<PAGE>
EXHIBIT 13
CROWN ANDERSEN INC.
2000
ANNUAL
REPORT
<PAGE>
MESSAGE TO SHAREHOLDERS
Despite a record revenues and earnings year at Montair Andersen b.v.
in the Netherlands and at Griffin Environmental Company, Inc. in Syracuse, New
York, we were not able to generate a consolidated profit at Crown Andersen Inc.
in fiscal 2000. This was not expected by me personally nor by your Board of
Directors. We were aware that the Andersen 2000 operation in Peachtree City,
Georgia, was not able to fully recover to prior year revenues and gross margin
levels during the year. The recovery was nearly complete by the middle of the
4/th/ fiscal quarter, and we believed this would enable a modest consolidated
profit for the year. At year end, however, we were advised that the agreed upon
5% interest on the five-year, $1.44 million settlement with an Andersen 2000
indonesian customer, which was negotiated and announced in July 2000, was not
considered adequate under U.S. accounting standards and that we would have to
discount the value of the settlement agreement by about $163,000 to reflect a
more reasonable 8% interest over five years. This eliminated any possibility of
reporting a consolidated profit for the year. Andersen 2000 was also delayed in
finishing one project which also impacted year-end revenues and earnings.
Despite a substantial improvement in consolidated Crown Andersen
revenues, and the narrowing of the loss from prior years, Andersen 2000's
performance was not up to expectations by the directors and several changes were
made in management and organization structure to correct this. Andersen 2000's
operations "turned around" in late fiscal 2000 and Andersen 2000 has secured a
firm backlog of incineration and air pollution control system orders to enable a
dramatic improvement in operations in fiscal 2001. Montair and Griffin also have
near record or record backlogs going into the new year. Thus, we expect a
profitable 2001 with substantially improved revenues.
There are several very positive changes for our businesses in fiscal
2001, particularly for Andersen 2000. The new U.S. Administration is not
expected to be "anti-incineration" as was its predecessor. Thus, we expect that
our long-term chemical, petrochemical and pharmaceutical clients (which have
been forced to build plants outside the U.S. in the past eight years) will be
allowed to install new plants and processes in North America with proper,
environmentally responsible waste treatment processes, and we will benefit
directly. Further, the slowing Asian economies, which adversely impacted
incoming business at Andersen 2000 and Montair for the past four years, have
improved substantially and will result in a restoration of orders, revenues, and
earnings from Asia for our operations in 2001.
While we are certainly not satisfied with our earnings performance in
2001, we consider the market value of our common stock to be discounted far
beyond reasonable levels, especially in view of the 2001 prospects. We will do
everything that company management can do and is expected to do to restore this
market value to a reasonable level in fiscal 2001.
Respectfully submitted,
/s/ Jack D. Brady
----------------------
Jack D. Brady
President and Chairman
1
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Figures)
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $20,473 $15,680 $14,326 $23,144 $22,027
Net Income (Loss) $ (263) $ (577) $(1,126) $ 1,149 $ 455
Earnings (loss) per share $ (0.14) $ (0.33) $ (0.74) $ 0.76 $ 0.29
Total Assets $20,472 $19,747 $18,084 $21,386 $22,448
Long-term debt $ 824 $ 19 $ - $ 775 $ 1,505
Cash dividends declared per common share $ - $ - $ - $ - $ -
</TABLE>
BUSINESS INFORMATION
Crown Andersen Inc. is a holding company for Andersen 2000 Inc.,
headquartered in Peachtree City, Georgia, Griffin Environmental Company, Inc.,
headquartered in Syracuse, New York, and Montair Andersen bv, headquartered in
Sevenum, The Netherlands. The Company, through these subsidiaries, is involved
in the design, manufacture, sale and installation of industrial pollution
control systems, medical, chemical and hazardous waste disposal systems, heat
recovery systems, dust collectors, industrial air handling systems, and spray
dryer systems.
The Company's pollution control systems (one of two industry segments)
include high efficiency air filtration systems, wet scrubbers for particulate
and gaseous emission collection, sulfur dioxide removal systems for oil and coal
fired steam boilers and steam generators, odor control systems, gas coolers and
condensers, mechanical collectors for product recovery, and industrial water and
waste water treatment systems.
In the air handling systems line, the Company manufactures industrial
fans and blowers for high pressure and alloy steel applications. Spray dryers
include those used for industrial chemical manufacturing and those used for
disposal of waste liquids to produce a dry end product. The hazardous waste
disposal systems include incinerators and waste liquid evaporators used for
chemical, medical and commercial waste disposal applications and complete
turnkey plants for waste disposal.
In the dust collector line (the second industry segment), the Company
manufactures fabric filter and cartridge dust collectors, product recovery and
pollution control equipment for a variety of industries, including chemicals,
food processing, concrete, steel, other metals, clays, paper, glass, and other
industries.
The Company's products are marketed to various industrial and
manufacturing concerns throughout the world by independent sales representatives
and by direct employees of the Company. In addition, the Company licenses
foreign manufacturers in India and Japan to manufacture and market its equipment
in those countries and in adjacent countries. As a percentage of revenues, sales
and operations outside the United States accounted for approximately 26% of the
Company's total revenues in fiscal 2000. This compares to approximately 33% and
62% of the Company's total revenues in fiscal 1999 and 1998, respectively.
Foreign sales for fiscal 2000, 1999 and 1998 totaled approximately $5.4 million,
$5.3 million and $8.9 million, respectively.
For information pertaining to revenues, income (loss) before taxes and
identifiable assets for each of the Company's geographic areas for the past
three fiscal years, see Note 11 of the Notes to Consolidated Financial
Statements.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Crown Andersen Inc. (Crown Andersen or the Company) is a publicly-
traded holding company for Andersen 2000 Inc. (Andersen), Griffin Environmental
Company, Inc. (Griffin), and, through Andersen, owns all of the outstanding
stock of Montair Andersen bv (Montair). The Company is engaged exclusively in
the pollution control, product recovery and waste processing equipment
businesses.
In fiscal 2000, revenues increased 31% to $20.5 million from $15.7
million in fiscal 1999. The Company reported net loss of $262,735 in fiscal 2000
compared to a net loss of $576,690 in fiscal 1999. The increase in revenues and
the 54% reduction in net loss in fiscal 2000 was entirely attributable to
operations at Griffin and Montair.
In fiscal 1999, revenues increased 9% to $15.7 million from $14.3
million in fiscal 1998. The Company incurred a net loss of $576,690 in fiscal
1999, as compared to a net loss of $1,126,031 in fiscal 1998. Fiscal 1999
results reflect a decline in revenues from the 1995 - 1997 period as a result of
the economic crisis in Asia.
Foreign revenues (including export sales by Andersen and sales by
Montair) accounted for 26.7% and 33.3% of total revenues in fiscal years 2000
and 1999, respectively. Foreign sales transactions are generally guaranteed by
bank letters of credit. The Company has little or no foreign currency exposure
on sales by Montair as its contracts are payable in Dutch Guilders, its local
currency. As of September 30, 2000, the Company had cumulative currency
adjustments of $264,864. This amount has been reflected as a line item in the
equity section of the balance sheet. (See "Consolidated Statement of
Stockholders' Equity.")
The Company is involved in certain litigation. See Note 12 to the
Consolidated Financial Statements for a discussion.
Liquidity and Capital Resources
Cash and cash equivalents of $2,504,982 at September 30, 2000
increased $851,466 from the September 30, 1999 balance of $1,653,516. The
increase resulted from release of restricted cash of $1,036,000 and increase in
long-term debt of $670,079, offset by increases in inventories and receivables.
The net increase in receivables reflects a long-term receivable of $1,276,636
related to the settlement of a contract dispute. (See Note 4.) Cash used for
operating activities amounted to $458,034.
Cash provided by investing activities totaled $688,865. This amount
reflects the release of restricted cash of $1,036,000 as a result of settlement
of a contract dispute (Note 5), partly offset by capital expenditures of
$347,135.
Cash provided by financing activities totaled $664,967. This amount
includes $646,908 in net bank borrowings and $18,059 received from the sale of
common stock.
The Montair and Griffin operations were profitable in fiscal 2000 and
realized a positive cash flow from operations. At Andersen, unprofitable
operations and an increase in receivables contributed to a negative cash flow
from operations.
As disclosed in Note 6 to the Consolidated Financial Statements,
during 1994 the Company repossessed certain equipment under a lease arrangement.
The Company reduced the carrying value of this asset to $490,000 as of September
30, 1998 and it is reflected as equipment held for resale in the accompanying
consolidated balance sheet. (See Note 6.) The Company has active negotiations
underway for the sale of this equipment. It is anticipated that this equipment
will be sold in fiscal 2001.
3
<PAGE>
The Company has pending litigation which is fully disclosed in Note 12
to the Consolidated Financial Statements. The Company believes that the final
resolution of these matters will not result in a material adverse offset on the
Company's financial statements or its operations.
The Company had a $5.0 million line of credit and a term loan with a
U.S. bank. During 1999, the Company's bank notified the Company that the bank
was not going to renew the line of credit beyond September 30, 1999. No
borrowings were made by the Company in fiscal year 2000 and no amounts are due
to the bank under this loan, except for $500,000 on letters of credit issued by
this bank and guaranteed by the line of credit. The letters of credit expired in
June 2000. However, there was $675,000 outstanding on the term loan that matured
on September 30, 1999. During fiscal 2000, the Company continued to make
scheduled loan payments to this bank and reduced the amount due to $575,000 as
of September 30, 2000. The bank agreed to extend the maturity of this loan to
May 1, 2001, and monthly payments were increased to $30,000 (including interest)
from $8,333 (plus interest) commencing on December 1, 2000.
The Company has been actively seeking financing from other sources
since September 1999 to replace the line of credit. The discussions for
replacement financing include banks with similar collateral requirements and
mortgage loans on the Company's real estate holdings. In September 2000, the
Company obtained a mortgage loan of $850,000 collateralized by the Griffin
property. The Company is presently engaged in discussions with several banks
that have expressed serious interest in providing financing and anticipates
obtaining the needed financing prior to March 2001.
The Company's cash flow projections for fiscal 2001 indicate that it
will generate sufficient funds to pay-off the remaining term loan on May 1,
2001. The inability of the Company to be able to obtain necessary financing
within a timely fashion could have an unfavorable impact on the Company's
ability to maintain projected operating levels and to meet certain obligations
when they become due.
Under the current loan agreement, the Company is required to obtain
the bank's consent to pay cash dividends, purchase treasury stock, or to sell
assets which constitute collateral. The Company has obtained permission to
purchase up to $400,000 of treasury stock. No purchases were made during 1998,
1999 or 2000.
As of September 30, 2000, the Company's equity in its Montair
operation had decreased in value by $306,364 from September 30, 1999 as a result
of a decrease in the foreign currency translation adjustment, reflecting a 21%
increase in the U.S. dollar against the Dutch guilder.
The Company experienced no disruptions in its operations as a result
of the year 2000 issue and no additional costs were incurred during the
conversion of its computer systems.
During fiscal 2000, the Company's Montair subsidiary in the
Netherlands modified its accounting system to handle Euro conversion without
disruption and at no significant additional costs.
Results of Operations
Revenues:
Revenues of $20,473,404 in fiscal 2000 increased $4,793,203 (31.0%)
from fiscal 1999 revenues of $15,680,201. Revenues at Griffin increased
approximately 280% since fiscal year 1999 and accounted for the entire revenues
increase. Revenues at Andersen and Montair decreased $232,677. Foreign sales
(including Andersen exports and Montair sales) were $5.4 million and $5.3
million for years 2000 and 1999, and accounted for 26% and 34% of revenues in
fiscal years 2000 and 1999, respectively. All changes in revenues are related to
the quantity of products sold, not to pricing changes.
The Company continues to pursue business in the international
marketplace. Domestic demand for the Company's products has been slow during the
past four years due to changes in U.S. environmental regulations.
4
<PAGE>
Business improved during fiscal years 2000 and 1999, however, the improvement is
largely attributable to additional sales generated at the Company's Griffin
facility. Domestic revenues accounted for 74% and 66% during fiscal years 2000
and 1999, respectively.
Total revenues increased $1,354,111 (9.5%) during fiscal 1999,
primarily as a result of revenues contributed by Griffin during the first year
after its acquisition by the Company.
Cost of Sales:
Cost of sales increased $3,562,352 (27.1%) to $16,694,658 in fiscal
2000, primarily as a result of higher revenue volume. In fiscal 1999, cost of
sales increased $670,279 (5.4%) from 1998 levels, also as a result of increases
in revenue.
Overall, the average combined gross margin improved 2.2% to 18.5%
during fiscal 2000. The gross profit margin in 1999 was 16.3%. The dust
collector segment of the Company's business (the Griffin operation) maintained
its profit margin of 22% while the margins for incineration/pollution control
segment (Andersen and Montair) improved by 1.5%.
Selling, General and Administrative Costs:
Selling, general and administrative costs in fiscal 2000 increased
$659,308 (19.0%) to $4,134,301 from the 1999 levels. Griffin accounted for 49%
of the increase as a result of its significant increase in operating revenues in
fiscal 2000. The increase also reflects higher expenditures for salaries,
professional fees and commissions which increased to 26%. Selling, general and
administrative costs were 20.2%, 22.2%, and 19.9% of revenues for fiscal years
2000, 1999 and 1998, respectively. With the exception of commissions, selling,
general and administrative costs are generally fixed in nature and do not
typically increase in direct proportion to increases in revenue.
In fiscal 1999, these expenses increased $630,119 (22.1%) as a result
of the addition of Griffin - a new subsidiary.
Interest and Other Income
Total interest and other income was $47,520 for fiscal 2000, compared
to $23,208 and $147,780 for fiscal 1999 and 1998, respectively. The improvement
noted during fiscal 2000 reflects a reduction in net interest costs and lower
other expenses during the year. The $124,572 decrease experienced during fiscal
1999 reflects a substantial reduction in interest income.
Loss on Litigation Settlement:
The Company recorded a loss on litigation settlement of $900,000 in
fiscal 1998. (See discussion in Note 6 to Consolidated Financial Statements.)
Taxes (Tax Benefit) on Income:
In fiscal 2000, the effective tax rate (benefit) was 14.7%, compared
to 36.2% (benefit) in fiscal 1999 and 35.0% (benefit) in fiscal 1998. (See Note
9.)
Deferred tax assets arising from net operating loss carryforwards and
a valuation allowance on certain equipment held for resale had a significant
contribution to the tax benefits realized in fiscal year 2000 and 1999.
Management believes that sufficient taxable income will be generated in future
years in order to fully realize these net operating loss carryforwards.
5
<PAGE>
Net Income (Loss)
In fiscal 2000, the Company realized a net loss of $262,735 ($0.14 per
share) compared to a net loss of $576,690 ($0.33 per share) reported for fiscal
1999. The Griffin subsidiary (the dust collection segment of the Company's
business) reported net income of $286,674 due to higher revenues, and as a
result the Company's overall net loss was reduced by 54% during fiscal 2000.
Montair Andersen reported net income of $226,348, however, the pollution
control/incineration segment (Andersen and Montair) reported a combined net loss
of $549,409. The fiscal 1999 loss is attributable to decline in export revenues
resulting from the economic crisis in Asia.
The average number of shares outstanding were as follows:
2000 1999 1998
---- ---- ----
Basic 1,837,070 1,770,262 1,514,728
Diluted 1,837,070 1,770,262 1,514,728
Effects of Inflation:
During fiscal 2000 and fiscal 1999, the Company did not experience any
increases in manufacturing materials and supplies costs in the domestic
marketplace. In most cases the Company has been successful in passing cost
increases on to its customers without experiencing any significant erosion to
gross margins levels.
Quantitative and Qualitative Disclosures About Market Risk:
Management has analyzed the quantitative and qualitative aspects of
market risk at September 30, 2000 and does not believe that it will have any
significant impact on the financial statements.
Forward-Looking Statements
Certain forward-looking statements are made in this Management's
Discussion and Analysis and in the Message to Shareholders in this Annual
Report. The Company's results may differ materially from those in the forward-
looking statements. Forward-looking statements are based on management's
current views and assumptions, and involve risks and uncertainties that
significantly affect expected results. For example, operating results may be
affected by external factors. Such factors include, but are not limited to,
changes in the regulatory environment, general conditions in the environmental
industry, the Company's competitive position, and economic conditions in
international markets.
6
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
ASSETS (Note 8)
CURRENT:
Cash and cash equivalents $ 2,504,982 $ 1,653,516
Receivables:
Trade, less allowance of $200,961 and $174,543 for
possible losses 4,830,760 4,924,700
Other 10,024 41,928
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 2) 2,086,007 2,635,324
Inventories (Note 3) 2,635,171 2,364,616
Prepaid expenses 147,836 154,708
Current maturities of long-term receivable (Note 4) 67,246 -
Deferred income taxes 189,317 152,868
----------- -----------
TOTAL CURRENT ASSETS 12,471,343 11,927,660
RESTRICTED CASH (Note 5) - 1,036,000
LONG TERM RECEIVABLE (Note 4), net of discount of $163,364 1,209,390 -
PROPERTY AND EQUIPMENT, less accumulated depreciation (Note 7) 2,747,040 2,806,522
DEFERRED INCOME TAXES (Note 9) 1,145,886 1,027,251
PROPERTY AND EQUIPMENT HELD FOR SALE (Note 6) 1,990,000 1,990,000
GOODWILL, net of accumulated amortization of $108,019 (Note 1) 775,904 834,833
OTHER ASSETS 132,365 124,253
----------- -----------
$20,471,928 $19,746,519
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit (Note 8) $ 370,000 $ 120,000
Notes payable (Note 1) - 273,171
Accounts payable 4,184,295 3,801,352
Accruals:
Income taxes 214,124 4,714
Compensation 391,216 357,015
Warranty 258,000 228,000
Miscellaneous 415,148 417,507
Billings on uncompleted contracts in excess of cost and
estimated earnings (Note 2) 116,806 -
Current maturities of long-term debt (Note 8) 648,166 783,265
Deferred income taxes (Note 9) 252,482 378,322
----------- -----------
TOTAL CURRENT LIABILITIES 6,850,237 6,363,346
LONG-TERM DEBT, less current maturities (Note 8) 823,922 18,744
DEFERRED INCOME TAXES (Note 9) 236,312 251,932
----------- -----------
TOTAL LIABILITIES 7,910,471 6,634,022
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY: (Note 10)
Common Stock, $.10 par; shares authorized 5,000,000; issued
1,875,918; outstanding 1,838,614 and 1,832,939 187,592 187,364
Additional paid-in capital 3,836,572 3,826,301
Treasury stock; 37,304 and 40,696 shares, at cost (262,675) (270,235)
Retained earnings 9,064,832 9,327,567
Foreign currency translation adjustment (264,864) 41,500
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,561,457 13,112,497
----------- -----------
$20,471,928 $19,746,519
=========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
7
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
CONSOLIDATED STATEMENTS OF LOSS:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Contracts $18,783,076 $13,701,913 $ 12,334,981
Sales 1,676,370 1,915,368 1,974,274
Other 13,958 62,920 16,835
----------- ----------- ------------
20,473,404 15,680,201 14,326,090
----------- ----------- ------------
COSTS AND EXPENSES:
Cost of contracts and sales 16,694,658 13,132,306 12,462,027
Selling, general and administrative 4,134,301 3,474,993 2,844,874
Interest and other income (47,520) (23,208) (147,780)
Loss on litigation settlement (Note 6) - - 900,000
----------- ----------- ------------
20,781,439 16,584,091 16,059,121
----------- ----------- ------------
Loss before tax benefit (308,035) (903,890) (1,733,031)
(45,300) (327,200) (607,000)
TAX BENEFIT ON LOSS (Note 9) ----------- ----------- ------------
NET LOSS $ (262,735) $ (576,690) $ (1,126,031)
=========== =========== ============
AVERAGE NUMBER OF SHARES - BASIC 1,837,070 1,770,262 1,514,728
AVERAGE NUMBER OF SHARES - DILUTED 1,837,070 1,770,262 1,514,728
LOSS PER SHARE
BASIC $ (0.14) $ (0.33) $ (0.74)
DILUTED $ (0.14) $ (0.33) $ (0.74)
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net Loss $ (262,735) $ (576,690) $(1,126,031)
Other Comprehensive Income/Expense
Foreign Currency Translation Adjustment (306,364) (151,454) 83,128
----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (569,099) $ (728,144) $(1,042,903)
=========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
8
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1999 AND 2000
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
------------ Paid-In Retained Treasury Translation
Shares Amount Capital Earnings Stock Adjustment
------ ------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1997 1,512,198 156,164 $2,905,801 $11,030,288 $(319,760) $ 109,826
Net loss - - - (1,126,031) - -
Issuance of treasury stock 3,373 - - - 24,027 -
Change in translation adjustment - - - - - 83,128
--------- -------- ---------- ----------- --------- ---------
BALANCE, SEPTEMBER 30, 1998 1,515,571 156,164 2,905,801 9,904,257 (295,733) 192,954
Net Loss - - - (576,690) - -
Sale of stock 312,000 31,200 920,500 - - -
Issuance of treasury stock 5,368 - - - 25,498 -
Change in translation adjustment - - - - - (151,454)
--------- -------- ---------- ----------- --------- ---------
Balance, September 30, 1999 1,832,939 187,364 3,826,301 9,327,567 (270,235) 41,500
Net Loss - - - (262,735) - -
Sale of Stock 2,283 228 10,271 - - -
Issuance of treasury stock 3,392 - - - 7,560 -
Change in translation adjustment - - - - - (306,364)
--------- -------- ---------- ----------- --------- ---------
Balance, September 30, 2000 1,838,614 $187,592 $3,836,572 $ 9,064,832 $(262,675) $(264,864)
========= ======== ========== =========== ========= =========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
9
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (262,735) $ (576,690) $(1,126,031)
Items in income from operations not affecting cash:
Depreciation and amortization 341,028 302,068 215,949
Provision for valuation allowance on soil
processor unit - - 180,000
Deferred income taxes (282,044) (561,448) 364,446
Cash provided by (used for) (net of effects of
purchase of Griffin Environmental Company, Inc.)
Trade and long-term receivables (1,398,961) (1,822,729) 352,290
Refundable income taxes 17,171 1,074,514 (116,031)
Costs and estimated earnings in excess of
billings on uncompleted contracts 549,317 2,051,231 1,150,343
Inventories (349,774) 412,107 240,845
Prepaid expenses 444 (36,936) (13,524)
Accounts payable 573,327 1,519,776 (2,064,978)
Accrued expenses 318,240 (52,417) (1,758,599)
Increase in notes payable from litigation
settlement - - 670,000
Billings on uncompleted contracts in excess of
costs and estimated earnings 116,806 (6,113) (111,608)
Other (80,853) 4,273 6,740
------------ ----------- -----------
Cash provided by (used for) operating activities (458,034) 2,307,636 (2,010,158)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash released from restrictions 1,036,000 - -
Investment in Griffin Environmental Company, Inc. - (2,296,010) -
Cash paid for litigation settlement - - (1,500,000)
Collection of note receivable - 490,000 300,000
Capital expenditures (347,135) (112,429) (62,519)
------------ ----------- -----------
Cash provided by (used for) investing activities 688,865 (1,918,439) (1,262,519)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 250,000 120,000 -
Payments on notes payable (273,171) (811,735) -
Proceeds from issuance of long-term debt 850,000 - -
Repayment of long-term debt (179,921) (187,872) (494,736)
Issuance of common stock 10,499 951,700 -
Issuance of treasury stock 7,560 25,498 24,027
------------ ----------- -----------
664,967 97,591 (470,709)
------------ ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (44,332) (4,369) 20,112
------------ ----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the year 851,466 482,419 (3,723,274)
Balance at beginning of year 1,653,516 1,171,097 4,894,371
------------ ----------- -----------
BALANCE AT END OF YEAR $ 2,504,982 $ 1,653,516 $ 1,171,097
============ =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
10
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS
Crown Andersen Inc. (Crown Andersen) is a publicly traded holding
company for Andersen 2000 Inc. (Andersen). Andersen owns all of the outstanding
stock of Montair Andersen bv (Montair). Andersen and Montair are engaged
primarily in the business of designing, manufacturing and selling specialized
industrial equipment including industrial pollution control systems, medical and
hazardous waste disposal systems, heat recovery systems, industrial air handling
systems and spray dryer systems. On December 16, 1998, Crown Andersen purchased
Griffin Environmental Company, Inc. (Griffin). (See Note 1).
CONSOLIDATION
The financial statements include the accounts of Crown Andersen Inc.
and its subsidiaries discussed above. All material intercompany accounts and
transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
Foreign currencies have been translated into United States dollars for
inclusion in the financial statements under the provisions of Statement No. 52
of the Financial Accounting Standards Board. Accordingly, assets and
liabilities of Montair are translated using the exchange rate in effect at the
balance sheet date. Results of operations of Montair are translated using the
average exchange rates prevailing throughout the period. The effect of the
difference in these rates is included in stockholders' equity as the foreign
currency translation adjustment.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
Certain Significant Estimates and Vulnerability Due to Certain Concentrations
The following are significant estimates made by management:
The Company contracts are accounted for under the percentage of
completion method of accounting. Under this method, the percentage of contract
revenue to be recognized currently is based on management's estimates of costs
incurred and an estimate of total estimated costs. Estimates of costs incurred
include irrevocable commitments to purchase specialized materials and equipment
unique to the project. These estimates are reviewed by management monthly and
adjusted accordingly. However, due to uncertainties inherent in the estimation
process, actual results could differ from those estimates.
Due to the relatively large nature of the Company's typical contract,
individual contracts may represent significant portions of trade receivables and
costs and estimated earnings in excess of billings on completed contracts.
During fiscal 2000, the Company contracted with three customers that accounted
for approximately 23% of total revenues recognized during fiscal 2000.
During fiscal 1999, the Company had a contract with a customer which
accounted for $3,502,983 or approximately 22% of total revenues recognized. As
of September 30, 1999, the Company had completed 82% of this contract. Also as
of September 30, 1999, a contract resulted in costs and estimated earnings in
excess of billings and accounts receivable of approximately $1,900,000 or 10% of
total assets.
11
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
At September 30, 2000, approximately $900,000 of $1,800,000 in
inventories related to a December 1995 acquisition of a former competitor's
product line remained on the Company's balance sheet. Management has identified
and made proposals to customers that can use this inventory and believes no loss
will be incurred on its disposition.
Crown Andersen's policy is to reduce the carrying value of certain
specialized equipment held for sale for changes in the market value of such
equipment. No amounts were charged to operations during 2000 or 1999. During
fiscal year 1998, the Company charged $180,000 to operations to reduce the
carrying value of the specialized equipment. The Company believes that this
equipment will be sold in the near future and no loss or significant disposal
costs will be incurred upon disposal. (See Note 6.)
At September 30, 2000, the Company holds property and equipment with
an estimated carrying value of $1,500,000 received from a settlement of certain
outstanding litigation during a prior year. Management has based this estimated
valuation on the results of marketing this property to interested third parties
and the valuation is supported by an appraisal. Actual results could differ
from this estimate.
The Company is involved in certain litigation which may result in
losses to the Company. See Note 12.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's principal financial instruments, as contemplated under
SFAS No. 107, are represented by its costs and estimated earnings in excess of
billings on uncompleted contracts, inventories, trade and long-term receivables
and notes payable. The majority of the Company's receivables are short-term in
nature and bear interest at rates which approximate current market rates, that
is, rates at which the Company currently renews or extends funds. The Company's
notes payable bear interest at rates which change periodically with market
interest rates and accordingly, carrying value is deemed to approximate fair
value. The Company's long-term note receivable is recorded at fair value and
bears interest at 8%, which approximates market rates on similar instruments.
INVENTORIES
Inventories are valued at the first-in, first out (FIFO) basis and
consists of incineration equipment, raw materials and supplies to be used on job
sites. Maintenance and office supplies are not inventoried. When necessary,
management records a provision to reduce inventories to their net realizable
value less costs to dispose. In management's opinion, no such provision is
necessary at September 30, 2000.
REVENUE RECOGNITION
For financial reporting purposes, income from long-term contracts is
reported on the percentage of completion method. Under this method, the
percentage of contract revenue to be recognized currently is based on the ratio
of costs incurred to date to total estimated contract costs, after giving effect
to the most recent estimates of costs to complete. Provision is made for any
losses on an individual contract basis in the period in which losses are first
determinable. Contracts are reported on the percentage of completion method for
income tax purposes. Sales of products and services are recorded when the
product is shipped or the service is rendered to the customer.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Expenditures for additions
are capitalized while expenditures for maintenance and repairs are charged to
expense as incurred. For financial reporting purposes, buildings and equipment
are depreciated using primarily the straight-line method on their estimated
useful lives. For tax purposes, equipment is depreciated using accelerated
methods. The estimated useful lives of the assets range from 3-15 years for
equipment and 10-30 years for buildings.
12
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
GOODWILL
Goodwill represents the excess of the purchase price of acquired
subsidiaries over the fair market value of the subsidiary's assets and
liabilities. Goodwill is amortized on a straight-line basis over fifteen years.
The Company's operational policy for the assessment and measurement of
any impairment in the value of goodwill is to evaluate the recoverability and
remaining life and determine whether it should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment if undiscounted estimated future operating cash flows of the
acquired business are determined to be less than the carrying amount. The amount
of the impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds.
TAXES ON INCOME
Income taxes are calculated using the liability method specified by
Statement of Accounting Standards No. 109, "Accounting For Income Taxes".
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Deferred tax assets are
reflected net of valuation allowances, if any, if it is more likely than not
that such assets will be realized.
U.S. income taxes are not provided on the accumulated undistributed
earnings of Montair as it is the Company's intention to indefinitely reinvest
such earnings and not to transfer them in a taxable transaction. The deferred
taxes attributable to the undistributed earnings of Montair are not significant.
STOCK OPTIONS AND WARRANTS
Proceeds from the sale of common stock issued on exercise of options
and warrants are credited to common stock at par value, and the excess amounts
received and tax benefits are credited to additional paid-in capital at the time
the options and warrants are exercised.
The Company adopted the disclosure-only positions of SFAS No. 123,
"Accounting for Stock Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option plans for options issued to employees. The adoption of SFAS No. 123 did
not have any material effect on the Company's earnings for the periods presented
in these financial statements.
EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average
number of shares outstanding during each year. It is assumed that all dilutive
stock options are exercised at the later of the beginning of each year or the
time of issuance and that the proceeds are used to purchase shares of the
Company's common stock at the average market price during the period. For the
year ended September 30, 2000, there were 306,788 of potentially dilutive
weighted average shares outstanding.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed in the year
incurred. For the periods presented there were no research and development
expenditures.
13
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
WARRANTY COSTS
The Company warrants its products generally for a period of one year
after shipment or installation. Provision for estimated warranty cost is
recorded at the time of installation.
EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan in which all employees can contribute a
portion of their pre-tax wages into investment accounts for retirement. The
contributions are matched 27% by the Company up to 7% of gross wages. The
Company has charged plan contributions to operations when due and has funded the
plan accordingly. No additional contributions are required, but the Company can
make contributions from profits at its discretion. Contributions for 2000, 1999
and 1998 totaled approximately $18,204, $20,319, and $22,507, respectively.
STATEMENTS OF CASH FLOWS
Cash and cash equivalents include interest bearing checking accounts
and bank certificates of deposit with original maturities of three months or
less. Cash paid for interest was approximately $112,592, $122,909, and $98,909
for the years ended September 30, 2000, 1999 and 1998, respectively. Income
taxes paid were $45,000 in 2000. In 1999, income taxes refunded were
approximately $1.1 million and in 1998 taxes paid were $361,000.
RECLASSIFICATIONS
Certain of prior years numbers have been reclassified in this report
to conform to the current year presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, (as amended) is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance sheet and
to measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition if (i) the changes in the fair value of the hedged asset or libility
that are attributable to the hedged risk or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks of for speculative purposes. Accordingly, the Company does
not expect the new standard to effect its financial statements.
FASB Statement No. 137, Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement #133 ("SFAS
No. 137") was issued and effective in June 1999. SFAS No. 137 extends the
effective date of SFAS No. 133 to fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS No. 137 also amends the manner in which entities
recognize embedded derivative instruments.
The Financial Accounting Standards Board issued Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation, an
Interpretation of APB Opinion No. 25 (the "Interpretation") which is effective
July 1, 2000. The Interpretation clarifies (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
stock compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of the
Interpretations are not expected to have a significant impact on the Company's
financial statements.
14
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (continued)
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101
Revenue Recognition which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC. The Company believes that adopting SAB No. 101 will not have a
material impact on its financial position or results of operations.
15
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACQUISITION OF BUSINESS
On December 16, 1998 the Company purchased all the outstanding shares
of stock of Griffin Environmental Company, Inc. Griffin is a manufacturer of
fabric filter and cartridge dust collectors, product recovery and pollution
control equipment. Griffin sells its equipment to a wide variety of industries,
including chemicals, food processing, concrete, steel, other metals, clays,
paper, glass, and other industries.
The Company purchased Griffin for approximately $2.6 million in
December 1998. This was comprised of cash of $2.3 million and a one-year
promissory note for approximately $273,000 secured by a second mortgage on the
real estate. The note bears annual interest at 4.33% payable monthly, and was
paid off on December 16, 1999.
The acquisition included the purchase of assets comprised primarily of
inventories, accounts receivable, and property, plant, and equipment.
Liabilities assumed in the acquisition consist primarily of trade accounts
payable, customer deposits, long-term debt, and other accrued liabilities. The
transaction was accounted for under the purchase method of accounting whereby
all assets and liabilities were valued at their current fair market values at
December 16, 1998. The Company recorded goodwill of $883,923 in connection with
this acquisition.
The following is selective proforma financial information on the
Company's operations as if the purchase of Griffin occurred as October 1, 1997
(in thousands, except per share data):
1999 1998
-------- --------
Revenues $16,350 $20,263
Net Loss (615) (865)
Earnings (loss) per share (0.35) (0.48)
NOTE 2. CONTRACTS IN PROGRESS
Information relative to contracts in progress is as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------
2000 1999
----------- ------------
<S> <C> <C>
Costs $ 8,736,815 $ 13,324,686
Estimated earnings 2,247,621 5,197,296
Billings applicable thereto (8,898,429) (15,886,658)
----------- ------------
Net Amount $ 2,086,007 $ 2,635,324
=========== ============
Included in the accompanying balance sheets in:
Current assets $ 2,086,007 $ 2,635,324
Current liabilities (116,806) -
----------- ------------
Net Amount $ 1,969,201 $ 2,635,324
=========== ============
</TABLE>
16
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVENTORIES
Inventories were $2,635,171 and $2,364,616 as of September 30, 2000 and
September 30, 1999. Included in inventories at September 30, 2000 and 1999 is
approximately $900,000 related to incineration equipment purchased from a former
competitor, respectively.
NOTE 4. LONG-TERM RECEIVABLE
On July 10, 2000, the Company entered into a settlement agreement with a
certain customer to resolve a dispute under a contract executed in fiscal year
1996. Under terms of the agreement the Company will receive $1,800,000 in two
equal payments of $180,000 each in July and August 2000, plus ten semi-annual
payments of $144,000 plus interest at 5% per annum commencing on April 1, 2001
payable through October 1, 2005. The Company has recorded a $163,364 discount on
the note to account for the effects of the difference between the 5% interest
rate stated in the agreement and the estimated fair market rate (8%) for
agreements issued under similar terms. Amortization of approximately $17,500 on
the discount is reflected in the financial statements as of September 30, 2000.
The note has been guaranteed by the customer's parent company. Under terms of
the agreement the customer agreed to cancel a performance bond of $1,036,000
which was previously guaranteed under a letter of credit with a bank. Upon
cancellation of the performance bond, $1,036,000 of cash was released from
restriction as discussed more fully in Note 5.
Future maturities of the long-term receivable are as follows:
Year Ending September 30,
2001 $ 67,246
2002 256,651
2003 263,106
2004 270,097
2005 277,668
Thereafter 141,868
----------
$1,276,636
==========
NOTE 5. RESTRICTED CASH
At September 30, 1999, $1,036,000 of the Company's short-term cash
investments was held by banks as collateral for an outstanding letter of credit.
The letter of credit expired and the restricted cash was released in 2000.
NOTE 6. PROPERTY AND EQUIPMENT HELD FOR SALE
On September 30, 1992, the Company sold a soil processor unit under a
financing-type lease arrangement. As a result of the customer's default during
1994, the Company terminated the lease, repossessed the equipment, reclassified
the asset as equipment held for sale and reduced its carrying value from
approximately $2.1 million to $1.8 million. The Company employs an outside
appraiser to review the carrying value of this unit on a periodic basis. During
fiscal year 1998, the carrying value of the equipment was reduced to $490,000
and $180,000 was charged to operations.
During fiscal 1998, the Company settled the litigation over principal and
interest for certain Kansas property formerly occupied by Struthers Thermo-Flood
Corporation, a former Crown Andersen subsidiary. Under terms of the settlement,
the Company paid $1,630,000 in cash and issued a one year, non-interest bearing
promissory note in the amount of $670,000. In exchange, the Company received
the rights (without further obligation) to transfer title of this property to a
purchaser or to the Company. The estimated value of these assets is presently
$1,500,000. This transaction was recorded as of June 30, 1998 and the Company
recognized a net loss of approximately $900,000. The Company's September 30,
2000 balance sheet includes these assets as "property and equipment held for
sale." The $670,000 note was paid in May 1999. (See also Note 12 regarding
Environmental Protection Agency notice.)
17
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Land $ 775,174 $ 805,574
Buildings 2,295,637 2,489,948
Machinery and equipment 1,172,274 1,229,519
Office furniture and fixtures 1,253,196 1,166,350
Vehicles 59,634 65,228
----------- -----------
5,555,915 5,756,619
Less Accumulated Depreciation (2,808,875) (2,950,097)
----------- -----------
NET PROPERTY AND EQUIPMENT $ 2,747,040 $ 2,806,522
=========== ===========
</TABLE>
Depreciation expense amounted to $282,099, $248,715 and $193,450 for the
fiscal years ended September 30, 2000, 1999 and 1998, respectively.
NOTE 8. BORROWED FUNDS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
Note payable to a bank in 31 monthly payments of
$8,333 plus interest at the prime rate (9.50% and
8.5% at September 30, 2000 and 1999, respectively).
Final balloon was due September 30, 1999. Terms of
this loan have been modified with payments of $30,000
per month (principal and interest) commencing Decem-
ber 1, 2000 and maturity date extended to May 1, 2001. $ 575,005 $ 675,000
Note payable to an individual due October 2000 payable
in monthly installments of $8,333 plus interest at 1%
over prime, collateralized by mortgage on Griffin's
facility. Paid off in September 2000. - 116,668
Mortgage note payable to a bank in 60 monthly payments
of $11,417.18 including interest at the fixed rate of
10.39%, final balloon payment due October 1, 2005,
collateralized by Griffin's facility. 850,000 -
Other 47,083 10,341
---------- ----------
TOTAL 1,472,088 802,009
Less current maturities 648,166 783,265
---------- ----------
$ 823,922 $ 18,744
========== ==========
</TABLE>
All assets of the U.S. Company are pledged as collateral on the note payable and
the U.S. revolving line of credit.
18
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. BORROWED FUNDS (continued)
The Company had a $5.0 million line of credit and a term loan with a U.S.
bank. During 1999, the Company's bank notified the Company that the bank was
not going to renew the line of credit beyond September 30, 1999. No borrowings
were made by the Company in fiscal year 2000 and no amounts are due to the bank
under this line, except for $500,000 on letters of credit issued by this bank
and guaranteed by the line of credit. The letters of credit expired in June
2000. However, there was $675,000 outstanding on the term loan that matured on
September 30, 1999. The Company continued to make scheduled loan payments to
this bank and reduced the amount due to $575,000 as of September 30, 2000. The
bank agreed to extend the maturity date of this loan to May 1, 2001 and monthly
payments were increased to $30,000 (including interest) from $8,333 (plus
interest) commencing on December 1, 2000.
The Company has been actively seeking financing from other sources since
September 1999 to replace this line of credit. The discussions for other
financing include banks with similar collateral requirements and mortgage loans
on the Company's real estate holdings. In September 2000, the Company obtained
a mortgage loan of $850,000 collateralized by Griffin's property. The Company's
cash flow projections for fiscal 2001 indicate a that it will generate
sufficient funds to pay-off the remaining term loan balance (balloon payment) of
approximately $435,000 on May 1, 2001. The Company is presently engaged in
discussions with several banks that have expressed serious interest in providing
financing and anticipates obtaining the needed financing prior to March 2001.
The inability of the Company to be able to obtain necessary financing within a
timely fashion could have an unfavorable impact on the Company's ability to
maintain projected operating levels and to meet certain obligations when they
become due.
A subsidiary of the Company has a $500,000 line of credit with another U.S.
bank. This line is self-renewing and carries an interest rate of prime plus
3/4%. As of September 30, 2000 and 1999, $370,000 and $120,000 had been
borrowed against this line, respectively. The Company also has a $400,000 line
of credit at a Dutch bank. Property and equipment, inventories and trade
accounts receivables at Montair are pledged as collateral to one Dutch bank for
the Dutch line of credit. No borrowings had been made against this line as of
September 30, 2000.
The weighted average interest rate on the U.S. line-of-credit was
approximately 9.00% during 2000 and 1999, respectively. In connection with the
U.S. bank credit agreement, the Company is required to maintain certain
financial statement covenants. The Company's U.S. bank line-of-credit and term
loan limits the Company's ability to pay dividends on its stock, purchase
treasury stock, or sell assets which constitute collateral, so long as any of
the collateralized obligations remain unpaid or the agreement is in effect. The
Company was not in compliance with certain provisions under its U.S. bank line
of credit. However, compliance was waived for this condition with the extension
of the loan to May 1, 2001.
Interest expense charged to operations during fiscal 2000, 1999 and 1998
was approximately $113,000, $122,000, and $104,000, respectively.
Future maturities of long-term debt are as follows:
Year Ending September 30, $ 648,166
2001 76,697
2002 62,280
2003 69,069
2004 615,876
----------
2005 $1,472,088
==========
19
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. TAXES ON INCOME
The components of income (loss) before taxes on income consisted of the
following:
<TABLE>
<CAPTION>
2000 1999 1998
--------- ----------- -----------
<S> <C> <C> <C>
U.S. Operations $(645,947) $(1,077,520) $(1,838,195)
The Netherlands Operations 337,912 173,630 105,164
--------- ----------- -----------
$(308,035) $ (903,890) $(1,733,031)
========= =========== ===========
</TABLE>
Significant components of the provision for income taxes attributable are
as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
2000 1999 1998
--------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ (19,977) $ - $ (928,841)
Foreign 248,822 44,110 (15,075)
State 22,399 (24,734) (39,680)
--------- ----------- -----------
251,244 19,376 (983,596)
--------- ----------- -----------
Deferred (reduction):
Federal (148,185) (232,087) 354,364
Foreign (130,553) (75,532) 51,090
State (17,806) (40,957) (28,858)
--------- ----------- -----------
(296,544) (346,576) 376,596
--------- ----------- -----------
Total taxes (benefit) on income $ (45,300) $ (327,200) $ (607,000)
========= =========== ===========
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The sources of temporary
differences and their effect on deferred taxes are as follows:
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
------------------------------ --------------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Basis in Kansas building $ - $ 249,517 $ - $249,517
Federal net operating loss 539,136 - 396,334 -
State net operating loss 63,428 - 128,574 -
Valuation allowance - equipment held for sale 543,323 - 543,323 -
Warranty accrual 58,900 - 45,600 -
Work in process - - - 130,662
Property and equipment - - - 6,184
Depreciation - 239,277 - 243,891
Compensation accruals 41,066 - 30,818 -
Discount on long-term receivable 27,931 - - -
Allowance for accounts receivable, inventories
and other 61,419 - 35,470 -
---------- ----------- ---------- --------
$1,335,203 $ 488,794 $1,180,119 $630,254
========== =========== ========== ========
</TABLE>
20
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. TAXES ON INCOME (continued)
The effective tax rates on net losses before taxes on income differs from the
federal statutory rates. The following summary reconciles taxes at the federal
statutory rates with the effective rates:
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------------
2000 1999 1998
----- ------ ------
<S> <C> <C> <C>
Taxes (benefit) at statutory rate (34.0%) (34.0%) (34.0%)
Increase (reduction) in taxes realized from:
Foreign tax difference 1.1 (0.4) 0.2
State income taxes, net of federal tax benefit (1.5) (3.1) (2.7)
Permanent differences 19.7 1.3% 0.7
Other - - 0.8
----- ------ ------
(14.7%) (36.2%) (35.0%)
===== ====== ======
</TABLE>
Management believes that sufficient taxable income will be generated in
future years in order to fully realize net operating loss carryforwards.
Consequently, no valuation allowance for deferred tax assets has been reflected
in the financial statements.
NOTE 10. STOCK OPTIONS AND WARRANTS
Crown Andersen has an employee incentive stock option plan and a directors
stock warrant plan. The incentive plan is limited to employees, and options
granted thereunder are exercisable upon issuance and expire five years from the
date of grant. The directors stock warrant plan is to compensate non-employee
directors for their services on the Board and committees of the Board. Under the
plan, each non-employee director has the right to purchase warrants granted by
the Warrant Committee for shares of common stock. Warrants for the purchase of
shares vest ratably over five years until all warrants are vested. No warrants
to purchase shares of common stock were granted during fiscal year ended
September 30, 2000. During fiscal year ended September 30, 1999, warrants to
purchase 260,000 shares of common stock at an average price of $4.47 per share
were granted under the 1998 Directors Warrant Plan. At September 30, 2000,
74,000 warrants were vested.
During fiscal year ended September 30, 2000, options to purchase 6,950
shares were exercised by a key employee and no options to purchase shares were
granted. During fiscal year ended September 30, 1999, options to purchase
177,900 shares of common stock at a price of $4.50 per share were granted under
the 1998 Incentive Stock Option Plan. As of September 30, 2000, there were
options to purchase 271,233 shares outstanding under the Incentive Stock Option
Plan at an average exercise price of $4.42 and warrants to purchase 300,000
shares of common stock at an average price of $4.45.
The Company has adopted the disclosure-only provision of SFAS No. 123,
"Accounting for Stock-Based Compensation." The fair value of stock options
granted in each earnings per share disclosure presented is the estimated present
value at the grant date using the Black-Scholes option pricing model with the
following weighted average assumptions: zero dividend yield; expected volatility
of 42% for 1999 (25% for 1998); a risk-free interest rate of 5.50% for 1999 and
1998; and expected option life of five years. Proforma effects on net income
would be to reduce earnings by $477,784 and $184,569 in 1999 and 1998,
respectively. Accordingly, the effects on earnings per share would result in a
calculated balance of $(0.50) and $(0.82) per share in 1999 and 1998,
respectively. There were no options granted in fiscal year 2000.
21
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK OPTIONS AND WARRANTS (continued)
The following tables summarizes activity on stock options and warrants:
<TABLE>
<CAPTION>
OPTIONS WARRANTS
------------------------------------ -------------------------------------------
Weighted Weighted
Average Average
No. Of Shares Exercise Price No. Of Shares Exercise Price
-------------- ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Outstanding At September 30, 1997 48,800 $ 7.00 15,000 $10.50
Granted 100,000 4.25 40,000 4.23
Expired Or Cancelled (4,800) 12.13 - -
------- ------ ------- ------
Outstanding At September 30, 1998 144,000 4.92 55,000 5.94
Granted 177,900 4.50 260,000 4.47
Exercised (12,000) 4.31 -
Expired Or Cancelled - - (15,000) 6.88
------- ------ ------- ------
Outstanding At September 30, 1999 309,900 4.44 300,000 4.45
Granted - - - -
Exercised (6,950) 4.36 - -
Expired Or Cancelled (31,717) 4.60 - -
------- ------ ------- ------
Outstanding At September 30, 2000 271,333 $ 4.42 300,000 $ 4.45
======= ====== ======= ======
</TABLE>
Weighted average fair value of options granted during the year
ended:
September 30, 1998 $199,901
September 30, 1999 $656,134
The weighted average remaining life of options and warrants outstanding at
September 30, 2000 was five years. The range of exercise prices was $4.19 -
$4.60.
On October 1, 2000, the Company granted an option to purchase 40,000 shares
of common stock to a key employee of the Company.
22
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates in two industry segments: pollution control systems
and dust collectors. Information regarding the Company's geographic segments of
its operations is set forth below.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
2000 1999 1998
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Revenues:
U.S. operations
Domestic $15,041 $10,403 $ 5,448
Export 991 1,038 5,305
The Netherlands operations 4,441 4,239 3,573
------- ------- -------
Total $20,473 $15,680 $14,326
======= ======= =======
Income (loss) before taxes:
U.S. operations $ (646) $(1,078) $(1,838)
The Netherlands operations 338 174 105
------- ------- -------
Total $ (308) $ (904) $(1,733)
======= ======= =======
Identifiable Assets:
U.S. operations $17,404 $16,669 $15,516
The Netherlands operations 3,068 3,077 2,568
------- ------- -------
Total $20,472 $19,746 $18,084
======= ======= =======
</TABLE>
During fiscal year 2000 three customers accounted for 23% of the Company's
consolidated revenues and in 1999 one customer accounted for 22% of the
consolidated revenues. It is management's opinion that the loss of such
customers would not have a material adverse effect of the Company's operations.
Historically, the Company has not been dependent on repetitive business.
The Company has two reportable segments: Pollution Control/Incinerator and
Dust Collectors. The incinerators/pollution control segment is based in
Peachtree City, Georgia, and in Sevenum, The Netherlands, and is involved in the
design, manufacture, sale and installation of industrial pollution control
systems, medical, chemical and hazardous waste disposal systems, heat recovery
systems, industrial air handling systems, and spray dryer systems. The dust
collector segment is based in Syracuse, New York, and manufactures fabric filter
and cartridge dust collection, product recovery and pollution control equipment
for a variety of industries.
The accounting policies of the segments are the same as those described in
the summary of accounting policies. The Company evaluates performance based on
profit or loss from operations before income taxes. Intersegment sales and
transfers are accounted for at current market prices. The Company's reportable
segments are strategic business units that offer different products and
services. They are managed separately.
23
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SEGMENT INFORMATION AND MAJOR CUSTOMERS (continued)
Key financial data by segment: (in thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- ------------------------------------------
Pollution Pollution
Control/ Dust Control/ Dust
Incinerator Collection Total Incinerator Collection Total
--------------- ------------- --------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues from customers $12,936 $7,537 $20,473 $13,144 $2,536 $15,680
Intersegment revenues - 35 35 - 10 10
Depreciation and
amortization 244 97 341 239 63 302
Segment pre-tax
income (loss) (754) 446 (308) (757) (147) (904)
Segment assets 15,410 3,562 18,972 15,854 2,392 18,246
Expenditures for
segment assets 125 222 347 18 94 112
</TABLE>
Reconciliation of segments assets to total consolidated assets:
Segment assets $ 18,972
Property held for sale (unallocated to segment) 1,500
--------
Total Consolidated Assets $ 20,472
========
NOTE 12. COMMITMENTS AND CONTINGENCIES
(a) The Company has employment agreements with three officers with
expiration dates through 2003. Under the terms of the agreements, the salaries
range from $97,060 to $170,000, and can increase 5% per year if certain levels
of consolidated net earnings are attained. Upon termination by the employer for
any reason other than disobedience, dishonesty, disloyalty, insubordination by
the employee, or upon termination in connection with certain dissolutions or
changes in ownership of employer, the employee will receive a minimum payment of
twice the annual salary at the time of termination.
(b) The Company has a five-year consulting agreement with a director and
owner of 300,000 shares of the Company stock acquired in a private placement.
Under this consulting agreement the director will be paid a monthly fee of
$5,000 or 0.5% of the market value of the 300,000 shares of Common Stock,
whichever is greater.
24
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES (continued)
(c) The Company has the following pending or threatened litigation and
unasserted claims or assessments pending as of September 30, 2000:
Georgia Gulf Corporation v. Andersen 2000 Inc. On October 16, 1996, Georgia
---------------------------------------------
Gulf Corporation ("Georgia Gulf") Filed Suit Against Andersen Alleging That
Andersen Has Violated A Contractual Agreement By And Between The Parties, Dated
On Or About November 9, 1990, Pursuant To Which Andersen Agreed To Design,
Supply, And Install A Natural Gas And Hazardous Liquid Waste Fired Boiler At The
Georgia Gulf Plant In Plaquemine, Louisiana. Georgia Gulf Alleges That Andersen
Warranted That The Project Would Be Free From Defects In Material And
Workmanship And Would Perform In Accordance With The Project Specifications.
Georgia Gulf Further Alleges, However, That The Project Was Defective As To Its
Design, Workmanship And/or Materials And, As A Result, Failed To Perform In
Accordance With The Project Specifications So As To Constitute A Breach Of
Warranty And Breach Of Contract By Andersen, Resulting In Damages To Georgia
Gulf In Excess Of $10,000,000. The $10,000,000 Figure Is A Modification Of The
Former $3,000,000 Claim As Prayed For In Georgia Gulf's Original Complaint.
Relying in part on allegations made in the related federal lawsuit filed by
Andersen against the Nebraska Boiler Company, Georgia Gulf moved for partial
summary judgment on the issue of liability. The district court granted Georgia
Gulf's motion and rendered summary judgment in favor of Georgia Gulf on June 18,
1997 on the issue of liability only. On October 29, 1997, Andersen filed its
original brief to the Court of appeals for the First Circuit of Louisiana
alleging that jury questions remain as to various affirmative defenses.
Subsequent to the court's granting of summary judgment in its favor and after
Andersen filed its notice of appeal, Georgia Gulf filed an amended complaint on
October 15, 1997. In its amended complaint, Georgia Gulf increased the amount
of damages it is seeking to include both past and future lost profits in the
amount of $10,000,000 allegedly resulting from the shutdown of the boiler for
repair work. In addition, Georgia Gulf has added Andersen's insurance carrier,
Twin City Fire Insurance Company, as a defendant to this action.
On September 25, 1998, the Court of Appeals reversed the trial court's
grant of summary judgment in favor of Georgia Gulf. The ruling was based on the
existence of genuine issues of fact which remain for a jury's resolution. The
Louisiana Supreme Court has rejected Georgia Gulf's request for review of the
Court of Appeals' ruling.
There have been some efforts to resolve this matter through mediation.
Both sides have initiated discovery to prepare the case for trial. At this
point, the Company has not seen credible evidence supporting Georgia Gulf's
claims for damages. At the earliest, this case would be set for trial in the
summer or fall of 2001. The Company believes that the final resolution of this
matter will not result in a material adverse effect on the Company's financial
statements or its operations.
Environmental Protection Agency Notice Dated September 27, 1999. On September
---------------------------------------------------------------
27, 1999 Crown Andersen Received A "General Notice Letter" From Region Vii Of
The United States Environmental Protection Agency Concerning The Strother Field
Industrial Park Superfund Site In Cowley County, Kansas. The Purpose Of The
Notice Was To Advise The Company Of Its Potential Liability For Clean-up Costs
At The Site. The Basis For Epa's Legal Position Appears To Be That The Company
Is The Owner Of The Site As The Result Of A Deed To The Company From The Cities
Of Winfield And Arkansas City, Kansas In August 1999. The Company Believes That
This Deed Violates The Terms Of A Settlement Agreement Dated May 13, 1998
Between Textron Investment Management Company, Inc., Et Al. And The Company.
The Company Has Filed A Disclaimer Of This Deed, Which Disclaims Any Legal
Interest Or Title To This Property. Management Expects That Epa's Legal
Position Against The Company Will Not Prevail And That The Terms Of The
Settlement Agreement Will Be Upheld. Because Legal Title To The Site Was
Transferred Inappropriately To The Company, And Because That Transaction Has
Been Disclaimed And Refuted By The Company, We Believe That The Notice Of
Potential Responsibility For Clean-up Costs At The Site Does Not Apply.
25
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES (continued)
Upon information and belief, the responsible parties, not including the Company,
have entered into a settlement agreement with the EPA, which reportedly may
eliminate any claim against the Company. At this time, management believes that
the Company has no liability exposure for any related environmental claims.
The Company is involved in various additional litigation matters arising in
the ordinary course of business. Management believes that the final resolution
of these matters will not result in a material adverse effect on the Company's
financial statements and its operations.
NOTE 13. QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data and information regarding the market price per share
of the Company's stock. The share prices represent the reported high and low
closing sale prices.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 2000:
------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 5,402,185 $ 5,193,642 $ 5,715,443 $ 4,162,134
Expenses (net of interest and other) 5,344,391 4,908,335 6,005,051 4,571,182
Net income (loss) 48,419 163,698 (148,811) (326,041)
Earnings (loss) per share
Basic $ 0.03 $ 0.09 $ (0.08) $ (0.18)
Diluted 0.02 0.08 (0.08) (0.18)
Share prices
High $ 7.69 $ 8.59 $ 5.88 $ 4.25
Low 7.38 7.25 4.56 4.13
Fiscal Year Ended September 30, 1999:
------------------------------------
Net sales $ 4,130,930 $ 5,013,054 $ 4,248,853 $ 2,387,364
Expenses (net of interest and other) 4,094,402 4,958,997 4,548,392 3,015,508
Net income (loss) 20,466 43,178 (184,490) (455,844)
Earnings (loss) per share
Basic $ 0.01 $ 0.02 $ (0.10) $ (0.26)
Diluted 0.01 0.02 (0.10) (0.26)
Share prices
High $ 4.57 $ 5.63 $ 7.69 $ 8.00
Low 2.88 4.50 5.50 7.50
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
of Crown Andersen Inc.
Peachtree City, Georgia
We have audited the accompanying consolidated balance sheets of Crown Andersen
Inc. and Subsidiaries as of September 30, 2000 and 1999, and the related
consolidated statements of loss and comprehensive loss, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
2000. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Crown
Andersen Inc. and Subsidiaries as of September 30, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 2000, in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
December 14, 2000
===============================================================================
COMMON STOCK INFORMATION (UNAUDITED)
The Company's common stock is traded in the NASDAQ National Market System
under the NASDAQ symbol "CRAN". The following table shows the quarterly high and
low closing sale prices of the Company's common stock for the past two fiscal
years as reported by NASDAQ. The Company had approximately 189 shareholders of
record as of December 11, 2000, in addition to approximately 1,800 beneficial
holders.
Year ended Year ended
September 30, 2000 September 30, 1999
------------------ ------------------
High Low High Low
---- --- ---- ---
FISCAL QUARTER
First $7.69 $7.38 $4.57 $2.88
Second 8.59 7.25 5.63 4.50
Third 5.88 4.56 7.69 5.50
Fourth 4.25 4.13 8.00 7.50
No cash dividends have ever been paid by the Company or any of its subsidiaries.
The Company's ability to pay cash dividends is restricted by the terms of a loan
agreement with a bank. See Note 9 to the Notes to Consolidated Financial
Statements.
27
<PAGE>
CROWN ANDERSEN INC.
<TABLE>
<CAPTION>
<S> <C> <C>
CORPORATE OFFICERS/DIRECTORS SUBSIDIARIES TRANSFER AGENT
Jack D. Brady ANDERSEN 2000 INC. Registrar and Transfer Company
Chairman of the Board, President, and Chief 306 Dividend Dr. Cranford, NJ 07016
Executive Officer Peachtree City, GA 30269
1 (770) 486-2000
Jack C. Hendricks FAX: 1 (770) 487 5066
Vice Chairman of the Board e-mail: [email protected]
(Retired President of Company) ---------------------
LEGAL COUNSEL
Richard A. Beauchamp Jack D. Brady
Director Chairman, President & CEO Decker & Hallman, P.C.
(Retired President, Ameritruck Atlanta, Georgia
Distribution Corp.) John M. Golumbeski
(Contract transportation company) Vice-President, Manufacturing
L. Karl Legatski Jay Kaufman AUDITORS
Director Vice-President, Purchasing
(President, CelTech, Inc.) BDO Seidman, LLP
(Development and application of membrane Randall Morgan Atlanta, Georgia
technology for liquid separations) Vice-President, Finance and
Controller/Treasurer
Michael P. Marshall
Director Tom Van Remmen
(President of Marshall & Co.) Vice President, Sales & ANNUAL MEETING
(Private Investment Company) Marketing
The 2001 Annual Meeting of
Ruyintan E. Mehta Jack C. Hendricks, Director Stock-holders will be held on February
Director 21, 2001, at 10:00 a.m. at the
(President Mehta Associates) Milton Emmanuelli Company's corporate offices, 306
(Private Investment Company) Secretary Dividend Drive, Peachtree City, Georgia.
Thomas Graziano MONTAIR ANDERSEN BV
Director Heuvelsestraat 14
(President Griffin Environmental Company, Inc.) 5976 NG, Sevenum, Holland
31 77 467 2473
Rene C.W. Francken FAX: 31 77 467 3012
Director e-mail: [email protected]
(Managing Director, Montair Andersen b.v.) ---------------
Milton Emmanuelli A.T.J. Wagemans
Chief Financial Officer and Managing Director
Controller/Treasurer
Rene Francken
Randall Morgan Managing Director
Secretary
Jack D. Brady, Director
GRIFFIN ENVIRONMENTAL COMPANY, INC.
7066 Interstate Island Rd.
Syracuse NY 13209
(315) 451 5300
FAX: (315) 451 2338
e-mail: [email protected]
--------------------------
Thomas Graziano, President
Kerry Kresge
Vice President, Finance
David Young
Vice President, Sales
Jack D. Brady, Director
==================================================================================================================================
</TABLE>
Form 10-K Report
A copy of the Company's Annual Report on Form 10-K to the Securities and
Exchange Commission for the fiscal year ended September 30, 2000, is available
to stockholders at no charge upon written request. Please send requests to:
Milton Emmanuelli, Chief Financial Officer
Crown Andersen Inc., 306 Dividend Drive, Peachtree City, Georgia 30269
28
