<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 MARCH 31, 1996 Commission file number 0-7099
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CECO ENVIRONMENTAL CORP.
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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 M5G 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
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OUTSTANDING at March 31, 1996 7,040,108
<PAGE> 2
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1996
INDEX
Part I - Financial Information:
Condensed consolidated balance sheet as of
March 31, 1996 and December 31, 1995 2
Condensed consolidated statement of operations
for the three-month periods ended
March 31, 1996 and 1995 3
Condensed consolidated statement of cash flows for the
three-month periods ended March 31, 1996 and 1995 4
Notes to condensed consolidated financial statements 5 & 6
Management's discussion and analysis of the
financial condition and results of operations 7 & 8
Signature 9
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<PAGE> 3
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 634,221 $1,043,011
Accounts receivable 1,612,331 1,856,541
Advances to officer 20,000 -
Inventories 571,358 654,826
Prepaid expenses and other current assets 74,065 56,736
Deferred income taxes 20,889 20,889
----------- ------------
Total current assets 2,932,864 3,632,003
Marketable securities, available for sale 348,366 -
Property and equipment, net 1,963,910 2,019,631
Intangible assets, at cost, net 91,797 45,717
Goodwill 2,886,218 2,872,825
Deferred charges 50,000 75,000
----------- -----------
Total assets $8,273,155 $8,645,176
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 850,000 $ 850,000
Current portion of long-term debt 88,860 173,393
Current portion of capital lease obligation 4,838 4,838
Accounts payable and accrued expenses 825,545 1,166,006
Income taxes payable 7,855 10,745
------------ -----------
Total current liabilities 1,777,098 2,204,982
Long-term debt, less current portion 1,196,136 1,238,795
Capital lease obligation, less current portion 13,216 14,955
Deferred income taxes 19,888 19,888
----------- -----------
Total liabilities 3,006,338 3,478,620
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Minority interest 830,533 824,905
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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, 7,040,148 and 6,956,348 shares
issued, respectively 70,401 69,563
Capital in excess of par value 7,850,907 7,767,945
Accumulated deficit ( 3,086,355) ( 3,097,188)
--------- ---------
4,834,953 4,740,320
Less treasury stock, at cost ( 398,669) ( 398,669)
---------- ----------
Net shareholders' equity 4,436,284 4,341,651
--------- ---------
Total liabilities and shareholders' equity $8,273,155 $8,645,176
========= =========
</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>
THREE MONTHS ENDED
MARCH 31,
1996 1995
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<S> <C> <C>
Net sales $2,150,657 $1,879,415
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Costs and expenses:
Cost of sales 1,140,322 1,133,422
Selling and administrative 803,072 710,289
Depreciation and amortization 137,344 106,406
---------- ----------
2,080,738 1,950,117
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Income (loss) from operations 69,919 ( 70,702)
Interest expense ( 43,459) ( 34,394)
----------- -----------
Income (loss) before provision (credit) for income taxes 26,460 ( 105,096)
Provision (credit) for income taxes 10,000 ( 53,000)
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Income (loss) before minority interest 16,460 ( 52,096)
Minority interest ( 5,628) 26,293
------------ -----------
Net income (loss) $ 10,832 ($ 25,803)
=========== ===========
Net income (loss) per share, primary and fully diluted $ 0.00 $ (0.00)
============= =============
Weighted average number of
common above outstanding 6,902,228 6,091,228
============ ============
</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>
THREE MONTHS ENDED
MARCH 31,
1996 1995
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<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) $ 10,832 ( $ 25,803)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 94,050 89,057
Goodwill amortization 18,294 17,349
Amortization of deferred charges 25,000 -
Contribution of officer's services - 8,750
Minority interest 5,628 ( 26,293)
(Increase) decrease in operating assets:
Accounts receivable 244,210 100,682
Inventories 83,468 ( 132,534)
Prepaid expenses and other current assets ( 17,329) ( 54,389)
Refundable income taxes - ( 65,010)
(Decrease) in operating liabilities:
Accounts payable and accrued expenses ( 340,461) ( 201,509)
Income taxes payable ( 2,890) ( 89,368)
------------ --------
Net cash provided by (used in) operating activities 120,802 ( 379,068)
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Cash flows from investing activities:
Investment in marketable securities ( 348,366) -
Additions to property and equipment and intangible assets ( 32,296) ( 73,696)
Advance to officer ( 20,000) -
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Net cash (used in) investing activities ( 400,662) ( 73,696)
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Cash flows from financing activities:
Proceeds from short-term obligations - 450,000
Net (repayments) of long-term debt and capital leases ( 128,930) ( 42,390)
Net (repayments) of officer's loan - ( 150,000)
------------ --------
Net cash provided by (used in) financing activities ( 128,930) 257,610
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Net (decrease) in cash ( 408,790) ( 195,154)
Cash and cash equivalents at beginning of period 1,043,011 329,885
--------- -------
Cash and cash equivalents at end of period $ 634,221 $134,731
========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the quarter for:
Interest $ 43,459 $ 34,394
----------- --------
Income taxes $ 12,310 $ 108,595
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
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 March 31, 1996 and the
results of operations and cash flows for the three-month periods ended
March 31, 1996 and 1995. The results of operations for the three-month
period ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
<TABLE>
2. Inventories consisted of the following:
March 31, December 31,
1996 1995
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<S> <C> <C>
Raw materials $339,535 $514,489
Work-in-process 132,289 -
Finished goods 99,534 140,337
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$571,358 $654,826
======== ========
</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 through 1995, the Company exchanged 2,582,764 additional
shares, respectively, of its common stock for 2,582,764 shares of CECO's
common stock with unrelated third parties. Also, during 1993, the
Company acquired, for cash, an additional 21,100 shares of CECO's common
stock from unrelated third parties. During the three months ended March
31, 1996, the Company exchanged 83,800 shares of its common stock for
83,800 shares of CECO's common stock with unrelated third parties. As
of March 31, 1996, the Company owed 64% of CECO's common stock.
<TABLE>
Summarized financial information of CECO as of and for its three months ended March 31, 1996, is as follows:
<S> <C>
Financial position:
Working capital $ 633,135
==========
Total assets $4,698,351
==========
Net shareholders' equity $1,715,563
==========
Results of operations:
Net sales $2,150,657
==========
Income before income taxes $ 25,246
==========
Net income $ 15,246
==========
</TABLE>
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<PAGE> 7
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 was reduced to $2.25 per share for such
options exercised on or prior to December 31, 1995. (During the year
ended December 31, 1995, the consultant exercised options to acquire
400,000 shares of the Company's common stock at an exercise price of
$2.25 per share). In addition, the Company issued 100,000 shares of its
common stock to the consultant.
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<PAGE> 8
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
Financial Condition, Liquidity and Capital Resources - The Company
The Company's consolidated cash position decreased from $1,043,011 at December
31, 1995 to $634,211 at March 31, 1996. This decrease of $408,790 is
attributable principally to the use of cash in investing activities of $400,662
during the three months ended March 31, 1996 as compared to the same period in
1995 when the Company used cash of $73,696 from its investing activities. The
investments in marketable securities in 1996 are primarily in high yield bonds
of major U.S. corporations. CECO Filters, Inc. ("CECO") maintains a
$1,250,000 line of credit with a commercial bank of which $850,000 was
outstanding as of March 31, 1996.
The Company's current ratio was 1.65 both on December 31, 1995 and March 31,
1996.
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.
The Company and CECO have entered into a five year 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. The Company believes its consulting agreement with CECO should
provide sufficient revenue to meet its general and administrative, and interest
expenses.
Results of Operations - The Company
The Company's consolidated statement of operations for the three-month periods
ended March 31, 1996 and 1995 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 and stock issuance related expenses. As of March 31, 1996, the
Company owned approximately 64% of the outstanding stock of CECO. Minority
interest in the consolidated statement of operations has been presented as a
reduction in net income or loss.
Results of Operations - CECO (Company's Subsidiary)
Comparison of Three Months Ended March 31, 1996 to Three Months Ended March 31,
1995
Sales were approximately $2.1 million and $1.9 million for the three months
ended March 31, 1996 and 1995, respectively, an increase of 14%. The increase
in sales form 1995 to 1996 resulted primarily from more sales orders and higher
backlog at the end of 1995.
CECO's backlog of orders at March 31, 1996 was approximately $3.5 million as
compared to $1.5 million at March 31, 1995. There can be no assurance that
order backlog will be replicated, or increase, from quarter to quarter, or that
it will translate into higher revenues in the future. The success of CECO's
operating results can be significantly impacted by the introduction of new
products and/or new manufacturing technologies by competitors, 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 implementation of a target
marketing approach in early 1995.
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<PAGE> 9
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
CECO's overall cost of sales decreased as a percentage of sales from 60% for
the three months ended March 31, 1995 to 53% for the three months ended March
31, 1996. The decrease can be attributed to decreases in raw material costs as
well as reduced costs incurred to service CECO's products. Engineering and
sales management positions were increased while certain factory positions were
eliminated. These changes were made as a part of CECO's overall restructuring
to strengthen management and accommodate anticipated growth. Direct labor was
augmented with temporary labor on an as- needed basis.
CECO's selling and administrative expenses amounted to $787,550 for the
three-month period ended March 31, 1996 compared to $680,273 for the
three-month period ended March 31, 1995, representing an increase of $107,307,
or 15%. A substantial portion of the selling and administrative expenses are
fixed in nature. As discussed above, certain management positions were added
compared to the three-month period ended March 31, 1995.
CECO entered into a management and consulting agreement with CECO Environmental
Corp. ("CECO") during 1994. The terms of the agreement require payment of
monthly fees of $20,000 through December 1998 in exchange for management and
financial consulting services involving corporate policies; marketing;
strategic and financial planning; and mergers, acquisitions and related
matters. CECO incurred management fees to CEC of $60,000 during the
three-month periods ended March 31, 1996 and 1995.
Interest expense increased during the three-month period ended March 31, 1996
when compared to the same period in 1995. The increase in interest expense can
be attributed to higher interest rates.
CECO generated pre-tax income of $25,246 for the three-month period ended March
31, 1996 as compared to a pre-tax loss of $117,731 for the three-month period
ended March 31, 1995. This change is attributed primarily to the increase in
sales for the three-month period ended March 31, 1996 over the comparable
period in 1995.
The provision for federal and state income taxes for the three-month period
ended March 31, 1996 amounted to $10,000 compared to a credit for federal and
state income taxes of $53,000 for the three-month period ended March 31, 1995.
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<PAGE> 10
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: April 29, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> $634,221
<SECURITIES> $348,366
<RECEIVABLES> $1,612,331
<ALLOWANCES> 0
<INVENTORY> $571,358
<CURRENT-ASSETS> $2,932,864
<PP&E> $3,306,476
<DEPRECIATION> $1,342,566
<TOTAL-ASSETS> $8,273,155
<CURRENT-LIABILITIES> $1,777,098
<BONDS> $1,284,996
<COMMON> $70,401
0
0
<OTHER-SE> $4,365,883
<TOTAL-LIABILITY-AND-EQUITY> $8,273,155
<SALES> $2,150,657
<TOTAL-REVENUES> $2,150,657
<CGS> $1,140,322
<TOTAL-COSTS> $2,080,738
<OTHER-EXPENSES> $43,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $43,459
<INCOME-PRETAX> $26,460
<INCOME-TAX> $10,000
<INCOME-CONTINUING> $16,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $10,832
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
