U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC. 20549



                                  FORM 10-KSB/A
                                 Amendment No. 1

(Mark One)

   [X]    Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
          of 1934 for the fiscal year ended December 31, 1996

   [ ]    Transition Report Under Section 13 or 15(d) of the Securities Exchange
          Act of 1934 for the transition period from __________ to __________


                         Commission File Number: 1-10361


                          NDE ENVIRONMENTAL CORPORATION
                 (Name of small business issuer in its charter)



           Delaware                                 95-3634420
State or other jurisdiction of           (IRS Employer Identification No.)
incorporation or organization:

                    8900 Shoal Creek Boulevard, Building 200
                               Austin, Texas 78757
                     Address of principal executive offices

Issuer's telephone number, including area code:          (512) 451-6334

Securities registered pursuant to Section 12(b) of the Act:
Title of each class:                                            None
Name of each exchange on which registered:                      None

Securities registered pursuant to Section 12(g) of the Act:     None

Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act  during the  preceding  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 90 days. 
                                  Yes [X] No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

The  Issuer's  revenues  for the  fiscal  year  ended  December  31,  1996  were
$15,939,126.

The aggregate market value of voting stock held by non-affiliates of the Issuer 
as of  April 2, 1997 was approximately $551,991.

As of  April 2, 1997, there were 15,978,610 outstanding shares of Common Stock, 
$0.0001 par value,  of the Issuer.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (Check one): Yes [ ]    No [X]


<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     The  Registrant  hereby amends its Annual Report on Form 10-KSB  originally
filed with the Securities and Exchange Commission on April 15, 1997, pursuant to
instruction E(3) to Form 10-KSB,  by completing Items 9-13 appearing in Part III
thereof.  In addition  to the Part III  information,  the Annual  Report on Form
10-KSB/A  (Amendment No.1) includes all information  required by Part I and Part
II of Form  10-KSB that the  Registrant  included  in its  original  Form 10-KSB
filing on April 15, 1997.


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                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


<TABLE>
<CAPTION>

                                Table of Contents

                                                                            Page
<S>      <C>      <C>                                                       <C>
PART I
         Item 1.  Description of Business......................................4
         Item 2.  Description of Property.....................................12
         Item 3.  Legal Proceedings...........................................12
         Item 4.  Submission of Matters to a Vote of Security Holders.........12


PART II
         Item 5.  Market for Common Equity and Related Stockholder Matters....13
         Item 6.  Management's Discussion and Analysis or Plan of Operation...13
         Item 7.  Financial Statements .......................................17
         Item 8.  Changes in and Disagreements with Accountants on 
                    Accounting and Financial Disclosure.......................17

PART III
         Item 9.  Directors, Executive Officers, Promoters, and Control 
                    Persons; Compliance with Section 16(a) of the Exchange 
                    Act.......................................................18
         Item 10. Executive Compensation......................................19
         Item 11. Security Ownership of Certain Beneficial Owners
                    and Management............................................22
         Item 12. Certain Relationships and Related Transactions..............25
         Item 13. Exhibits and Reports on Form 8-k............................25

SIGNATURES....................................................................31
</TABLE>







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                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


PART I

ITEM 1.           DESCRIPTION OF BUSINESS

General

     NDE Environmental  Corporation (the "Company" or "NDE") was incorporated in
Delaware  in 1988.  The  Company is a holding  company  that  conducts  business
through its  wholly-owned  subsidiaries.  At December  31, 1996,  the  Company's
subsidiaries  included  Tanknology/NDE  Corporation,   USTMAN  Industries,  Inc.
("USTMAN"),   Tanknology   Canada  (1988)  Inc.   ("Tanknology   Canada"),   NDE
Environmental Canada Corporation ("NDE Canada"), ProEco, Inc. ("ProEco"), EcoAm,
Inc., and ProEco, Ltd. The Company provides  environmental  compliance services,
installation of products,  and consulting to owners and operators of aboveground
and underground  storage tanks ("USTs") in the United States and internationally
through licensees. Customers purchase the Company's services primarily to remain
in compliance  with laws pertaining to  environmental  protection and to conduct
their  operations  in a manner  that limits  their  exposure  to  liability  for
incidental environmental damage.

Forward-Looking Statements

     This  Annual  Report on Form  10-KSB  includes  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. The words  "anticipate,"  "believe,"  "expect,"
"plan,"  "intend,"  "estimate,"  "project,"  "will," "could," "may," and similar
expressions are intended to identify forward- looking  statements.  No assurance
can be given that  actual  results may not differ  materially  from those in the
forward-looking   statements   herein  for  reasons   including  the  effect  of
competition,  changes  in  Environmental  Protection  Agency  ("EPA")  and other
regulations  affecting the Company or its customers,  the outcome of litigation,
the loss of a  significant  customer or group of  customers,  problems  with the
Company's information management system, or technological obsolescence.

Mergers and Acquisitions

     The  Company's  business  has  developed  primarily  through  a  series  of
acquisitions  since March 1990.  The Company has  acquired  testing  technology,
licenses, testing vehicles and other assets.

Tanknology Acquisition

     On  October  25,  1996,  the  Company  acquired  substantially  all  of the
operating  assets and  liabilities  of the  Tanknology  UST Group of  Tanknology
Environmental,  Inc., (the "Acquisition"). The Tanknology UST Group's operations
were   principally   conducted   through   three   subsidiaries   of  Tanknology
Environmental,  Inc.: Tanknology Corporation  International ("TCI"),  Tanknology
Canada,  and USTMAN.  The Acquisition was accomplished by means of the Company's
purchase of all of the issued and outstanding capital stock of the subsidiaries.

     TCI was engaged in substantially the same business,  in the same market, as
the  Company  and  was  the  Company's   largest  direct  domestic   competitor.
Additionally, TCI was a provider of UST corrosion protection services, a service
not formerly offered by NDE. Immediately following the Acquisition,  the Company
caused its primary operating subsidiary, NDE Testing & Equipment, Inc., to merge
with  and  into  TCI,  and  the  surviving   corporation  changed  its  name  to
Tanknology/NDE Corporation.  The combined entity comprises the largest component
of the Company's  domestic  operations,  Field Services.  Management expects the
combination to result in a significant  increase in market share and elimination
of duplicate  administrative  costs.  However,  all  forward-looking  statements
contained  in  this   description  of  the  Company's   business  are  based  on
management's current knowledge of factors affecting NDE's business. NDE's actual
results may differ  materially if these  assumptions  prove  invalid.  A list of
certain  risks that may affect the Company's  operating  results is presented in
Item 6.

USTMAN

     USTMAN provides statistical inventory  reconciliation ("SIR") services. SIR
meets  the  post-1998   Environmental   Protection   Agency  ("EPA")   precision
requirement  for leak detection,  and management  believes that SIR is among the
least costly methods of complying with certain regulations. SIR may also


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                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


identify  other  conditions  of concern to tank  operators  such as pilferage or
flaws in record keeping.

Gilbarco Acquisition

     On April  11,  1994,  the  Company  acquired  the  principal  assets of the
Environmental  Services  Division  of  Gilbarco,  ("Gilbarco  ESD"),  a division
engaged in testing USTs. In the Gilbarco ESD  acquisition,  the Company acquired
tank testing  vehicles,  related tank testing  equipment,  ancillary  equipment,
testing systems,  regulatory approvals,  intellectual property rights,  customer
information,  supplier and distributor information, and other intangible assets.
In 1996, the Company  recognized an extraordinary  gain of $1,813,149 related to
early  retirement  and  settlement  of debt  incurred  in  conjunction  with the
Gilbarco ESD acquisition and an $833,321  writedown of the acquired vehicles and
test equipment due to permanent impairment of their value.

Canada

     An element of the Company's strategy is to focus financial, management, and
other  resources on operations in the United States and leverage its  technology
base  internationally  through  licensing  arrangements.  Consistent  with  this
strategy,  in 1995,  NDE made the decision to phase out its operations in Canada
and entered into a licensing  agreement for western Canada. In 1996, the Company
secured a licensee for the eastern part of Canada, and prior to the Acquisition,
ceased the  operations of NDE Canada.  On February 20, 1997  (subsequent  to the
Company's  1996 fiscal  year end),  the Company  sold  substantially  all of the
operating assets of Tanknology Canada to the Company's eastern Canada licensee.

Lines of Business

     The Company  offers  comprehensive  services to its customer base of retail
and non-retail fuel distributors who own or operate USTs.

Field Services

     The principal  business of the Company's  Field Services  division  ("Field
Services") is the precision  testing of petroleum USTs and associated  piping to
detect  leaks.  This  service  also is  referred  to as  "tightness  testing" or
"integrity testing." UST owners or operators purchase testing services:

     o to comply with regulations
     o to certify  the  system as tight  after  work has been  performed  on the
       system
     o to investigate inventory discrepancies
     o to satisfy environmental liability concerns
     o to investigate the site for evidence of pollution or a fire hazard

     The  Company  uses a number of  proprietary  systems to  perform  tightness
testing on USTs. All of the Company's systems have been certified by independent
laboratories as meeting EPA standards for UST testing  methods.  UST testing has
the following general characteristics: 
     o it is performed periodically
     o the test system is moved between UST locations by van, truck, or trailer
     o the test is precise -- capable of reliably  detecting  leaks smaller than
       0.1 gallon per hour
     o the  preferred  testing  method may differ  based upon  environmental  or
       business conditions, state  regulations,  tank type, design  or contents,
       owner or operator preference, and other variables

     Field Services provides "Stage II Testing" to ensure functionality of Stage
II  equipment  and to  verify  that it does not  leak.  During  refueling,  this
equipment  collects vapor  emissions  displaced from the tank receiving the fuel
and  incinerates  or  returns  the vapor to the UST.  Limitations  on fuel vapor
emissions are designed to help reduce ozone layer  depletion.  NDE also provides
pipeline and container leak detection services ("Specialty Testing").  Specialty
Testing vehicles are equipped to perform either hydrostatic or acoustic pipeline
testing and large storage tank testing.


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<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     Field  Services  offers  installation  of Automatic  Tank  Gauging  Systems
("ATGS").  No  significant  revenue was derived by the Company from this line of
business in 1996. ATGS consist of a probe permanently  installed in the tank and
wired to a monitor to provide  information  on  product  level and  temperature.
These systems  automatically  calculate  the changes in product  volume that can
indicate a leaking tank. ATGS meet regulatory  requirements as a replacement for
manual inventory control (see Government Regulations - Leak Detection).

     Field Services also offers cathodic  protection  installation and a variety
of other corrosion  protection services including video internal tank inspection
("Petroscope") , compliance testing, and maintenance.  The EPA requires all USTs
and associated  underground  piping to be upgraded with corrosion  protection by
December 22, 1998 (see Government Regulations).  Cathodic protection is required
unless the UST system is lined with or made of noncorrodible material. Corrosion
of USTs is eliminated by proper  application  of cathodic  protection.  Cathodic
protection  prevents  corrosion  by making the entire  steel  surface act as the
cathode of an electrochemical cell,  transferring corrosion from the UST's metal
surface to an external anode.

     In addition to testing and  upgrading  UST  systems,  Field  Services  also
provides  overfill  protection,  UST  cleaning  and value  added site  services,
including  survey and compilation of site  information,  and minor  maintenance.
Field  Services may, as a customer  service,  subcontract  the upgrading of USTs
with spill  protection  but typically  does not provide  secondary  containment,
interstitial monitoring, or groundwater or vapor monitoring.

     Field  Services  markets its services  and  products  primarily to gasoline
retailers (e.g., major oil companies, independent fuel retailers and convenience
store chains),  businesses with vehicle fleets that are fueled from  internally-
operated USTs (e.g.,  vehicle rental  companies,  package  delivery  services or
product  distributors),  and tank owners or operators  who  maintain  tanks as a
source of emergency power (e.g.,  hospitals and hotels). In 1996, Field Services
revenues were approximately $14 million,  or 87%, of the Company's  consolidated
revenues.

Compliance Management Services

     In  1995,  the  Company  established  its  Compliance  Management  Services
division ("CMS") to enable tank owners and operators to outsource the regulatory
compliance   function.   CMS  provides  turn-key   administrative,   managerial,
technical,  data  processing,  and regulatory  liaison  services.  CMS helps UST
owners  and  operators   coordinate   regulated   activities  and  manage  their
relationship with regulators.  On behalf of its customers, CMS can: 
     o  administer  UST systems in  compliance  with  regulations  
     o acquire and maintain operating and regulatory permits
     o respond to, report on and manage environmental incidents
     o report in accordance with SARA III community right-to-know requirements 
     o resolve environmental notices of violation
     o track hazardous waste transportation via manifest
     o manage the liabilities  associated with the operation of USTs and storage
       of hazardous material
     o assist  in UST  owner  or  operator  management  reporting  and  capital
       budgeting
     o coordinate construction, maintenance, testing and contractor oversight
     o coordinate  the  provision  of services  from the  customer's  other UST
       vendors

     Currently the CMS manages the  environmental  compliance for  approximately
11,000 tanks in the United States.

Statistical Inventory Reconciliation ("SIR")

     SIR is a computerized statistical model that analyzes common inventory data
with  statistical  formulas and procedures.  Tank operators  provide USTMAN with
daily inventory  information  including  beginning and ending inventory  levels,
product receipts and sales. USTMAN's software produces a trend analysis by which
leaks  and  inventory  shrinkage  due to  other  causes  can be  identified  and
detected. USTMAN software meets all existing EPA protocols for SIR.

     There  is a  complementary  relationship  between  SIR and  tank  tightness
testing:  A customer may request SIR as an alternative  to some tank tests,  but
demand for other tests may be generated in response to SIR  findings.  It may be
advisable to conduct tightness testing before SIR monitoring begins and when SIR
monitoring indicates that tanks are "leaking." Before the Acquisition, NDE


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                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


employed USTMAN  as a subcontractor.  Since the Acquisition, USTMAN serves as a
source of referrals for tightness testing work.

Government Regulations

     In response to concerns about ground water contamination, Congress included
UST amendments in the 1984 Resource Conservation and Recovery Act ("RCRA").  The
RCRA amendments lead to Federal UST regulations (40 CFR Part 280) that went into
effect in late 1988. The regulations  distinguish  between  "existing" and "new"
USTs.  Currently,  this distinction is interpreted to apply different regulatory
requirements based on whether the UST was installed before or after December 22,
1988. State regulatory  agencies were empowered to require earlier  deadlines or
additional requirements.

Tank upgrades

     Federal rules require USTs installed  before December 22, 1988  ("existing"
USTs) to be upgraded with spill  protection,  overfill  protection and corrosion
protection  by December 22,  1998.  Owners and  operators of existing  USTs must
either upgrade or close them.  Failure to comply timely can result in citations,
fines and reduction or elimination of insurance coverage provided by third-party
firms or state reimbursement funds.

     When closing a UST (including  closing prior to replacement),  the owner or
operator must notify the state regulatory authority before taking the UST out of
service  in case the  regulators  want to  monitor  the  activity.  The owner or
operator  must  determine  if  releases  from  the  UST  have  contaminated  the
environment  using the  results  of vapor or  groundwater  monitoring  or a site
assessment.  The state may require additional closure  assessment  measures.  If
contamination is found,  corrective action must be taken. Upgrading the tank, as
opposed to replacing it, postpones these requirements.

     To meet the corrosion protection upgrade requirements, existing steel tanks
must have cathodic protection,  or be lined with noncorrodible material (such as
fiberglass), or both. Existing steel piping must have cathodic protection. Tanks
or piping made of noncorrodible  material do not have to be upgraded to meet the
corrosion protection requirement.

     If a UST owner or operator decides to upgrade by adding cathodic protection
without also adding a lining,  the  integrity of the tank must be assessed by an
approved  monthly   monitoring  method,  two  tightness  tests  or  an  internal
inspection.  Regulations  require  a  qualified  cathodic  protection  expert to
design,  supervise  installation,  and inspect cathodic protection systems. Most
cathodic protection systems also require bimonthly inspections.

Leak Detection

     Since December 1993, leak detection has been required for all USTs.  Owners
or operators of USTs that do not have a leak  detection  method can be cited for
violations  and  fined.  Leak  detection  violations  can  prevent  the owner or
operator from obtaining  legally required  insurance  coverage and reimbursement
for cleanup costs.

     There  are  two  categories  of leak  detection:  "tightness  testing"  and
"monthly monitoring." Monthly monitoring methods must be able to detect leaks of
0.2 gallons per hour with a probability  of detection of at least 95 percent and
a  probability  of false  alarm of no more  than 5  percent.  Tightness  testing
methods  must be able to  detect a 0.1  gallon-per-hour  leak with at least a 95
percent  probability  of detection and no more than a 5 percent  probability  of
false alarm.

     Monthly  monitoring  is required for all "new" USTs after  installation  or
"upgraded"  USTs within 10 years or upgrade.  Such methods  include:  SIR, ATGS,
secondary  containment  with  interstitial  monitoring,   vapor  or  groundwater
monitoring or other methods approved by the state regulatory  authority that are
at least as precise as the EPA requirements.

     ATGS provide an alternative  to SIR, as a replacement  to manual  inventory
control procedures, to meet leak detection requirements in combination with tank
tightness testing or SIR. Secondary  containment consists of using a barrier, an
outer wall, a vault,  or a liner around the UST or piping.  Leaked  product from
the inner tank or piping is  directed  toward an  interstitial  monitor  located
between the inner tank or piping and the outer barrier.


                                      - 7 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     Tightness  testing combined with inventory  control is an acceptable method
of leak detection for existing USTs that have not been upgraded or for USTs that
have been  upgraded or installed  within the last 10 years.  For existing  tanks
that have not been  upgraded,  tightness  must be tested  annually if  tightness
testing  combined with  inventory  control are relied upon as the leak detection
method. New or upgraded tanks using this method must be tested every five years.
Inventory control requires  comparing  "stick" inventory (daily  measurements of
tank contents using a calibrated  "stick,"  conversion  chart,  and mathematical
calculations) to "book" inventory (calculated from initial inventory, deliveries
and dispensing).

     Tightness  testing  combined  with  inventory  control  does not meet  leak
detection  requirements for all types of piping.  If certain design criteria are
not met, a suction  line  requires a line  tightness  test  every  three  years,
monthly SIR, monthly  interstitial  monitoring,  or monthly vapor or groundwater
monitoring.  Pressurized  piping  must be equipped  with  certain  hardware  and
receive an annual  tightness  test or be  equipped  with  monthly  SIR,  monthly
interstitial monitoring, or monthly vapor or groundwater monitoring.

     SIR may be used  currently  and  indefinitely  to meet the  leak  detection
requirement for existing,  upgraded,  or new tanks and is one of the options for
leak detection with suction and pressurized  piping.  Generally,  few product or
site restrictions apply to the use of SIR.

     With a probability of detection of at least 95 percent and a probability of
false alarm of no more than 5 percent, SIR must be able to detect leaks of:
     o 0.2 gallons per hour to serve as a monthly monitoring method
     o 0.1 gallons per hour to serve as a replacement for tank tightness testing
     o 0.08  gallons  per  hour to  serve as a  replacement  for pipe  tightness
       testing

     Approximately 20 state  regulatory  authorities will accept SIR on the same
basis as EPA. Many states impose some  restrictions on the use of SIR, and a few
states do not accept it.

     Vapor  monitoring  measures  product  "fumes" in the soil around the UST to
check  for a  leak.  This  method  requires  installation  of  carefully  placed
monitoring wells. Vapor monitoring can be performed manually on a periodic basis
or continuously using permanently  installed equipment.  Groundwater  monitoring
senses the presence of liquid product floating on the  groundwater.  This method
requires  installation of monitoring wells at strategic  locations in the ground
near the tank and  along the  piping  runs.  It  cannot  be used at sites  where
groundwater  is more than 20 feet below the surface.  Both of these methods risk
attributing  releases  from  other  sources to the tank they were  installed  to
monitor.

     The Clean Air Act requires Stage II vapor recovery  systems to be installed
in  ozone  non-attainment  areas  designated  by the  EPA,  typically  in  large
metropolitan  areas.  Management  anticipates a future increase in the aggregate
size of non- attainment areas.

     Some  state and local  jurisdictions  have  adopted  regulations  regarding
testing of UST's that are  stricter  than EPA  regulations.  The  failure of the
Company's testing systems to comply with any such current or future  regulations
or the failure of the Company to obtain any necessary  certifications could have
a material  adverse  impact on the  revenues  and the  operating  results of the
Company.  Management  believes  the  Company  and  all of its  testing  methods,
services  and  practices  are  currently  in  compliance  with all  existing EPA
regulations for which a lack of compliance  would have a material adverse impact
on the operating results of the Company.

Distribution

Geographical

     During 1994, the Company moved its headquarters  from Torrance,  California
to  Austin,  Texas.  One  advantage  of the move is that the  central  time zone
enables the Company to better serve its nationwide customer base.

     Field  Services  distributes  its  services  throughout  the United  States
utilizing  approximately 175 company-owned and operated service vehicles.  Sales
and  operations are managed  through 11 regional  offices as well as the Company
headquarters.


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                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     CMS  markets  to  Field  Services  customers  and  prospects,   trade  show
attendees,  and  recipients  of industry  trade  publications.  CMS services are
marketed by CMS division personnel based at the Company's  headquarters,  by the
corporate sales and marketing departments, and by regional Field Services office
management and salespersons. CMS services are performed primarily at the Company
headquarters.  The Company also has  customer-dedicated  locations in California
and Virginia.

     USTMAN  provides  SIR  services  nationally  and  internationally  from its
offices in Denver,  Colorado.  Seven salespersons market the service,  and eight
independent  providers  employ  USTMAN  software  under  license.  SIR  data  is
transmitted  from customer  sites to USTMAN via hard copy,  fax,  diskette,  and
telephone line data transmission based on customer preference.

Information Systems and Products

     NDEOE  and  USTLine  are  the  trade  names  for  a  group  of  proprietary
information  systems  that  facilitate  the  environmental   compliance  of  UST
installations.  NDEOE and  USTLine  were  developed  in  response to the growing
informational  needs of tank  owners and  operators  in their  efforts to manage
complex regulatory,  risk avoidance and operational requirements.  While USTLine
and NDEOE are not sold  individually,  they  represent a  value-added  method of
distribution  which,  management  believes,  gives  the  Company  a  competitive
advantage in serving large customers with:
     o many tanks under management
     o geographical  coverage spanning  regulatory  jurisdictions with different
       compliance requirements
     o USTs distant from managerial oversight

     NDEOE is primarily used by Field Services.  It integrates the scheduling of
tests, the deployment of the service technicians and test vehicle fleet, and the
collection,  analysis  and  reporting  of test  data  and  billing  information.
Technicians are equipped with laptop  computers,  and they input data into NDEOE
while  on-site.  The NDEOE database  provides  comprehensive  information  about
customers'  UST systems  which is useful for their  operational  and  regulatory
compliance functions and which can be sorted and analyzed electronically.

     USTLine is an information management and distribution product that provides
customers  access to the NDEOE system via the internet.  NDE installed the first
USTLine  system in a customer's  office in March 1994.  Since that time, NDE has
installed approximately 30 systems at various customers' facilities.

     NDE's database  management  system  features the  flexibility  necessary to
efficiently build a bank of information  obtained from a variety of sources. For
example,  information  regarding  ground  water  level might best be obtained by
NDE's technician while visiting the site, while regulatory  information would be
maintained on an associated  database by NDE  regulatory  affairs  personnel and
tied to a particular site location via zip codes.  Customer-specific information
could either be entered by the customer via USTLine or supplied to NDE personnel
either on disk or in hard copy.

     Master  databases  are  centrally  managed  at NDE's  Austin  headquarters.
Customized  reports are generated which meet the needs of each particular client
or regulator.  The NDE database management systems have the built-in flexibility
required  to  generate  specific  report  formats  based  on  the  needs  of the
individual  customer.  Reports  can be faxed or hard  copies can be printed  and
mailed to the customer and/or regulatory agency.  Alternately,  the customer may
utilize  NDE's  USTLine  service  which  provides  instant  access to up-to-date
information regarding all of the customer's sites. USTLine also allows customers
to print reports in their offices whenever required.

     These systems add value for UST owners in the following ways:
     o lower costs  resulting  from  diminished  paper  processing  and archival
       requirements
     o increased  efficiency  and speed through  computerized  storage,  filing,
       sorting, and data retrieval
     o real-time  access to testing  schedules,  test results and site surveys 
     o enhanced  communication  with NDE  through  integrated  E-Mail 
     o increased efficiency in planning, budgeting, and scheduling due to the
       integrated data-base management tools
     o reduced re-keying of data;  USTLine data can be exported to most customer
       systems
     o enhanced  regional  emergency  response (e.g.,  earthquake);  the USTLine
       system can sort the data by proximity to a particular  landmark and other
       site characteristics

                                      - 9 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)



International

     Through ProEco, Inc., its wholly-owned subsidiary,  NDE licenses technology
to service providers in Australia, Brazil, Canada, Chile, Ireland, Italy, Korea,
Mexico,  Malaysia,  New Zealand,  Puerto Rico, Portugal, and the United Kingdom.
Service providers receive a license for specific countries and purchase or lease
equipment  from NDE.  NDE  typically  reviews the data,  issues the test report,
provides technical support, and receives processing fees on each test.

Competition

     In the  Acquisition,  the Company  acquired  TCI,  formerly  the  Company's
primary national competitor.  However, the Company continues to face competition
for UST testing  services  from a number of smaller  testing  companies  serving
local or  regional  customers  and  using  inexpensive  technology.  Prices  for
tightness  testing have continued to decline due to excess  supply.  Competitors
may  refine  existing  technologies  or  develop  new  systems  that  render the
Company's technology obsolete or less competitive.

     Total demand for domestic UST testing is  declining.  Virtually  all of the
current  demand for the  Company's  UST  testing  services is from the owners or
operators of USTs that were  installed  prior to 1988 and have not been upgraded
in accordance with the EPA's 1988 requirements. The owners or operators of these
USTs may continue to use annual tightness  testing to meet EPA requirements only
until December 22, 1998.  After that date, they must close or upgrade the tanks.
Many of these  owners or  operators  may elect to close  their  USTs  instead of
upgrading them. For those who elect to upgrade (by either modifying or replacing
the  existing  UST),  the  frequency of tightness  testing will  decline.  After
upgrade, the frequency with which tightness tests will be ordered will depend on
the choice of UST upgrade and leak  detection  method.  For example,  the new or
upgraded  tank may need to be tested every two years,  five years or not at all,
rather than annually.  It is currently  anticipated that the rate of UST closure
and upgrade trends will increase as the 1998 deadline approaches.

     Cathodic  protection  is  one  of  the  two  viable  corrosion   protection
alternatives  for owners or operators  of steel USTs who wish to upgrade  rather
than close or replace  their USTs.  For the same reasons  that annual  tightness
testing  demand is  declining,  the Company  expects  strong demand for cathodic
protection  services  through a period ending  shortly after  December 22, 1998.
However,  the degree to which the company will experience a significant increase
in cathodic  protection revenue or profits is not clear.  Barriers to entry into
the business of providing cathodic  protection  services are low. "Small" owners
or operators (those with relatively few tanks) may experience financial hardship
relating  to the upgrade  and are likely to be very price  sensitive.  Owners or
operators  who operate  nationwide  have the ability to exact price  concessions
from installation providers.

     The size of the market for SIR and for pipeline leak detection  services is
expected  to  increase  as the  number of USTs  subject  to  monthly  monitoring
requirements  increases.  However, both SIR and cathodic protection are provided
by a number of vendors.  Demand for Stage II testing  services  will increase if
more metropolitan areas meet the  "non-attainment  area" definition in The Clean
Air Act.

     The  Company  does  not  believe  that  the  CMS  division   currently  has
significant  direct  competition,  and it has  developed a strategy  designed to
bring more USTs under CMS management.

Customers

     The Company  provides UST services to oil  companies,  independently  owned
gasoline  retailers,  convenience  store  operators,  fleet  owners,  government
facilities,  and other  operators  of USTs.  Below are  selected  customers  (in
alphabetical  order) within a few of the Company's  major customer  groups.  The
organizations  listed are not meant to be representative of the Company's entire
customer  base,  but  are  meant  to  give  an  indication  of  the  caliber  of
organizations that purchase NDE's services.
     o Oil  companies:  Amoco Oil Company,  B.P. Oil,  Chevron  U.S.A.  Products
       Company, Exxon U.S.A., Mobil Oil Corporation, Shell Oil Company
     o Convenience  stores:  Cumberland  Farms,  Dairy Mart,  Diamond  Shamrock,
       Southland Corporation
     o Fleet owners: Hertz Corporation, Ryder Truck Rental


                                     - 10 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     Mobil  Oil  Corporation  accounted  for  approximately  20%  and 13% of the
Company's  1996 and  1995  revenues,  respectively.  No  other  single  customer
contributed more than 10% of the Company's 1996 revenues.

Other matters

Suppliers

     The Company  does not depend upon any single  supplier  for spare parts for
any of its technologies.  Substantially all repair,  diagnostic, and maintenance
functions are performed at the Company's headquarters.

Patents

     The Company owns or has obtained  license for various rights in the form of
patents,  trademarks,  copyrights,  and/or registered names.  NDE's policy is to
vigorously  defend  these  rights,  and the Company is  currently  working  with
counsel to address infringements.  There can be no assurance that the rights, or
the  Company's  efforts  to  enforce  them,  will  provide  the  Company  with a
competitive  advantage.  The Company  believes  that the duration of its patents
generally  exceeds the life  cycles of the  technologies  disclosed  and claimed
therein.  Although  the patents it holds may be of value,  the Company  believes
that its success will depend primarily on its engineering marketing, and service
skills.

Research and Development

     The  Company  has  incurred  no  significant   expenses  for  research  and
development  since its inception.  Most  technology used by the Company has been
obtained through acquisition.

Insurance

     The Company's  testing  activities,  consistent with the industry,  present
risks of  substantial  liability.  Spills of petroleum  products  and  hazardous
substances,  or the creation or exacerbation of a contamination  problem through
errors or omissions in tank testing, could result in substantial liability under
federal and state anti-pollution statutes and regulations or from tort claims by
those  suffering  personal  injury  or  property  damage  as a  result  of  such
contamination.  In addition, many of the Company's tank testing services involve
USTs containing volatile substances such as gasoline.  The Company or its former
licensees  could be held liable for damage to persons or property  caused by any
resulting  fire or explosion.  In addition,  most of the Company's  services are
provided by technicians driving Company vehicles with attendant risks associated
with operating motor vehicles.

     The Company maintains  professional and pollution liability insurance of up
to $2 million per occurrence,  general,  product and personal injury coverage of
up to $1 million per  occurrence,  and fire liability  coverage to $500,000.  In
addition,  umbrella  coverage  for all sources of liability in the amount of $10
million is maintained. Deductibles are in the amount of $200,000 per occurrence,
$400,000 in the aggregate,  for professional and pollution liability  coverages.
The umbrella  policy carries a $10,000  deductible.  All other coverages carry a
$5,000  deductible  per  occurrence.  The Company  believes that the policies in
force are expected to be  sufficient  to cover all current and expected  claims.
The Company has not been denied any coverages sought.  However,  there can be no
assurance  that all possible  types of  liabilities  that may be incurred by the
Company  are  covered  by its  insurance  or  that  the  dollar  amount  of such
liabilities will not exceed the Company's  policy limits.  The occurrence of any
significant  uninsured loss or liability  would have a mateial adverse effect on
the Company's business, financial condition, and results of operations.

Personnel

     As of  December  31,  1996,  the  Company  employed  324  full-time  and no
part-time personnel.  None of the Company's personnel are represented by a labor
union.  The  Company  believes  that  its  relationship  with its  employees  is
satisfactory.



                                     - 11 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


ITEM 2.           DESCRIPTION OF PROPERTY

     The Company owns no real  property.  All operations are conducted in leased
premises.  In December  1993,  the Company  leased 2,000 square feet, in Austin,
Texas for its  headquarters.  This  lease was  amended  in May 1994 to add 6,000
square feet of space. In May of 1996, the Company moved from the previous Austin
location to its current  address  which has 11,500  square feet of leased space.
The Company also leases regional offices and storage  facilities.  The lease for
USTMAN's  facility  in Denver,  Colorado  was  assumed in the  Acquisition.  The
Tanknology Canada lease, also assumed in the Acquisition,  was one of the assets
disposed of subsequent to the 1996 year end (see Item 1. Description of Business
- Mergers and Acquisitions).


ITEM 3.           LEGAL PROCEEDINGS

     In February 1995, U.S. Test, Inc. ("U.S. Test") filed a lawsuit against NDE
Environmental  Corporation in the United States Federal District Court,  Western
District of Louisiana.  The lawsuit is for a  declaratory  judgment that certain
patents owned by NDE are invalid,  unenforceable,  and/or that certain U.S. Test
tank  testing  systems do not infringe  such  patents.  The relief U.S.  Test is
seeking  includes  a final  determination  on the above  issues,  a  preliminary
injunction regarding actions taken by NDE, and attorneys' fees and costs. In May
1995, NDE filed a  counterclaim  alleging that (1) the NDE patents are valid and
enforceable,  (2) the U.S. Test tank testing  systems are  infringing  upon such
patents,  and (3) NDE is owed  damages  for such  infringement.  The  amount  of
damages  owed by U.S.  Test,  if any,  has not been  specifically  alleged.  The
patents at issue were transferred from Gilbarco, Inc. in the 1994 acquisition by
NDE of Gilbarco's  Environmental  Services Division.  The parties entered into a
joint  scheduling  order  providing  for a trial which is currently  expected to
occur during the third quarter of 1997.  There have been no dispositive  rulings
to date. The Company does not believe that the outcome of such  litigation  will
have a  material  adverse  effect on the  Company's  results  of  operations  or
financial condition.

     The Company also is subject to various  claims and litigation in the normal
course of business.  The Company  believes that the ultimate  resolution of such
matters  will not have a material  adverse  effect on the  Company's  results of
operations or financial condition.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.




                                     - 12 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     On July 20, 1995, the Company was delisted from the NASDAQ Stock Market for
failure to meet listing requirements.  These requirements included maintaining a
minimum bid price,  minimum  capital  surplus and minimum market value of public
float.  On December 22, 1995, the Company  voluntarily  delisted from the Boston
Stock Exchange for similar  reasons.  The Company's common stock continues to be
traded on the OTC Bulletin Board under the symbol NDEC.

     The  following  table  sets  forth high and low bid prices of the shares of
Common Stock of the Company for each quarterly fiscal period within the last two
fiscal years.  Quotations reflect inter-dealer  prices,  without retail markups,
markdowns or commissions and may not represent actual transactions.


                                            High         Low
               1995

               First Quarter               $9/16        $5/16
               Second Quarter               $5/8         $1/4
               Third Quarter                $1/4         $1/8
               Fourth Quarter              $3/16        $1/20


               1996

               First Quarter                $1/8        $1/20
               Second Quarter              $5/16         $1/8
               Third Quarter               $5/16        $1/16
               Fourth Quarter              $9/16        $3/32

     As of April 2, 1997, there were  approximately 170 holders of record of the
Company's Common Stock including those shares held in "street name." The Company
did not declare or pay Common Stock  dividends  during 1995 or 1996. The Company
currently  intends any future  earnings to finance the development and expansion
of its business.


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward looking Statements

     All  forward-looking  statements  contained  in this Annual  Report on Form
10-KSB and in the  Management's  Discussion and Analysis of Financial  Condition
and Results of Operations is based on the Company's current knowledge of factors
affecting its business.  The Company's  actual results may differ  materially if
these assumptions prove invalid.

     Significant risk factors include, but are not limited to,:
     o increasing price competition in the Company's marketplace
     o changes in government  regulations that decrease the requirements for the
       Company's testing services or adversely affect pricing
     o lack of achievement of the cost reductions and  operational  efficiencies
       anticipated as a result of the Acquisition
     o an excess of product  liability losses over the Company's  expectations 
     o the loss of a significant customer or group of customers
     o a failure in the  computer or  communication  systems  used to manage the
       Company's geographically dispersed operations
     o risks associated with technological obsolescence


                                     - 13 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


 Revenues

     Revenues  for 1996 were  $15,939,126,  an  increase of  $4,591,535  or 40%,
compared  to  $11,347,591  for  1995.  NDE's  increased  revenue  was due to the
Acquisition  completed on October 25, 1996 and revenues for the year include the
results of the UST Group from that date.

     Historically,  the  Company's  revenues  in the second half of the year are
higher than in the first half. The 1996 results of operations  included only two
months of the  Tanknology UST Group's  results.  Due to  seasonality,  those two
months  of  combined  operations  accounted  for  substantially  all of the  40%
increase in revenues.  In general, the price of UST tightness testing,  which is
the Company's main revenue source,  continued to decline in 1996; however,  this
decline has been  mitigated  to some extent by increased  revenues  from CMS and
international licensing revenues.

Cost of Testing

     Cost of testing  services for 1996 was  $11,085,062  (70% of  revenue),  an
increase of $4,022,606 or 57%, compared to $7,062,456 (62% of revenue) for 1995.
The  gross  margin  was  $4,854,064  (30% of  revenue)  for  1996,  compared  to
$4,285,135  (38% of revenue) for 1995. The increased  costs are due primarily to
an increase in the number of tests due to the  Acquisition.  In  addition,  fuel
prices increased in 1996 over 1995, and vehicle  maintenance costs increased due
to the aging of the Company's fleet.

Selling, General and Administrative

     Selling,   general  and  administrative   expenses  (SG&A)  for  1996  were
$6,581,337  (41% of  revenue),  an  increase  of  $152,904  or 2%,  compared  to
$6,428,433  (57% of revenue) for 1995. The increase in SG&A was primarily due to
an  increase in the  staffing  levels  required  as a result of the  Acquisition
offset by  reductions  in these  expenses  due to tight cost  controls  on these
expenses prior to the  Acquisition.  Through the first nine months of 1996, SG&A
expenses  were  essentially   unchanged  from  the  same  period  in  1995.  The
elimination  of most of the  duplicate  expenses  for these  expense  categories
subsequent  to the  Acquisition  reduced  the  percentage  increase  from  1995;
however,  severance  costs  for  terminated  NDE  employees  and  the  costs  of
maintaining  additional  administrative  staff after the Acquisition through the
end of the year unfavorably impacted these costs.

Impairment of Long-lived Assets

     In the third  quarter  of 1996,  the  Company  recorded  an  impairment  of
long-lived  assets of $833,321  relating to the  write-down of vehicles and test
equipment purchased from the Gilbarco Environmental Services Division ("Gilbarco
ESD"). This write-down was based on a periodic review to determine whether there
had been any permanent decline in values of the Company's assets.

Interest Expense

     Interest expense for 1996 was $1,062,409,  or 7% of revenue, an increase of
$156,865,  or 17%, compared to $905,544 or 8% of revenue,  in 1995. The increase
in interest  expense is due to the increased debt incurred for the  Acquisition,
non-cash  interest expense related to accretion of subordinated debt of $67,641,
and   amortization   of  the   deferred   financing   costs   incurred   on  the
Acquisition-related  debt of $36,989.  These  amounts were  partially  offset by
generally  lower interest rates on the new debt compared to the Company's  prior
financing arrangements.

Extraordinary Gain

     In September 1996, the Company recorded an extraordinary  gain on the early
retirement  of debt of  $1,813,149.  The retired  debt  related to a  $2,450,000
six-year  note which was  collateralized  by assets  acquired  in the April 1994
transaction  with Gilbarco ESD. At settlement  (September  30,1996),  the note's
carrying  value  of  $2,113,149   including  accrued  interest  was  retired  in
consideration of cash payments by the Company totaling $546,000.


                                     - 14 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


Net Loss

     The Company  recorded a net loss for 1996 of $1,638,998 (10% of revenue) as
compared  to a net loss of  $2,892,639  for  1995  (25% of  revenue).  Excluding
unusual items (impairment of long-lived assets and extraordinary  gain) the 1996
loss was $2,618,826 (16% of revenue).

Liquidity and Capital Resources

     The  Company's  operational  strategy has been to establish  and maintain a
national  presence.  A  substantial  portion  of the  Company's  growth has come
through acquisitions,  beginning with the Pan American  Environmental  Services,
Inc. acquisition in 1990 and the Kaneb Metering Corporation  transaction in 1991
and continuing with the domestic ProEco  transaction in January 1993, the ProEco
international  transaction in December 1993, and the Gilbarco ESD transaction in
1994.

     On October 25, 1996 (the "Closing  Date"),  the Company acquired all of the
capital stock of three underground storage tank services  subsidiaries (the "UST
Group") from TEI, Inc. (formerly  Tanknology  Environmental  Incorporated).  The
subsidiaries acquired were Tanknology Corporation  International ("TCI"), USTMAN
Industries,  Inc.  ("USTMAN"),  and Tanknology Canada (1988), Inc.  ("Tanknology
Canada").  Immediately following the Acquisition,  the Company merged its wholly
owned  subsidiary NDE Testing and Equipment,  Inc. into TCI and changed the name
of the merged entity to Tanknology/NDE Corporation.

     The UST Group was purchased for an aggregate  purchase price of $12 million
which was paid to TEI at  closing of the  transaction.  This  purchase  price is
subject to upward  adjustment for certain taxes that may be owed to TEI relating
to  operations  of the UST Group from  August 31,  1996 to October 25, 1996 (the
Interim  Period") and interest on the $12 million purchase price for the Interim
Period at 8% per annum.  The purchase  price  adjustment  will be reduced by any
claims the Company may have as a result of its  internal  post-closing  audit of
the acquired assets.

     In connection  with the  Acquisition,  the Company  obtained a total of $19
million of financing (the "Financing')  under two separate loan agreements.  The
Financing  consisted of senior secured bank debt consisting of a three-year,  $5
million  revolving  line of credit and a  five-year,  $6 million term loan and a
five-year,  $8 million  subordinated  note.  Substantially  all of the Company's
assets were pledged as security under the loan  agreements.  Concurrent with the
Acquisition and the Financing,  a major stockholder of the Company provided a $1
million  standby  commitment  in the event of a payment  default by the  Company
under the loan  agreements,  and, in conjunction with an affiliated debt holder,
converted  $1,035,882 of existing  debt ($1 million of  principal,  plus accrued
interest) into 8 million shares of common stock. The proceeds from the Financing
were used to purchase the UST Group,  to pay off  outstanding  balances under an
existing term loan and an existing  factoring  agreement in the aggregate amount
of  $2,526,970,  for funding of Acquisition  related fees and expenses,  and for
general  working  capital.  At December  31,  1996,  the Company had  $1,113,616
available for additional borrowing under the revolving credit facility.

Senior Secured Bank Debt

     The funds  available for borrowing  under the revolving  line of credit are
based on a  formula  as  applied  to the  eligible  accounts  receivable  of the
Company.  In  conjunction  with  the  February  1997  sale of  certain  Canadian
operations (see below),  the amount available to the Company under the revolving
credit was reduced by $500,000 as a condition to obtaining  the banks  agreement
to sell the  operating  assets  of  Tanknology  Canada.  At the  closing  of the
Acquisition,  $2 million was drawn under the revolving  credit line and remained
outstanding  at December  31,  1996.  The $6 million term loan carries a rate of
prime plus 1.5%.  Principal  payments of $100,000 per month on the term loan are
due  beginning  in January  1997.  Interest is payable  monthly  under both loan
agreements.  Under both the revolving credit line and the term loan, the Company
is subject to certain restrictions and covenants.

Senior Subordinated Note

     The 13%, $8 million senior  subordinated note (the "Note") matures December
31, 2001.  Principal  payments of $500,000 per quarter  begin on March 31, 1998,
and interest is payable quarterly  beginning December 31, 1996. In consideration
for the Note,  the debt holder  also  received  warrants  with a put option (see
"Warrants" below) to purchase shares

                                     - 15 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     of the  Company's  common  stock.  The  appraised  fair market value of the
warrants at issuance  was  determined  to be $1.6  million and was recorded as a
discount to, and separately from, the  Subordinated  Note. At December 31, 1996,
the Note had a carrying value, net of unamortized discount, of $6,467,641. Under
the terms of the Note agreement,  the Company is subject to certain restrictions
and covenants.

Warrants

     As noted above,  the Company issued to its Note holder warrants to purchase
13,022,920  shares of common stock.  The warrants are  exercisable at $0.325 per
share and can be exercised  at any time from  October 24, 1996 through  December
31,  2005.  Both the number of shares and the  exercise  price may be subject to
adjustment based upon certain factors. The initial, and maximum,  exercise price
of $0.325 is subject to downward  adjustment  based on the  Company's  financial
performance  during the 12 month period immediately prior to the exercise of the
warrants.  The downward  adjustment  is limited to $0.20 per share for a minimum
exercise  price of $0.125.  These warrants are also subject to a put option (the
"Put") whereby, under certain circumstances,  the holder can require the Company
to repurchase  the warrants  (including any common shares owned as a result of a
previous warrant  exercise).  Unless,  and until, a "Qualifying Public Offering"
has occurred (defined as a sale to the public of at least $20 million of Company
stock),  the put is exercisable  after December 31, 2001, or after certain other
events such as a change in control,  certain mergers,  or uncured defaults under
the Note agreement. If the Note holder were to exercise the put, the cost to the
Company  would  be  calculated  based  upon  a  formula  and/or  an  independent
appraisal.

     Based upon an  independent  appraisal  of the  warrants  and  attached  put
option, a valuation of $1,600,000 was assigned to these instruments. The Company
is unable to determine if the holder will ever exercise the put and  accordingly
what the purchase price would be at that time.  However,  beginning in 1997, the
Company  will record an estimate of the  possible  valuation  as of December 31,
2001 (the  earliest date at which the put is  exercisable,  absent other events)
based upon  projections of future results of operations and record an expense to
accrete the  carrying  value of the warrants  with put option to such  estimated
redemption value.

Gilbarco Financing

     Two notes were issued by the Company in  connection  with the  Gilbarco ESD
acquisition.  Both were payable to Gilbarco.  The first note,  in the  principal
amount of  $400,000,  became  due on March 31,  1995 and was paid in full by the
Company.  The second note was in the principal  amount of  $2,450,000.  In March
1996, the Company obtained from Gilbarco a prepayment  incentive in exchange for
an immediate  payment of $256,000.  In September  1996, the Company  settled the
remaining  note  balance  for  $300,000.  The debt had a  carrying  value at the
prepayment  date of  $2,113,149,  including  accrued  interest.  The  settlement
resulted in an extraordinary gain of $1,813,149.

     In November 1995, in  consideration  for the assignment of certain Gilbarco
patents, the Company entered into a note to pay Gilbarco an additional $300,000.
The $300,000  note was  outstanding  at December 31, 1996,  bears  interest at a
variable rate (currently, approximately 6%), and is due in October 2000.

     The aggregate annual maturities of long-term debt and financing  agreements
at December 31, 1996 are as follows:


          1997                                           $       1,963,564
          1998                                                   3,477,713
          1999                                                   5,344,963
          2000                                                   3,635,661
          2001                                                   3,266,033
                                                                17,687,934
          Less: Discount related to subordinated notes          (1,532,359)
                                                         -----------------
                                                         $      16,155,575
                                                         =================



                                     - 16 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     In January 1995, the Company raised $500,000 from a significant shareholder
("Proactive")  in exchange for its  promissory  notes (the "1995 Bridge  Note").
These notes were to mature on April 30,  1995.  In January  1995,  this note was
extended to May 31, 1995. In June 1995, the Company completed a restructuring of
the 1995 Bridge Note and Proactive's portion of the Subordinated Debt (the "June
Refinancing").  The shareholders  agreed to exchange (I) the 1995 Bridge Note of
$500,000  plus  accrued  interest of $25,644,  (ii)  Proactive's  portion of the
Subordinated  Debt,  which was $273,038,  plus accrued  interest of $4,728,  and
(iii) cash of $500,000 for 261 newly issued shares of the  Company's  Series DDD
Preferred Stock. The Series DDD Preferred Stock was never issued. In March 1996,
instead of receiving the Series DDD Preferred Stock, the shareholders  agreed to
convert the June Refinancing directly into a total of 5,482,254 shares of Common
Stock.

     At December 31, 1996, the Company had positive  working capital of $101,162
compared with a working  capital deficit of $1,818,766 at December 31, 1995. The
decrease in the deficit is due to the previously discussed Financing.  Cash used
in  operating  activities  during  1995  was  $1,181,393  and cash  provided  by
operating activities in 1996 was $868,023.

     Prior  to the  Acquisition,  the  Company  incurred  operating  losses  and
negative  cash flows from  operations  and relied  primarily  on it's  principal
shareholders for financing.  To a lesser extent,  the Company had relied on bank
financing, lease financing,  vendor financing, and seller financing with respect
to acquisitions.  The Company has  historically  utilized cash proceeds from the
issuance of debt and equity  securities  to satisfy its cash  requirements  from
operations.  The Company  believes that the Financing,  completed in conjunction
with the purchase of the UST group as  described  above,  the proceeds  from the
disposition  of the business and  operations  of  Tanknology  Canada,  discussed
below,  and cash flows generated from operations will provide it with sufficient
borrowing  capacity and funds to meet the Company's  normal capital  expenditure
requirements,  operational needs, and debt service  requirements for the next 12
months. This is a forward-looking statement, and the Company's actual cash flows
from operations and capital  requirements may differ from  management's  current
expectation  due to risk factors that may affect the  Company's  ability to fund
capital expenditure requirements, operations, and debt service.

     In  February  1997,  the  Company  sold  the  business  and  operations  of
Tanknology  Canada which it acquired as part of the Acquisition.  As part of the
transaction,  the Company sold certain patent, software, and trademark rights as
well as the fixed assets  associated with the operation of the Canadian business
and entered into a series of royalty generating license agreements.  Payments of
$1,200,000  were paid at closing.  $1,150,000 of the proceeds were  allocated to
the sale of the patent,  software and trademark rights and $50,000 was allocated
to the sale of the fixed  assets.  The net proceeds from these sales will reduce
the basis of the  acquired  assets  and will  have no  impact  to the  Company's
results of  operations  in 1997.  These funds will be used for  general  working
capital purposes.


ITEM 7.           FINANCIAL STATEMENTS

     The  following  Consolidated  Financial  Statements  of  NDE  Environmental
Corporation and Subsidiaries are attached hereto.

                                                                           Page
                                                                           ----
     Report of Independent Auditors.........................................F-2
     Consolidated Balance Sheets - December 31, 1996 and 1995...............F-3
     Consolidated Statements of Operations - Years Ended
          December 31, 1996 and 1995........................................F-4
     Consolidated Statements of Stockholders' Deficit -
          Years Ended December 31, 1996 and 1995............................F-5
     Consolidated Statements of Cash Flows - Years Ended
          December 31, 1996 and 1995........................................F-7
     Notes to Consolidated Financial Statements.............................F-8


ITEM 8.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                 FINANCIAL DISCLOSURE

     None.




                                     - 17 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


PART III


ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers and Directors

     The following table sets forth certain information  regarding the Company's
executive officers and directors.


Officer and/or Director  Positions                                           Age
-----------------------  --------------------------------------------------  ---
Jay Allen Chaffee        Chairman of the Board, Director, Officer             45
A. Daniel Sharplin       President, Chief Executive Officer, Director         35
David G. Osowski         Vice President, Secretary, Chief Financial Officer   44
H. Baxter Nairon         President, Tanknology/NDE subsidiary                 37
Charles G. McGettigan    Director                                             52
Michael S. Taylor        Director                                             55
Myron A. Wick, III       Director                                             54
Mark B. Bober            Director                                             36


     Jay Allen Chaffee was elected to the Company's  Board of Directors in April
1991 and has been the Chairman  since  November 1994. He served as the Company's
President,  Chief Executive  Officer and Chief  Financial  Officer from May 1991
until June 1995.  Mr.  Chaffee has served as President  and a director of Bunker
Hill Associates,  Inc.  ("Bunker Hill") since 1985, and he continues to serve in
these capacities.

     A. Daniel  Sharplin joined the Company's Board of Directors in June of 1995
and has been the  Company's  President  and Chief  Executive  Officer since June
1995. He became the Company's Vice President,  Western Region, in December 1991,
was appointed the Company's Chief  Operating  Officer and Secretary in July 1992
and in November 1994 was appointed President.  Prior to joining the Company, Mr.
Sharplin  functioned as an environmental  service industry consultant from April
1991 to December 1991.  Mr.  Sharplin  received a M.B.A.  from the University of
Texas in 1987.

     H. Baxter Nairon was named President,  Field Services in April 1996, and is
the President of the Tanknology/NDE subsidiary.  Prior to joining NDE, from 1989
to 1996, Mr. Nairon was employed by Booz- Allen & Hamilton,  a global management
consulting  firm,  where he achieved the position of Principal,  specializing in
engagements for large oil companies. He has received a Professional  Engineering
registration,  and is 37 years  old.  He holds a Bachelor  of Science  degree in
Mechanical  Engineering  from the  University of Tennessee at  Knoxville,  and a
M.B.A. from the University of Texas.

     David G. Osowski was named Vice  President,  Secretary and Chief  Financial
Officer in December  1996.  Prior to joining NDE, from May 1991 until July 1996,
Mr.  Osowski  served as Senior Vice  President,  Controller  and  Treasurer  for
Summagraphics  Corporation.  Mr.  Osowski  received a Bachelor of Science degree
from the University of Bridgeport.

     Charles G.  McGettigan  was a founding  partner and is  currently a general
partner of Proactive Investment Managers,  L.P., which is the general partner of
Proactive Partners,  L.P. Mr. McGettigan was a co-founder of McGettigan,  Wick &
Co.,  Inc.,  an investment  banking  firm, in 1988.  From 1984 to 1988, he was a
Principal, Corporate Finance, of Hambrecht & Quist, Incorporated. Prior to that,
Mr.  McGettigan  was a Senior  Vice  President  of Dillon,  Read & Co.  Inc.  He
currently  serves on the Boards of Directors of Modtech,  Inc.;  Onsite  Energy,
Inc.; PMR Corporation;  and Sonex Research, Inc. Mr. McGettigan is a graduate of
Georgetown  University,  and he  received  his MBA in Finance  from the  Wharton
School at the University of Pennsylvania.


                                     - 18 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     Michael S. Taylor has been a director of the  Company  since July 1992.  He
has been Associate Director of Investment Banking of Josephthal since June 1989.
From early 1980 until  joining  Josephthal,  he was President of Mostel & Taylor
Securities,  Inc., an NASD-member  investment banking and brokerage firm. He has
been  involved in the  securities  industry  since 1966,  when he joined  Lehman
Brothers as an analyst. He became a director of Simtek Corporation this year. He
attended  Amherst College and Columbia  University.  In 1991, the Securities and
Exchange  Commission  entered an administrative  order finding that, in 1988 and
1989,  Mr.  Taylor aided Mostel & Taylor  Securities,  Inc. in  connection  with
certain violations of the net capital requirements for securities broker-dealers
imposed  by the  Securities  Exchange  Act  of  1934,  and  suspended  him  from
associating  with  a  broker  dealer  in  any  capacity  for  90  days  and in a
proprietary or supervisory capacity for two years, at which time he may apply to
remove the suspension.  Mr. Taylor  consented to the order without  admitting or
denying its findings.

     Myron A. Wick,  III has been a director of the Company since November 1991.
Since  November 1988, he has been Managing  Director of McGettigan,  Wick & Co.,
Inc., an investment banking firm in San Francisco which he co-founded. Since May
1991,  Mr. Wick has been a general  partner of  Proactive  Investment  Managers,
L.P.,  which is the  general  partner  of  Proactive,  a merchant  banking  fund
investing in and providing  financial  services to small public companies.  From
September 1985 to May 1988, Mr. Wick was Chief  Operating  Officer of California
Biotechnology,  Inc.,  a  publicly  traded  biotechnology  firm.  Mr.  Wick is a
director  of  Phoenix  Network,  Inc.;  Sonex  Research,;   Inc.  and  Stat-Tech
International Corporation. Mr. Wick received a B.A. from Yale University in 1965
and an M.B.A. from Harvard University in 1968.

     Mark B. Bober has been a director of the Company since December 1996. He is
a partner in Bober, Markey & Company,  Certified Public Accountants,  a position
he has held  since  August  1992.  From 1983  until  1992 he held  positions  of
progressive  responsibility with Price Waterhouse,  Cleveland. Mr. Bober holds a
Bachelor of Science  degree  from Miami  University  and is a  Certified  Public
Accountant, State of Ohio.

Section 16(a) Beneficial Ownership Reporting Compliance

     The  Securities  Exchange Act of 1934 requires the Company's  directors and
officers  and persons who own more than 10% of the Common Stock to file with the
Securities and Exchange Commission (the "SEC"), initial reports of ownership and
reports of changes in ownership of Common Stock and other equity  securities  of
the Company. The Company believes that, during the 1996 fiscal year, the filings
required of its officers,  directors or greater than 10% beneficial  owners have
not been timely filed.


ITEM 10.          EXECUTIVE COMPENSATION

     The following  table sets forth all  compensation  awarded to, earned by or
paid to the most highly  compensated  executive  officers  of the  Company  (the
"Named Executive Officers"),  for all services rendered in all capacities to the
Company and its subsidiaries during 1994, 1995 and 1996. No other person who was
an executive  officer of the Company at the end of 1996 was  awarded,  earned or
received annual salary and bonus in excess of $100,000.


                                     - 19 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)

<TABLE>
                                              Summary Compensation Table
<CAPTION>
                                                                     Long Term
                                     Annual Compensation            Compensation
                          ----------------------------------------  -------------
                                                                       Awards
                                                                    -------------
Name and                                                               Shares
Principal Position                                                   Underlying      All Other
                             Year       Salary          Bonus         Options       Compensation
------------------------   -------  --------------  --------------  -------------  --------------
<S>                        <C>      <C>             <C>             <C>            <C>    

Jay Allen Chaffee            1996   $    90,000(1)  $   150,000(1)
Chairman of the Board        1995   $   113,671     $    19,969(1)     440,000(1)
of Directors                 1994   $   114,000

A. Daniel Sharplin           1996   $   154,526(2)  $    75,000(2)                 $    4,526(7)
President and Chief          1995   $   136,779     $    39,969(2)     640,000(5)
Executive Officer            1994   $   117,885

A. Baxter Nairon             1996   $    95,537     $    45,000(3)     384,000(6)
President, Tanknology/        n/a
NDE and Field Services        n/a
Division

<FN>
     (1) In 1993, the Company  awarded a bonus of $19,969 to Mr.  Chaffee;  this
amount was paid in installments in 1995 with the last installment  being paid in
January 1996. In July 1995 the Company amended the Senior Executive Compensation
Plan,  and  revised  the  annual  sum  paid to  Bunker  Hill  for Mr.  Chaffee's
management  services as an Officer of the Company to $90,000 from  $125,000 (see
Item 12.). In 1996 the  Compensation  Committee  awarded Mr. Chaffee a bonus for
1996 of $150,000 which has not yet been paid.

     (2) In 1993,  the Company  accrued a $19,969 bonus for Mr.  Sharplin;  this
amount was paid in 1995. Also in 1995, the Compensation  Committee awarded him a
$20,000 bonus which was paid in 1997. Mr. Sharplin's 1996 bonus award of $75,000
has not yet been paid.

     (3) Mr.  Nairon  joined the Company in 1996 and received a $10,000 bonus as
an  inducement  to join the  Company.  He was also  granted a salary  advance of
$10,000 as of his hire date.  In 1996 the  Compensation  Committee  awarded  Mr.
Nairon a 1996 bonus of $35,000  which was paid in 1997.  Mr.  Nairon  repaid the
salary advance out of proceeds from the bonus payment.

     (4) On June 22, 1995 Mr. Chaffee was awarded an option to purchase  440,000
shares of Common  stock at $0.125 per share which will expire in June 2005.  The
option vests  one-third each year from date of grant starting June 22, 1995. The
option was granted in 1995,  subject to approval by  shareholders of an increase
in the  number  of  shares  available  for grant to  management  under  options.
Shareholders approved an increase in the number of shares available for grant in
1996 to 2,500,000.  In addition, in 1996 certain previously granted options were
repriced (see "Report on Repricing of Options", below).

     (5) On June 22, 1995 Mr. Sharplin was awarded an option to purchase 640,000
shares of Common  stock at $0.125 per share which will expire in June 2005.  The
option vests  one-third each year from date of grant starting June 22, 1995. The
option was granted in 1995,  subject to approval by  shareholders of an increase
in the  number  of  shares  available  for grant to  management  under  options.
Shareholders approved an increase in the number of shares available for grant in
1996 to 2,500,000.  In addition, in 1996 certain previously granted options were
repriced (see "Report on Repricing of Options", below).

     (6) In March 1996, the Board granted an option to purchase 384,000 share of
Common stock to Mr.  Nairon at $0.1875,  the market price of NDE common stock on
Mr.  Nairon's hire date.  The option vests ratably one- third each year starting
at his date of hire. The option was granted in 1995, subject to approval by

                                     - 20 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


shareholders  of an  increase  in the  number of shares  available  for grant to
management  under  options.  Shareholders  approved an increase in the number of
shares available for grant in 1996 to 2,500,000.

     (7)  Consists  of  matching  funds for the  Company  401k Plan  relating to
Company contributions for 1992, 1993 and 1994 which were made in 1996.
</FN>
</TABLE>

Option Grants in Last Fiscal Year

     The  following  table sets  forth  options  granted to the Named  Executive
Officers during the year ended December 31, 1996.

<TABLE>
<CAPTION>
                          Number of
                           Shares
                         Underlying        Percent of Options         Exercise
                           Options       Granted to Employees in      Price per
                           Granted             Fiscal Year              Share           Expiration Date
<S>                     <C>            <C>                          <C>               <C>   
                        -------------  ---------------------------  -------------     --------------------
Name
------------------------
Jay Allen Chaffee             -                     -                     -                  -
A. Daniel Sharplin            -                     -                     -                  -
H. Baxter Nairon           384,000                 33%                 $0.1875   (1)    April 2006   (1)

<FN>
--------------
(1)  See Note (6) to the immediately preceding table.
</FN>
</TABLE>

 Fiscal Year End Options Values

     The  following  table  sets  forth  the  option  holdings  and the value of
unexercised  options  held by each Named  Executive  Officer as of December  31,
1996. None of the Named Executive Officers exercised options during 1996.

<TABLE>
<CAPTION>

                                Numbers of Shares Underlying                   Value of Unexercised
                                    Unexercised Options                        in-the-Money Options
                                    at December 31, 1996                       at December 31, 1996
                            ------------------------------------      --------------------------------------
         Name                  Exercisable      Unexercisable            Exercisable      Unexercisable
-----------------------
<S>                             <C>                <C>                    <C>                <C>       
Jay Allen Chaffee               196,666            293,334                $55,312            $82,500(1)
A. Daniel Sharplin              263,334            426,666                $74,063           $120,000(1)
H. Baxter Nairon                      0            384,000                     $0            $84,000(2)
<FN>
     (1) Represents (i) the difference  ($0.28125) between the exercise price of
the options  ($0.125)  and the per share fair market  value on December 31, 1996
($0.40625) times (ii) the number of shares subject to the options.

     (2) None of Mr. Nairon's  options vest until April 15, 1997, one year after
his date of hire.  Represents (i) the difference ($0.21875) between the exercise
price of the options  ($0.1875)  and the per share fair market value on December
31, 1996 ($0.40625) times (ii) the number of shares subject to the options.
</FN>
</TABLE>

Employment Agreements

     Four executives of the Company (Messrs. Chaffee, Sharplin, Nairon, Osowski)
are subject to a change of control protection provision, which was instituted by
the Board in order to maintain a high-caliber  officer  group.  The provision is
effective for the period July 1, 1993 through June 30, 1997,  and  provides,  in
case of a change of control,  (1) the immediate vesting of all options allocated
to each officer in the 1989 stock option plan,  and (2) a payment in cash of two
times the annual  base  salary of any  designated  officer  who is not offered a
position  comparable  in pay and  authority  with the  surviving  entity (NDE or
acquirer), or (3) a payment in cash equal to the annual base salary if the

                                     - 21 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


designated  officer is offered a position  comparable in pay and authority  with
the surviving  entity.  Change in control is defined as (1) an  acquisition by a
party  owning  less  than 25% of NDE as of July 1,  1993,  giving  effect to all
convertible securities (warrants and options are not convertible securities), of
greater than 30% of the common  shares;  or (2) a change in one year of over 50%
of the  members of the Board of  Directors  other  than in the normal  course of
business or pursuant to the rights under preferred share certificates.

Report on Repricing of Options

     In 1996 the  Compensation  Committee of the Board of  Directors  determined
that in connection with the granting of executive options in 1995, that it would
be in the best  interests  of  shareholders  and the Company to reprice  certain
management  options  that had been  granted  in 1993 to a current  market  price
rather than issue  additional  new options.  The Committee  believed that at the
existing exercise prices,  the options were not providing the proper performance
incentive to management. Accordingly, the Committee repriced 50,000 options that
had been  previously  granted to each  Messrs.  Chaffee and  Sharplin as well as
20,000 for Mr.  Eric  Hopkins  the former  Vice  President  and Chief  Financial
Officer of the Company to $0.125, the then market price of the Common Stock. All
of the  aforementioned  options  previously had exercise prices of $3.75. All of
these options remain fully vested following the repricing.

Compensation of Directors

     The  Company  has agreed to pay or  reimburse  the travel  expenses  of its
directors   resulting  from  attendance  at  Board   meetings.   No  other  cash
compensation  was paid to, or on behalf of, board members,  in  consideration of
their services  provided as directors in 1996.  However,  certain directors were
provided compensation for other services provided to the Company (see Item 12 of
this Annual Report on Form 10- KSB/A). Beginning in 1997, the Board of Directors
agreed to pay Mr. Bober a per meeting fee of $2,250 and to reimburse  his travel
expenses.

     In 1992,  the  Company  granted  to each of its then  outside  directors  (
including Michael Taylor and Myron A. Wick), options to purchase 4,000 shares of
Common Stock.  These options were granted at exercise prices equal to the market
prices on the grant dates ($7.50 for options granted to Mr. Wick, $12.50 for the
options  granted to Mr. Taylor.  In March 1996,  the Company  canceled the prior
options  issued to Messrs.  Taylor and Wick and granted  40,000  options with an
exercise price of $0.125 to each non-management director (Messrs.  Taylor, Wick,
and McGettigan). In December 1996, the Board granted Mr. Bober 40,000 options to
purchase Common Stock at an exercise price of $0.40625.

     There was no other  director  compensation  paid during 1996 or 1995 to the
non-management directors.


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

     The following  table sets forth certain  information  as to the  beneficial
ownership of the  Company's  capital  stock,  as of April 2, 1997,  by: (a) each
stockholder known by the Company to be the beneficial owner of more than 5% of a
class of  voting  stock,  (b) each  director,  (c) each of the  Named  Executive
Officers of the Company named in the Summary  Compensation  Table below, and (d)
all executive officers and directors as a group.


                                     - 22 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


                               Beneficial Ownership of Common Stock (1)

<TABLE>
<CAPTION>

                                                         Number of          Percentage of
Beneficial Owner                                          Shares               Class
----------------------------------------------------- ----------------   -----------------
<S>                                                         <C>                 <C>  
Proactive Partners, L.P.(2) (3) (4) (5)                     14,349,233          47.80
50 Osgood Place, Penthouse
San Francisco, CA  94153

Lagunitas Partners, L.P.(2) (3) (4) (5)                     14,319,556          47.71
50 Osgood Place, Penthouse
San Francisco, CA  94153

Banc One Capital Partners                                   13,022,920          43.39
150 East Gay Street
Columbus, OH 43215

Myron A. Wick, III (4) (5)                                  10,614,595          35.36
c/o Proactive Partners
50 Osgood Place, Penthouse
San Francisco, CA  94133

Charles C. McGettigan (4) (5)                               10,614,595          35.36
c/o Proactive Partners
50 Osgood Place, Penthouse
San Francisco, CA  94133

A. Daniel Sharplin (6)                                       1,016,959           3.39

Jay Allen Chaffee (7)                                          410,483           1.37

H. Baxter Nairon (8)                                           128,000           *

Mark B. Bober (9)                                                   --           *

Michael S. Taylor (10)                                          17,333           *

All executive officers and directors as a group (8          15,922,008          53.04
persons)

(*)  Less than 1% of the outstanding Common Stock

<FN>
     (1) For the purposes of the above table and the following notes, the shares
of Common Stock shown as "beneficially owned" include all shares of Common Stock
that the  "beneficial  owner" has the right to  acquire  within 60 days upon the
conversions of other securities, upon the exercise of warrants, or otherwise. In
calculating  the total number of shares of Common Stock deemed to be outstanding
for the purposes of reflecting the beneficial  owner's  percentage of the class,
the  shares  that  other  owners  did not then own but had the right to  acquire
within 60 days or more are not included.

     (2) Includes  10,267,378  outstanding shares of Common Stock. Also includes
(i) 175,000,  105,874 and 50,000 shares  reserved for issuance upon the exercise
of warrants at prices of $0.375, $0.15, and $0.125 respectively;  (ii) 3,721,304
shares  beneficially owned by Lagunitas and referred to in note (3) below; (iii)
the 13,333  shares  beneficially  owned by Mr. Wick and  referred to in note (4)
below, (iv) the 13,333 shares  beneficially owned by Mr. McGettigan and referred
to in note (5)  below,  (v) and  3,010  shares  issuable  upon the  exercise  of
warrants at a price of $0.15 issued to  McGettigan,  Wick & Co.,  Inc.  (for the
benefit of Proactive Investment  Managers,  L.P.). Mr. Wick is a general partner
of McGettigan,  Wick & Co., Inc. and of Proactive's  general partner,  Proactive
Investment Managers, L.P. See also note (7) below.


                                     - 23 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


     (3) Includes  3,694,390  outstanding  shares of Common Stock. Also includes
(i) 26,914  shares of Common Stock  issuable  upon the exercise of warrants at a
price of $0.15  per  share  and (ii)  10,598,252  shares  beneficially  owned by
Proactive and referred to in note (2) above.

     Two of the general partners of Lagunitas Partners, L.P. ("Lagunitas"),  Jon
D. Gruber and J.  Patterson  McBaine,  are also general  partners of the general
partner of Proactive.  Accordingly, Mr. Gruber and Mr. McBaine could be regarded
as sharing  the power to vote and dispose of all the  securities  referred to in
this note (3) and in note (2) above, as well as the other securities referred to
in the table as beneficially owned by Proactive or Lagunitas.

     (4) Includes (i) 13,333  shares of Common Stock  issuable upon the exercise
of stock options  granted to Mr. Wick under the Company's 1989 Stock Option Plan
and (ii) the shares  beneficially owned by Proactive and referred to in note (2)
above  (10,598,252).  Mr. Wick is a general  partner of the  general  partner of
Proactive.  Also includes 3,010 shares beneficially owned by McGettigan,  Wick &
Co.  (Mr.  Wick is a general  partner  of  McGettigan,  Wick & Co.) but does not
include  an  additional  26,667  shares  subject  to  options  that  are not yet
exercisable. Also does not include 184,410 shares owned by the NDE Environmental
Corporation 401K plan of which Mr. Wick is a Trustee.

     (5) Includes (i) 13,333  shares of Common Stock  issuable upon the exercise
of stock options granted to Mr. McGettigan under the Company's 1989 Stock Option
Plan and (ii) the shares beneficially owned by Proactive and referred to in note
(2) above  (10,598,252).  Mr.  McGettigan  is a general  partner of the  general
partner of  Proactive.  Also  includes  (c) 3,010 shares  beneficially  owned by
McGettigan,  Wick & Co. (Mr. McGettigan is a general partner of McGettigan, Wick
& Co.) but does not include an additional  26,667 shares subject to options that
are not yet exercisable.

     (6) Includes  513,932  outstanding  shares of Common  Stock.  Also includes
26,360  shares  reserved for issuance upon the exercise of warrants at prices of
$7.50.  Also includes 476,667 shares reserved for issuance to Mr. Sharplin under
the Company's 1989 Stock Option Plan but does not include an additional  213,333
shares  subject to options that are not yet  exercisable.  Also does not include
184,410 shares owned by the NDE Environmental Corporation 401K plan of which Mr.
Sharplin is a Trustee.

     (7) Includes 67,150  outstanding  shares of Common Stock.  These shares are
held in the name of Bunker  Hill,  an affiliate of Mr.  Chaffee.  Also  includes
343,333 shares subject to exercisable  options  granted to Bunker Hill under the
Company's 1989 Stock Option Plan but does not include  146,667 shares subject to
options that are not yet exercisable. Also does not include 184,410 shares owned
by the NDE  Environmental  Corporation  401K  plan of  which  Mr.  Chaffee  is a
Trustee.

     (8)  Consists  of 128,000  shares  issuable  upon the  exercise  of options
granted to Mr.  Nairon under the  Company's  1989 Stock Option Plan but does not
include 256,000 shares subject to options that are not yet unexercisable.

     (9) Does not include 40,000 shares subject to options  granted to Mr. Bober
under the Company's 1989 Stock Option Plan that are not yet unexercisable.

     (10) Includes  13,333 shares  issuable upon the exercise of options granted
to Mr.  Taylor under the  Company's  1989 Stock Option Plan but does not include
26,667 shares subject to options that are not yet  unexercisable.  Also includes
4,000  shares  outstanding  held by Mr.  Taylor's  wife.  Mr.  Taylor  disclaims
beneficial ownership of his wife's shares.
</FN>
</TABLE>



                                     - 24 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During  the last  fiscal  year,  the  following  transactions  in excess of
$60,000 were entered into with related  parties:  Bank One Capital  Partners,  a
lender to and warrant  holder of the  Company,  purchased  $8,000,000  in senior
subordinated  debt,  earned  $170,000 in fees related to the debt purchase,  and
were reimbursed $21,930 for due diligence and travel costs. Proactive Investment
Managers,  L.P., a major shareholder of the Company,  converted $825,000 of debt
and $28,103 of accrued  interest into 6,600,000  shares common stock.  Lagunitas
Partners,  L.P., a major shareholder of the Company,  converted $175,000 of debt
and $7,779 of accrued  interest into  1,400,000  shares common stock.  Jay Allen
Chaffee,  Chariman of the Board of  Directors,  is the  president of Bunker Hill
Associates.  During 1996,  the Company paid $318,775 to Bunker Hill for services
and expenses as described below.

     In connection with the Acquisition, the Company placed $8 million of senior
subordinated debt with a 5-year maturity and interest at 13% per annum with Banc
One  Capital  Partners  L.P.  ("BOCP").  BOCP also  purchased  from the  Company
13,022,920  warrants each to purchase one share of the Company's common stock at
an initial  exercise price of $0.325 per warrant subject to downward  adjustment
(but not  less  than  $0.125  per  warrant)  based  on the  company's  financial
performance during the 12 month period prior to the exercise of the warrants. In
connection with the Acquisition and related financings, Proactive Partners, L.P.
of San Francisco,  California,  provided a $1 million standby  commitment in the
event of a payment default by the Company under both the BOCP  subordinated debt
and, together with its affiliate Lagunitas L.P., agreed to convert $1 million of
prior indebtedness,  and $35,882 of associated accrued interest,  into 8,000,000
shares of the Company's common stock.

     In 1991,  the  Company  entered  into a service  contract  with Bunker Hill
Associates,  Inc.  ("Bunker  Hill") to retain the services of Mr.  Chaffee.  Mr.
Chaffee is a principal of Bunker Hill,  a  management  consulting  firm based in
Houston,  Texas.  Pursuant to the contract,  Mr. Chaffee has agreed to serve the
Company in various  capacities as an officer and director.  Effective July 1995,
the Company agreed to pay for such services at the rate of $7,500 per month with
additional stock and cash bonus consideration. The contract can be terminated by
either party with one month's  notice.  In 1996,  Bunker Hill,  on behalf of Mr.
Chaffee,  received $90,000 in consideration of Mr. Chaffee's management services
as an officer of the Company.  In addition,  $78,775 was remitted to Bunker Hill
Associates for secretarial support and reimbursement of travel and out-of-pocket
expenses related to Mr. Chaffee's services.


ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

            (a)  The following exhibits are filed herewith or incorporated
                 herein by reference:
<TABLE>
<CAPTION>
<S>         <C>     <C>                                                                   <C>
            (1)     1996 Financial Statements, Contents...................................F-1

                    Report of Independent Auditors........................................F-2

                    Consolidated Balance Sheets as of December 31, 1996 and 1995..........F-3

                    Consolidated Statements of Operations for the years ended
                    December 31, 1996 and 1995............................................F-4

                    Consolidated Statements of Stockholders' Deficit for the years ended
                    December 31, 1996 and 1995............................................F-5

                    Consolidated Statements of Cash Flows for the years ended
                    December 31, 1996 and 1995............................................F-7

                    Notes to Consolidated Financial Statements............................F-8
</TABLE>


                                     - 25 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


            (2)     Index to Financial Statement Schedules:

                         All   information   required  in  Financial   Statement
                    Schedules  for  which  provision  is made in the  applicable
                    accounting regulations of the Commission (i) are included in
                    the  notes  to the  financial  statements  included  in this
                    report  or  (ii)  are  not   required   under  the   related
                    instruction or are inapplicable  and,  therefore,  have been
                    omitted.

            (3)     Exhibits:


                    No.        Exhibit
                    -------    -------------------------------------------------

                    3.01       Amended and Restated Certificate of Incorporation
                               of the Registrant, as amended May 22, 1996

                    3.02       Bylaws  of  the   Registrant,   as  adopted
                               November  29,  1988  and  amended  July 10,
                               1990.   (Incorporated   by  reference  from
                               Exhibit  3.06 of Form 10-KSB for the fiscal
                               year ended December 31, 1991.)

                    10.01      Stock Purchase Agreement, dated as of December 
                               11, 1993, among the Registrant, Jim R. Clare and 
                               Donald Valverde.  (Incorporated by reference 
                               from Exhibit 10.76 of Form 10-KSB for the fiscal 
                               year ended December 31, 1993.)

                    10.02      Secured Promissory Note, dated April 11, 1994, 
                               issued by the Registrant to Gilbarco Inc. in the 
                               principal amount of $2,450,000 (Incorporated by 
                               reference from Exhibit 10.83 of Form 10-KSB for
                               the fiscal year ended December 31, 1993.)

                    10.03      Security  Agreement,  dated as of April 11,
                               1994,  between the  Registrant and Gilbarco
                               Inc.   securing   payment  of  the  Secured
                               Promissory     Note    (Exhibit     10.02).
                               (Incorporated  by  reference  from  Exhibit
                               10.84 of Form  10-KSB for the  fiscal  year
                               ended December 31, 1993.)

                    10.04      Patent License Agreement, dated as of April
                               11,  1994,   between  the   Registrant  and
                               Gilbarco  Inc.  (Incorporated  by reference
                               from  Exhibit  10.86 of Form 10-KSB for the
                               fiscal year ended December 31, 1993.)

                    10.05      Third   Amendment   to  NDE   Environmental
                               Corporation's  Secured  Notes,  Dated as of
                               March 31, 1995,  between the Registrant and
                               Proactive   Partners;    Spears,    Benzak,
                               Salomon,  &  Farrell;   Dan  Purjes;  Peter
                               Sheib;  Lawrence  Rice;  and  Joan  Taylor.
                               (Incorporated  by  reference  from  Exhibit
                               10.88 of Form  10-KSB for the  fiscal  year
                               ended December 31, 1994.)

                    10.06      Second Amendment to NDE Environmental 
                               Corporation's Subordinated Note, dated as of  
                               March 31, 1995, between the Registrant and 
                               Spears, Benzak, Salomon, and Farrell.  
                               (Incorporated by reference from Exhibit 10.89 of 
                               Form 10-KSB for the fiscal year ended December 
                               31, 1994.)

                    10.07      First Amendment to NDE Environmental 
                               Corporation's Subordinated Secured Promissory 
                               Note, dated as of  February 28, 1995, between the
                               Registrant and Gilbarco, Inc. (Incorporated by 
                               reference from Exhibit 10.90 of Form 10-KSB for 
                               the fiscal year ended December 31, 1994.)

                    10.08      Promissory note, dated as of January 17, 1995, 
                               between the Registrant and Proactive Partners, 
                               L.P.  (Incorporated by reference from Exhibit 
                               10.94 of Form 10-KSB for the fiscal year ended 
                               December 31, 1994.)


                                     - 26 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


                    No.        Exhibit
                    -------    -------------------------------------------------
                   
                    10.09      First Amendment of  The Promissory Note dated 
                               January 17, 1995, Amendment dated April 30, 1995,
                               between the registrant and Partners L. P.  
                               (Incorporated by reference from Exhibit 10.96 of 
                               Form 10-QSB for the quarterly period ended March
                               31, 1995.)

                    10.10      First Amendment of the Financing Agreement 
                               between the registrant and Silicon Valley 
                               Financial Services, dated June 20, 1995.  
                               (Incorporated by reference from Exhibit 10.97 of 
                               Form 10-QSB for the quarterly period ended June 
                               30, 1995.)

                    10.11      Notice of Conversion  regarding  Series AAA
                               Preferred  Stock between the registrant and
                               Proactive   Partners,    L.P.;    Lagunitas
                               Partners  L.P.;  and  A.  Daniel  Sharplin,
                               dated as of April 17,  1995.  (Incorporated
                               by reference from Exhibit 10.98 of Form 10-
                               QSB for the quarterly period ended June 30,
                               1995.)

                    10.12      Notice of Conversion  regarding  Series BBB
                               Preferred  Stock between the registrant and
                               Proactive   Partners,    L.P.;    Lagunitas
                               Partners,  L.P.;  and A.  Daniel  Sharplin,
                               dated as of April 17,  1995.  (Incorporated
                               by reference from Exhibit 10.99 of Form 10-
                               QSB for  quarterly  period  ended  June 30,
                               1995.)

                    10.13      Notice of Conversion regarding Series CCC 
                               Preferred Stock between the registrant and 
                               Proactive Partners, L.P.; Lagunitas Partners, 
                               L.P.; and A. Daniel Sharplin, dated as of April 
                               17, 1995. (Incorporated by reference from Exhibit
                               10.100 of Form 10- QSB for the quarterly period 
                               ended June 30, 1995.)

                    10.14      Promissory Note, dated as of November 6, 1995, 
                               between the Registrant and Gilbarco, Inc.
                               (Incorporated by reference from Exhibit 10.102 of
                               Form 10-KSB for the fiscal year ended December 
                               31, 1995.)

                    10.15      Promissory Note, dated as of , February 13, 1996,
                               between the Registrant and Proactive Partners,  
                               L. P.  (Incorporated by reference from Exhibit 
                               10.103 of Form 10-KSB for the fiscal year ended 
                               December 31, 1995.)

                    10.16      Promissory Note, dated as of , February 13, 1996,
                               between the Registrant and Lagunitas Partners, 
                               L. P.  (Incorporated by reference from Exhibit 
                               10.104 of Form 10-KSB for the fiscal year ended 
                               December 31, 1995.)

                    10.17      Second Amendment to NDE Environmental 
                               Corporation's Secured Promissory Note, dated as 
                               of March 22, 1996, between Registrant and 
                               Gilbarco, Inc.  (Incorporated by reference from 
                               Exhibit 10.105 of Form 10-KSB for the fiscal year
                               ended December 31, 1995.)

                    10.18      Settlement Agreement dated as of November 30, 
                               1995 between the Registrant and Protank, Inc.  
                               (Incorporated by reference from Exhibit 10.106 of
                               Form 10-KSB for the fiscal year ended December 
                               31, 1995.)

                    10.19      1996 Funding Agreement, dated as of, March 27, 
                               1996, between the Registrant, Proactive Partners 
                               and Lagunitas Partners, L. P.  (Incorporated by 
                               reference from Exhibit 10.107 of Form 10-KSB for 
                               the fiscal year ended December 31, 1995.)

                    10.20      1996 Additional Funding Agreement, dated as
                               of March 15, 1996,  between the  Registrant
                               and Proactive Partners,  L.P. (Incorporated
                               by reference  from  Exhibit  10.108 of Form
                               10-QSB for the quarterly  period ended June
                               30, 1996.)


                                     - 27 -

<PAGE>

                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


                    No.        Exhibit
                    -------    -------------------------------------------------
                   
                    10.21      1996 Second Additional  Funding  Agreement,
                               dated  as of June  13,  1996,  between  the
                               Registrant  and  Proactive  Partners,  L.P.
                               (Incorporated  by  reference  from  Exhibit
                               10.109  of Form  10-QSB  for the  quarterly
                               period ended June 30, 1996.)

                    10.22      Revised   Agreement  to  NDE  Environmental
                               Corporation's   Secured   Promissory  Note,
                               between the Registrant and Gilbarco,  Inc.,
                               dated   as   of    September    15,   1996.
                               (Incorporated  by  reference  from  Exhibit
                               10.1  of  Form  10-QSB  for  the  quarterly
                               period ended September 30, 1996.)

                    10.23      Stock Purchase Agreement between NDE 
                               Environmental Corporation and Tanknology 
                               Environmental, Inc.  Dated as of October 7, 1996.
                               (Incorporated by reference from Exhibit 2.1 of 
                               Form 8-K dated October 25, 1996.)

                    10.24      First Amendment to Stock Purchase Agreement 
                               between NDE Environmental Corporation and 
                               Tanknology Environmental, Inc. dated as of 
                               October 25, 1996. (Incorporated by reference from
                               Exhibit 2.2 of Form 8-K dated October 25, 1996.)

                    10.25      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.   (Incorporated   by  reference   from
                               Exhibit 10.1 of Form 8-K dated  October 25,
                               1996.)

                    10.26      Revolving  Note  dated  October  25,  1996,
                               issued  pursuant  to  the  Loan  Agreement.
                               (Incorporated  by  reference  from  Exhibit
                               10.1a of Form 8-K dated October 25, 1996.)

                    10.27      Term Note dated  October  25,  1996  issued
                               pursuant    to    the    Loan    Agreement.
                               (Incorporated  by  reference  from  Exhibit
                               10.1b of Form 8-K dated October 25, 1996.)

                    10.28      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.
                               (Incorporated  by  reference  from  Exhibit
                               10.2 of Form 8-K dated October 25, 1996.)

                    10.29      Senior Subordinated Note due December 31, 2001, 
                               dated October 25, 1996 issued pursuant to the 
                               Note and Warrant Agreement.  (Incorporated by 
                               reference from Exhibit 10.2a of Form 8-K dated 
                               October 25, 1996.)

                    10.30      Warrant Certificate dated October 25, 1996 issued
                               pursuant to the Note and Warrant Purchase 
                               Agreement. (Incorporated by reference from 
                               Exhibit 10.2b of Form 8-K dated October 25, 1996)

                    10.31      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. (Incorporated by
                               reference  from  Exhibit  10.3 of Form  8-K
                               dated October 25, 1996.)

                    10.32      Security  Agreement - Pledge of  Subsidiary
                               Stock,   dated  as  of  October  25,  1996,
                               between NDE  Environmental  Corporation and
                               Banc    One    Capital    Partners,    L.P.
                               (Incorporated  by  reference  from  Exhibit
                               10.4 of Form 8-K dated October 25, 1996.)



                                     - 28 -

<PAGE>
                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


                    No.        Exhibit
                    -------    -------------------------------------------------
                    10.33      Put Option  Agreement,  dated as of October
                               25,   1996,   between   NDE   Environmental
                               Corporation  and Banc One Capital  Partners
                               L.P.   (Incorporated   by  reference   from
                               Exhibit 10.5 of Form 8-K dated  October 25,
                               1996.)

                    10.34      Registration Rights Agreement, dated as of
                               October 25, 1996, between NDE Environmental 
                               Corporation and Banc One Capital Partners, L.P.  
                               (Incorporated by reference from Exhibit 10.6 of 
                               Form 8-K dated October 25, 1996.)

                    10.35      Preemptive Rights Agreement, dated as of October 
                               25, 1996, between NDE Environmental Corporation 
                               and Banc One Capital Partners, L.P.  
                               (Incorporated by reference from Exhibit 10.7 of 
                               Form 8-K dated October 25, 1996.)

                    10.36      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.  (Incorporated by reference from
                               Exhibit 10.8 of Form 8-K dated October 25, 1996.)

                    10.37      Standby Commitment, made as of October 25, 1996, 
                               among Proactive Partners L.P., NDE Environmental 
                               Corporation, Banc Capital Partners, L.P., and 
                               Bank One Texas, N.A.  (Incorporated by reference 
                               from Exhibit 10.9 of Form 8-K dated October 25,
                               1996.)

                    10.38      Shareholder Agreement, dated as of October 25, 
                               1996, among Proactive Partners, L.P., Lagunitas 
                               L.P., Jay Allen Chaffee, A. Daniel Sharplin, and 
                               Banc One Capital Partners, L.P. (Incorporated by 
                               reference from Exhibit 10.10 of Form 8-K dated
                               October 25, 1996.)

                    10.39      Pledge and Security  Agreement, dated October 25,
                               1996, between NDE Environmental Corporation and 
                               Bank One Texas N.A. (Incorporated by reference 
                               from Exhibit 10.11 of Form 8-K dated October 25, 
                               1996.)

                    10.40      Pledge  and   Security   Agreement,   dated
                               October 25,  1996,  between  Tanknology/NDE
                               Corporation   and  Bank  One   Texas   N.A.
                               (Incorporated  by  reference  from  Exhibit
                               10.12 of Form 8-K dated October 25, 1996.)

                    10.41      Pledge and Security Agreement, dated October 25, 
                               1996, between ProEco, Inc. and Bank One Texas, 
                               N.A.  (Incorporated by reference from Exhibit 
                               10.13 of Form 8-K dated October 25, 1996.)

                    10.42      Pledge and Security Agreement, dated October 25, 
                               1996, between USTMAN Industries, Inc., and Bank 
                               One Texas, N.A.  (Incorporated by reference from
                               Exhibit 10.14 of Form 8-K dated October 25, 1996)

                    10.43      Amendment No. 1 to Loan Agreement (Exhibit 10.25)
                               dated April 10, 1997, among NDE Environmental 
                               Corporation Tanknology/NDE Corporation, USTMAN
                               Industries, Inc., ProEco, Inc. Tanknology Canada 
                               (1988), Inc. and Bank One, Texas, N.A.

                    10.44      Amendment No. 1 to Note and Warrant Purchase 
                               Agreement ( Exhibit 10.28) dated April 10, 1997, 
                               among NDE Corporation, Tanknology/NDE 
                               Corporation, USTMAN Industries, Inc., ProEco, 
                               Inc. Tanknology Canada (1988), Inc. and Bank One 
                               Capital Partners, L.P.



                                     - 29 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


                    No.        Exhibit
                    -------    -------------------------------------------------
                    21.01      Subsidiaries of the Registrant

                    27.01      Selected Financial Data


            (b)  There was one  Report on 8-K filed  during  the  quarter
                 ended December 31, 1996, as follows:
<TABLE>
<CAPTION>
                         Filed               Dated
                 -------------------- ------------------
<S>              <C>                  <C>                <C>                                      
                 November 12, 1996    October 25, 1996   Item 2, Acquisition or Disposition of Assets:
                                                              Acquisition of the Tanknology UST Group from
                                                              Tanknology Environmental, Inc.
</TABLE>


                                     - 30 -

<PAGE>


                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No. 1)


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this  Amendment  to the Annual  Report  filed on Form  10-KSB/A to be
signed on its behalf by the undersigned, thereunto duly authorized.

                          NDE ENVIRONMENTAL CORPORATION




 Date:  April 30, 1997       By:   /s/ A. DANIEL SHARPLIN
       ------------------        -----------------------------------------------
                                 A. Daniel Sharplin
                                 President, Chief Executive Officer and Director
                                 (PRINCIPAL EXECUTIVE OFFICER)




                                     - 31 -

<PAGE>
                          NDE ENVIRONMENTAL CORPORATION
              1996 ANNUAL REPORT ON FORM 10-KSB/A (Amendment No.1)
                                    Exhibits



Index to Exhibits


3.01      Amended and Restated Certificate of Incorporation of the Registrant,
          as amended May 22, 1996

10.43     Amendment No.1 to Loan Agreement (Exhibit 10.25) dated April 10, 1997,
          among NDE Environmental Corporation Tanknology/NDE Corporation, USTMAN
          Industries, Inc., ProEco, Inc. Tanknology Canada (1988), Inc. and Bank
          One, Texas, N.A.

10.44     Amendment No. 1 to Note and Warrant Purchase Agreement (Exhibit 10.28)
          dated  April 10, 1997, among  NDE Corporation, Tanknology/NDE Corpora-
          tion, USTMAN Industries, Inc., ProEco, Inc. Tanknology  Canada (1988),
          Inc. and Bank One Capital Partners, L.P.

21.01     Subsidiaries of the Registrant

27.01     Selected Financial Data


                                       32

<PAGE>