<PAGE>
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)
<PAGE>
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.
<PAGE>
BUSCH CO.
Pittsburgh, Pennsylvania
Report on Audit of Financial Statements
For the year ended December 31, 1996
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
BUSCH CO.
Pittsburgh, Pennsylvania
Report on Review of Financial Statements
For the Six Months Ended June 30, 1997
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<S> <C>
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)
===========
</TABLE>
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
<PAGE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
8
<PAGE>
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(NOTE 1)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CECO
ENVIRONMENTAL PRO FORMA
CORP. AND ------------------------------
SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
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
=========== ============ ============
</TABLE>
<PAGE>
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(NOTE 2)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CECO
ENVIRONMENTAL PRO FORMA
CORP. AND --------------------------------
SUBSIDIARIES BUSCH CO. TOTAL ADJUSTMENTS CONSOLIDATED
------------ --------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
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
========= =========
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
(b) Pro-Forma Financial Information.
CECO ENVIRONMENTAL CORP. AND CONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
(NOTE 1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CECO
ENVIRONMENTAL PRO FORMA
CORP. AND ------------------------------
SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
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
========= ========= ==========
</TABLE>
<PAGE>
CECO ENVIRONMENTAL CORP.. AND CONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(NOTE 2)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CECO
ENVIRONMENTAL PRO FORMA
CORP. AND ---------------------------------
SUBSIDIARIES BUSCH CO. TOTAL ADJUSTMENTS CONSOLIDATED
------------ --------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
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
========= =========
</TABLE>
<PAGE>
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.
<PAGE>
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
<PAGE>
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
