NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
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 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]
<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
INDEX
Page Number
PART I Financial Information
Item 1. Financial Statements (Unaudited) ..................................3
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1997 and December 31, 1996 ............................3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, 1997 and March 31, 1996 ............4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 and March 31, 1996 ............5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ..6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................7
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K ..................................9
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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, $.0001 par value; authorized, 50,000,000 shares; issued
and outstanding 15,978,610 shares at March 31, 1997, and December
31, 1996 ................................................................ 1,598 1,598
Additional paid-in capital ................................................ 27,578,446 27,578,446
Accumulated deficit ....................................................... (29,382,700) (28,302,374)
Cumulative foreign currency translation adjustment ........................ (28,766) (17,125)
-------------- -----------------
Total Stockholders' Deficit ........................................... (1,826,422) (734,455)
-------------- -----------------
Total Liabilities and Stockholders' Deficit...........................$ 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................... 2,045,144 1,524,854
-------------- --------------
Operating Loss................................... $ (184,609) $ (722,836)
Interest expense..................................... (845,146) (179,163)
-------------- --------------
Net Loss......................................... $ (1,029,755) $ (901,999)
============== ==============
Net Loss per Share............................... $ (0.06) $ (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
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss.......................................................... $ (1,029,755) $ (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............................. (1,099,912) (235,046)
Cash Flows from Investing Activities
Proceeds from sale of Canadian licenses........................... 1,147,500 -
Additions to equipment and improvements........................... (475,233) (131,576)
Proceeds from sale of equipment................................... 50,000 179,391
------------- -------------
Net cash provided by investing activities......................... 722,267 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
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 months ended March 31, 1997 and 1996 contain
all adjustments, consisting of only normal recurring accruals, necessary to
present fairly the financial position of the Company as of March 31, 1997 and
1996 and the results of operations and cash flows for the three months 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.
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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 $2,045,144 or 28% of revenue compared to $1,524,854 in 1996
or 60% of revenue, an increase of $520,290 or 34%, 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 $1,204,171
or 16% of revenues compared to a negative $320,461 or (13%) of revenues in 1996.
The increase in EBITDA of $1,524,632 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 $1,029,755 compared to a loss of $901,999 in 1996, an increase of $127,756 or
14%. 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 $722,267 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
$1,329,804 available for additional borrowing under its revolving credit.
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<PAGE>
NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
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.
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed herewith:
None.
Reports on Form 8-K:
The Company filed three reports on Form 8-K or 8-K/A
during the quarter ended March 31, 1997.
On January 14, 1997, the Company filed Amendment No.1 to its
Current Report filed on Form 8-K on November 12, 1996 to disclose
the acquisition of the UST Group of subsidiaries from Tanknology
Environmental, Inc. The Amendment was filed to publish certain
Financial Statements of the UST Group, including (but not limited
to) Balance Sheets, Statements of Operations, Statements of Cash
Flows and Pro forma Financial Information.
On January 17, 1997, the Company filed Amendment No. 2 to
the Form 8-K filed November 12, 1996. Amendment No. 2 was filed
to add the conforming signature of the Independent Accountants of
the aforementioned Financial Statements to the Report of
Independent Accountants.
On March 12, 1997, the Company filed a Current Report on Form 8-K
to disclose the sale of certain assets of the Tanknology Canada
(1988), Inc. UST Group subsidiary acquired from TEI, Inc.,
formerly known as Tanknology Environmental, Inc.
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: May 15, 1997 /s/ DAVID G. OSOWSKI
--------------------- --------------------------------------------
David G. Osowski
Vice President and Chief Financial Officer
9 -
<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> 1,959,722
<LOSS-PROVISION> 85,422
<INTEREST-EXPENSE> (845,146)
<INCOME-PRETAX> (1,029,755)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,029,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,029,755)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
