NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES


                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB
(Mark One)

   [X]    Quarterly Report Under Section 13 or 15(d) of the Securities  Exchange
          Act of 1934 for the quarterly period ended March 31, 1997.

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



                         Commission File Number 1-10361


                          NDE ENVIRONMENTAL CORPORATION
        (Exact name of small business issuer as specified in its charter)


        Delaware                                          95-3634420
(State of Incorporation)                      (IRS Employer Identification No.)


              8900 Shoal Creek Blvd., Bldg. 200 Austin, Texas 78757
                    (Address of Principal Executive offices)


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





     Check  whether  the Issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past ninety days.

                                    Yes  [X]      No  [ ]


     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date.







               Class          Outstanding at March 31, 1997
               --------    -----------------------------------
               Common                  15,978,610




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



<PAGE>


                 NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES




                                      INDEX

                                                                     Page Number

PART I        Financial Information

   Item 1.  Financial Statements (Unaudited) ..................................3

            CONDENSED CONSOLIDATED BALANCE SHEET
              March 31, 1997 and December 31, 1996 ............................3

            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
              Three Months Ended March 31, 1997 and March 31, 1996 ............4

            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
              Three Months Ended March 31, 1997 and March 31, 1996 ............5

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ..6

   Item 2.  Management's Discussion and Analysis of Financial Condition 
              and Results of Operations .......................................7

PART II       Other Information

   Item 6.  Exhibits and Reports on Form 8-K ..................................9



                                      - 2 -

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                 NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES


PART I        Financial Information

Item 1.   Financial Statements (Unaudited)


                      CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                                March 31, 1997   December 31, 1996
                                                                                --------------   -----------------
ASSETS                                                                           (Unaudited)
<S>                                                                             <C>              <C>         
     Cash.......................................................................$    1,031,652   $       2,412,233
     Trade accounts receivable, less allowance for doubtful accounts of
       $804,886 at March 31, 1997 and $837,480 at December 31, 1996 ............     6,680,397           5,735,550
     Inventories ...............................................................       466,153             367,362
     Prepaid expenses and other current assets .................................       962,825           1,578,097
                                                                                --------------   -----------------
         Total Current Assets ..................................................     9,141,027          10,093,242

     Equipment and improvements, net of accumulated depreciation of
       $8,384,549 at March 31, 1997 and $7,611,234 at December 31, 1996 ........     5,317,615           5,736,391
     Goodwill, net of accumulated amortization of $138,088 at March 31, 1997
       and $55,122 at December 31, 1996 ........................................     4,845,107           4,922,617
     Patents, licenses and other intangible assets, net of accumulated
       amortization of $1,828,687 at March 31, 1997 and $1,729,695 at
       December 31, 1996 .......................................................     1,985,090           3,374,962
     Deferred financing costs ..................................................       866,939             922,424
                                                                                --------------   -----------------
         Total Assets...........................................................$   22,155,778   $      25,049,636
                                                                                ==============   =================
                                                                                
LIABILITIES AND STOCKHOLDERS' DEFICIT

     Accounts payable ..........................................................$    1,775,724   $       1,673,470
     Accrued liabilities .......................................................     3,607,728           4,885,260
     Accrued payroll and payroll taxes .........................................     1,645,859           1,469,786
     Current portion of long-term debt .........................................     2,272,223           1,963,564
         Total Current Liabilities .............................................     9,301,534           9,992,080

     Long Term Debt, less current portion ......................................    12,880,416          14,192,011

     Warrants with put option ..................................................     1,800,250           1,600,000
                                                                                --------------   -----------------
         Total Liabilities .....................................................    23,982,200          25,784,091
                                                                                --------------   -----------------

     Stockholders' Deficit

     Series AAA Convertible Preferred Stock, $.0001 par value;  authorized, 400
       shares; issued and outstanding 1 share stated at liquidation value
       of $5,000................................................................         5,000               5,000
     Common stock, $.0001 par value; authorized, 50,000,000 shares; issued
       and outstanding 15,978,610 shares at March 31, 1997, and December
       31, 1996 ................................................................         1,598               1,598
     Additional paid-in capital ................................................    27,578,446          27,578,446
     Accumulated deficit .......................................................   (29,382,700)        (28,302,374)
     Cumulative foreign currency translation adjustment ........................       (28,766)            (17,125)
                                                                                --------------   -----------------
         Total Stockholders' Deficit ...........................................    (1,826,422)           (734,455)
                                                                                --------------   -----------------
          Total Liabilities and Stockholders' Deficit...........................$   22,155,778   $      25,049,636
                                                                                ==============   =================
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>

                                      - 3 -

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                 NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES


                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                Three Months Ended
                                                       ---------------------------------
                                                       March 31, 1997     March 31, 1996
                                                       --------------     --------------
<S>                                                    <C>                <C>           
Revenues - Testing Services .......................... $    7,462,643     $    2,562,367

Cost of sales and testing services....................      5,602,108          1,760,349
                                                       --------------     --------------

     Gross Margin.....................................      1,860,535            802,018

Selling, general and administrative...................      2,045,144          1,524,854
                                                       --------------     --------------

     Operating Loss................................... $     (184,609)    $     (722,836)

 Interest expense.....................................       (845,146)          (179,163)

                                                       --------------     --------------
     Net Loss......................................... $   (1,029,755)    $     (901,999)
                                                       ==============     ==============
     Net Loss per Share............................... $        (0.06)    $        (0.38)
                                                       ==============     ==============

     Weighted Average Number of Shares Outstanding....     15,978,610          2,403,722
                                                       ==============     ==============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>


                                      - 4 -

<PAGE>


                 NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES


                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>

                                                                                Three Months Ended
                                                                        --------------------------------
                                                                        March 31, 1997    March 31, 1996
                                                                        --------------    --------------
<S>                                                                     <C>               <C>           
Cash Flows from Operating Activities

     Net loss.......................................................... $  (1,029,755)    $    (901,999)

Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities

     Depreciation and amortization.....................................       972,279           367,561
     Amortization of discounts and financing costs.....................       416,501            34,814
     Gain on sale of equipment.........................................       (31,366)         (143,690)

Changes in Operating Assets and Liabilities

     (Increase) decrease in trade accounts receivable..................      (944,847)          628,613
     Increase in inventories...........................................       (98,791)         (183,191)
     Decrease in prepaid expenses and other current assets.............       615,272            94,378
     Increase in accounts payable......................................       102,254           222,150
     Decrease in accrued liabilities...................................    (1,277,532)         (246,505)
     Increase (decrease) in accrued payroll and payroll taxes..........       176,073          (107,177)
                                                                        -------------     -------------
     Net cash used in operating activities.............................    (1,099,912)         (235,046)

Cash Flows from Investing Activities

     Proceeds from sale of Canadian licenses...........................     1,147,500                 -
     Additions to equipment and improvements...........................      (475,233)         (131,576)
     Proceeds from sale of equipment...................................        50,000           179,391
                                                                        -------------     -------------
     Net cash provided by investing activities.........................       722,267            47,815

Cash Flows from Financing Activities

     Payments on line of credit .......................................             -          (346,908)
     Payments on long-term debt........................................    (1,002,936)         (376,549)
     Proceeds from issuance of notes payable...........................             -           600,000
                                                                        -------------     -------------
     Net cash used in financing activities.............................    (1,002,936)         (123,457)

     Net decrease in cash..............................................    (1,380,581)         (310,688)

     Cash at beginning of period.......................................     2,412,233           327,035

                                                                        -------------     -------------
     Cash at end of period.............................................     1,031,652            16,347
                                                                        =============     =============
</TABLE>



                                      - 5 -

<PAGE>


                 NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


     NOTE 1:      ACCOMPANYING UNAUDITED FINANCIAL STATEMENTS

     Basis  of  Presentation:  The  financial  statements  of NDE  Environmental
Corporation  and its  subsidiaries  (the  "Company")  included  herein have been
prepared  without audit pursuant to the rules and  regulations of the Securities
and  Exchange  Commission,  and,  in the  opinion  of  management,  reflect  all
adjustments  necessary  to present  fairly the  results of  operations  for such
interim periods.  Certain information and footnote disclosures normally included
in  financial   statements   prepared  in  accordance  with  generally  accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations;  however,  management believes that the disclosures are adequate to
make the  information  presented  not  misleading.  The  accompanying  unaudited
financial  statements for the three months ended March 31, 1997 and 1996 contain
all  adjustments,  consisting of only normal  recurring  accruals,  necessary to
present  fairly the  financial  position of the Company as of March 31, 1997 and
1996 and the  results of  operations  and cash flows for the three  months  then
ended.  The results of  operations  for the  Company's  interim  periods are not
necessarily  indicative of the results to be expected for the entire year. It is
suggested  that  these  financial  statements  be read in  conjunction  with the
audited financial  statements and notes thereto included in the Company's annual
report on Form 10-KSB/A for the year ended December 31, 1996.

     Certain   amounts  shown  in  the  1996  financial   statements  have  been
reclassified to conform to the 1997 presentation.


     NOTE 2:      COMMITMENTS AND CONTINGENCIES

     There have been no  material  changes  in the  information  reported  as of
December 31, 1996 as reported on Form 10-KSB/A in Footnote 11  accompanying  the
audited financial statements.


     NOTE 3:      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In February 1997, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards  128  "Earnings  per Share" ("SFAS
128"),  effective for financial statements for periods ending after December 15,
1997. SFAS 128 primarily substitutes a somewhat different  calculation,  labeled
"Basic"  earnings per share,  for the  previously  issued  statistic,  "Primary"
earnings  per share.  The  Company  believes  that the future  adoption  of this
pronouncement will not have a significant impact on disclosures for earnings per
share for the periods presented.




                                      - 6 -

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                 NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES


Item 2.   Management's  Discussion  and Analysis of Financial  Condition and
          Results of Operations

Results of Operations

     The following  table reflects the percentage  relationship  to net sales of
certain items  included in the Company's  statement of operations  for the three
month periods ended March 31, 1997 and 1996.  The results of operations  for the
three months ended March 31, 1997 include the results of  operations  of the UST
Group  of  Companies  that  were  acquired  (the  "Acquisition")  from  TEI Inc.
(formerly Tanknology  Environmental,  Inc.) on October 25, 1996. The Acquisition
was accounted for as a purchase and accordingly the results of operations of the
Company  include the  operations  of the UST Group from the date of  acquisition
forward.


<TABLE>
<CAPTION>
                                                     Three Months Ended
                                             ---------------------------------
                                             March 31, 1997     March 31, 1996
                                             --------------     --------------
<S>                                          <C>               <C> 
Revenues....................................         100 %              100 %

Cost of Sales and Testing...................          75 %               69 %
                                             --------------     --------------

Gross Margin................................          25 %               31 %

Selling, General and Administrative.........          28 %               59 %

                                             --------------     --------------
Operating Loss..............................          (3)%              (28)%

Interest Expense............................          11 %                7 %

Net Loss....................................         (14)%              (35)%
                                             ==============     ==============
</TABLE>

Revenues

     Revenues for the three months ended March 31, 1997 were $7,462,643 compared
to $2,562,367 in the 1996 period, an increase of $4,900,276,  or 191%,  compared
to the three  months ended March 31,  1996.  The increase in revenues  over last
year is due to the  inclusion of the UST Group of Companies  acquired on October
25,  1996.  Revenues  in the first  quarter of 1997 also  included  $117,169  of
revenues from the Company's Canadian  operations which were sold on February 20,
1997.  Revenues of the UST Group,  excluding  Canada,  plus those of the Company
increased  from  $7,124,133  in the first  quarter of 1996 to  $7,354,474 in the
first quarter of 1997 primarily due to the sale of several SIR software licenses
by the Company's USTMAN subsidiary.

Cost of Sales and Testing Services

     Cost of sales and testing  services  for the three  months  ended March 31,
1997 was $5,602,108 (75% of revenue)  compared to $1,760,349 (69% of revenue) in
1996, an increase of $3,841,759,  or 218%.  Gross margin was $1,860,535  (25% of
revenue) for 1997,  compared to $802,018 (31% of revenue) for 1996. Gross margin
as a percentage of sales  decreased from 31% of sales in 1996 to 25% of sales in
1997.  This decrease was due primarily to the addition of fixed capacity  (e.g.,
employees,   vans,   equipment,   and  regional  offices)  from  the  UST  group
Acquisition,  and the addition of one significant  lower-margin  but high volume
customer in mid-1996.


                                      - 7 -

<PAGE>


                 NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES


Selling, General and Administrative

     Selling,  general,  and  administrative  expense for the three months ended
March 31, 1997 was  $2,045,144 or 28% of revenue  compared to $1,524,854 in 1996
or 60% of revenue,  an increase of $520,290 or 34%, compared to the three months
ended March 31,  1996.  The  increase in selling,  general,  and  administrative
expenses was due to the  Acquisition.  The decrease in the  percentage  of sales
from 60% to 28% is due to the cost  efficiencies  realized and the higher volume
of revenue in conjunction with the Acquisition.

Earnings before Depreciation, Amortization, Interest and Taxes (EBITDA)

     For the three months ended March 31, 1997, EBITDA was a positive $1,204,171
or 16% of revenues compared to a negative $320,461 or (13%) of revenues in 1996.
The  increase  in  EBITDA  of  $1,524,632  was due to the  Acquisition  and cost
efficiencies  realized as a result of combining the  operations of the UST Group
and NDE.

Interest Expense

     Interest  expense for the three  months  ended March 31, 1997 was  $845,179
(11% of revenue)  compared to $179,163  (7% of revenue) in 1996,  an increase of
$666,016 or 372%.  The increase was due to the interest on the  additional  debt
incurred to finance the Acquisition.

Net Loss

     For the three months ended March 31, 1997, the Company  incurred a net loss
of $1,029,755 compared to a loss of $901,999 in 1996, an increase of $127,756 or
14%. The net loss for the current period includes  $453,982 of non-cash  charges
directly  related to the Acquisition with no prior year  counterpart.  The major
cost  components  directly  attributable  to the  Acquisition  are:  $82,966  of
goodwill  amortization  expense,  $55,485 of amortization of deferred  financing
costs,  $105,281 of amortization of discount on  subordinated  debt,  $10,000 of
amortization of a noncompete  covenant,  and estimated accretion of the value of
the Warrants with Put Option of $200,250.  The Company is unable to determine if
the holder will ever  exercise the Put and what the  purchase  price would be at
that time;  therefore,  the amount  recognized as expense is an estimate.  Based
upon  projections  of future results of  operations,  an  independent  appraisal
obtained by the Company valued the warrants with put options at $1,600,000 as of
December  31,  1996.  The Company  recorded  the first  quarter  1997 expense to
accrete the  carrying  value of the warrants  with put option to such  estimated
redemption value as of December 31, 2001.

Liquidity and Capital Resources

     At March 31, 1997,  the Company had a working  capital  deficit of $160,507
compared to a working  capital  surplus of $101,162 at March 31, 1996. Cash used
in operating  activities of $1,099,912 for the three months ended March 31, 1997
increased by $864,866 as compared to $235,046 in 1996. The cash was used to fund
working capital and to pay acquisition-related liabilities of $580,417.

     Cash  provided by  investing  activities  was $722,267 for the three months
ended March 31, 1997  compared to $47,815 in the 1996  period.  On February  20,
1997, the Company sold substantially all of the operating assets of its Canadian
operation acquired as part of the Acquisition.  The Company realized proceeds of
$1,147,500  related to the sale of the  business  and  technology  licenses  and
$50,000  from  the sale of the  fixed  assets  of the  Canadian  operation.  The
proceeds  from  the  sale  of the  business  and  licenses  were  treated  as an
adjustment to the purchase price of the UST Group.  The Company  retained all of
the  working  capital  of the  Canadian  subsidiary  and is in  the  process  of
liquidating  this  working  capital  and  redirecting  these  funds  to its U.S.
operation.  In the first  quarter of 1997,  the  Company  invested  $272,714  in
computer hardware and software to support its ongoing operations.

     At March 31, 1997, the Company had  outstanding  long-term debt  (including
current maturities) of $15,152,639 compared to $16,155,575 at December 31, 1996.
Required  principal  pay-downs of $300,000,  a $500,000 paydown on the revolving
credit line from the proceeds of the sale of the Canadian  operation,  and other
debt  repayments  of  $202,936  were made  during the  quarter.  The Company had
$1,329,804 available for additional borrowing under its revolving credit.

                                      - 8 -

<PAGE>


                 NDE ENVIRONMENTAL CORPORATION AND SUBSIDIARIES


As of March 31, 1997,  the Company was in  compliance  with the  financial  debt
covenants related to its long-term financing agreements.

     This Form 10Q contains  statements  which,  to the extent that they are not
recitations of historical fact,  constitute  "forward looking statements" within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities  Act of 1934.  All  forward  looking  statements  involve  risks  and
uncertainties.  The forward looking  statements in this document are intended to
be subject to the safe harbor protection provided by Sections 27A and 21E. For a
discussion identifying some important factors that could cause actual results to
differ materially from those anticipated in the forward looking statements,  see
the Company's Form 10-KSB page 13  "Management  Discussion and Analysis" for the
fiscal year ended December 31, 1996.


PART II       Other Information

Item 6.  Exhibits and Reports on Form 8-K

              The following exhibits are filed herewith:
                         None.

              Reports on Form 8-K:
                         The Company  filed  three  reports on Form 8-K or 8-K/A
                    during the quarter ended March 31, 1997.

               On January 14,  1997,  the Company  filed  Amendment  No.1 to its
               Current Report filed on Form 8-K on November 12, 1996 to disclose
               the acquisition of the UST Group of subsidiaries  from Tanknology
               Environmental,  Inc. The Amendment  was filed to publish  certain
               Financial Statements of the UST Group, including (but not limited
               to) Balance Sheets, Statements of Operations,  Statements of Cash
               Flows and Pro forma Financial Information.

               On January 17, 1997,  the Company  filed  Amendment No. 2 to
               the Form 8-K filed  November 12, 1996.  Amendment No. 2 was filed
               to add the conforming signature of the Independent Accountants of
               the  aforementioned   Financial   Statements  to  the  Report  of
               Independent Accountants.

               On March 12, 1997, the Company filed a Current Report on Form 8-K
               to disclose the sale of certain assets of the  Tanknology  Canada
               (1988),  Inc.  UST Group  subsidiary  acquired  from  TEI,  Inc.,
               formerly known as Tanknology Environmental, Inc.

                                    SIGNATURE

     In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                    NDE ENVIRONMENTAL CORPORATION
                                    (Registrant)
Date:          May 15, 1997                     /s/ DAVID G. OSOWSKI
          ---------------------     --------------------------------------------
                                    David G. Osowski
                                    Vice President and Chief Financial Officer


                                    9 -