SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------------- FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 25, 1997 CECO ENVIROMENTAL CORPORATION ----------------------------- (Exact name of registrant an specified in charter) New York 0-7099 13-2566064 -------- ------ ----------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File No.) Identification No.) 505 University Avenue, Suite 1400, Toronto, Ontario, Canada M5G lX3 ------------------------------------------------------------ ------- (Address of principal executive offices) (Zip Code) (416) 593-6543 -------------- (Registrant's telephone number, including area code)
This Form 8-K/A amends the Form 8-K filed with the Securities and Exchange Commission ("Commission") on October 10, 1997, relating to the acquisition by CECO Filters, Inc. ("CECO"), a majority owned subsidiary of the Registrant, of substantially all the assets and the business of Busch Co., a Pennsylvania corporation, through a wholly-owned subsidiary of CECO. This Form 8-K/A contains the information referred to in Item 7 of the Form 8-K. Item 7. Financial Statements and Exhibits. (a) Financial Statements of Business Acquired.
BUSCH CO. Pittsburgh, Pennsylvania Report on Audit of Financial Statements For the year ended December 31, 1996
C O N T E N T S PAGE INDEPENDENT AUDITORS REPORT 1 FINANCIAL STATEMENTS Balance Sheet, December 31, 1996 2 Statements for the year ended December 31, 1996: Operations and Retained Earnings 3 Cash Flows 4 Notes to Financial Statements 5-8
INDEPENDENT AUDITORS' REPORT To the Stockholders Busch Co. Pittsburgh, Pennsylvania We have audited the accompanying balance sheet of Busch Co. as of December 31, 1996 and the related statements of operations and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Busch Co. as of December 31, 1996 and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, the Company is involved in negotiations to sell certain assets and interests of the Company which represent primarily all of the Company's operations. Schneider Downs & Co., Inc. Certified Public Accountants Pittsburgh, Pennsylvania July 3, 1997 1
BUSCH CO. BALANCE SHEET DECEMBER 31, 1996 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 992,887 ---------- Accounts receivable: Trade - contract related 1,973,817 Trade - other 225,934 Commissions 132,241 ---------- 2,331,992 ---------- Cost and estimated earnings in excess of billings on uncompleted contracts 750,942 ---------- Inventory 117,815 ---------- Advances and other prepaids 3,230 ---------- Total Current Assets 4,196,866 ---------- OTHER ASSETS 95,077 ---------- PROPERTY AND EQUIPMENT - AT COST 143,022 Less - Accumulated depreciation 59,998 ---------- 83,024 ---------- $4,374,967 ========== LIABILITIES CURRENT LIABILITIES: Payments due within one year on long-term debt $ 48,047 Accounts payable 903,826 Billings in excess of cost and estimated earnings on uncompleted contracts 995,002 Accrued liabilities 653,101 ---------- Total Current Liabilities 2,599,976 ---------- LONG-TERM DEBT 43,992 ---------- STOCKHOLDERS' EQUITY COMMON STOCK Authorized and issued 100,000 shares; stated value $.50 per share; outstanding 95,079 shares 50,000 RETAINED EARNINGS 1,777,756 ---------- 1,827,756 TREASURY STOCK, at cost 96,757 ---------- 1,730,999 ---------- $4,374,967 ========== See notes to financial statements. 2
BUSCH CO. STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1996 REVENUES $11,301,075 COST OF REVENUES 7,663,529 ----------- Gross Profit 3,637,546 ----------- OPERATING EXPENSES General, administrative and selling 2,849,511 Interest 1,855 ----------- 2,851,366 ----------- Income From Operations 786,180 OTHER INCOME 450,621 ----------- Net Income 1,236,801 RETAINED EARNINGS Balance, Beginning of year 858,805 Distributions (317,850) ----------- Balance, End of year $ 1,777,756 =========== See notes to financial statements. 3
BUSCH CO. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,236,801 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,820 Changes in assets and liabilities: Accounts receivable (1,173,256) Inventory (10,632) Advances and other prepaids 23,775 Other assets (28,211) Accounts payable 136,181 Accrued liabilities 287,654 Net increase in billings related to costs and estimated earnings on uncompleted contracts (88,377) ----------- Net Cash Provided By Operating Activities 401,755 ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment (28,515) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 100,000 Payments on long-term debt (7,961) Payment of distributions to shareholders (317,850) ----------- Net Cash Used in Financing Activities (225,811) ----------- Net Increase in Cash 147,429 CASH - BEGINNING OF YEAR 845,458 ----------- CASH - END OF YEAR $ 992,887 =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 1,855 =========== See notes to financial statements. 4
BUSCH CO. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - ORGANIZATION Busch Co. (the Company) designs and manufactures air handling units for the metals industry. Also, they are manufacturer's representatives for vendors that supply components related to this industry. The customer base includes steel and aluminum producers worldwide and the Company extends credit to these customers. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of significant accounting policies consistently applied by management in the preparation of the accompanying financial statements follows. Revenue recognition - Revenue from contracts is recognized on the percentage of completion method as more fully described below. Revenue from sales of product related to the Company's service representative and distributor relationships is generally recognized upon shipment to customers. Management estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash - The Company maintains cash deposits in various banks which at times exceed federally insured amounts. Inventory - Cost is stated at the lower of cost or market. Cost is determined using the first-in, first- out (FIFO) method. Property and equipment - Depreciation is provided on the straight-line method over estimated useful lives. Repairs and maintenance which do not extend the lives of the applicable assets are charged to expense as incurred. Profit or loss resulting from the retirement or other disposition of assets is included in income. Patent - Included in other assets in the accompanying balance sheet is approximately $85,000 related to patent costs. Amortization is provided on the straight-line basis over estimated useful lives and accumulated amortization approximated $8,000 at December 31, 1996. Contracts - Revenues from the design and manufacture of air handling units are recognized on the percentage of completion method, measured by the percentage of contract costs incurred to date to estimated total contract costs for each contract. This method is used because management considers contract costs to be the best available measure of progress on these contracts. 5
BUSCH CO. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Contract costs include direct material, labor cost and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability may result in revisions to contract revenue and costs and are recognized in the period in which the revisions are made. The asset, "costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed, the liability, "billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Income taxes - The corporation has elected to be taxed as an S corporation. Accordingly, the taxable income or loss of the corporation is included in the personal tax returns of the stockholders. Therefore, no provision for federal or state income taxes is included in the accompanying financial statements. NOTE 3 - SUBSEQUENT EVENT In 1997, the Company entered into a letter of intent which provides for the transfer of certain assets, and all rights and interests of the Company. As of the date of this report, no agreements have been consummated. NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's cash and cash equivalents, accounts receivable and note payable approximate their fair value. NOTE 5 - CONTRACT RECEIVABLES Contract receivables consist of the following: Contract receivables billed: Completed contracts $ 40,107 Contracts in progress 1,920,068 Retained 13,642 ------------ $1,973,817 ============ 6
BUSCH CO. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 6 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings on uncompleted contracts consists of the following: Costs incurred on uncompleted contracts $6,286,797 Estimated earnings 3,170,062 ---------- 9,456,859 Less: billings to date 9,700,919 ---------- ($244,060) ========== Included in the accompanying balance sheets under the following captions: Costs and estimated earnings in excess of billings on uncompleted contracts $ 750,942 Billings in excess of costs and estimated earnings on uncompleted contracts ( 995,002) ---------- ($ 244,060) ========== NOTE 7 - LINE OF CREDIT The Company has a demand line of credit agreement with Mellon Bank in the amount of $450,000 with interest at the prime rate (8.0% at December 31, 1996) plus .5%. The agreement is collateralized by inventory and equipment and is due to expire on November 9, 1997. In 1997, this agreement was amended to provide an additional $200,000 for issuance of letters of credit. All other terms and conditions remain the same except that the majority stockholder has personally guaranteed this facility. NOTE 8 - LONG-TERM DEBT Long-term debt is as follows: Note payable to a bank, payable in monthly installments totaling $4,534 including interest at 9.0% through September 9, 1998 and a final payment of $5,417, collateralized by accounts receivable and inventory $92,402 Less payments due within one year 48,047 ------- $44,355 ======= 7
BUSCH CO. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 9 - EMPLOYEE RETIREMENT PLANS The Company has a defined contribution profit sharing plan covering substantially all full-time employees. Contributions to the plans are determined annually by management. The plan also contains a participant salary reduction and employer matching provision. The employer matching portion is limited to 6% of eligible compensation. Total contributions to the Plan for the year ended December 31, 1996 were approximately $64,000. NOTE 10 - LEASES The Company leases its corporate offices from an entity related through common ownership. The lease provides for monthly rental payments of approximately $11,000 and is due to expire on July 31, 1999. In addition, the Company also leases automobiles and certain office equipment. Total rent expense approximated $203,000 for the year ended December 31, 1996. Following is a schedule, by year, of the future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1996: 1997 $214,000 1998 198,000 1999 103,000 2000 13,000 2001 2,000 -------- $530,000 ======== NOTE 11 - BACKLOG The following schedule shows a reconciliation of backlog representing the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress at December 31, 1996 and from contractual agreements on which work has not yet begun: Balance, December 31, 1995 $ 4,763,531 Contract adjustments 45,123 New contracts, 1996 10,930,030 ------------ 15,738,684 Less contract revenue recognized, 1996 9,347,755 ------------ Balance, December 31, 1996 $ 6,390,929 ============ As of December 31, 1996, certain contracts have been omitted from the backlog reconciliation due to management's uncertainty as to the continuation of these contracts. The total contract price, contract revenue recognized during 1996 and backlog associated with these contracts, amounted to approximately $2,547,000, $104,000 and $2,443,000, respectively. In addition, between January 1, 1997 and June 30, 1997, the Company entered into additional contracts with a value of approximately $6,880,000. 8
BUSCH CO. Pittsburgh, Pennsylvania Report on Review of Financial Statements For the Six Months Ended June 30, 1997
C O N T E N T S PAGE INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Balance Sheet, June 30, 1997 2 Statements for the year ended June 30, 1997: Operations and Retained Earnings 3 Cash Flows 4 Notes to Financial Statements 5-8
To the Stockholders Busch Co. Pittsburgh, Pennsylvania We have reviewed the accompanying balance sheet of Busch Co. as of June 30, 1997 and the related statements of operations and retained earnings, and cash flows for the six months then ended, in accordance with Statements on Standards for Acounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Busch Co. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, the Company entered into an asset purchase agreement to sell certain assets and interests of the Company which represent primarily all of the Company's operations. Schneider Downs & Co., Inc. Certified Public Accountants Pittsburgh, Pennsylvania October 3, 1997 1
BUSCH CO. BALANCE SHEET JUNE 30, 1997 ASSETS CURRENT ASSETS Cash and cash equivalents $1,443,807 ---------- Accounts receivable: Trade - contract related 2,595,020 Trade - other 330,460 Commissions 244,180 ---------- 3,169,660 ---------- Cost and estimated earnings in excess of billings on uncompleted contracts 234,394 ---------- Inventory 145,379 ---------- Advances and other prepaids 13,059 ---------- Total Current Assets 5,006,299 ---------- OTHER ASSETS 92,323 ---------- PROPERTY AND EQUIPMENT - AT COST 201,639 Less - Accumulated depreciation 69,821 ---------- 131,818 ---------- $5,230,440 ========== LIABILITIES CURRENT LIABILITIES Accounts payable $1,259,691 Billings in excess of cost and estimated earnings on uncompleted contracts 1,070,310 Accrued liabilities 1,126,884 ---------- Total Current Liabilities 3,456,885 ---------- STOCKHOLDERS' EQUITY COMMON STOCK Authorized and issued 100,000 shares; stated value $.50 per share; outstanding 95,079 shares 50,000 RETAINED EARNINGS 1,820,312 ---------- 1,870,312 TREASURY STOCK, at cost 96,757 ---------- 1,773,555 ---------- $5,230,440 ========== See notes to financial statements. 2
BUSCH CO. STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1997 REVENUES $6,606,368 COST OF REVENUES 4,270,758 ---------- Gross Profit 2,335,610 ---------- COMMISSION INCOME 297,474 ---------- OPERATING EXPENSES General, administrative and selling 2,131,019 Interest 4,133 ---------- 2,135,152 ---------- Income from Operations 497,932 INTEREST INCOME 27,931 ---------- Net Income 525,863 RETAINED EARNINGS Balance, Beginning of period 1,777,756 Distributions (483,307) ---------- Balance, End of period $1,820,312 ========== See notes to financial statements. 3
BUSCH CO. STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 525,863 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,896 Changes in assets and liabilities: Accounts receivable (837,668) Inventory (27,564) Advances and other prepaids (9,829) Other assets 1,682 Accounts payable 355,865 Accrued liabilities 473,783 Net increase in billings related to costs and estimated earnings on uncompleted contracts 591,856 ---------- Net Cash Provided By Operating Activities 1,084,884 ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment (58,618) ---------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt (92,039) Payment of distributions to stockholders (483,307) ---------- Net Cash Used in Financing Activities (575,346) ---------- Net Increase in Cash 450,920 CASH - BEGINNING OF PERIOD 992,887 ---------- CASH - END OF PERIOD $1,443,807 ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 4,133 ---------- See notes to financial statements. 4
BUSCH CO. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 NOTE 1 - ORGANIZATION Busch Co. (the Company) designs and manufactures air handling units for the metals industry. Also, they are manufacturer's representatives for vendors that supply components related to this industry. The customer base includes steel and aluminum producers worldwide and the Company extends credit to these customers. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of significant accounting policies consistently applied by management in the preparation of the accompanying financial statements follows. Revenue recognition - Revenue from contracts is recognized on the percentage of completion method as more fully described below. Revenue from sales of product related to the Company's service representative and distributor relationships is generally recognized upon shipment to customers. Management estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash - The Company maintains cash deposits in various banks which at times exceed federally insured amounts. Inventory - Cost is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and equipment - Depreciation is provided on the straight-line method over estimated useful lives. Repairs and maintenance which do not extend the lives of the applicable assets are charged to expense as incurred. Profit or loss resulting from the retirement or other disposition of assets is included in income. Patent - Included in other assets in the accompanying balance sheet is approximately $85,000 related to patent costs. Amortization is provided on the straight-line basis over estimated useful lives and accumulated amortization approximated $9,000 at June 30, 1997. Contracts - Revenues from the design and manufacture of air handling units are recognized on the percentage of completion method, measured by the percentage of contract costs incurred to date to estimated total contract costs for each contract. This method is used because management considers contract costs to be the best available measure of progress on these contracts. 5
BUSCH CO. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Contract costs include direct material, labor cost and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability may result in revisions to contract revenue and costs and are recognized in the period in which the revisions are made. The asset, "costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Income taxes - The corporation has elected to be taxed as an S corporation. Accordingly, the taxable income or loss of the corporation is included in the personal tax returns of the stockholders. Therefore, no provision for federal or state income taxes is included in the accompanying financial statements. NOTE 3 - SUBSEQUENT EVENT On September 25, 1997, the Company entered into an asset purchase agreement with CECO Filters, Inc. (CECO) for the sale of certain assets, and all rights and interests of the Company. The sale was effective July 1, 1997, and includes certain construction contracts, certain real property leases, all inventories, goodwill, all rights pursuant to warranties, representations and guaranties and all rights, titles and interests in trademarks, service marks, trade names and trade styles. Also, as of July 1,1997, operations will be conducted by CECO. The accompanying financial statements do not reflect any adjustments that result from the discontinuance of the Company. NOTE 4 - CONTRACT RECEIVABLES Contract receivables consist of the following: Contract receivables billed: Completed contracts $ 411,197 Contracts in progress 2,183,823 ---------- $2,595,020 ========== 6
BUSCH CO. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings on uncompleted contracts consists of the following: Costs incurred on uncompleted contracts $ 7,526,876 Estimated earnings 4,255,444 ----------- 11,782,320 Less: billings to date 12,618,236 ----------- ($835,916) =========== Included in the accompanying balance sheet under the following captions: Costs and estimated earnings in excess of billings on uncompleted contracts $ 234,394 Billings in excess of costs and estimated earnings on uncompleted contracts (1,070,310) ----------- ($ 835,916) =========== NOTE 6 - EMPLOYEE RETIREMENT PLANS The Company has a defined contribution profit sharing plan covering substantially all full-time employees. Contributions to the plans are determined annually by management. The plan also contains a participant salary reduction and employer matching provision. As determined by the provisions of the plan, the Company matches the employees' basic voluntary contributions. Company matching contributions to the plan were approximately $40,000 for the six month period ended June 30, 1997. In accordance with the purchase agreement described in Note 3, CECO shall assume all obligations accruing after the closing date and shall become the plan sponsor. 7
BUSCH CO. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 NOTE 7 - LEASES The Company leases its corporate offices from an entity related through common ownership. The lease provides for monthly rental payments of approximately $11,000 and is due to expire on July 31, 2001. In addition, the Company also leases automobiles and certain office equipment. Total rent expense approximated $116,000 for the six months ended June 30, 1997. Following is a schedule, by year, of the future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of June 30, 1997: 1998 $227,000 1999 192,000 2000 169,000 2001 154,000 -------- $742,000 ======== In accordance with the purchase agreement described in Note 3, CECO has assumed these lease obligations. NOTE 8 - BACKLOG The following schedule shows a reconciliation of backlog representing the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress at June 30, 1997 and from contractual agreements on which work has not yet begun: Balance, December 31, 1996 $ 6,390,929 Contract adjustments 490,289 New contracts, 1997 7,356,333 ----------- 14,237,551 Less - Contract revenue recognized, June 30, 1997 5,680,521 ----------- Balance, June 30, 1997 $ 8,557,030 =========== 8
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) DECEMBER 31, 1996 (NOTE 1) - ------------------------------------------------------------------------------- CECO ENVIRONMENTAL PRO FORMA CORP. AND ------------------------------ SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ----------- ------------ ASSETS Current assets: Cash $ 412,174 ($ 12,500)(F) $ 299,674 (100,000)(H) Marketable securities, trading 1,015,521 (500,000)(D) 515,521 Accounts receivable 2,077,045 2,165,562(G) 4,242,607 Inventories 565,371 145,379(G) 710,750 Prepaid expenses and other current assets 45,464 100,000(A) 145,464 Deferred income taxes 58,735 58,735 ----------- ------------ ------------- Total current assets 4,174,310 1,798,441 5,972,751 Property and equipment, net 1,806,126 131,818(G) 1,937,944 Intangible and other assets, at cost, net 36,031 12,500(F) 125,203 76,672(G) Goodwill 3,184,810 1,601,637(G) 4,886,447 100,000(H) ----------- ------------ ------------- $9,201,277 $3,721,068 $12,922,345 =========== =========== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term obligations $ 400,000 $1,040,576(E) $ 1,440,576 Current portion of long-term debt 83,100 250,000(C) 333,100 Current portion of capital lease obligation 6,043 6,043 Accounts payable and accrued expenses 1,220,595 14,930(G) 1,235,525 Billings in excess of costs and estimated earnings on uncompleted contracts 2,165,562 (G) 2,165,562 Accrued income taxes 276,976 ( 200,000)(B) 76,976 ----------- ------------ ------------- Total current liabilities 1,986,714 3,271,068 5,257,782 Long-term debt, less current portion 1,132,869 750,000(C) 1,882,869 Capital lease obligation, less current portion 9,882 9,882 ----------- ------------ ------------- Total liabilities 3,129,465 4,021,068 7,150,533 ----------- ------------ ------------- Minority interest 964,203 (104,000)(B) 860,203 ---------- ------------ ------------- Shareholders' equity: Common stock 73,385 73,385 Capital in excess of par value 8,178,998 8,178,998 Accumulated deficit (2,796,105) (196,000)(B) (2,992,105) ----------- ------------ ------------- 5,456,278 (196,000) 5,260,278 Less treasury stock, at cost (348,669) (348,669) ----------- ------------ ------------- Net shareholders' equity 5,107,609 (196,000) 4,911,609 ----------- ------------ ------------- $9,201,277 $3,721,068 $12,922,345 =========== ============ ============
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1996 (NOTE 2) - -------------------------------------------------------------------------------- CECO ENVIRONMENTAL PRO FORMA CORP. AND -------------------------------- SUBSIDIARIES BUSCH CO. TOTAL ADJUSTMENTS CONSOLIDATED ------------ --------- ----- ----------- ------------ Net revenues $9,847,697 $11,751,696 $21,599,393 $21,599,393 --------- ---------- ---------- ---------- Costs and expenses: Cost of revenues 5,187,732 7,663,529 12,851,261 12,851,261 Selling and administrative 3,524,734 2,831,691 6,356,425 $ 100,000 (I) 6,909,663 100,000 (L) 353,238 (N) Depreciation and amortization 416,988 17,820 434,808 40,041 (K) 474,849 ---------- ---------- ------------ ----------- ------------ 9,129,454 10,513,040 19,642,494 593,279 20,235,773 --------- ---------- ---------- ---------- ------------ Income from operations 718,243 1,238,656 1,956,899 (593,279) 1,363,620 Other income (expense), net (72,074) 1,855 (70,219) (217,534) (J) (287,753) ----------- ----------- ------------- ---------- ------------ Income before income taxes and minority interest 646,169 1,240,511 1,886,680 (810,813) 1,075,867 Income taxes 205,788 205,788 208,816 (M) 414,604 ---------- ----------- ------------ ---------- ------------ Income before minority interest 440,381 1,240,511 1,680,892 (1,019,629) 661,263 Minority interest in net income of consolidated subsidiary (139,298) (139,298) (77,000) (O) (216,298) ---------- ----------- ------------ ----------- ------------ Net income $ 301,083 $ 1,240,511 $ 1,541,594 ($1,096,629) $ 444,695 ========== =========== =========== =========== ============ Net income per share $.04 $.06 === === Weighted average number of common shares outstanding 7,001,036 7,001,036 ========= =========
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES Explanatory Notes to Pro Forma Consolidated Condensed Financial Statements For the Year Ended December 31, 1996 1. The pro forma consolidated condensed balance sheet is based on the consolidated balance sheet of CECO Environmental Corp. ("CEC") to reflect the acquisition of Busch Co. ("Busch") by CECO Filters, Inc. ("CECO"), a majority-owned subsidiary of CEC, which took place on September 25, 1997 ("closing date") (effective date of July 1, 1997), as if it had taken place on December 31, 1996, after giving effect to the pro forma adjustments to reflect the following: CECO paid $2,100,000 for essentially all of the assets and business of Busch on the closing date. As part of the transaction, CECO obtained a non-compete agreement from one of the stockholders of Busch pursuant to which he will be paid a total of $900,000, of which $100,000 (A) was paid on the closing date, and $200,000 is to be paid on July 1, 1998, 1999, 2000, and 2001. In addition, a sign-on bonus of $500,000 was paid to this stockholder ($300,000 net of income taxes) (B) on the closing date. The total cash required at closing amounted to $2,540,576 and is net of certain of Busch's accrued expenses which CECO agreed to assume. CECO financed this transaction with a bank term loan in the amount of $1,000,000 (C); a $500,000 (D) subordinated, unsecured loan from CEC, and $1,040,576 (E) from its $1,500,000 bank line of credit. The bank term loan requires 48 monthly principal payments of $20,833, plus interest at 8.75% per annum, commencing October 1, 1997. Under the terms of a subordination agreement between CEC and CECO's lender, principal repayment under the unsecured loan from CEC cannot commence until after September 30, 1999. Interest on the CEC loan is at 10% per annum. Interest on the bank line of credit is at 1/2% over the bank's prime lending rate (current effective rate is 9%). CECO incurred financing fees of $ 12,500 (F) related to the bank financing. The net assets acquired are summarized as follows (G): Accounts receivable related to jobs in process $2,165,562 Inventory 145,379 Equipment 131,818 Patents 76,672 Goodwill 1,601,637 Billings in excess of costs and estimated earnings on uncompleted contracts (2,165,562) Accrued expenses ( 14,930) ----------- Total $1,940,576 ========== CECO incurred approximately $100,000 (H) in costs associated with the transaction, which was funded internally.
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES Explanatory Notes to Pro Forma Consolidated Condensed Financial Statements - Continued For the Year Ended December 31, 1996 2. The pro forma consolidated condensed statement of operations is based on the individual statements of CEC and Busch for the year ended December 31, 1996, after giving effect to the pro forma adjustments necessary to reflect the acquisition described in Note 1, as if it had taken place on January 1, 1996. The pro forma adjustments are as follows: (I) Amortization of covenant not to compete of $100,000. (J) Increase in interest expense of $172,534 as a result of $1,000,000 bank term loan and the use of bank line of credit of $1,040,576. Investment income was reduced by $45,000 resulting from sale of marketable securities. (K) Amortization of goodwill over 40 years amounting to $40,041. (L) Increase in salary of former officer of Busch as part of new employment agreement. (M) Pro forma income taxes have been provided to reflect an effective tax rate of 40%. (N) Incentive compensation under new employment agreement for former officer of Busch. (O) Minority interest in pro forma net income of Busch Co.
(b) Pro-Forma Financial Information. CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1997 (NOTE 1) - -------------------------------------------------------------------------------- CECO ENVIRONMENTAL PRO FORMA CORP. AND ------------------------------ SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ ----------- ------------ ASSETS Current assets: Cash $ 994,620 ($12,500) (F) $ 382,120 (100,000) (H) (500,000) (O) Marketable securities, trading 913,346 913,346 Accounts receivable 806,845 2,165,562 (G) 2,972,407 Inventories 490,816 145,379 (G) 636,195 Prepaid expenses and other current assets 47,125 100,000 (A) 147,125 Recoverable income taxes 200,000 (B) 200,000 Deferred income taxes 58,735 58,735 ----------- ---------------- ------------- Total current assets 3,311,487 1,998,441 5,309,928 Property and equipment, net 1,798,831 131,818 (G) 1,930,649 Intangible and other assets, at cost, net 107,484 12,500 (F) 196,656 76,672 (G) Goodwill 3,324,668 1,601,637 (G) 5,026,305 100,000 (H) ----------- ---------------- ------------- $8,542,470 $3,921,068 $12,463,538 ========= ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term obligations $1,040,576 (E) $ 1,040,576 Current portion of long-term debt $ 66,959 250,000 (C) 316,959 Current portion of capital lease obligation 6,043 6,043 Accounts payable and accrued expenses 716,764 14,930 (G) 731,694 Billings in excess of costs and estimated earnings on uncompleted contracts 2,165,562 (G) 2,165,562 Accrued income taxes 32,686 32,686 ----------- ---------------- ------------- Total current liabilities 822,452 3,471,068 4,293,520 Long-term debt, less current portion 1,094,336 750,000 (C) 1,844,336 Capital lease obligation, less current portion 6,262 6,262 ----------- ---------------- -------------- 1,923,050 4,221,068 6,144,118 --------- --------- ----------- Minority interest 1,038,451 (104,000) (B) 934,451 --------- --------- ------------ Shareholders' equity: Common stock 75,245 75,245 Capital in excess of par value 8,409,638 8,409,638 Accumulated deficit (2,555,245) (196,000) (B) (2,751,245) --------- ----------- ----------- 5,929,638 (196,000) 5,733,638 Less treasury stock, at cost (348,669) (348,669) ---------- ----------- ------------ Net shareholders' equity 5,580,969 (196,000) 5,384,969 --------- ---------- ----------- $8,542,470 $3,921,068 $12,463,538 ========= ========= ==========
CECO ENVIRONMENTAL CORP.. AND CONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1997 (NOTE 2) - -------------------------------------------------------------------------------- CECO ENVIRONMENTAL PRO FORMA CORP. AND --------------------------------- SUBSIDIARIES BUSCH CO. TOTAL ADJUSTMENTS CONSOLIDATED ------------ --------- ----- ----------- ------------ Net revenues $5,467,487 $6,903,842 $12,371,329 $12,371,329 --------- --------- ---------- ---------- Costs and expenses: Cost of revenues 2,797,027 4,270,758 7,067,785 7,067,785 Selling and administrative 1,975,761 2,120,123 4,095,884 $ 50,000 (I) 4,314,865 50,000 (L) 118,981 (N) Depreciation and amortization 239,789 10,896 250,685 20,020 (K) 270,705 ---------- ----------- ------------ -------- ------------ 5,012,577 6,401,777 11,414,354 239,001 11,653,355 --------- --------- ---------- -------- ------------ Income from operations 454,910 502,065 956,975 (239,001) 717,974 Other income (expense), net 21,198 23,798 44,996 (108,767) (J) (63,771) ---------- ----------- ------------ -------- ------------- Income before income taxes 476,108 525,863 1,001,971 (347,768) 654,203 Income taxes 161,000 161,000 70,861 (M) 231,861 ---------- ----------- ------------ -------- ------------- Income before minority interest 315,108 525,863 840,971 (418,629) 422,342 Minority interest in income of consolidated subsidiary (74,248) (74,248) (33,000) (O) (107,248) ---------- ----------- ------------ -------- ------------- Net income $ 240,860 $ 525,863 $ 766,723 ($451,629) $ 315,094 ========== ========== ============ ======== ============ Net income per share $.03 $.04 === === Weighted average number of common shares outstanding 7,231,628 7,231,628 ========= =========
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES Explanatory Notes to Pro Forma Consolidated Condensed Financial Statements For the Six Months Ended June 30, 1997 1. The pro forma consolidated condensed balance sheet is based on the consolidated balance sheet of CECO Environmental Corp. ("CEC") to reflect the acquisition of Busch Co. ("Busch") by CECO Filters, Inc. ("CECO"), a majority-owned subsidiary of CEC, which took place on September 25, 1997 ("closing date") (effective date of July 1, 1997), as if it had taken place on June 30, 1997, after giving effect to the pro forma adjustments to reflect the following: CECO paid $2,100,000 for essentially all of the assets and business of Busch on the closing date. As part of the transaction, CECO obtained a non-compete agreement from one of the stockholders of Busch pursuant to which he will be paid a total of $900,000, of which $100,000 (A) was paid on the closing date, and $200,000 is to be paid on July 1, 1998, 1999, 2000, and 2001. In addition, a sign-on bonus of $500,000 was paid to this stockholder ($300,000 net of income taxes) (B) on the closing date. The total cash required at closing amounted to $2,540,576 and is net of certain of Busch's accrued expenses which CECO agreed to assume. CECO financed this transaction with a bank term loan in the amount of $1,000,000 (C); a $500,000 (D) subordinated, unsecured loan from CEC, and $1,040,576 (E) from its $1,500,000 bank line of credit. The bank term loan requires 48 monthly principal payments of $20,833, plus interest at 8.75% per annum, commencing October 1, 1997. Under the terms of a subordination agreement between CEC and CECO's lender, principal repayment under the unsecured loan from CEC cannot commence until after September 30, 1999. Interest on the CEC loan is at 10% per annum. Interest on the bank line of credit is at 1/2% over the bank's prime lending rate (current effective rate is 9%). CECO incurred financing fees of $ 12,500 (F) related to the bank financing. The net assets acquired are summarized as follows (G): Accounts receivable related to jobs in process $2,165,562 Inventory 145,379 Equipment 131,818 Patents 76,672 Goodwill 1,601,637 Billings in excess of costs and estimated earnings on uncompleted contracts ( 2,165,562) Accrued expenses ( 14,930) ---------- Total $1,940,576 ========== CECO incurred approximately $100,000 (H) in costs associated with the transaction, which was funded internally.
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES Explanatory Notes to Pro Forma Consolidated Condensed Financial Statements - Continued For the Six Months Ended June 30, 1997 2. The pro forma consolidated condensed statement of operations is based on the individual statements of CEC and Busch for the six months ended June 30, 1997, after giving effect to the pro forma adjustments necessary to reflect the acquisition described in Note 1, as if it had taken place on January 1, 1997. The pro forma adjustments are as follows: (I) Amortization of covenant not to compete of $50,000. (J) Increase in interest expense of $86,267 as a result of $1,000,000 bank term loan and the use of bank line of credit of $1,040,576. Investment income was reduced by $22,500 resulting from use of $500,000 of cash for Busch Co. acquisition. (K) Amortization of goodwill over 40 years amounting to $20,020. (L) Increase in salary of former officer of Busch as part of new employment agreement. (M) Pro forma income taxes have been provided to reflect an effective tax rate of 40%. (N) Incentive compensation under new employment agreement for former officer of Busch. (O) Minority interest in pro forma net income of Busch Co. (c) Exhibits. None
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. SIGNATURE CECO ENVIRONMENTAL CORP. By: Phillip DeZwirek ----------------------- Phillip DeZwirek Chief Executive Officer DATE: December 8, 1997