<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934 for the quarterly period ended June 30, 1996.
Transition Report Under to Section 13 or 15(d) of the Exchange Act for
- --- the transition period from to .
Commission File Number 1-10361
NDE ENVIRONMENTAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 95-3634420
(State of Incorporation) (IRS Employer Identification No.)
8900 Shoal Creek Blvd., Bldg. 200, Austin, Texas 78757
(Address of Principal Executive offices)
Issuer's telephone number, including area code (512) 451-6334
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past ninety days.
YES X NO
------- -------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 10, 1996
------ ------------------------------
Common 7,978,610
Transitional Small Business Disclosure Format (check one): Yes No X
----- ------
This report consists of _______________ sequentially numbered pages.
Page 1
<PAGE> 2
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
INDEX
Page Number
PART I Financial Information.........................................
ITEM 1 Financial Statements (Unaudited)..............................
Condensed Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995...........................
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 1996 and 1995.....................
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1996 and 1995......................
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995......................
Notes to Condensed Consolidated Financial Statements..........
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................
PART II Other Information.............................................
ITEM 4 Submission of Matters to a Vote of Security Holders...........
ITEM 5 Other Information.............................................
ITEM 6 Exhibits and Reports on Form 8K...............................
Signatures....................................................
Page 2
<PAGE> 3
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS (Unaudited) (Note)
CURRENT ASSETS
Cash $23,885 $327,035
Trade accounts receivable, less
allowance for doubtful accounts of
$293,611 in 1996 and $289,512 in 1995 1,757,155 2,162,593
Inventories 293,207 175,173
Prepaid expenses and other current assets 73,466 245,645
---------- ----------
TOTAL CURRENT ASSETS 2,147,713 2,910,446
EQUIPMENT AND IMPROVEMENTS, net of accumulated
depreciation of $6,657,885 in 1996 and $6,004,770 in
1995 3,701,475 4,027,037
INTANGIBLE ASSETS
Patents, net of accumulated amortization of $269,589 in
1996 and $232,042 in 1995 416,806 454,353
License, net of accumulated amortization of $251,847 in
1996 and $215,940 in 1995 667,270 703,177
Other Intangibles, net of accumulated amortization of
$137,529 in 1996 and $130,265 in 1995 35,107 42,371
Deposits and other assets 97,181 92,459
---------- ----------
$7,065,552 $8,229,843
========== ==========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE> 4
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY (Unaudited) (Note)
CURRENT LIABILITIES
Accounts payable 1,013,687 $751,944
Accrued liabilities 732,689 1,322,457
Accrued payroll and payroll taxes 507,022 636,369
Current maturities of notes payable and
financing agreement 3,360,141 2,018,442
---------- ----------
TOTAL CURRENT LIABILITIES 5,613,539 4,729,212
Long Term Debt, less Current Portion (See Note 3) 2,916,375 3,739,653
---------- ----------
TOTAL LIABILITIES 8,529,914 8,468,865
---------- ----------
STOCKHOLDERS' EQUITY (SEE NOTE 2)
Series AAA Convertible Preferred Stock, $.0001
par value; authorized, 400 shares; issued and
outstanding 1 share stated at liquidation
value of $5,000 per share. 5,000 5,000
Common stock, $.0001 par value; authorized,
10,000,000 shares; issued and outstanding
7,978,610 shares at June 30, 1996, and
2,274,420 December 31, 1995. 799 227
Common stock subscribed, 0 shares at June 30,
1996, 5,482,254 shares at December 31, 1995
(Note 2) 0 1,303,410
Additional paid-in capital 26,524,624 25,115,717
Accumulated deficit (27,994,785) (26,663,376)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,464,362) (239,022)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,065,552 $8,229,843
========== ==========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE> 5
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
REVENUES - Testing services 2,811,983 $2,830,499
Other 166,256 90,720
COSTS AND EXPENSES
Cost of sales and testing services 1,771,708 1,818,671
Selling, general and administrative 1,404,568 1,320,186
Provision for doubtful accounts 43,096 64,107
--------- ---------
TOTAL COSTS AND EXPENSES 3,219,372 3,202,964
--------- ---------
OPERATING LOSS ($241,133) ($281,745)
Other income (expense):
Interest income 37 22
Interest expense (188,314) (204,702)
--------- ---------
NET LOSS ($429,410) ($486,425)
========= =========
NET LOSS PER SHARE ($0.06) ($0.25)
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - 6,713,479 1,946,112
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE> 6
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
REVENUES - Testing services 5,131,559 $4,995,581
Other 409,047 90,720
COSTS AND EXPENSES
Cost of sales and testing services 3,532,057 3,293,825
Selling, general and administrative 2,857,790 2,723,685
Provision for doubtful accounts 114,728 115,333
---------- ----------
TOTAL COSTS AND EXPENSES 6,504,575 6,132,843
---------- ----------
OPERATING LOSS ($963,969) ($1,046,542)
Other income (expense):
Interest income 37 158
Interest expense (367,477) (406,292)
---------- ----------
NET LOSS ($1,331,409) ($1,452,676)
========== ==========
NET LOSS PER SHARE ($0.29) ($0.85)
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,558,601 1,708,160
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 6
<PAGE> 7
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($1,331,409) ($1,452,676)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING
ACTIVITIES:
Gain on Sale of Assets (199,711) (34,334)
Depreciation 653,115 653,232
Amortization of discount on notes payable 62,809 70,613
Amortization of intangibles 80,718 82,385
Provision for doubtful accounts 114,728 121,224
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Trade receivables 290,710 (265,757)
Inventories (160,713) 3,572
Prepaid expenses 172,179 97,269
Deposits (4,722) (17,641)
Accounts payable 261,743 (66,320)
Accrued liabilities (586,018) (219,327)
Accrued payroll and accrued payroll taxes (27,028) 95,435
------------- ----------
NET CASH USED IN OPERATING ACTIVITIES (673,599) (932,325)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 7
<PAGE> 8
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
INVESTING ACTIVITIES
Purchase of Licenses 0 (525)
Proceeds from sale of equipment 253,590 87,000
Additions to equipment and improvements (312,309) (229,312)
------------- -------------
Net cash provided by investing activities (58,719) (142,837)
FINANCING ACTIVITIES
Proceeds from (Pay down) Line of Credit (26,442) 748,050
Principal payments under note and
capital lease payable (394,390) (508,968)
Proceeds from issuance of notes payable 850,000 571,615
Proceeds from Issuance of preferred Stock 0 250,000
------------- -------------
Net cash provided by financing activities 429,168 1,060,697
Net (decrease) in cash (303,150) (14,465)
Cash and cash equivalents at beginning
of period 327,035 244,491
------------- -------------
Cash and cash equivalents at end of
period $23,885 $230,026
============= =============
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $107,457 $249,376
============= =============
Income taxes -- --
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 8
<PAGE> 9
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: ACCOMPANYING UNAUDITED FINANCIAL STATEMENTS
Basis of Presentation: The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with the instructions
to Form 10-QSB. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited financial
statements for the six months ended June 30, 1996 and 1995 contain all
adjustments, consisting of only normal recurring accruals, necessary to present
fairly the financial position of the Company as of June 30, 1996 and 1995, the
results of operations for the three and six months then ended, and cash flows
for the six months then ended.
For further information refer to the consolidated financial statements and
footnotes included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1995. The results of operations for the Company's interim
periods are not necessarily indicative of the results to be expected for the
entire year.
Certain amounts shown in the 1995 financial statements have been
reclassified to conform to the 1996 presentation.
NOTE 2: Stockholders' Equity
In January 1995, the Company raised $500,000 from Proactive Partners L.P.
("Proactive") and Lagunitas Partners L.P. ("Lagunitas") in exchange for a
promissory note (the "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's
portions of the promissory note 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
Convertible Preferred Stock. This Series DDD Preferred Stock was never issued.
In April 1996, pursuant to the 1995 Recapitalization Agreement Amendment
between the Company and Proactive and Lagunitas, 5,482,254 shares of Common
Stock were issued in lieu of the Series DDD Convertible Preferred Stock
identified above.
Page 9
<PAGE> 10
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As discussed is Note 3, in March 1996, the Company entered into Secured
Promissory Notes with Proactive and Lagunitas in the amounts of $425,000 and
$175,000, respectively. In May and June, 1996, the Company entered into
additional Secured Promissory Notes with Proactive in the amounts of $150,000
and $100,000, respectively. These notes are all due April 1, 1997, bear
interest at a rate of 8% and are immediately convertible into a new series of
Preferred Stock. The new series of Preferred Stock is convertible at a price
of $0.125 per share into a total of 6,800,000 shares of Common Stock.
At the annual shareholder meeting held in June 1996, the stockholders
approved the Amended and Restated Certificate of Incorporation of the Company
which increased the authorized number of shares of Common Stock from 10,000,000
to 50,000,000.
NOTE 3: Debt
On February 13, 1996, in exchange for its promissory notes, the Company
received $175,000 each from Proactive and from Lagunitas (a total of $350,000).
The notes bore interest at the rate of Prime plus 2% and became due June 12,
1996. In March 1996, in order to effect the restructure of the $2,450,000 note
payable to Gilbarco, Inc. (see "Gilbarco" below), the Company received an
additional $250,000 from Proactive. In May and June 1996, in order to finance
its continuing operations, the Company received from Proactive $150,000 and
$100,000, respectively. In exchange for these notes (which total $850,000),
the Company issued debentures to Proactive in the amounts of $425,000,
$150,000, and $100,000 and to Lagunitas in the amount of $175,000 (the "1996
Funding Agreement"). The debentures have an interest rate of 8%. Principal and
accrued interest are due April 1, 1997. The debentures are immediately
convertible into a new series of preferred shares having a conversion at $0.125
per share into 6,800,000 shares of the Company's common stock. At June 30,
1996, the $850,000 in notes to Proactive and Lagunitas are reflected as a
current liability pending conversion, at the Company's discretion, into
preferred stock.
In April 1994, the Company purchased certain assets, primarily vehicles
and test equipment, from Gilbarco Environmental Services Division ("Gilbarco").
This purchase was financed in part by a $2,450,000 six-year note bearing
interest at prime minus 1%, which was collateralized by the assets acquired.
In March 1996 the Company entered into an agreement with Gilbarco to amend the
$2,450,000 note agreement. This amendment provided for revised terms including
a down payment of $256,000 due on or before March 29, 1996. This down payment
was funded by additional debt obtained from Proactive Partners (see Note 2
above). Per the amendment, the remaining Gilbarco debt will be forgiven in
total upon the receipt by Gilbarco of any one of the following repayment
incentive amounts as of the indicated dates. If none of the following
repayment incentive amounts are paid by the indicated dates, the balance of the
Gilbarco note becomes due in full on July 1, 1997.
Page 10
<PAGE> 11
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. At August 13, 1996, the Company
had not made an incentive payment to Gilbarco.
NOTE 4: Foreign Operations
In February 1996, the Company completed a licensing and equipment sale
transaction with a group in South Korea. The agreement calls for the sale by
the Company of certain tank testing equipment to the Korean group along with a
license to utilize the Company's Suretest technology in Korea. In return, the
Company received $135,000 (net of commissions) and, on an ongoing basis, will
receive test report analysis fees.
In April 1996, the Company completed a licensing and equipment sale
transaction with a group in Eastern Canada. The agreement calls for the sale
by the Company of certain tank testing equipment to the Canadian group along
with a license to utilize the Company's Suretest Technology in Eastern Canada.
In return, the Company received $74,000 and, on an ongoing basis, will receive
test report analysis fees.
The gains on these sales of assets are included in "Other Income" in the
attached financial statements.
NOTE 5: Compliance Management Services
In December 1995, the Company established its Compliance Management
Services Division ("CMS") to provide a turn-key compliance management service
to certain domestic customers. The Company's CMS division provides
administrative, managerial, technical, data processing, and regulatory liaison
services to tank owners. For the quarter ended June 30, 1996, CMS revenues were
$110,235. For the six months ended June 30, 1996, CMS revenues were $209,336.
CMS revenue is included in "Other Income" in the attached financial statements.
Page 11
<PAGE> 12
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company had a net loss of $429,410 for the three months ended June 30,
1996, compared to a net loss of $486,425 for the three months ended June 30,
1995. The Company had a net loss of $1,331,409 for the six months ended June
30, 1996, compared to $1,452,676 for the six months ended June 30, 1995. An
explanation of the variances between periods for each of the major categories
follows.
The following table reflects the percentage relationship to net sales of
certain items included in the company's statement of operations for the three
and six month periods ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
3 Months Ended
--------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Revenues 100% 100%
Costs and Expenses
Cost of Sales and Testing 59% 62%
Selling, General and Administrative 47% 45%
Provision for Doubtful Accounts 1% 2%
Interest Expense 6% 7%
---- ----
Total Costs and Expenses 113% 116%
---- ----
Net Loss (13%) (16%)
---- ----
</TABLE>
<TABLE>
<CAPTION>
6 Months Ended
--------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Revenues 100% 100%
Costs and Expenses
Cost of Sales and Testing 64% 65%
Selling, General and Administrative 52% 54%
Provision for Doubtful Accounts 2% 2%
Interest Expense 7% 8%
---- ----
Total Costs and Expenses 125% 129%
---- ----
Net Loss (25%) (29%)
---- ----
</TABLE>
Page 12
<PAGE> 13
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Revenues
Revenues for the three months ended June 30, 1996 were $2,978,239, an
increase of $57,020, or 2%, compared to revenues of $2,921,219 for the three
months ended June 30, 1995. Revenues for the six months ended June 30, 1996
were $5,540,606, an increase of $454,305, or 9%, compared to revenues of
$5,086,301 for the six months ended June 30, 1995. The increase for the three
months ended June 30, 1996 was due to the Company's CMS division, which billed
$110,235 during the quarter. This segment did not exist in the prior year.
CMS revenue was $209,336 for the six month period, which contributed to the
increase in revenue over the comparable period of the prior year.
Average revenue per van day (revenue from domestic UST testing and tank
management divided by van days worked) decreased by $36 or 3% from
approximately $1,075 for the three months ended June 30, 1995 to $1,039 for the
three months ended June 30, 1996, while total volume increased by 5% from 2,480
van days worked during the three months ended June 30, 1995 to 2,604 van days
worked during the three months ended June 30, 1996. For the six months ended
June 30, 1996 average revenue per van day was $1,025, an increase of $2, from
the $1,023 achieved during the six months ended June 30, 1995. Total volume
increased by 151 van days worked, or 3% for the six month period. The
decrease in revenue per van day was due to decreased pricing.
Cost of Sales and Testing Services
Cost of sales and testing services for the three months ended June 30,
1996 was $1,771,708 (59% of revenue), a decrease of $46,963, or 3%, compared
to $1,818,671 (62% of revenue), for the three months ended June 30, 1995. The
decrease in cost of sales was due primarily to more efficient scheduling of the
Company's fleet. The cost of sales for the six months ended June 30, 1996 was
$3,532,057, an increase of $238,232, or 7%, compared to $3,293,825 for the six
months ended June 30, 1995. This increase is due to increased volume. As a
percent of sales, cost of sales was 64% for the six months ended June 30, 1996,
compared to 65% for the six months ended June 30, 1995. This decrease is due
to more efficient scheduling of the Company's fleet.
Selling, General and Administrative
Selling, general and administrative expense for the three months ended June 30,
1996 was $1,404,568 (47% of revenue), an increase of $84,382 or 6%, compared
to $1,320,186 for the three months ended June 30, 1995. Selling, general and
administrative expense for the six months ended June 30, 1996 was $2,857,790
(52% of revenue), an increase of $134,105 compared to $2,723,685 (54% of
revenue) for the six months period ended June 30, 1995. The increase in
selling, general, and administrative expenses was due to the addition of staff
for the CMS segment.
Page 13
<PAGE> 14
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Provision for Doubtful Accounts
In April 1996, as a result of a management review of the history of
uncollectable accounts, the determination was made to decrease the amount
reserved for doubtful accounts from 2.5% to 1.25% of domestic sales and from
25% to 10% of foreign sales. The provision for doubtful accounts for the three
months ended June 30, 1996 was $43,096, or 1.5% of sales, a decrease of $21,011,
or 33%, compared to $64,107, or 2.2% of sales, for the three months ended June
30, 1995. For the six months ended June 30, 1996, the provision for doubtful
accounts was $114,728 or 2.1% of sales, a decrease of $605 compared to $115,333
or 2.3% of sales for the six months ended June 30, 1995. The decreases of
$21,011 for the three month period and $605 for the six month period are due to
a change in the Company's accounting policies, as discussed above.
Interest Expense
Interest expense for the three months ended June 30, 1996 was $188,314 (6%
of revenue), a decrease of $16,388, or 8%, compared to $204,702 (7% of revenue)
for the three months ended June 30, 1995. For the six months ended June 30,
1996, interest expense was $367,477 (7% of revenue), a decrease of $38,815, or
10%, compared to $406,292 (8% of revenue) for the six months ended June 30,
1995. The decreases are due primarily to reduced interest rates on the
Company's line of credit line with Silicon Valley Bank ("SVB").
Page 14
<PAGE> 15
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Loss
For the three months ended June 30, 1996, the Company incurred a net loss
of $429,410 (13% of sales), a decrease of $57,015, or 12% compared to the net
loss of $486,425 (17% of sales) for the three months ended June 30, 1995. For
the six months ended June 30, 1996, the Company had a net loss of $1,331,409
(25% of sales) compared to a net loss of $1,452,676 (29% of sales) for the six
months ended June 30, 1995. The decrease in net loss was due increased volume,
to more efficient scheduling of the Company's fleet, and to decreased interest
expense.
Liquidity and Capital Resources
At June 30, 1996, the Company had a working capital deficit of $3,465,826
compared to a working capital deficit of $1,818,766 at December 31, 1995. The
increase of $1,647,060 is due primarily to a decrease in current assets of
approximately $750,000, additional borrowing from Proactive of $850,000, and a
reclassification to current liabilities of the Term Loan from Silicon Valley
Bank of $750,000.
At June 30, 1996, the Company had outstanding long-term debt (including
current maturities) of $6,276,516, compared to $5,758,095 at December 31, 1995.
During the six months ended June 30, 1996, the Company received $675,000 from
Proactive and $175,000 from Lagunitas in exchange for its promissory notes.
These notes bear interest at the rate of 8% and are due April 1, 1997. It is
the intention of the Company to convert these notes to equity. These funds
were used to finance the operations of the Company and to provide the down
payment required under the Gilbarco restructure agreement. See Note 3.
The Company has been able to restructure much of its long-term debt,
including the amounts payable to Gilbarco. See Note 3 above. The Company
also was able to restructure the payment schedule of its subordinated debt;
annual payments are now due in October as opposed to April.
At June 30, 1996 the Company had $1,909,376 of debt that matures within
the next twelve months, not including amounts due under the Financing
Agreement. Management of the Company expects that additional cash will be
required to fund the operations of the Company. Although management of the
Company is devoting substantial effort to the pursuit of funding sources, there
is no assurance that such efforts will continue to be successful.
If the Company's cash flow from operations and other capital resources are
insufficient to meet its debt maturities, the Company may be required to take
other actions including cost reduction measures, dispositions of assets or a
combination of these and other actions which are not currently foreseeable.
Such other actions could have an adverse effect on the Company's financial
condition and results of operations.
Page 15
<PAGE> 16
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 annual meeting of the stockholders of the Company was held on
June 26, 1996. The following directors were elected at the meeting: Jay Allen
Chaffee; Charles C. McGettigan; A. Daniel Sharplin; Michael S. Taylor; and
Myron A. Wick III.
The following matters were voted upon at the meeting:
1. Proposal to adopt amended and restated certificate of incorporation
(increasing the authorized number of shares of common stock from
10,000,000 to 50,000,000.
Votes for: 6,772,197 Votes against: 30,550
2. Election of directors:
Jay Allen Chaffee: Votes for: 6,789,277 Votes against: 13,470
Charles C. McGettigan Votes for: 6,789,277 Votes against: 13,470
A. Daniel Sharplin Votes for: 6,789,277 Votes against: 13,470
Michael S. Taylor Votes for: 6,789,277 Votes against: 13,470
Myron A. Wick III Votes for: 6,789,277 Votes against: 13,470
3. Proposal to amend the 1989 Stock Option Plan to increase the number of
shares reserved thereunder from 248,250 to 2,500,000.
Votes for: 6,770,743 Votes against: 29,668 Votes abstain: 2,336
4. Proposal to ratify selection of Ernst & Young as the Company's independent
public accountants for 1996:
Votes for: 6,801,751 Votes against: 991 Votes abstain: 5
Page 16
<PAGE> 17
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
OTHER INFORMATION (CONTINUED)
ITEM 5: OTHER INFORMATION
Corporate Office Relocation
Due to the growth of the Company's CMS division, the Wall Street facility
no longer provided sufficient space to meet the Company's requirements. In
April 1996 the Company relocated its Corporate Offices from 8906 Wall St. #306,
Austin, Texas to 8900 Shoal Creek Blvd. Bldg. 200, Austin, Texas. The Shoal
Creek facility covers approximately 11,550 square feet (compared to 8,000
square feet at the Wall Street facility). The base rental rate at Shoal Creek
is $0.70 per square foot, for a total of $8,085 per month compared to a base
rental rate of $0.60 per share foot, for a total of $4,900 per month at the
Wall Street facility. The Shoal Creek lease is effective from April 1996
through January 2000. The Company remains obligated under the terms of the
Wall Street lease, which expires April 30, 1999. The Company expects to
sub-lease the Wall Street facility at favorable rates; at August 13, 1996 the
Wall Street building has been approximately 15% subleased.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated herein by
reference:
No. Exhibit
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).
Page 17
<PAGE> 18
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
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")).
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).
Page 18
<PAGE> 19
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
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).
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).
Page 19
<PAGE> 20
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
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
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 March 17, 1995,
between the Registrant and Silicon Valley Bank.
Page 20
<PAGE> 21
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
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.
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.
Page 21
<PAGE> 22
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
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.
10.108 1996 Additional Funding Agreement, dated as of March 15, 1996, between
the Registrant and Proactive Partners, L.P.
10.109 1996 Second Additional Funding Agreement, dated as of June 13, 1996,
between the Registrant and Proactive Partners, L.P.
(b) There were no reports filed on form 8-K for the quarter ended March 31,
1996.
Page 22
<PAGE> 23
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
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.
Page 23
<PAGE> 24
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NDE ENVIRONMENTAL CORPORATION
(Registrant)
Date: August 14, 1996 /s/ A. DANIEL SHARPLIN
_____________________________
A. Daniel Sharplin
President and Chief Executive Officer
Date: August 14, 1996 /s/ ERIC J. (RICK) HOPKINS
_____________________________
Eric J. (Rick) Hopkins
Vice President and Chief Financial Officer
Page 24
<PAGE> 25
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.108 1996 Additional Funding Agreement
10.109 1996 Second Additional Funding Agreement
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.108
1996 ADDITIONAL FUNDING AGREEMENT
THIS 1996 ADDITIONAL FUNDING AGREEMENT is made this 15th day of March,
1996, by and between NDE Environmental Corporation ("NDE") and Proactive
Partners L.P. ("Proactive").
WHEREAS, Proactive, NDE and Lagunitas Partners L.P. entered into the 1996
Funding Agreement dated March 27, 1996; and
WHEREAS, NDE needs additional capital to meet its current commitments.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants contained herein, the parties agree as follows:
1. PROACTIVE ADVANCE. Proactive will wire transfer $150,000 to
NDE.
2. CONVERTIBLE DEBENTURES. NDE will issue a debenture to
Proactive in the amount of $150,000. The debenture shall have an
interest rate of eight percent (8%) and shall provide for payment of
accrued interest and principal on April 1, 1997. The debenture
shall be immediately convertible into a new series of preferred
having a conversion into 1,200,000 shares of common stock. NDE
shall use its best efforts to seek shareholder approval for an
increase in the authorized shares to allow for the issuance this new
class of preferred shares. In the case where NDE is unable to
obtain shareholder approval for an increase in authorized shares,
such debenture shall be fully due and payable on April 1, 1997.
3. 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
PROACTIVE PARTNERS L.P.
BY: PROACTIVE INVESTMENT MANAGERS, L.P.,
GENERAL PARTNER
By: ___________________________________
Charles McGettigan, General Partner
<PAGE> 1
EXHIBIT 10.109
1996 SECOND ADDITIONAL FUNDING AGREEMENT
THIS 1996 SECOND ADDITIONAL FUNDING AGREEMENT is made this 13th day of
June, 1996, by and between NDE Environmental Corporation ("NDE") and Proactive
Partners L.P. ("Proactive").
WHEREAS, Proactive, NDE and Lagunitas Partners L.P. entered into the 1996
Funding Agreement dated March 27, 1996; and
WHEREAS, Proactive and NDE entered into the 1996 Additional Funding
Agreement made effective May 15, 1996; and
WHEREAS, NDE needs additional capital to meet its current commitments.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants contained herein, the parties agree as follows:
1. PROACTIVE ADVANCE. Proactive will wire transfer $100,000 to
NDE.
2. CONVERTIBLE DEBENTURES. NDE will issue a debenture to
Proactive in the amount of $1,000,000. The debenture shall have an
interest rate of eight percent (8%) and shall provide for payment of
accrued interest and principal on April 1, 1997. The debenture
shall be immediately convertible into a new series of preferred
having a conversion into 800,000 shares of common stock. NDE shall
use its best efforts to seek shareholder approval for an increase in
the authorized shares to allow for the issuance this new class of
preferred shares. In the case where NDE is unable to obtain
shareholder approval for an increase in authorized shares, such
debenture shall be fully due and payable on April 1, 1997.
3. 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
PROACTIVE PARTNERS L.P.
BY: PROACTIVE INVESTMENT MANAGERS, L.P.,
GENERAL PARTNER
By: ___________________________________
Charles McGettigan, General Partner
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 23,885
<SECURITIES> 0
<RECEIVABLES> 2,050,766
<ALLOWANCES> 293,611
<INVENTORY> 293,207
<CURRENT-ASSETS> 2,147,713
<PP&E> 10,359,360
<DEPRECIATION> 6,657,885
<TOTAL-ASSETS> 7,065,552
<CURRENT-LIABILITIES> 5,613,539
<BONDS> 6,276,516
0
5,000
<COMMON> 799
<OTHER-SE> (1,470,161)
<TOTAL-LIABILITY-AND-EQUITY> 7,065,552
<SALES> 0
<TOTAL-REVENUES> 5,540,606
<CGS> 0
<TOTAL-COSTS> 3,532,057
<OTHER-EXPENSES> 3,339,995
<LOSS-PROVISION> 114,728
<INTEREST-EXPENSE> 367,477
<INCOME-PRETAX> (1,331,409)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,331,409)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
</TABLE>
