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, 1997.
[ ] 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 June 30, 1997
- ------------------ ---------------------------------------------
Common 15,978,610
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Page 1
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I FINANCIAL INFORMATION...................................... 3
Item 1. Financial Statements (Unaudited)........................... 3
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996........................ 3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1997 and 1996... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996.................... 5
Notes to Condensed Consolidated Financial ................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 7
PART II OTHER INFORMATION.......................................... 9
Item 6. Exhibits and Reports on Form 8-K........................... 9
SIGNATURES................................................................. 10
Page 2
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash ................................................................... $ 422,983 $ 2,412,233
Restricted cash ........................................................ 3,000,000 --
Trade accounts receivable, less allowance for doubtful
accounts of $844,155 in 1997 and $837,480 in 1996 .................. 6,476,013 5,735,550
Inventories ............................................................ 502,251 367,362
Prepaid expenses and other current assets .............................. 1,649,361 1,578,097
------------ ------------
Total Current Assets ........................................................ 12,050,608 10,093,242
Equipment and improvements, net of accumulated
depreciation of $7,814,413 in 1997 and $7,611,234 in 1996 .......... 4,508,764 5,736,391
Goodwill, net of accumulated amortization of $55,122 in 1996 ........... -- 4,922,617
Patents licenses and other intangible assets, net of accumulated
amortization of $971,122 in 1997 and $773,140 in 1996 .............. 1,802,176 3,374,962
Deferred financing costs .............................................. 811,454 922,424
------------ ------------
Total Assets ....................................................... $ 19,173,002 $ 25,049,636
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable ....................................................... $ 1,465,163 $ 1,673,470
Accrued liabilities .................................................... 3,198,724 4,885,260
Accrued payroll and payroll taxes ...................................... 1,375,503 1,469,786
Current portion of long-term debt ...................................... 2,636,460 1,963,564
------------ ------------
Total Current Liabilities .......................................... 8,675,850 9,992,080
Long term debt, less current portion ................................... 11,345,534 14,192,011
Warrants with put option ............................................... 2,000,500 1,600,000
------------ ------------
Total Liabilities .................................................. 22,021,884 25,784,091
------------ ------------
Stockholders' Deficit
Series AAA Convertible Preferred Stock, $.0001 par value; authorized, 400
shares; issued and outstanding 1 share stated at liquidation
value of $5,000 per share .......................................... 5,000 5,000
Common stock, $.0001 par value; authorized, 50,000,000 shares; issued and
outstanding 15,978,610 shares at June 30, 1997, and December 31,
1996 .............................................................. 1,598 1,598
Additional paid-in capital ............................................. 27,578,446 27,578,446
Accumulated deficit .................................................... (30,399,698) (28,302,374)
Cumulative foreign currency translation adjustment ..................... (34,228) (17,125)
------------ ------------
Total Stockholders' Deficit ............................................ (2,848,882) (734,455)
------------ ------------
Total Liabilities and Stockholders' Deficit ................................. $ 19,173,002 $ 25,049,636
============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 3
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues .......................... $ 8,055,755 $ 2,978,239 $ 15,518,398 $ 5,540,606
Cost of sales ..................... 6,198,605 1,771,707 11,800,713 3,532,057
-------------- -------------- -------------- --------------
Gross Margin ................. 1,857,150 1,206,532 3,717,685 2,008,549
Selling, general and administrative 2,047,901 1,447,664 4,118,345 2,972,518
-------------- -------------- -------------- --------------
Operating Loss ............... $ (190,751) $ (241,132) $ (400,660) $ (963,969)
Other income (expense):
Interest income .................. -- 37 -- 37
Interest expense ................. (826,218) (188,314) (1,671,364) (367,477)
-------------- -------------- -------------- --------------
Net loss before Provision for
Income Taxes ................. (1,016,969) (429,409) (2,072,024) (1,331,409)
Provision for income taxes ........ -- -- 25,300 --
-------------- -------------- -------------- --------------
Net Loss ..................... $ (1,016,969) $ (429,409) $ (2,097,324) $ (1,331,409)
============== ============== ============== ==============
Net loss per share ........... $ (0.06) $ (0.06) $ (0.13) $ (0.29)
============== ============== ============== ==============
Weighted average number of
shares outstanding ........... 15,978,610 6,713,479 15,978,610 4,558,601
============== ============== ============== ==============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 4
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
June 30, 1997 June 30, 1996
------------- -------------
Cash Flows from Operating Activities
<S> <C> <C>
Net loss ....................................... $ (2,097,324) $ (1,331,409)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation and amortization ................. 2,020,060 733,833
Amortization of discounts and financing costs .. 727,978 62,809
Gain on sale of assets ......................... (29,758) (199,711)
Write down of assets ........................... 16,396 --
Other .......................................... (17,103) --
Changes in Operating Assets and Liabilities:
(Increase) decrease in trade accounts receivable (740,463) 405,438
Increase in inventories ........................ (134,889) (160,713)
Decrease in prepaid expenses and other current
assets ..................................... 10,459 167,457
Increase (decrease) in accounts payable ........ (208,307) 261,743
Decrease in accrued liabilities ................ (1,686,536) (586,018)
Decrease in accrued payroll and
payroll taxes .............................. (94,283) (27,028)
------------- -------------
Net cash used in operating activities .......... (2,233,770) (673,599)
Cash Flows from Investing Activities
Proceeds from sale of USTMAN ................... 5,250,000 --
Proceeds from sale of licenses ................. 1,147,500 --
Additions to equipment and improvements ........ (837,193) (312,309)
Proceeds from sale of equipment ................ 79,758 253,590
Other .......................................... (5,456) --
------------- -------------
Net cash provided by(used in) investing
activities ................................. 5,634,609 (58,719)
Cash Flows from Financing Activities
Payments on line of credit ..................... -- (26,442)
Proceeds from long-term debt ................... 1,450,000 --
Payments on long-term debt ..................... (3,840,089) (394,390)
Proceeds from issuance of notes payable ........ -- 850,000
------------- -------------
Net cash provided by (used in) financing
activities ................................. (2,390,089) 429,168
Net increase (decrease) in cash ................ 1,010,750 (303,150)
Cash at beginning of period ................... 2,412,233 327,035
------------- -------------
Cash at end of period ......................... $ 3,422,983 $ 23,885
============= =============
</TABLE>
Page 5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: ACCOMPANYING UNAUDITED FINANCIAL STATEMENTS
Basis of Presentation: The financial statements of NDE Environmental
Corporation and its subsidiaries (the "Company") included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission, and, in the opinion of management, reflect all
adjustments necessary to present fairly the results of operations for such
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, management believes that the disclosures are adequate to
make the information presented not misleading. The accompanying unaudited
financial statements for the three and six month periods ended June 30, 1997 and
1996 contain all adjustments, consisting of only normal recurring accruals,
necessary to present fairly the financial position of the Company as of June 30,
1997 and 1996 and the results of operations and cash flows for the periods then
ended. The results of operations for the Company's interim periods are not
necessarily indicative of the results to be expected for the entire year. It is
suggested that these financial statements be read in conjunction with the
audited financial statements and notes thereto included in the Company's annual
report on Form 10-KSB/A for the year ended December 31, 1996.
Certain amounts shown in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.
NOTE 2: COMMITMENTS AND CONTINGENCIES
There have been no material changes in the information reported as of
December 31, 1996 as reported on Form 10- KSB/A in Footnote 11 accompanying the
audited financial statements.
NOTE 3: IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards 128 "Earnings per Share" (SFAS
128"), effective for financial statements for periods ending after December 15,
1997. SFAS 128 primarily substitutes a somewhat different calculation, labeled
"Basic" earnings per share, for the previously issued statistic, "Primary"
earnings per share. The Company believes that the future adoption of this
pronouncement will not have a significant impact on disclosures for earnings per
share for the periods presented.
Page 6
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table reflects the percentage relationship to net revenues of
certain items included in the company's statement of operations for the three
month and six month periods ended June 30, 1997 and 1996. The results of
operations for both periods include the results of operations of the UST Group
of Companies that were acquired (the "Acquisition) from TEI Inc. (formerly
Tanknology Inc.) on October 25, 1996. The Acquisition was accounted for as a
purchase and accordingly the results of operations of the Company include the
operations of the UST Group from that date forward.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ..................... 100 % 100 % 100 % 100 %
Cost of Sales ................ 77 % 59 % 76 % 64 %
-------- -------- -------- --------
Gross Margin ................. 23 % 41 % 24 % 36 %
Selling, General and Admin... 26 % 49 % 27 % 54 %
-------- -------- -------- --------
Operating Loss ............... (3)% (8)% (3)% (18)%
Interest Expense ............. 10 % 6 % 11 % 7 %
Net Loss ..................... (13)% (14)% (14)% (25)%
======== ======== ======== ========
</TABLE>
Revenues
Revenues for the three months ended June 30, 1997 were $8,055,755 compared
to $2,978,239 in the 1996 period, an increase of $5,077,516 or 171%. The
increase in revenues over last year is due to the inclusion of the UST Group of
Companies acquired on October 25, 1996, the "Acquisition". Revenues in the
second quarter of 1997 included $422,696 of revenues from the Company's USTMAN
Industries ("USTMAN") subsidiary which was sold on May 22, 1997.
For the six months ended June 30, 1997, revenues totaled $15,518,398
compared to $5,540,606 in the 1996 period, an increase of $9,977,792 or 180%.
Revenues for the six-month period ended June 30, 1997 included $117,169 and
$1,884,361 of revenues from the Company's Canadian operations and USTMAN,
respectively, both of which were sold in 1997.
Cost of Sales
Cost of sales for the three months ended June 30, 1997 was $6,198,605 (77%
of revenue) compared to $1,771,707 (59% of revenue) for the three months ended
June 30, 1996, an increase of $4,426,898, or 250%. Gross margin was $1,857,150
(23% of revenue) for 1997, compared to $1,206,532 (41% of revenue) for 1996.
Gross margin as a percentage of sales decreased from 41% of revenues in 1996 to
23% of sales in 1997. This decrease was due primarily to the addition of fixed
capacity (e.g., employees, vans, equipment and regional offices) from the UST
Group Acquisition.
For the six months ended June 30, 1997, cost of sales totaled $11,800,713
compared to $3,532,057 in the 1996 period, an increase of $8,268,656 or 234%.
Gross margin as a percentage of sales decreased from 36% of revenues in 1996 to
24% of sales in 1997.
Page 7
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Selling, General and Administrative
Selling, general and administrative expense for the three months ended June
30, 1997 was $2,047,901 or 26% of revenues compared to $1,447,664 in 1996 or 49%
of revenue, an increase of $600,237 or 41%. The increase in selling, general,
and administrative expenses was due to the Acquisition. The decrease in the
percentage of sales from 49% to 26% is due to the cost efficiencies and the
higher overall volume of revenues realized as a result of the Acquisition.
For the six months ended June 30, 1997, selling, general and administrative
expense totaled $4,118,345 compared to $2,972,518 in the 1996 period, an
increase of $1,145,827 or 39%. The increase in selling, general, and
administrative expenses was due to the Acquisition. The decrease in the
percentage of sales from 54% to 27% is due to the cost efficiencies realized and
the higher overall volume of revenues in conjunction with the Acquisition.
Earnings before Depreciation, Amortization, Interest and Taxes (EBITDA)
For the three months ended June 30, 1997 EBITDA was $859,352 or 11% of
revenues compared to $125,139 or 4% of revenues in 1996. For the six months
ended June 30, 1997 EBITDA was $1,619,400, or 10% of revenues, compared to
negative EBITDA of $230,136, or a negative 4% of revenues, in 1996. The increase
in EBITDA in both periods of $734,213 and $1,849,536, respectively, was due to
the cost efficiencies realized as a result of combining the operations of the
UST Group and NDE. USTMAN, which was sold on May 22, 1997, contributed
approximately $618,000 of EBITDA in the six- months ended June 30, 1997.
Interest Expense
Interest expense for the three and six-month periods ended June 30, 1997
was $826,218 (10% of revenues) and $1,671,364 (11% of revenue) respectively,
compared to $188,314 (6% of revenues) and $367,477 (7% of revenue) for the
respective three and six-month periods in 1996. The increase in expense in both
periods of 1997 from the prior year was due to interest on additional debt
incurred to finance the Acquisition.
Net Loss
For the three months ended June 30, 1997, the Company incurred a net loss
of $1,016,969, an increase of $587,560 or 137% compared to the net loss of
$429,409 for the three months ended June 30, 1996. The net loss for the current
period includes amortization costs of $418,228 with no prior year counterpart.
Components directly attributable to the Acquisition are: $41,266 of goodwill
amortization expense, $55,485 of amortization of deferred financing costs,
$111,227 of amortization of discount of subordinated debt, $10,000 of
amortization of a non-compete covenant, and estimated accretion of the value of
the Warrants with Put Option of $200,250. USTMAN contributed approximately
$148,000 to the net loss for the period.
For the six-months ended June 30, 1997, the Company incurred a net loss of
$2,097,324, an increase of $765,915, or 58%, compared to a net loss of
$1,331,409 for the six-month period ended June 30,1996. The net loss for the
current period includes amortization costs of $872,210 with no prior year
counterpart. Components directly attributable to the Acquisition are: $124,232
of goodwill amortization expense, $110,970 of amortization of deferred financing
costs, $216,508 of amortization of discount of subordinated debt, $20,000 of
amortization of a non-compete covenant, and estimated accretion of the value of
the Warrants with Put Option of $400,500. USTMAN contributed approximately
$332,000 of net income for the period.
Liquidity and Capital Resources
At June 30, 1997, the Company had working capital of $3,374,758 compared to
working capital of $101,162 at December 31, 1996.
Page 8
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Cash used in operating activities was $2,233,770 for the six months ended
June 30, 1997 and was used primarily to fund an increase in receivables and
payments of accrued liabilities of $1,686,536 including payments of acquisition
related liabilities of $1,059,167.
Cash provided by investing activities was $5,634,609 for the six months
ended June 30, 1997 compared to cash used in investing activities of $58,719 in
the 1996 period. On February 20, 1997, the Company sold substantially all of the
operating assets of its Canadian operation that had been acquired as part of the
Acquisition in 1996. The Company realized proceeds of $1,147,500 related to the
sale of the business and technology licenses and $50,000 from the sale of the
fixed assets of the Canadian operation. The Company retained all of the working
capital of the Canadian subsidiary and is in the process of liquidating this
working capital and redirecting these funds to its U.S. operation.
On May 22,1997, the Company sold USTMAN for $5,250,000 in cash and an 8%
note for $500,000 (the "Note") due in one year. All cash on hand at USTMAN
immediately prior to the closing of the transaction was also retained by the
Company. The sale agreement also provides for a further payment to the Company
relating to a post-closing adjustment based upon certain working capital
calculations. As a condition of approval of the sale transaction by the
Company's senior bank and subordinated debt holder, three million dollars
($3,000,000) of the cash proceeds have been placed in a restricted account with
the Company's senior bank and will be held as collateral against outstanding
loans until the Company identifies appropriate investment opportunities. The
Note is also pledged to the bank and subordinated debt holder as collateral. The
remaining $2,250,000 of cash proceeds from the sale was used to pay down amounts
due under it's revolving credit line. The Company did not recognize any gain or
loss on the transaction as the excess of the purchase price over the net
tangible assets sold was used to reduce goodwill associated with the
Acquisition.
At June 30, 1997, the Company had outstanding long-term debt (including
current maturities) of $13,981,944 compared to $16,155,575 at December 31, 1996.
The decrease of $2,173,631 was due primarily to required principle payments on
bank term debt of $300,000 and the $2,250,000 paydown on the revolving credit
line from the proceeds of the sale of USTMAN. At June 30, 1997 the Company had
$700,000 outstanding under its revolving credit line and had $2,188,829
available for additional borrowing under its revolving credit agreement. As of
June 30,1997, the Company was in compliance with the financial debt covenants
related to its long-term financing agreements.
The Company believes that cash on hand, funds from operations and available
bank credit will be sufficient to fund operations, including scheduled debt
repayments and capital expenditures for the foreseeable future.
This Form 10QSB contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934. All forward looking statements involve risks and
uncertainties. The forward looking statements in this document are intended to
be subject to the safe harbor protection provided by Sections 27A and 21E. For a
discussion identifying some important factors that could cause actual results to
differ materially from those anticipated in the forward looking statements see
the Company's Form 10KSB page 13 "Management Discussion and Analysis" for the
fiscal year ended December 31, 1996.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
On June 6, 1997, the Company filed a Current Report on Form 8-K to disclose
the sale of it's USTMAN Industries subsidiary on May 22, 1997. USTMAN Industries
was part of the UST Group of companies which were acquired on October 25, 1996
from TEI, Inc., formerly known as Tanknology Environmental, Inc.
Page 9
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
SIGNATURES
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, 1997 /s/ DAVID G. OSOWSKI
-------------------------------------------
David G. Osowski
Vice President and Chief Financial Officer
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from NDE
Environmental Corporation's financial statements as of the quarter ended June
30, 1997
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 3,422,983
<SECURITIES> 0
<RECEIVABLES> 7,320,168
<ALLOWANCES> 844,155
<INVENTORY> 502,251
<CURRENT-ASSETS> 12,050,608
<PP&E> 12,323,177
<DEPRECIATION> 7,814,413
<TOTAL-ASSETS> 19,173,002
<CURRENT-LIABILITIES> 8,675,850
<BONDS> 11,345,534
0
5,000
<COMMON> 1,598
<OTHER-SE> (2,855,480)
<TOTAL-LIABILITY-AND-EQUITY> 19,173,002
<SALES> 15,518,398
<TOTAL-REVENUES> 15,518,398
<CGS> 0
<TOTAL-COSTS> 11,800,713
<OTHER-EXPENSES> 3,915,230
<LOSS-PROVISION> 203,115
<INTEREST-EXPENSE> 1,671,364
<INCOME-PRETAX> (2,072,024)
<INCOME-TAX> 25,300
<INCOME-CONTINUING> (2,097,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,097,324)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
