NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 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 March 31, 1997
- -------------- -----------------------------------
Common 15,978,610
Transitional Small Business Disclosure Format (check one): Yes[ ] No [X]
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<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
The undersigned registrant hereby amends the following items, financial
statements, and management's Discussion and Analysis of Financial Condition and
Results of Operations of its Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 1997 as set forth in the pages attached hereto:
Condensed Consolidated Balance Sheet is hereby amended and replaced in its
entirety to reflect a reclassification between Accumulated Deficit and
Cumulative foreign currency adjustment for the period ended March 31, 1997.
Condensed Consolidated Statement of Operations is hereby amended and
replaced in its entirety to correct an error in Selling, general and
administrative expenses and Provision for income taxes for the period
ending March 31, 1997.
Condensed Consolidated Statement of Cash Flows is hereby amended and
replaced in its entirety to reflect the changes to the Condensed
Consolidated Statement of Operations for the period ended March 31, 1997.
Item 2-Management's Discussion and Analysis of Financial Condition and
Results of Operations is hereby amended and replaced in its entirety to
reflect the changes noted to Item 1, and to correct an error in the
paragraph titled "Earnings before Depreciation, Amortization, Interest and
Taxes (EBITDA)" for the period ended March 31, 1997.
NDE ENVIRONMENTAL CORPORATION
(Registrant)
Date: August 7, 1997 /s/ DAVID G. OSOWSKI
--------------------- ------------------------------------------
David G. Osowski
Vice President and Chief Financial Officer
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<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
PART I Financial Information
Item 1. Financial Statements (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------------ -------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash........................................................................ $ 1,031,652 $ 2,412,233
Trade accounts receivable, less allowance for doubtful accounts of
$804,886 at March 31, 1997 and $837,480 at December 31, 1996 ............. 6,680,397 5,735,550
Inventories ................................................................ 466,153 367,362
Prepaid expenses and other current assets .................................. 962,825 1,578,097
------------- -------------
Total Current Assets ................................................... 9,141,027 10,093,242
Equipment and improvements, net of accumulated depreciation of
$8,384,549 at March 31, 1997 and $7,611,234 at December 31, 1996 ......... 5,317,615 5,736,391
Goodwill, net of accumulated amortization of $138,088 at March 31, 1997
and $55,122 at December 31, 1996 ......................................... 4,845,107 4,922,617
Patents, licenses and other intangible assets, net of accumulated
amortization of $1,828,687 at March 31, 1997 and $1,729,695 at
December 31, 1996 ........................................................ 1,985,090 3,374,962
Deferred financing costs ................................................... 866,939 922,424
------------- -------------
Total Assets...................................................... $ 22,155,778 $ 25,049,636
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable .......................................................... $ 1,775,724 $ 1,673,470
Accrued liabilities ....................................................... 3,607,728 4,885,260
Accrued payroll and payroll taxes ......................................... 1,645,859 1,469,786
Current portion of long-term debt ......................................... 2,272,223 1,963,564
------------ ------------
Total Current Liabilities ............................................. 9,301,534 9,992,080
Long Term Debt, less current portion ...................................... 12,880,416 14,192,011
Warrants with put option .................................................. 1,800,250 1,600,000
------------ ------------
Total Liabilities ..................................................... 23,982,200 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................................................................ 5,000 5,000
Common stock, $.0001 par value; authorized, 50,000,000 shares; issued
and outstanding 15,978,610 shares at March 31, 1997, and December
31, 1996 ................................................................ 1,598 1,598
Additional paid-in capital ................................................ 27,578,446 27,578,446
Accumulated deficit ....................................................... (29,382,729) (28,302,374)
Cumulative foreign currency translation adjustment ........................ (28,737) (17,125)
Total Stockholders' Deficit ........................................... (1,826,422) (734,455)
------------ ------------
Total Liabilities and Stockholders' Deficit...................... $ 22,155,778 $ 25,049,636
============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues - Testing Services ...................... $ 7,462,643 $ 2,562,367
Cost of sales and testing services ............... 5,602,108 1,760,349
------------- -------------
Gross Margin ................................ 1,860,535 802,018
Selling, general and administrative .............. 2,070,444 1,524,854
------------- -------------
Operating Loss .............................. $ (209,909) $ (722,836)
Interest expense ................................ (845,146) (179,163)
------------- -------------
Net Loss Before Provision for Income Taxes .. $ (1,055,055) $ (901,999)
Provision for income taxes ....................... (25,300) --
------------- -------------
Net Loss .................................... $ (1,080,355) $ (901,999)
============= =============
Net Loss per Share .......................... $ (0.07) $ (0.38)
============= =============
Weighted Average Number of Shares Outstanding 15,978,610 2,403,722
============= =============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, 1997 March 31, 1996
--------------- --------------
Cash Flows from Operating Activities
<S> <C> <C>
Net loss ................................................. $ (1,080,355) $ (901,999)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities
Depreciation and amortization ............................ 972,279 367,561
Amortization of discounts and financing costs ............ 416,501 34,814
Gain on sale of equipment ................................ (31,366) (143,690)
Changes in Operating Assets and Liabilities
(Increase) decrease in trade accounts receivable ......... (944,847) 628,613
Increase in inventories .................................. (98,791) (183,191)
Decrease in prepaid expenses and other current assets .... 615,272 94,378
Increase in accounts payable ............................. 102,254 222,150
Decrease in accrued liabilities .......................... (1,277,532) (246,505)
Increase (decrease) in accrued payroll and payroll taxes . 176,073 (107,177)
------------- --------------
Net cash used in operating activities .................... (1,150,512) (235,046)
Cash Flows from Investing Activities
Proceeds from sale of Canadian licenses .................. 1,147,500 --
Additions to equipment and improvements .................. (424,633) (131,576)
Proceeds from sale of equipment .......................... 50,000 179,391
------------- --------------
Net cash provided by investing activities ................ 772,867 47,815
Cash Flows from Financing Activities
Payments on line of credit ............................... -- (346,908)
Payments on long-term debt ............................... (1,002,936) (376,549)
Proceeds from issuance of notes payable .................. -- 600,000
------------- --------------
Net cash used in financing activities .................... (1,002,936) (123,457)
Net decrease in cash ..................................... (1,380,581) (310,688)
Cash at beginning of period .............................. 2,412,233 327,035
------------- --------------
Cash at end of period .................................... 1,031,652 16,347
============= ==============
</TABLE>
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<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 sales of
certain items included in the Company's statement of operations for the three
month periods ended March 31, 1997 and 1996. The results of operations for the
three months ended March 31, 1997 include the results of operations of the UST
Group of Companies that were acquired (the "Acquisition") from TEI Inc.
(formerly Tanknology Environmental, 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 the date of acquisition
forward.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues.................................... 100 % 100 %
Cost of Sales and Testing................... 75 % 69 %
-------------- --------------
Gross Margin................................ 25 % 31 %
Selling, General and Administrative......... 28 % 59 %
-------------- --------------
Operating Loss.............................. (3)% (28)%
Interest Expense............................ 11 % 7 %
Net Loss.................................... (14)% (35)%
============== ==============
</TABLE>
Revenues
Revenues for the three months ended March 31, 1997 were $7,462,643 compared
to $2,562,367 in the 1996 period, an increase of $4,900,276, or 191%, compared
to the three months ended March 31, 1996. The increase in revenues over last
year is due to the inclusion of the UST Group of Companies acquired on October
25, 1996. Revenues in the first quarter of 1997 also included $117,169 of
revenues from the Company's Canadian operations which were sold on February 20,
1997. Revenues of the UST Group, excluding Canada, plus those of the Company
increased from $7,124,133 in the first quarter of 1996 to $7,354,474 in the
first quarter of 1997 primarily due to the sale of several SIR software licenses
by the Company's USTMAN subsidiary.
Cost of Sales and Testing Services
Cost of sales and testing services for the three months ended March 31,
1997 was $5,602,108 (75% of revenue) compared to $1,760,349 (69% of revenue) in
1996, an increase of $3,841,759, or 218%. Gross margin was $1,860,535 (25% of
revenue) for 1997, compared to $802,018 (31% of revenue) for 1996. Gross margin
as a percentage of sales decreased from 31% of sales in 1996 to 25% 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, and the addition of one significant lower-margin but high volume
customer in mid-1996.
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<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Selling, General and Administrative
Selling, general, and administrative expense for the three months ended
March 31, 1997 was $2,070,444 or 28% of revenue compared to $1,524,854 in 1996
or 60% of revenue, an increase of $545,590 or 36%, compared to the three months
ended March 31, 1996. The increase in selling, general, and administrative
expenses was due to the Acquisition. The decrease in the percentage of sales
from 60% to 28% is due to the cost efficiencies realized and the higher volume
of revenue in conjunction with the Acquisition.
Earnings before Depreciation, Amortization, Interest and Taxes (EBITDA)
For the three months ended March 31, 1997, EBITDA was a positive $762,370
or 10% of revenues compared to a negative $320,461 or (13%) of revenues in 1996.
The increase in EBITDA of $1,082,831 was due to the Acquisition and cost
efficiencies realized as a result of combining the operations of the UST Group
and NDE.
Interest Expense
Interest expense for the three months ended March 31, 1997 was $845,179
(11% of revenue) compared to $179,163 (7% of revenue) in 1996, an increase of
$666,016 or 372%. The increase was due to the interest on the additional debt
incurred to finance the Acquisition.
Net Loss
For the three months ended March 31, 1997, the Company incurred a net loss
of $1,080,355 compared to a loss of $901,999 in 1996, an increase of $178,832 or
20%. The net loss for the current period includes $453,982 of non-cash charges
directly related to the Acquisition with no prior year counterpart. The major
cost components directly attributable to the Acquisition are: $82,966 of
goodwill amortization expense, $55,485 of amortization of deferred financing
costs, $105,281 of amortization of discount on subordinated debt, $10,000 of
amortization of a noncompete covenant, and estimated accretion of the value of
the Warrants with Put Option of $200,250. The Company is unable to determine if
the holder will ever exercise the Put and what the purchase price would be at
that time; therefore, the amount recognized as expense is an estimate. Based
upon projections of future results of operations, an independent appraisal
obtained by the Company valued the warrants with put options at $1,600,000 as of
December 31, 1996. The Company recorded the first quarter 1997 expense to
accrete the carrying value of the warrants with put option to such estimated
redemption value as of December 31, 2001.
Liquidity and Capital Resources
At March 31, 1997, the Company had a working capital deficit of $160,507
compared to a working capital surplus of $101,162 at March 31, 1996. Cash used
in operating activities of $1,099,912 for the three months ended March 31, 1997
increased by $864,866 as compared to $235,046 in 1996. The cash was used to fund
working capital and to pay acquisition-related liabilities of $580,417.
Cash provided by investing activities was $722,867 for the three months
ended March 31, 1997 compared to $47,815 in the 1996 period. On February 20,
1997, the Company sold substantially all of the operating assets of its Canadian
operation acquired as part of the Acquisition. 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
proceeds from the sale of the business and licenses were treated as an
adjustment to the purchase price of the UST Group. 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. In the first quarter of 1997, the Company invested $272,714 in
computer hardware and software to support its ongoing operations.
At March 31, 1997, the Company had outstanding long-term debt (including
current maturities) of $15,152,639 compared to $16,155,575 at December 31, 1996.
Required principal pay-downs of $300,000, a $500,000 paydown on the revolving
credit line from the proceeds of the sale of the Canadian operation, and other
debt repayments of $202,936 were made during the quarter. The Company had
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<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
$1,329,804 available for additional borrowing under its revolving credit
agreement. As of March 31, 1997, the Company was in compliance with the
financial debt covenants related to its long-term financing agreements.
This Form 10Q 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 10-KSB page 13 "Management Discussion and Analysis" for the
fiscal year ended December 31, 1996.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from NDE
Environmental Corporation's financial statements as of and for the quarter ended
March 31, 1997
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 1,031,652
<SECURITIES> 0
<RECEIVABLES> 7,485,283
<ALLOWANCES> 804,886
<INVENTORY> 466,153
<CURRENT-ASSETS> 9,141,027
<PP&E> 13,702,164
<DEPRECIATION> 8,384,549
<TOTAL-ASSETS> 22,155,778
<CURRENT-LIABILITIES> 9,301,534
<BONDS> 12,880,416
0
5,000
<COMMON> 1,598
<OTHER-SE> (1,833,020)
<TOTAL-LIABILITY-AND-EQUITY> 22,155,778
<SALES> 7,462,643
<TOTAL-REVENUES> 7,462,643
<CGS> 0
<TOTAL-COSTS> 5,602,108
<OTHER-EXPENSES> 1,985,022
<LOSS-PROVISION> 85,422
<INTEREST-EXPENSE> (845,146)
<INCOME-PRETAX> (1,055,055)
<INCOME-TAX> 25,300
<INCOME-CONTINUING> (1,080,355)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,080,355)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
