<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended SEPTEMBER 30, 1995 Commission file number 0-7099
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CECO ENVIRONMENTAL CORP.
NEW YORK 13-2566064
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 ELIZABETH STREET, SUITE 600, TORONTO, ONTARIO, CANADA MSG 1P7
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 416-593-6543
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
---- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class: COMMON, PAR VALUE $.01 PER SHARE
OUTSTANDING at September 30, 1995 - 6,778,428 shares
<PAGE> 2
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1995
INDEX
<TABLE>
<S> <C>
Part I - Financial Information:
Condensed consolidated balance sheet as of
September 30, 1995 and December 31, 1994 2
Condensed consolidated statement of operations
for the three-month and nine-month periods ended
September 30, 1995 and 1994 3
Condensed consolidated statement of cash flows for the
nine-month periods ended September 30, 1995 and 1994 4 & 5
Notes to condensed consolidated financial statements 6 & 7
Management's discussion and analysis of the
financial condition and results of operations 8 to 10
Part II - Other Information 11
Signature 12
</TABLE>
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<PAGE> 3
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 806,010 $ 329,885
Accounts receivable 1,123,629 1,516,240
Inventories 453,588 405,008
Prepaid expenses and other current assets 65,786 51,124
Refundable income taxes 184,750 -
Deferred income taxes 7,769 7,769
---------- ----------
Total current assets 2,641,532 2,310,026
Property and equipment, net 2,032,042 2,138,117
Intangible assets, at cost, net 108,476 79,143
Goodwill 2,839,550 2,703,776
Deferred charges 100,000 -
---------- ----------
Total assets $7,721,600 $7,231,062
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 900,000 $ 250,000
Due to officer - 366,641
Current portion of long-term debt 164,887 187,424
Accounts payable and accrued expenses 546,648 920,891
Income taxes payable - 89,368
---------- ----------
Total current liabilities 1,611,535 1,814,324
Long-term debt, less current portion 1,291,867 1,399,034
Deferred income taxes 67,124 67,124
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Total liabilities 2,970,526 3,280,482
---------- ----------
Minority interest 685,511 852,267
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Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 100,000,000 shares
authorized, 6,916,348 and 6,229,148 shares
issued, respectively 69,163 62,291
Capital in excess of par value 7,713,395 6,483,142
Accumulated deficit (3,318,326) (3,048,451)
---------- ----------
4,464,232 3,496,982
Less treasury stock, at cost (398,669) (398,669)
---------- ----------
Net shareholders' equity 4,065,563 3,098,313
---------- ----------
Total liabilities and shareholders' equity $7,721,600 $7,231,062
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $1,627,425 $2,665,708 $5,463,959 $8,034,990
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 953,132 1,471,909 3,377,742 4,501,451
Selling and administrative 819,069 739,372 2,252,436 2,368,309
Depreciation and amortization 107,863 106,284 321,263 291,940
--------- --------- --------- ---------
1,880,064 2,317,565 5,951,441 7,161,700
--------- --------- --------- ---------
Income (loss) from operations ( 252,639) 348,143 ( 487,482) 873,290
Interest expense (net) ( 48,809) ( 45,826) ( 135,478) ( 162,727)
---------- ---------- --------- ---------
Income (loss) before provision
(credit) for income taxes ( 301,448) 302,317 ( 622,960) 710,563
Provision (credit) for income taxes ( 79,642) 100,000 ( 186,330) 300,000
---------- --------- --------- ---------
Income (loss) before
minority interest ( 221,806) 202,317 ( 436,630) 410,563
Minority interest 83,091 ( 63,383) 166,756 ( 194,875)
---------- ---------- --------- ---------
Net income (loss) ($ 138,715) $ 138,934 ($ 269,874) $ 215,688
========= ========== ========= ==========
Net income (loss) per share,
primary and fully diluted ($ .02) $ .02 ($ .04) $ .04
============= ============ ============ ============
Weighted average number of
common shares outstanding 6,579,095 5,883,095 6,249,206 5,839,317
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
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<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) ($269,874) $ 215,688
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 321,263 291,940
Amortization of deferred charges 50,000 -
Non-cash compensation, other - 25,000
Non-cash expenses - officer's compensation and interest 35,050 -
Minority interest ( 166,756) 194,875
(Increase) decrease in operating assets:
Accounts receivable 392,611 705,020
Inventories ( 48,580) 41,522
Prepaid expenses ( 14,663) 76,489
Refundable income taxes ( 184,750) 37,290
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses ( 374,243) ( 494,267)
Customer advances - ( 29,315)
Income taxes payable ( 89,368) 106,710
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Net cash provided by (used in) operating activities ( 349,310) 1,170,952
------- ---------
Cash flows from investing activities:
Additions to property and equipment and intangible assets ( 138,220) ( 106,305)
------- ---------
Net cash (used in) investing activities ( 138,220) ( 106,305)
------- ---------
Cash flows from financing activities:
Decrease in cash overdraft - ( 264,061)
Proceeds from issuance of stock 810,000 -
Proceeds from (reduction of) short-term obligations 650,000 ( 543,717)
Repayments of long-term debt ( 129,704) ( 105,283)
Net repayments of officer's loan ( 366,641) ( 173,520)
------- ---------
Net cash provided by (used in) financing activities 963,655 ( 1,086,581)
------- ---------
Net increase (decrease) in cash 476,125 (21,934)
Cash at beginning of period 329,885 23,344
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Cash at end of period $806,010 $ 1,410
======= ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CONTINUED ON FOLLOWING PAGE
See accompanying notes to condensed consolidated financial statements.
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
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<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $126,695 $134,614
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Income taxes $ 21,480 $156,000
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of September 30, 1995 and the
results of operations for the three-month and nine-month periods ended
September 30, 1995 and 1994 and cash flows for the nine-month periods
ended September 30, 1995 and 1994. The results of operations for the
three-month and nine-month periods ended September 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
--------------- --------------
<S> <C> <C>
Raw materials $299,678 $247,520
Work-in-process - 45,906
Finished goods 153,910 111,582
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$453,588 $405,008
======= =======
</TABLE>
3. Other Assets
Investment in CECO Filters, Inc.
Pursuant to a Stock Exchange Agreement dated May 30, 1992, between the
Company and IntroTech Investments, Inc. ("IntroTech"), a privately-held
Ontario corporation, the Company exchanged 1,666,666 newly issued shares
of its common stock for 1,666,666 shares of CECO Filters, Inc. ("CECO")
owned by IntroTech. CECO is a Delaware corporation engaged in the
pollution controls industry. It is a manufacturer of industrial air
filters, with its corporate headquarters located in Conshohocken,
Pennsylvania. The 1,666,666 shares of CECO common stock acquired by the
Company are restricted. Those shares represented 24.51% of the
outstanding shares of common stock of CECO.
During 1993 and 1994, the Company exchanged 2,112,864 and 263,800
additional shares, respectively, of its common stock for 2,112,864 and
263,800 shares of CECO's common stock with unrelated third parties.
Also, during 1993, the Company acquired, for cash, an additional 20,100
shares of CECO's common stock from unrelated third parties. During the
nine months ended September 30, 1995, the Company exchanged 227,200
shares of its common stock for 227,200 shares of CECO's common stock
with unrelated third parties. As of September 30, 1995, the Company
owned 63% of CECO's common stock.
Summarized financial information of CECO as of and for the nine months
ended September 30, 1995, is as follows:
<TABLE>
<S> <C>
Financial position:
Working capital $ 307,503
=========
Total assets $4,309,517
=========
Total shareholders' equity $1,344,991
=========
Results of operations:
Net sales $5,463,959
=========
Loss before income taxes ($ 612,897)
=========
Net loss ($ 426,567)
=========
</TABLE>
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<PAGE> 8
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
4. Other Matters
The Company entered into an eighteen-month consulting agreement with an
unrelated third party, effective April 1, 1995, to provide financial
consulting services to the Company which will, among other things, help
the Company to broaden its stock market appeal. As compensation, the
consultant received an option to purchase 1,000,000 shares of the
Company's common stock at $2.50 per share, such option expiring April
30, 1996. The option price will be reduced to $2.25 per share if such
options are exercised on or prior to December 31, 1995. In addition,
the Company issued 100,000 shares of its common stock to the consultant.
The aforementioned stock options and common stock were valued by an
independent third party to have an aggregate value of $150,000 on April
1, 1995, such amount being recorded as a deferred charge to be amortized
over the term of the consulting agreement.
During the three-month period ended September 30, 1995, the consultant
exercised options to acquire 360,000 shares of the Company's stock.
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<PAGE> 9
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
The Company's consolidated cash position increased from $329,885 at December
31, 1994 to $806,010 at September 30, 1995. This increase of $476,125 includes
$810,000 raised from the issuance of 360,000 shares of common stock related to
the exercise of stock options, as well as $650,000 in net proceeds from the
increase in CECO's bank line of credit. These increases were offset by cash
used in operating activities of $349,310, additions to property and equipment
and intangible assets of $138,220, repayments of long-term debt of $129,704,
and net repayments of the officer's loan of $366,641.
The Company's current ratio increased from 1.27 on December 31, 1994 to 1.6 on
September 30, 1995.
Management believes that CECO's expected revenues from operations, supplemented
by the available line of credit, will be sufficient to provide adequate cash to
fund anticipated working capital and other cash needs during the remainder of
the year.
Prior to July 1, 1994, the Company's operating expenses were funded by Phillip
DeZwirek, Chief Executive Officer, for the past several years. Since July 1,
1994, the Company's operating expenses have been funded by the revenue earned
from its consulting agreement with CECO and other consulting revenue. Funds
which were advanced to the Company by Mr. DeZwirek were completely repaid as of
September 30, 1995.
The Company and CECO have entered into a five year written management and
consulting agreement, dated January 1, 1994, which became effective on July 1,
1994, pursuant to which the Company provides management and financial
consulting services to CECO for a monthly fee of $20,000 until the agreement
expires in December, 1998. Such revenue should be sufficient to cover the
Company's general and administrative expenses.
Results of Operations - The Company
The Company's consolidated statement of operations for the three-month and
nine-month periods ended September 30, 1995 and 1994 reflects the operations of
the Company consolidated with the operations of CECO. As a result of multiple
stock acquisitions, the Company, effective April 7, 1993, owned a greater than
50% interest in CECO. Transactions not related to the operations of CECO were
minimal, and included consulting, legal and accounting fees, as well as
interest. Minority interest has been presented as a reduction in loss before
minority interest, and accordingly, is representative of 37% of CECO's net loss
for the nine-month period ended September 30, 1995.
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<PAGE> 10
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - CECO Filters, Inc.
Comparison of nine months ended September 30, 1995 to nine months ended
September 30, 1994
Sales were approximately $5.4 million and $8.0 million for the nine-month
periods ended September 30, 1995 and 1994, respectively, a decrease of 32%.
This decrease resulted from less sales orders and lower sales backlog at the
end of 1994.
CECO's backlog of orders at September 30, 1995 was approximately $4.6 million
as compared to approximately $3.7 million at September 30, 1994. There can be
no assurance that order backlog will be replicated, or increase, from quarter
to quarter. The success of CECO's business depends on a multitude of factors
that are out of the CECO's control. CECO's operating results can be
significantly impacted by the introduction of new products, new manufacturing
technologies, rapid change in the demand for its product, decrease in the
average selling price over the life of a product as competition increases, and
CECO's dependence on the efforts of unaffiliated distributors to sell a portion
of its products.
CECO's overall cost of sales increased as a percentage of sales for the nine
months ended September 30, 1995 compared to the nine months ended September 30,
1994. The increase resulted from increases in raw material costs, as well as
higher costs incurred to service CECO's products. CECO continues to use the
latest technology available in an effort to reduce both cost of sales (and the
maintenance of optimal inventory levels) and operating expenses, and ultimately
increase overall company profits.
CECO's selling and administrative expenses amounted to $2,125,361 for the
nine-month period ended September 30, 1995 compared to $2,303,063 for the
nine-month period ended September 30, 1994. A substantial portion of the
selling and administrative expenses are fixed in nature.
CECO incurred management fees of $180,000 to the Company for the nine-month
period ended September 30, 1995 compared to $120,000 for the nine-month period
ended September 30, 1994 in connection with its management and consulting
agreement.
Interest expense decreased during the nine-month period ended September 30,
1995, when compared to the same period in 1994. The decrease in interest
expense can be attributed to a reduced utilization of the bank line of credit
during the six months ended September 30, 1995 compared to the previous year.
CECO incurred a pre-tax loss of $612,897 for the nine-month period ended
September 30, 1995, as compared to pre-tax income of $732,698 for the
nine-month period ended September 30, 1994. This change resulted primarily
from the decrease in sales for the nine-month period ended September 30, 1995
over the comparable period in 1994.
The credit for federal and state income taxes for the nine-month period ended
September 30, 1995 amounted to $186,330 compared to a provision for federal and
state income taxes of $300,000 for the nine-month period ended September 30,
1994.
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<PAGE> 11
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of three months ended September 30, 1995 to three months ended
September 30, 1994
Sales were approximately $1.6 million and $2.7 million for the three-month
periods ended September 30, 1995 and September 30, 1994, respectively, a
decrease of 38.9%. The decrease in sales from 1994 to 1995 resulted
principally from less sales orders and lower sales backlog at the end of the
1994.
CECO's overall cost of sales increased as a percentage of sales for the three
months ended September 30, 1995 compared to the three months ended September
30, 1994. The increase resulted from increases in raw material costs, as well
as higher costs incurred to service CECO's products. CECO continues to use the
latest technology available in an effort to reduce both cost of sales (and the
maintenance of optimal inventory levels) and operating expenses, and ultimately
increase overall company profits.
CECO's selling and administrative expenses amounted to $772,523 for the
three-month period ended September 30, 1995 compared to $702,006 for the
three-month period ended September 30, 1994, representing an increase of
$70,517 or 10%. A substantial portion of the selling and administrative
expenses are fixed in nature.
CECO incurred management fees of $60,000 during the three-month period ended
September 30, 1995 compared to $120,000 for the three-month period ended
September 30, 1994 in connection with its management and consulting agreement
with the Company.
CECO incurred a pre-tax loss of $295,564 for the three-month period ended
September 30, 1995, as compared to pre-tax income of $236,942 for the
three-month period ended September 30, 1994. The change resulted primarily
from the decrease in sales for the three-month period ended September 30, 1995
with the comparable period in 1994.
Interest expense during the three-month period ended September 30, 1995, when
compared to the same period in 1994, was approximately the same.
The credit for federal and state tax income taxes for the three-month period
ended September 30, 1995 amounted to $79,643 compared to a provision for
federal and state income taxes of $150,300 for the three-month period ended
September 30, 1994.
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<PAGE> 12
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no changes since the Company's last report in
Item 3, "Legal Proceedings" of Form 10-KSB for the year ended
December 31, 1994.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
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<PAGE> 13
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
SIGNATURE
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 thereunto duly authorized.
CECO ENVIRONMENTAL CORP.
Phillip DeZwirek
-----------------------
Phillip DeZwirek
Chief Financial Officer
Chief Executive Officer
Date: October 31, 1995
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 806,010
<SECURITIES> 0
<RECEIVABLES> 1,123,629
<ALLOWANCES> 0
<INVENTORY> 453,588
<CURRENT-ASSETS> 2,639,008
<PP&E> 3,185,833
<DEPRECIATION> 1,153,791
<TOTAL-ASSETS> 7,721,600
<CURRENT-LIABILITIES> 1,611,535
<BONDS> 1,456,754
<COMMON> 68,092
0
0
<OTHER-SE> 3,997,471
<TOTAL-LIABILITY-AND-EQUITY> 7,721,600
<SALES> 5,463,959
<TOTAL-REVENUES> 5,463,959
<CGS> 3,377,742
<TOTAL-COSTS> 5,901,441
<OTHER-EXPENSES> 135,478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,478
<INCOME-PRETAX> (572,960)
<INCOME-TAX> (186,330)
<INCOME-CONTINUING> (386,630)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (219,874)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
