<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 8-K/A
Amendment No. 2
to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 25, 1996
NDE ENVIRONMENTAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-10361 95-3634420
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
8900 Shoal Creek Boulevard, Suite 200
Austin, Texas 78758
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 451-6334
Page 1
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K
originally filed with the Securities and Exchange Commission on November 12,
1996 as amended by Current Report on Form 8-K/A originally filed on January 13,
1997 (the "Form 8-K"). Capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Form 8-K.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The following financial statements of the Subsidiaries are filed as
Exhibit 99.2 hereto:
(i) Report of Independent Accountants
(ii) Combined Balance Sheets as of December 31, 1995 and 1994
(iii) Combined Statements of Operations and Changes in Owner's
Equity for the years ended December 31, 1995 and 1994
(iv) Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1994
(v) Notes to Combined Financial Statements
(vi) Unaudited Combined Condensed Balance Sheet as of September
30, 1996
(vii) Unaudited Combined Condensed Statements of Operations and
Changes in Owner's Equity for the nine months ended
September 30, 1996 and 1995
(viii) Unaudited Combined Condensed Statements of Cash Flows for
the nine months ended September 30, 1996 and 1995
(ix) Notes to Unaudited Combined Condensed Financial Statements
(b) Pro forma Financial Information
The following unaudited pro forma condensed consolidated financial
information is filed as Exhibit 99.3 hereto:
(i) Unaudited Pro Forma Condensed Consolidated Financial
Information
(ii) Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1996
(iii) Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet as of September 30, 1996
(iv) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1995
(v) Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1995
(vi) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the nine months ended September 30, 1996
(vii) Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the nine months ended
September 30, 1996
</TABLE>
2
<PAGE>
(c) Exhibits.
<TABLE>
<CAPTION>
<S> <C> <C>
Number Description
------------- ------------------------------------------------------------
2.1* -- Stock Purchase Agreement between NDE Environmental
Corporation and Tanknology Environmental, Inc. dated as of
October 7, 1996.
2.2* -- First Amendment to Stock Purchase Agreement between NDE
Environmental Corporation and Tanknology Environmental,
Inc. dated as of October 25, 1996.
10.1* -- Loan Agreement, dated October 25, 1996, between NDE
Environmental Corporation, Tanknology/NDE Corporation,
USTMAN Industries, Inc., ProEco, Inc., Tanknology Canada
(1988) Inc., and Bank One, Texas, N.A. (The "Loan
Agreement").
10.1a* -- Revolving Note dated October 25, 1996 issued pursuant to
the Loan Agreement.
10.1b* -- Term Note dated October 25, 1996 issued pursuant to the
Loan Agreement.
10.2* -- Note and Warrant Purchase Agreement, dated as of October
25, 1996, between NDE Environmental Corporation,
Tanknology/NDE Corporation, USTMAN Industries, Inc.,
ProEco, Inc. and Tanknology Canada (1988), Inc. and Banc
One Capital Partners, L.P. (The "Note and Warrant Purchase
Agreement").
10.2a* -- Senior Subordinated Note Due December 31, 2001, dated
October 25, 1996 issued pursuant to the Note and Warrant
Purchase Agreement.
10.2b* -- Warrant Certificate dated October 25, 1996 issued
pursuant to the Note and warrant Purchase Agreement.
10.3* -- Security Agreement, dated as of October 25, 1996, among
NDE Environmental Corporation, Tanknology/NDE
Corporation, USTMAN Industries, Inc., ProEco, Inc. and
Tanknology Canada (1988), Inc., and Banc One Capital
Partners, L.P.
10.4* -- Security Agreement -- Pledge of Subsidiary Stock, dated
as of October 25, 1996, between NDE Environmental
Corporation and Banc One Capital Partners, L.P.
10.5* -- Put Option Agreement, dated as of October 25, 1996,
between NDE Environmental Corporation and Banc One Capital
Partners, L.P.
3
<PAGE>
Number Description
------------- ------------------------------------------------------------
10.6* -- Registration Rights Agreement, dated as of October 25,
1996, between NDE Environmental Corporation and Banc One
Capital Partners, L.P.
10.7* -- Preemptive Rights Agreement, dated as of October 25,
1996, between NDE Environmental Corporation and Banc One
Capital Partners, L.P.
10.8* -- Co-Sale Agreement, dated as of October 25, 1996, among
NDE Environmental Corporation, Proactive Partners, L.P.,
Lagunitas L.P., Jay Allen Chaffee, A. Daniel Sharplin, and
Banc One Capital Partners, L.P.
10.9* -- Standby Commitment, made as of October 25, 1996, among
Proactive Partners, L.P., NDE Environmental Corporation,
Bank One Capital Partners, L.P., and Bank One, Texas, N.A.
10.10* -- Shareholder Agreement, dated as of October 25, 1996,
among Proactive partners, L.P., Lagunitas L.P., Jay Allen
Chaffee, A. Daniel A. Sharplin, and Banc One Capital
Partners, L.P.
10.11* -- Pledge and Security Agreement, dated October 25, 1996,
between NDE Environmental Corporation and Banc One Capital
Partners, L.P.
10.12* -- Pledge and Security Agreement, dated October 25, 1996,
between Tanknology/NDE Corporation and Bank One Texas, N.A.
10.13* -- Pledge and Security Agreement, dated October 25, 1996,
between ProEco, Inc. and Bank One Texas, N.A.
10.14* -- Pledge and Security Agreement, dated October 25, 1996,
between USTMAN Industries, Inc. and Bank One Texas, N.A.
99.1* -- Press Release of NDE Environmental Corporation with
respect to the acquisition of Tanknology Corporation
International, USTMAN Industries, Inc., and Tanknology
Canada (1988), Inc.
99.2 -- Financial Statements of the Subsidiaries.
99.3** -- Unaudited Pro Forma Condensed Consolidated Financial
Information.
<FN>
* Previously filed as an exhibit to the Current Report on Form 8-K filed on
November 12, 1996.
** Previously filed as an exhibit to the Current Report on Form 8-K filed on
January 13, 1997.
</FN>
</TABLE>
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
NDE ENVIRONMENTAL CORPORATION
Date: 1/17/97 By: /s/ DAVID G. OSOWSKI
------------------------ ---------------------------------
David G. Osowski
Vice President and
Chief Financial Officer
5
<PAGE>
EXHIBIT 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Tanknology Environmental, Inc.:
We have audited the accompanying combined balance sheets of the Tanknology
UST Group of Tanknology Environmental, Inc.(the "Division") as of December 31,
1995 and 1994, and the related combined statements of operations and changes in
owner's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Division'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 combined financial position of the Tanknology UST
Group of Tanknology Environmental, Inc. as of December 31, 1995 and 1994, and
the combined results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
By: /s/ COOPERS & LYBRAND, L.L.P.
---------------------------------
Coopers & Lybrand, L.L.P.
Houston, Texas
February 13, 1996 (except for
the second paragraph of Note 1 as
to which the date is January 6, 1997)
1
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................$ 414,648 $ 1,008,942
Trade receivables, net of allowance for doubtful accounts
of $369,979 and $335,350, respectively..................... 4,615,051 6,373,427
Inventory ....................................................... 312,189 732,813
Deferred tax asset .............................................. 424,500 301,830
Other current assets............................................. 687,437 678,187
------------------ -----------------
Total current assets........................................ 6,453,825 9,095,199
PROPERTY AND EQUIPMENT, NET......................................... 6,272,120 8,940,821
INTANGIBLE ASSETS, LESS ACCUMULATED
AMORTIZATION................................................... 1,064,133 1,215,706
OTHER ASSETS, NET................................................... 338,054 569,032
------------------ -----------------
Total assets.....................................................$ 14,128,132 $ 19,820,758
================== =================
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Notes payable....................................................$ 28,939 $ 32,331
Accounts payable................................................. 954,775 707,783
Accrued liabilities ............................................. 2,301,350 1,145,620
------------------ -----------------
Total current liabilities................................... 3,285,064 1,885,734
DEFERRED TAX LIABILITY.............................................. 664,190 1,061,096
DEFERRED INCOME..................................................... 20,160 40,320
------------------ -----------------
Total liabilities................................................ 3,969,414 2,987,150
------------------ -----------------
COMMITMENTS AND CONTINGENCIES (See Note 10)
OWNER'S EQUITY...................................................... 10,158,718 16,833,608
------------------ -----------------
Total liabilities and owner's equity.............................$ 14,128,132 $ 19,820,758
================== =================
<FN>
The accompanying notes are an integral part of the combined financial
statements.
</FN>
</TABLE>
2
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S EQUITY
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------------- ------------------
<S> <C> <C>
REVENUES......................................................$ 24,607,320 $ 30,013,841
COST OF SERVICES.............................................. 14,440,612 16,111,725
----------------- ------------------
Gross profit............................................. 10,166,708 13,902,116
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................................. 9,165,278 10,339,076
----------------- ------------------
Income from operations................................... 1,001,430 3,563,040
----------------- ------------------
OTHER INCOME (EXPENSE):
Interest income.......................................... 7,290 16,892
Other, net............................................... (27,697) 194,747
----------------- ------------------
Total other income (expense), net.................... (20,407) 211,639
----------------- ------------------
Income before income taxes........................... 981,023 3,774,679
PROVISION FOR INCOME TAXES ................................... 443,100 1,586,644
----------------- ------------------
Net income .............................................. 537,923 2,188,035
----------------- ------------------
Net transfers to parent ...................................... (7,212,813) (8,458,598)
Owner's equity, beginning of year ............................ 16,833,608 23,104,171
----------------- ------------------
Owner's equity, end of year ..................................$ 10,158,718 $ 16,833,608
================= ==================
<FN>
The accompanying notes are an integral part of the combined financial
statements.
</FN>
</TABLE>
3
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ......................................................... $ 537,923 $ 2,188,035
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................................... 2,966,635 2,816,927
Loss on disposal of assets ......................................... 27,469 105,559
Deferred income taxes .............................................. (519,576) 34,891
Deferred income .................................................... (20,160) (20,160)
Changes in assets and liabilities:
Decrease in accounts receivable, net ........................... 1,758,376 1,541,202
Decrease in inventory .......................................... 420,624 91,442
Decrease in other current assets ............................... 135,442 1,887,770
Increase (decrease) in accounts payable and accrued
liabilities .................................................. 1,402,722 (1,166,191)
------------------- -------------------
Total adjustments............................................. 6,171,532 5,291,440
------------------- -------------------
Net cash provided by operating activities..................... 6,709,455 7,479,475
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ (183,529) (1,328,919)
Proceeds from the sale of assets ................................... 313,149
Increase in intangible assets ...................................... (72,473) (77,814)
Proceeds from maturity of short term investments ................... 2,036,649
------------------- -------------------
Net cash provided by investing activities..................... 57,147 629,916
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers to Parent, net ........................................... (7,212,813) (8,458,598)
Principal payments on notes payable................................. (148,083) (165,472)
------------------- -------------------
Net cash used in financing activities......................... (7,360,896) (8,624,070)
------------------- -------------------
Net decrease in cash and cash equivalents ................... (594,294) (514,679)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR ............................................................. 1,008,942 1,523,621
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .............................. $ 414,648 $ 1,008,942
=================== ===================
<FN>
The accompanying notes are an integral part of the combined financial
statements.
</FN>
</TABLE>
4
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Tanknology UST Group of Tanknology Environmental, Inc. ("the
Division") provides a range of environmental products and services to owners and
operators of underground storage tanks and aboveground storage tanks in the
United States and abroad. The Division's products and services include testing
services composed of tank tightness testing services, ancillary services and
corrosion protection services. The Division's operations are principally
conducted through three subsidiaries of Tanknology Environmental, Inc. (the
"Parent"): Tanknology Corporation International, Tanknology Canada (1988), Inc.,
and USTMAN Industries, Inc. ("USTMAN"). The combined financial statements
include these three subsidiaries and Tanknology Corporation International's
division that conducts corrosion protection services.
Effective October 25, 1996, substantially all of the operating assets and
liabilities of the Division as well as the Tanknology name were acquired by NDE
Environmental Corporation for a cash purchase price of approximately
$12,500,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Division generates revenues primarily through the testing of
underground storage tanks and related lines using a patented process, the rights
to which are owned by the Division. The Division also performs corrosion
protection services. Revenues from underground storage tank testing services are
recognized at the time the services are rendered.
Cash Equivalents
The Division considers all highly liquid investment instruments with
original maturities of three months or less when purchased to be cash
equivalents.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Reserves are established against inventories for excess, slow moving and
obsolete items and for items where net realizable value is less than cost. At
December 31, 1995 and 1994, the inventory reserve balances were $420,480 and $0,
respectively.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed
using the straight-line method. Tank testing units and line testing vehicles are
depreciated over seven years, buildings are depreciated over 20 to 40 years and
other property and equipment are depreciated over five years. Depreciation
expense was $2,460,312 and $2,311,005 for the years ended December 31, 1995 and
1994, respectively. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations for the period. The cost of
maintenance and repairs is charged to expense as incurred; significant renewals
and betterments are capitalized.
Income Taxes
The Division joins with the Parent in filing a consolidated federal
income tax return. Income taxes are provided using the liability method as if
the Division was a separate tax payer. Under this method, deferred income taxes
are recorded to reflect the tax consequences on future years of temporary
differences between the tax basis of the assets and the liabilities and their
financial statement amounts. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
5
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
The provision for income taxes includes federal, foreign, state, and
local income taxes currently payable and those deferred because of temporary
differences between the financial statements and tax bases of assets and
liabilities.
Concentration of Credit Risk
Financial instruments which potentially subject the Division to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables.
The Division grants credit to its customers who consist primarily of
major oil companies and convenience store chains located in the United States
and Canada. The Division performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The provision for doubtful accounts for the years ended December 31, 1995 and
1994, was $222,101, and $166,559, respectively. During the years ended 1995 and
1994, no customer accounted for more than 10% of combined revenue.
Management's Estimates
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of combined assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the combined financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
3. OTHER CURRENT ASSETS
Other current assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
Other current assets:
Prepaid insurance............................................$ 561,717 $ 468,887
Employee travel advances..................................... 76,973 113,382
Deposits..................................................... 17,869 23,300
Other........................................................ 30,878 72,618
------------------ ------------------
Total other current assets.................................$ 687,437 $ 678,187
================== ==================
</TABLE>
6
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
Property and equipment:
Testing units................................................$ 9,478,608 $ 10,170,038
Building and improvements.................................... 1,042,748 1,032,476
Furniture, fixtures, and equipment........................... 4,821,237 4,419,213
Land......................................................... 370,260 370,260
Testing equipment parts...................................... 601,987 840,060
------------------ ------------------
Total property and equipment............................... 16,314,840 16,832,047
Accumulated depreciation..................................... (10,042,720) (7,891,226)
------------------ ------------------
Net property and equipment.................................$ 6,272,120 $ 8,940,821
================== ==================
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets net of amortization consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
Excess of costs over net assets acquired.................... $ 146,093 $ 202,724
Patents..................................................... 868,553 960,526
Other....................................................... 49,487 52,456
------------------ ------------------
$ 1,064,133 $ 1,215,706
================== ==================
</TABLE>
Prior to January 1, 1996, the Division evaluated impairment of intangibles
based on estimated future undiscounted cash flows. Effective January 1, 1996,
the Division adopted the provisions of Statement of Financial Accounting
Standards No. 121.
Patents are carried at cost and amortized over the life of the patents,
generally thirteen years. Other intangible assets are amortized over five to
seven-year periods. Amortization expense related to intangibles was $224,478 and
$224,046 for the years ended December 31, 1995 and 1994, respectively.
Accumulated amortization related to intangible assets was $1,081,829 and
$972,782 at December 31, 1995 and 1994, respectively.
7
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
6. OTHER ASSETS
Other assets include purchased proprietary software acquired in the
acquisition of USTMAN and is amortized over five years. Amortization expense was
$230,977 for each of the years ended December 31, 1995 and 1994.
7. NOTES PAYABLE
The Division had outstanding notes payable of $28,939 and $32,331 issued
for the financing of insurance premiums for the years ended December 31, 1995
and 1994, respectively. The notes matured in February 1996 and 1995,
respectively.
8. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
Accrued liabilities:
Compensation ................................................ $ 614,105 $ 460,952
State, federal, and foreign income taxes - parent .......... 792,084 281,072
Litigation and claims reserves............................... 629,954 259,970
Other taxes.................................................. 67,325 59,521
Other........................................................ 197,882 84,105
------------------ ------------------
Total accrued liabilities.................................. $ 2,301,350 $ 1,145,620
================== ==================
</TABLE>
9. INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
Income before income taxes: 1995 1994
------------------ ------------------
<S> <C> <C>
United States................................................ $ 465,732 $ 3,249,056
Foreign...................................................... 515,291 525,623
------------------ ------------------
$ 981,023 $ 3,774,679
================== ==================
</TABLE>
8
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
The components of the income tax provision were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994
----------------- ------------------
<S> <C> <C>
Federal-current................................................ $ 606,510 $ 1,251,716
Federal-deferred............................................... (405,916) 92,771
State-current.................................................. 163,772 137,845
State-deferred................................................. (58,547) (36,895)
Foreign-current................................................ 192,394 162,192
Foreign-deferred............................................... (55,113) (20,985)
----------------- ------------------
$ 443,100 $ 1,586,644
================= ==================
</TABLE>
The difference between the effective tax rate reflected in the income tax
provision and the statutory federal rate is analyzed as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1995 1994
------------------ -----------------
<S> <C> <C>
Amount computed using the statutory rate ...................... $ 333,547 $ 1,283,391
State taxes, net of federal benefit ........................... 69,449 66,627
Foreign income tax, net of foreign tax credit.................. 40,689 9,268
Nondeductible expenses, net ................................... 91,090 122,332
Other ......................................................... (91,675) 105,026
------------------ -----------------
$ 443,100 $ 1,586,644
================== =================
</TABLE>
The effective tax rates for the years ended December 31, 1995 and 1994
were 45.2% and 42.0%, respectively.
9
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
The components of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994
Current deferred tax assets:
----------------- ------------------
<S> <C> <C>
Difference in recognition of accrued liabilities............... $ 284,868 $ 168,353
Difference in recognition of allowance for doubtful
accounts .................................................... 132,111 118,491
Other ........................................................ 7,521 14,986
----------------- ------------------
Total .................................................. 424,500 301,830
----------------- ------------------
Noncurrent deferred tax assets (liabilities):
Difference in accumulated depreciation ........................ (745,416) (1,101,477)
Difference in recognition of accumulated amortization ......... 81,226 40,381
----------------- ------------------
Total ................................................... (664,190) (1,061,096)
----------------- ------------------
Net deferred income taxes ................................... $ (239,690) $ (759,266)
================= ==================
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Division has noncancelable operating leases, primarily for office space
and transportation equipment that expire over the next three years.
At December 31, 1995, future minimum lease payments under noncancelable
operating leases were as follows:
Year Ended
December 31,
- ---------------
1996 ..................................... $ 196,391
1997 ..................................... 93,655
1998 ..................................... 77,728
---------
$ 367,774
=========
Total rental expense for operating leases for the years ended December 31,
1995 and 1994 was $417,081 and $516,159, respectively.
The Division is involved in litigation and routine claims from time to
time. Certain of the Division's litigation and claims are covered by insurance
with a maximum deductible of $150,000, or in some cases, $200,000. As of
December 31, 1995, the Division has reserved approximately $630,000 to be used
for the settlement of the Division's portion of such claims and litigation. In
Management's opinion, the litigation and claims in which the Division is
currently involved is not material to the Division's combined financial
position, results of operations, or cash flows.
10
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS
Selling, general and administrative expenses include corporate costs
totaling approximately $2,100,000 for the years ended December 31, 1995 and
1994, respectively. Those costs relate principally to financial, marketing,
management information, risk management, legal, and human resource services. The
Division incurred all such costs on behalf of the Parent and allocated
aproximately 10% of such costs to the Parent. Although management believes such
methods of allocation are reasonable, they are not able to determine whether the
allocations are indicative of actual expense that would have been incurred if
the Division operated as a separate entity.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $12,000 and $37,000 for the years
ended December 31, 1995 and 1994, respectively. The Company paid approximately
$284,000 and $1,211,000 in cash for income taxes during the years ended December
31, 1995 and 1994, respectively.
The following noncash transactions have been excluded from the combined
statement of cash flows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Issuance of notes payable for insurance premiums..................$ 144,693 $ 161,655
</TABLE>
11
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
UNAUDITED COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
1996
-----------------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................ $ 566,140
Trade receivables, net of allowance for doubtful accounts of $432,702 .............. 4,419,624
Inventory ........................................................................... 251,113
Deferred tax asset .................................................................. 268,616
Other current assets................................................................. 747,250
-----------------
Total current assets............................................................... 6,252,743
PROPERTY AND EQUIPMENT, NET............................................................. 4,773,924
NTANGIBLE ASSETS, LESS ACCUMULATED
I AMORTIZATION.......................................................................... 948,850
OTHER ASSETS, NET ...................................................................... 164,822
-----------------
Total assets......................................................................... $ 12,140,339
=================
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................................... $ 690,613
Accrued liabilities.................................................................. 1,162,088
-----------------
Total current liabilities.......................................................... 1,852,701
DEFERRED INCOME......................................................................... 5,040
DEFERRED INCOME TAXES .................................................................. 289,802
-----------------
Total liabilities................................................................. 2,147,543
-----------------
COMMITMENTS AND CONTINGENCIES (See Note 2)
OWNER'S EQUITY.......................................................................... 9,992,796
-----------------
Total liabilities and owner's equity................................................. $ 12,140,339
=================
<FN>
The accompanying notes are an integral part of the unaudited combined
condensed financial statements.
</FN>
</TABLE>
12
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS
AND CHANGES IN OWNER'S EQUITY
For the nine months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
REVENUES......................................................$ 17,105,756 $ 17,705,315
COST OF SERVICES.............................................. 10,206,577 10,373,994
----------------- -----------------
Gross profit............................................. 6,899,179 7,331,321
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................................. 6,485,194 6,697,490
----------------- -----------------
Income from operations................................... 413,985 633,831
----------------- -----------------
OTHER INCOME:
Interest income.......................................... 955 7,136
Other, net............................................... 29,600 14,949
----------------- -----------------
Total other income, net.............................. 30,555 22,085
----------------- -----------------
Income before income taxes........................... 444,540 655,916
PROVISION FOR INCOME TAXES ................................... 200,657 275,700
----------------- -----------------
Net income .............................................. 243,883 380,216
----------------- -----------------
Net transfers to parent ...................................... (409,805) (5,124,185)
Owner's equity, beginning of period .......................... 10,158,718 16,833,608
----------------- -----------------
Owner's equity, end of period ................................$ 9,992,796 $ 12,089,639
================= =================
<FN>
The accompanying notes are an integral part of the unaudited combined
condensed financial statements.
</FN>
</TABLE>
13
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
UNAUDITED COMBINED CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 243,883 $ 380,216
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization..................................... 2,039,407 2,197,196
Loss (gain) on disposal of assets ................................ (37,966) 44,529
Deferred income taxes ............................................ (218,505) (447,452)
Deferred income .................................................. (15,120) (15,120)
Changes in assets and liabilities:
Decrease in accounts receivable, net ......................... 195,427 1,518,830
Decrease in inventory ........................................ 61,076 411,405
Increase in other current assets ............................. (59,812) (79,916)
Increase (decrease) in accounts payable and accrued
liabilities ............................................ (1,403,424) 433,775
------------------- ------------------
Total adjustments............................................. 561,083 4,063,247
------------------- ------------------
Net cash provided by operating activities..................... 804,966 4,443,463
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................. (345,857) (95,439)
Proceeds from the sale of assets ................................. 175,891 313,149
Increase in intangible assets .................................... (44,764) (64,568)
------------------- ------------------
Net cash provided by (used in) investing activities........... (214,730) 153,142
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable .............................. (28,939) (104,677)
Transfers to parent, net.......................................... (409,805) (5,124,185)
------------------- ------------------
Net cash used in financing activities......................... (438,744) (5,228,862)
------------------- ------------------
Net increase (decrease) in cash and cash equivalents ......... 151,492 (632,257)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD ........................................................... 414,648 1,008,942
------------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 566,140 $ 376,685
=================== ==================
<FN>
The accompanying notes are an integral part of the unaudited combined
condensed financial statements.
</FN>
</TABLE>
14
<PAGE>
TANKNOLOGY UST GROUP OF TANKNOLOGY ENVIRONMENTAL, INC.
NOTES TO UNAUDITED COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Tanknology UST Group of Tanknology Environmental, Inc. ("the
Division") provides a range of environmental products and services to owners and
operators of underground storage tanks and aboveground storage tanks in the
United States and abroad. The Division's products and services include testing
services composed of tank tightness testing services, ancillary services and
corrosion protection services. The Division's operations are principally
conducted through three subsidiaries of Tanknology Environmental, Inc. (the
"Parent"): Tanknology Corporation International, Tanknology Canada (1988), Inc.,
and USTMAN Industries, Inc. ("USTMAN"). The combined financial statements
include these three subsidiaries and Tanknology Corporation International's
division that conducts corrosion protection services.
The accompanying unaudited combined condensed financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information in footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to these rules and
regulations. In the opinion of management, only adjustments consisting of normal
recurring accruals considered necessary for a fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the year. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended December 31, 1995, included elsewhere in this Form
8-K/A.
Effective October 25, 1996, substantially all of the operating assets and
liabilities of the Division as well as the Tanknology name were acquired by NDE
Environmental Corporation for a cash purchase price of approximately
$12,500,000.
2. COMMITMENTS AND CONTINGENCIES
The Division is involved in litigation and routine claims from time to
time. Certain of the Division's litigation and claims are covered by insurance
with a maximum deductible of $150,000, or in some cases, $200,000. As of
September 30, 1996, the Division has reserved approximatley $577,000 to be used
for the settlement of the Division's portion of such claims and litigation. In
Management's opinion, the litigation and claims in which the Division is
currently involved is not material to the Division's combined financial
position, results of operations, or cash flows.
15
<PAGE>
