, in lawful money of
the United States of America which shall be legal tender for public and private
debts at the time of payment. The Maker shall execute appropriate documentation
to provide Holder with a security interest in accounts receivable junior to the
security interest of Silicon Valley Bank.
The occurrence of any of the following events shall be deemed an Event
of Default hereunder:
(a) if any default occurs with respect to the payment of interest or
principal due with respect to this Note which is not cured within five
(5) days after the Company receives written notice from the Holder of
the occurrence of such default; or
(b) if a receiver is appointed with respect to Maker's assets, which
appointment is not vacated within thirty (30) days, or if Maker becomes
insolvent or files a voluntary petition seeking relief from its
creditors under the United States Bankruptcy Code or if an involuntary
petition is filed seeking to adjudicate Maker a bankrupt under the
United States Bankruptcy Code, unless such petition is vacated within
thirty (30) days; or
1
<PAGE> 2
(c) if the Maker fails, after five (5) days' notice, to deliver the
requested documentation for the security interest of this Note.
Upon the occurrence of any one or more of the foregoing Events of
Default, the principal of this Note or any unpaid part thereof and all interest
accrued thereon shall, in the sole discretion of the holder, at once become due
and payable and may be collected forthwith without notice to Maker, regardless
of the stipulated date of maturity; TIME BEING OF THE ESSENCE OF THIS NOTE.
Maker hereby waives protest, demand, presentment and notice of
dishonor, the right of exemption under the Constitution and laws of Texas,
notice of Maturity, nonpayment and all requirements necessary to hold it liable
as Maker. Failure to accelerate the debt by reason of the occurrence of an Event
of Default shall not be construed as a novation or a waiver of the right of the
holder to thereafter insist upon strict compliance with the terms of this Note
without previous notice of such intention being given to the undersigned.
The indebtedness evidenced by this Note may be prepaid in part or in
full at any time without penalty with interest to date of payment only.
It is agreed that Maker shall pay all costs of collection, including
reasonable attorneys' fees, on failure to pay any principal or interest when due
on this Note. Such costs and attorneys' fees shall include, but not be limited
to, reasonable attorneys' fees incurred by the holder hereof in any and all
judicial proceedings, including appellate and bankruptcy proceedings, arising
out of enforcement or collection of this whether such costs and expenses arise
before or after entry of final judgment or arise without filing suit.
This note is to be construed according to the laws of Texas.
Any and all notices shall be addressed as follows:
IF TO MAKER:
NDE ENVIRONMENTAL CORPORATION
8906 Wall Street, Suite 306
Austin, Texas 78754
Attn: A. Daniel Sharplin
Telephone: 512/719-4633
Facsimile: 512/719-5517
IF TO PAYEE:
Proactive Partners L.P.
50 Osgood Place, Penthouse
San Francisco, CA 94153
Attn: Charles McGettigan
Telephone: 415/986-4433
2
<PAGE> 3
Facsimile: 415/986-3617
In case any one or more of the provisions contained in this Note shall
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby, and this Note shall be interpreted as if
such invalid, illegal or unenforceable provision was not contained herein. The
total liability of Maker for payment in the nature of interest shall not exceed
the limits provided by the usury laws of Texas and any amount paid in excess
thereof shall be refunded or credited with interest thereon an required by law.
IN WITNESS WHEREOF, the undersigned Maker has duly executed this Note
as of the 13th day of February, 1996.
NDE ENVIRONMENTAL CORPORATION
By:
-------------------------------------
A. Daniel Sharplin, President
3
<PAGE> 1
EXHIBIT 10.104
SECURED PROMISSORY NOTE
$175,000.00 FEBRUARY 13, 1996
FOR VALUE RECEIVED, the undersigned maker, NDE ENVIRONMENTAL
CORPORATION, a Delaware corporation, ("Maker"), promises to pay to the order of
LAGUNITAS PARTNERS L.P. ("Payee"), the principal sum of One Hundred Seventy-Five
Thousand and No/100 Dollars ($175,000), together with interest on the principal
balance remaining unpaid at the rate of prime rate plus two percent (2%) per
annum. The prime rate shall be that rate published from time to time by the
Silicon Valley Bank.
Payment shall be make hereunder as follows:
(a) a payment of all outstanding principal shall be made, together with
interest accrued thereon at the aforesaid rate, on June 12, 1996.
Payments made hereunder shall be applied first to interest and then to
principal.
Payment of principal and interest due hereunder are payable at 50
Osgood Place, Penthouse, San Francisco, CA 94153, or at such other place as the
holder hereof may, from time to time, designate in writing, in lawful money of
the United States of America which shall be legal tender for public and private
debts at the time of payment. The Maker shall execute appropriate documentation
to provide Holder with a security interest in accounts receivable junior to the
security interest of Silicon Valley Bank.
The occurrence of any of the following events shall be deemed an Event
of Default hereunder:
(a) if any default occurs with respect to the payment of interest or
principal due with respect to this Note which is not cured within five
(5) days after the Company receives written notice from the Holder of
the occurrence of such default; or
(b) if a receiver is appointed with respect to Maker's assets, which
appointment is not vacated within thirty (30) days, or if Maker becomes
insolvent or files a voluntary petition seeking relief from its
creditors under the United States Bankruptcy Code or if an involuntary
petition is filed seeking to adjudicate Maker a bankrupt under the
United States Bankruptcy Code, unless such petition is vacated within
thirty (30) days; or
(c) if the Maker fails, after five (5) days' notice, to deliver the
requested documentation for the security interest of this Note.
Upon the occurrence of any one or more of the foregoing Events of
Default, the principal of this Note or any unpaid part thereof and all interest
accrued thereon shall, in the sole discretion of the holder, at once become due
and payable and may be collected forthwith without notice to
1
<PAGE> 2
Maker, regardless of the stipulated date of maturity; TIME BEING OF THE
ESSENCE OF THIS NOTE.
Maker hereby waives protest, demand, presentment and notice of
dishonor, the right of exemption under the Constitution and laws of Texas,
notice of Maturity, nonpayment and all requirements necessary to hold it liable
as Maker. Failure to accelerate the debt by reason of the occurrence of an Event
of Default shall not be construed as a novation or a waiver of the right of the
holder to thereafter insist upon strict compliance with the terms of this Note
without previous notice of such intention being given to the undersigned.
The indebtedness evidenced by this Note may be prepaid in part or in
full at any time without penalty with interest to date of payment only.
It is agreed that Maker shall pay all costs of collection, including
reasonable attorneys' fees, on failure to pay any principal or interest when due
on this Note. Such costs and attorneys' fees shall include, but not be limited
to, reasonable attorneys' fees incurred by the holder hereof in any and all
judicial proceedings, including appellate and bankruptcy proceedings, arising
out of enforcement or collection of this whether such costs and expenses arise
before or after entry of final judgment or arise without filing suit.
This note is to be construed according to the laws of Texas.
Any and all notices shall be addressed as follows:
IF TO MAKER:
NDE ENVIRONMENTAL CORPORATION
8906 Wall Street, Suite 306
Austin, Texas 78754
Attn: A. Daniel Sharplin
Telephone: 512/719-4633
Facsimile: 512/719-5517
IF TO PAYEE:
Lagunitas Partners L.P.
50 Osgood Place, Penthouse
San Francisco, CA 94153
Attn: Charles McGettigan
Telephone: 415/986-4433
2
<PAGE> 3
Facsimile: 415/986-3617
In case any one or more of the provisions contained in this Note shall
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby, and this Note shall be interpreted as if
such invalid, illegal or unenforceable provision was not contained herein. The
total liability of Maker for payment in the nature of interest shall not exceed
the limits provided by the usury laws of Texas and any amount paid in excess
thereof shall be refunded or credited with interest thereon an required by law.
IN WITNESS WHEREOF, the undersigned Maker has duly executed this Note
as of the 13th day of February, 1996.
NDE ENVIRONMENTAL CORPORATION
By:
-------------------------------------
A. Daniel Sharplin, President
3
<PAGE> 1
EXHIBIT 10.105
SECOND AMENDMENT TO NDE ENVIRONMENTAL CORPORATION'S
SECURED PROMISSORY NOTE
This Second Amendment to the Secured Promissory Note, is dated March
22, 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 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, to restructure this obligation, the Parties
have developed this Second Amendment.
NOW, THEREFORE, in consideration of the mutual covenants herein and other
good and valuable consideration, the Parties agree:
II. REVISED TERMS
2.1 RESCHEDULED PAYMENTS. The outstanding balance (including the
principal of $2,450,000 and all accrued interest) on the Secured Promissory
Note, after payment of the $256,000.00 provided for in Section 2.2 herein, shall
be payable in full in one lump sum (principal and all accrued interest) on July
1, 1997.
2.2 DOWN PAYMENT OBLIGATION. NDE shall (i) pay Gilbarco Two Hundred
Fifty-Six Thousand Dollars ($256,000.00) in cash on or before Friday, March 29,
1996, or (ii) issue on or before Friday, March 29, 1996, a separate Note for Two
Hundred Fifty-Six Thousand Dollars ($256,000.00), due on or before June 30,
1996, secured by a letter of credit in a form and from a bank fully acceptable
to Gilbarco (the "Down Payment"). Upon receipt of the Down Payment, whether in
cash or by note, Gilbarco shall forward the certificate provided in Exhibit I.
If the
1
<PAGE> 2
Down Payment provided by this section is not received on or before 5:00 p.m.
Eastern Time on March 29, 1996, this Second Amendment shall not be effective and
Gilbarco may exercise any and all of its rights under the Secured Promissory
Note or Security Agreements.
2.3 INCENTIVE PREPAYMENT RIGHTS. NDE will have the right to prepay the
remaining obligations of the Secured Promissory Note at a discounted basis for
the amounts and at the time periods reflected in Exhibit II. Upon the timely
receipt of such prepayment amount, Gilbarco shall cancel the outstanding
obligation, return the Secured Promissory Note marked "Paid" and release any and
all security interests.
2.4 SALE OF COLLATERAL. Gilbarco authorizes NDE to sell any and all of
the collateral covered by the Security Agreement. NDE shall remit the proceeds
of the sale of such collateral to Gilbarco until the applicable prepayment
amount reflected on Exhibit II has been paid.
III. OTHER PROVISIONS
3.1 APPLICABLE LAWS. This Second Amendment shall be construed in accordance
with the laws of the State of New York.
3.2 ENTIRE AGREEMENT. The terms of this Second Amendment are the only
changes to the Secured Promissory Note, and all other provisions of the
Note and Security Agreement shall remain in full force and effect
unless specifically amended therein.
3.3 COUNTERPARTS. This Second Amendment 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:
-------------------------------------
Jay Allen Chaffee, Chairman of the Board
Address: 8906 Wall Street, Suite 306
Austin, TX 78754
GILBARCO INC.
By:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Address: Gilbarco North America
7300 W. Friendly Avenue
Greensboro, NC 27410
2
<PAGE> 3
EXHIBIT I
CERTIFICATE
Gilbarco Inc. has received the Down Payment provided for in Section 2.2
of the Second Amendment to NDE Environmental Corporation's Secured Promissory
Note. The terms of the Second Amendment are fully effective as of this 27 day
of March, 1996.
GILBARCO INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
3
<PAGE> 4
EXHIBIT II
<TABLE>
<CAPTION>
REPAYMENT INCENTIVE
QUARTER AMOUNT
------------------------------------------------------------------
<S> <C>
06/30/96 $ 256,000
09/30/96 $ 384,000
12/31/96 $ 512,000
03/31/97 $ 640,000
06/30/97 $ 768,000
--------------------------------------------------------------------
</TABLE>
4
<PAGE> 1
EXHIBIT 10.106
PROTANK, INC. V NDE ENVIRONMENTAL CORP.
EFFECTIVE NOVEMBER 30, 1995 NDE ENVIRONMENTAL CORPORATION ("NDE"), PROTANK INC.
("PROTANK") AND JOHN R. MASTANDREA ("MASTANDREA"), COMMONLY REFERRED TO AS THE
PARTIES, ENTER INTO THIS SETTLEMENT AGREEMENT RESOLVING THE PROTANK V. NDE CASE
NO. BC110988 PENDING IN THE SUPERIOR COURT OF STATE OF CALIFORNIA FOR THE COUNTY
OF LOS ANGELES CENTRAL DISTRICT:
1. Defendant to pay plaintiff $92,500 as follows: $40,000 cash on or before
January 31, 1996 and the balance payable in installments as follows: $20,000 on
June 1, 1996, $20,000 on December 1, 1996 and $12,500 on 6/1/97. Defendant to
execute a Stipulated Judgment for $52,500 to be held by counsel for plaintiff
and not enforced unless and until defendant fails to timely pay. If an
installment payment is not timely made plaintiff shall give written notice to
defendants of said default and defendant shall have 10 days from receipt to cure
the default. If not cured all outstanding installments accelerated and plaintiff
shall have right to enforce judgment amount less any prior payments.
2. Defendant will waive all royalties due from ProTank.
3. On or before January 31, 1996, Defendant will deliver to plaintiff 3
VPLT NDE 1000 4 channel systems and 1 ProEco four tank system with
ullage equipment for both groups. Plaintiff may elect whether he wants
acoustic or UTS4T - 4 ullage systems. Defendants shall have no further
obligation to deliver other equipment or technologies at that time or
any time in the future including but not limited to NDE's proprietary
information systems. The equipment shall be used but in operable
condition subject to inspection for a one-week period, upon acceptance
there shall be no further obligations to repair or warrant the
condition of the equipment.
4. Defendant won't object or interfere with plaintiff's procurement of
Gilbarco Equipment (Alert Mfg.)
5. Plaintiff may compete with Defendant anywhere except Malaysia and
Australia.
6. The parties shall execute a separate patent license agreement. The
separate patent license agreement shall provide:
(a) The title to Mastandrea, Mooney and Hensel/Hunter patents shall be
transferred to ProTank et al.
(b) Patent net recovery split changed to 75% to Mastandrea/ETT, and ProTank
and 25% to NDE.
(c) ProTank et al. shall have control of patents but neither party shall be
obligated to make expenditures to maintain or enforce.
1
<PAGE> 2
(d) Parties shall reasonably cooperate for transfer.
(e) Recoveries shall be accounted for and remitted annually with audit
right.
(f) No further provision for Mastandrea testifying and consulting fees or
advances.
(g) NDE shall have the right to sell, use and manufacture systems covered
by section 6(A) patents without any royalty to ProTank et al.
If parties unable to agree to form of separate patent license agreement the
issues shall be resolved by binding arbitration pursuant to paragraph 8.
7. Plaintiff will have non-exclusive right to manufacture, use and sell VPLT and
related ullage equipment everywhere in the world except Australia and Malaysia
and the right to use the ProEco system in the United States.
8. Binding arbitration with Hon. Jill S. Robbins, Comm. ("JSR") through ADR
Services or mutually agreed person if JSR unavailable in the event of any future
dispute between the parties arising out of this agreement.
9. NDE shall transfer to plaintiff 20,000 shares of NDE common stock on or
before January 31, 1996.
10. The parties hereby waive application of Section 1542 of the California Civil
Code. The parties understand and acknowledge that the significance of waiving
Civil Code Section 1542 is that even if the parties should suffer additional
harm in the future, they will not be permitted to make any claim for those
damages, except for claims under the patent agreement between the parties.
11. The parties on behalf of themselves and their heirs, executives, assigns and
for the consideration set forth in this agreement, hereby fully release each
other from all known, unknown accrued and unaccrued claims and causes of action
which each has against the other.
12. Parties waive the confidentiality provisions of EC 1152.5 such that this
agreement may be enforced by motion under CCP 664.6.
13. Defendant represents through its Chairman Jay Chaffee that there are no
pending lawsuits, agreements and or licenses regarding the Patents agreement
between Mastandrea, ETT and NDE.
14. Parties shall cooperate with various regulatory agencies to allow ProTank,
its' licensees or assigns to utilize the NDE certified equipment. ProTank will
utilize an alternative tradename for the NDE systems and will not reference an
affiliation with NDE in any regard.
2
<PAGE> 3
15. This agreement supersedes any prior existing agreements between the parties,
including but not limited to the License Agreement between Tank Vision, Inc. and
NDE Technology, Inc. dated May 12, 1987, the Amendment to the license agreement
dated December 31, 1992, and the patent agreement between NDE, John Mastandrea
and ETT.
16. ProTank and John Mastandrea represents and warrants that no other person or
entity has an interest in the Tank Vision license agreement and any amendments
thereto.
17. The parties shall have no obligation to cross license any other technology
or improvements thereto.
18. Upon receipt of final payment plaintiff shall execute file and provide an
acknowledgment of satisfaction of judgment.
19. Agreement shall be deemed effective upon receipt of first cash installment,
Equipment described in paragraph 3 and stock described in paragraph 9.
By:
- --------------------------------- ------------------------------------
Counsel for NDE Jay Allen Chaffee, Chairman
NDE Environmental Corporation
By:
- --------------------------------- ------------------------------------
Counsel for ProTank John R. Mastandrea, President
ProTank, Inc.
By:
- --------------------------------- ------------------------------------
Counsel for John Mastandrea John Mastandrea
Individually
3
<PAGE> 1
EXHIBIT 10.107
1996 FUNDING AGREEMENT
This 1996 Funding Agreement is made this 27th day of March, 1996, by and
between NDE Environmental Corporation ("NDE"), Proactive Partners L.P.
("Proactive") and Lagunitas Partners L.P. ("Lagunitas").
WHEREAS, Proactive and Lagunitas entered into Secured Promissory Notes
in the amount of $175,000 each, dated February 13, 1996, attached hereto as
Exhibits A and B, respectively.
WHEREAS, NDE entered into an agreement with Gilbarco Inc. ("Gilbarco")
to restructure its $2.5 million obligation (the "Restructure Agreement"); and
WHEREAS, NDE needs additional capital to meet its commitment under the
Restructure Agreement;
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants contained herein, the parties agree as follows:
1) FEBRUARY 13, 1996, SECURED PROMISSORY NOTES. Proactive and Lagunitas
will exchange the Secured Promissory Notes for the convertible
debentures described herein.
2) ADDITIONAL PROACTIVE FUNDING. Proactive will wire transfer Two Hundred
Fifty Thousand Dollars ($250,000) to NDE on or before March 28, 1996.
NDE shall use the proceeds to close the Gilbarco transaction.
3) CONVERTIBLE DEBENTURES. NDE will issue debentures to Proactive and
Lagunitas in the amount of $425,000 and $175,000, respectively, which
are due April 1, 1997. The debentures shall have an interest rate of
eight percent (8%) and shall provide for payment of accrued interest
and principal on April 7, 1997. The debentures shall be immediately
convertible into a new series of preferred shares having a conversion
into 4,800,000 shares of common shares. NDE shall use its best efforts
to seek shareholder approval for an increase in the authorized shares
to allow for the issuance of this new class of preferred shares. In the
case where NDE is unable to receive an increase in authorized shares,
such debentures shall be fully due and payable on April 7, 1997.
4) MUTUAL COOPERATION, The parties shall execute any and all documentation
that is necessary to effectuate this agreement.
NDE Environmental Corporation
By:
-------------------------------
Jay Allen Chaffee
Chairman of the Board
1
<PAGE> 2
Proactive Partners L.P.
By:
-------------------------
Charles McGettigan
General Partner
Lagunitas Partners L.P.
By:
-------------------------
Jon D. Gruber
Partner
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 327,035
<SECURITIES> 0
<RECEIVABLES> 2,452,105
<ALLOWANCES> 289,512
<INVENTORY> 175,173
<CURRENT-ASSETS> 2,910,446
<PP&E> 10,031,807
<DEPRECIATION> 6,004,770
<TOTAL-ASSETS> 8,229,843
<CURRENT-LIABILITIES> 4,729,212
<BONDS> 0
0
5,000
<COMMON> 227
<OTHER-SE> (244,797)
<TOTAL-LIABILITY-AND-EQUITY> 8,229,843
<SALES> 11,347,591
<TOTAL-REVENUES> 0
<CGS> 7,062,456
<TOTAL-COSTS> 13,490,889
<OTHER-EXPENSES> 6,194,980
<LOSS-PROVISION> 233,453
<INTEREST-EXPENSE> 905,682
<INCOME-PRETAX> (2,892,639)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,892,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,892,639)
<EPS-PRIMARY> (1)
<EPS-DILUTED> (1)
</TABLE>
