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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission File No. 0-7099
ended December 31, 1995
CECO ENVIRONMENTAL CORP.
(Name of Small Business Issuer in Its Charter)
New York 13-2566064
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
111 Elizabeth Street, Suite 600
Toronto, Ontario CANADA M5G 1P7
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (416) 593-6543
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No .
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $8,435,309
Aggregate market value of voting stock held by non-affiliates of
registrant (based on the last sale price on March 20, 1996): $13,330,281
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: 7,040,148 shares of common
stock, par value $0.01 per share, as of March 22, 1996.
Transitional Small Business Disclosure Format: Yes No X
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PART I
Item 1. Business
Recent Developments
CECO Environmental Corp. ("CEC" or the "Company") was incorporated in New
York State in 1966. On August 29, 1985 CEC changed its name from "Alarm
Products International, Inc." to "API Enterprises, Inc." Effective October 20,
1992, CEC changed its name to its present name "CECO Environmental Corp."
On May 30, 1992, CEC acquired approximately 24.5% of the then issued and
outstanding shares of CECO Filters, Inc. ("CECO") common stock from IntroTech
Investments, Inc. ("IntroTech") pursuant to a Stock Exchange Agreement between
CEC and IntroTech. CEC exchanged 8,333,333 shares of newly issued CEC common
stock (which equals 1,666,666 shares of CEC common stock adjusted for the one
for five reverse stock split effective October 20, 1992) for 1,666,666 shares
of CECO it received from IntroTech. None of the shares of the Company's common
stock issued in this private transaction have been registered under the
Securities Act of 1933, as amended (the "Act"), nor have the CECO shares that
the Company received in this transaction been registered under the Act.
IntroTech is wholly-owned by an adult son of Phillip DeZwirek, Jason Louis
DeZwirek. Jason DeZwirek became a director of the Company in February of 1994.
Since May 1993, CEC has acquired additional shares of common stock of
CECO, primarily through private exchanges of newly issued shares of its own
common stock with non-U.S. persons. The exchanges of common stock of CECO for
newly issued stock of CEC were effected on a one-for-one basis. As a result
of the these transactions, the Company owns 4,354,330 shares of CECO common
stock, representing 63.4% of CECO's outstanding common stock. The Company has
no significant operations nor does it hold any significant assets other than
CECO stock.
The Company's Schedule 13D on file with the Securities and Exchange
Commission ("SEC") with respect to the CECO stock that it owns states that the
Company intends to purchase additional shares of CECO common stock if such
additional shares become available at a price which the Company considers
reasonable. Such purchases, if made, would be made through private
transactions, including exchanges of the Company's common stock for CECO common
stock, or open market stock purchases of CECO common stock.
For a description of CECO's business and other information regarding CECO,
see "CECO Filters, Inc." below.
The Company entered into a non-exclusive financial consulting arrangement
with two consultant for a term of eighteen (18) months (April 1, 1995 through
September 30, 1996) to assist the Company develop and evaluate financial and
business opportunities and to introduce
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the Company to financial institutions in the investment community, such as
securities analysts, portfolio managers and market makers, in order to expand
the Company's contacts in that community. The Company agreed to issue to the
consultant, in consideration for its services, 100,000 restricted shares of
common stock and an option to purchase 1,000,000 shares of common stock of the
Company at $2.50 per share, which exercise price was reduced to $2.25 per share
for any portion of the option that is exercised prior to December 31, 1995. The
option will expire on April 30, 1996. The 100,000 restricted shares of common
stock were issued to the consultant in 1995. In addition, the consultant
exercised the option with respect to 400,000 shares at a price of $2.25 per
share during the 1995 fiscal year. As of December 31, 1995, options for 600,000
shares remain outstanding. The shares subject to the option have been
registered with the Securities and Exchange Commission.
CECO Filters, Inc.
CECO Filters, Inc. ("CECO"), a Delaware corporation, is located in
Conshohocken, Pennsylvania. Phillip DeZwirek, Chairman of the Board of
Directors, the Chief Executive Officer, the Chief Financial Officer, and a
controlling shareholder of the Company, is the Chairman of the Board of
Directors of CECO. Mr. DeZwirek does not beneficially own any shares of
capital stock of CECO other than through his beneficial ownership of shares of
the Company.
CECO is in the pollution controls industry. CECO manufactures and sells
industrial air filters known as fiber bed mist eliminators. The filters are
used to trap, collect and remove solid soluble and liquid particulate matter
suspended in an air or other gas stream whether generated in a point source
emission or otherwise. The principal functions which can be performed by use
of the filters are (a) the removal of damaging mists and particles (for
example, in process operations that could cause downstream corrosion and damage
to equipment), (b) the removal of pollutants and (c) the recovery of valuable
materials for reuse. The filters are also used to collect fine insoluble
particulates. CECO's filters are used by, among others, the printing,
electronics and mining industries; metal refiners; manufacturers of various
acids, vegetable and animal based cooking oils, textile products, alkalies,
chlorine, paper, computers, automobiles, asphalt, pharmaceutical products and
chromic acid; electric generating facilities including cogeneration facilities;
and end users of pollution control products such as incinerators.
CECO's filters are typically cylindrical in shape. The cylinder consists
of inner and outer cylindrical cages, with filter material placed in the gap
between the cages (usually two inches wide). Prior to insertion in the filter,
raw filter material is placed in cylindrical molds and heated in an oven.
Finished filter material segments are compressed in the gap between the cages.
CECO also manufactures small vessels for holding its filters.
CECO holds a US Patent for a device with the trade names of the N-SERT(R)
and X-SERT(R) prefilter. This device is used to protect the filter's surface
from becoming coated with insoluble solids. Field performance has demonstrated
the effectiveness of this device. CECO also holds a patent for its N-ESTED(R)
multiple-bed fiberbed TWIN-PAK filter, which permits
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an increase in filter surface area of 60% or more, thus decreasing energy
consumption and improving collection efficiency. The device also permits the
user to increase the capacity of the emission generating source without an
energy or major modification penalty.
The air filters typically are mounted vertically in a closed tank with an
air inlet for dirty gas and an exhaust for clean flow. The air flow is
directed in such a manner that it passes through the outside of the filter to
the inside core, or vice versa. After being captured in the filter, liquid
particulates drain from the filter that are collected for reuse or removed, as
the case may be. Solid soluble particulates can be dissolved in water or other
suitable solvents and drained from the filter. Insoluble particles can be
removed only by gentle brushing or washing.
CECO's filters range in size from 2 to 20 feet in height and are typically
either 16 or 24 inches in diameter. The cages used in the company's filter
assemblies may be stainless steel, carbon steel, titanium or fiberglass mesh.
The filter material used in approximately 75% of CECO's filters is fiberglass,
which may be purchased in various grades of fiber diameter and chemical
resistance depending on the specific requirements of the customer. Filter
material may also be made of polyester, polypropelene or ceramic materials.
CECO's filters are manufactured with different levels of efficiency in the
collectibility of particulates, depending on the requirements of the customer.
Eventually, the filter material contained in CECO's filters will become
saturated with insoluble solids or corroded and require replacement. The life
of the filter material will be primarily dependent on the nature of the
particles collected and the filtration atmosphere. Filter life generally
ranges from 3 months to 15 years. The filters can be returned to CECO for
replacement of the filter material, or can be replaced on-site by the customer.
CECO sells replacement filter material segments with the trade name of
SITE-PAK(R) for on-site installation by the customer and compressor kits to be
used in connection with on-site replacement.
A significant portion of CECO's business consists of the sale of
replacement filter material segments for its filters and for filters made by
other manufacturers. The replacement process for filters made by other
manufacturers involves modification of the cages to permit the insertion of
replacement segments. Once modification of the cage and replacement of filter
material has been completed by CECO, subsequent replacement of the filter
material can be made on-site by the customer.
CECO's filters generally range in price from $500 to $8000, depending on
the materials used in the filter and the size of the filter.
In March 1992, CECO acquired substantially all of the assets (and certain
specific liabilities) of Air Purator Corporation, a Massachusetts corporation,
through a wholly-owned subsidiary, Air Purator Corporation (formerly called A.P.
Acquisition Corp.), a Delaware corporation ("APC").
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APC is engaged in the manufacture of patented specialty needled fiberglass
fabrics. Some of the fabrics are coated to permit their use in certain highly
corrosive applications. The fabrics are mainly used in a particulate
collection device known as a pulse jet baghouse which is fabricated by a number
of companies. Before APC's fabric is placed into the baghouse, the fabric will
generally be sewn into a shape resembling a tube closed at one end, called a
bag. The bag is then placed in an enclosed cylindrical apparatus known as a
bag holder. APC mainly sells its fabrics to the bag fabricator. Other
applications include the recovery of valuable materials such as carbon black.
There are many domestic and foreign fabricators with which APC deals.
Products are uniformly priced for all purchasers through a published price
list. APC's flagship product line is known in the field under the Huyglas(R)
trade name. Huyglas is patented and is mainly used for high temperature (up to
550oF) service.
APC is presently engaged in the development of additional products based
on its patented technology. One of its sales personnel is designated as a
"Product Champion" and is vigorously pursuing various applications outside of
uses traditionally associated with such fabrics. Several new products are
currently being tested, but APC is unable to predict whether these efforts will
result in the successful development of marketable products.
On October 1, 1992, CECO created a wholly-owned subsidiary, Compliance
Systems International, a Delaware corporation ("CSI"), to pursue domestic and
foreign environmental service markets and the sale of certain specialty
equipment.
CSI organized the Technology Council (the "Council"), a group of
independent consultants that are available to CSI to assist on CSI's behalf,
CSI's industrial and commercial clients with environmental control options
including waste minimization. Members of the Council are consulted by CSI when
a customer hires CSI to address a problem that CSI can not resolve and which
falls within such Council member's particular expertise.
In early 1993, CSI obtained exclusive rights to engineer, market and sell
the patented Catenary Grid Scrubber(R). This device is designed for use with
heat and mass transfer operations and particulate control. CSI designs
complete systems centered around these devices.
During 1995, two customers each comprised more than 10% of CECO's
consolidated net sales. During 1994, one customer comprised more than 10% of
CECO's consolidated net sales and during 1993, two customers each comprised
more than 10% of CECO's consolidated net sales. Because the demand for CECO's
filters, replacement segments, fabric material, scrubbers and consulting
services is not constant but can fluctuate due to economic conditions, filter
life and other factors beyond CECO's control, CECO is unable to predict the
level of purchases by its largest customers, or any other customer, in the
future.
In the year ended December 31, 1995, CECO and its subsidiaries continued
to develop additional market areas, including storage facility and turbine lube
oil vent emission control and their related odor control, new dry particulate
emission control and combination scrubber - fiber
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bed filter systems. CECO is also exploring combining its Catenary Grid Scrubber
with dry collection for wet/dry system use.
CECO is continuing to focus its efforts on specialty market areas, where
it believes it has a competitive advantage over its larger competitors who
generally have much greater resources than CECO. Accordingly, CECO has relied
on its proprietary technology to establish itself in its existing markets.
CECO has established relationships, on a commission basis, with independent
sales representatives in five countries and continues to seek additional
qualified representatives.
CECO has not been materially impacted by existing government regulation,
nor is CECO aware of any probable government regulation that would materially
effect its operations. CECO's costs in complying with environmental laws has
been negligible. During 1995 and 1994, CECO estimates that $17,484 and
$43,720, respectively, has been expended on research and development programs.
Such costs are generally included as factors in determining CECO's pricing
procedures.
Suppliers
CECO purchases all of its chemical grade fiberglass as needed from
Schuller Corporation, which CECO believes is the only domestic supplier of such
fiberglass. However, there are foreign suppliers of chemical grade fiberglass,
and, based on current conditions, CECO believes that it could obtain such
material from foreign suppliers on acceptable terms. CECO believes that there
is sufficient supply of raw materials for the other components of its filters
and does not anticipate any shortages in the near future.
APC purchases its raw material from a variety of sources and does not
anticipate any shortages in the near future. While CECO depends upon two
suppliers for certain specialty items, including glass and chemicals, CECO
believes it has a good relationship with such suppliers and does not anticipate
any difficulty in continuing to receive such items on terms acceptable to CECO.
Backlog
As of March 15, 1996, CECO's backlog of orders was approximately
$3,800,000, as compared to approximately $1,900,000 on March 15, 1995.
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Competition and Marketing
Monsanto Corporation is dominant in the fiber bed mist eliminator
industry. Monsanto's financial resources are far greater than CECO's, and
Monsanto can undertake much more extensive marketing and advertising programs
than CECO. Certain other competitors also have greater financial resources
than CECO.
CECO competes by stressing its exclusive products, including SITE-PAK(R)
segments that permit on-site filter media replacement capability and
prefilters, its patented product that protects the surface of a fiber bed
filter from becoming plugged with solids, and its patented multiple-bed
fiberbed filters that dramatically increase the surface area of a filter.
Also, CECO believes that it is the only U.S. manufacturer of fiber bed mist
eliminators whose filter material can be replaced on-site by a customer. CECO
believes it is price competitive within the market for filters with similar
efficiency.
Manufacturers of electrostatic precipitators and wet scrubbers may also be
deemed to be in competition with CECO, since those devices are also effective
in removing particulates from an air or another gas stream. While such devices
may have higher operating costs than fiber bed mist eliminators, replacement of
the component parts of such devices is rare as compared to fiber bed mist
eliminators.
CECO's subsidiaries each face substantial competition. APC and CSI each
face competition from other forms of environmental control and material
recovery devices including scrubbers and electrostatic precipitators and from
other filter fabric media that can also be fabricated into bags for baghouses.
These fabrics and fibers include, Teflon(R), Goretex(R), woven fiberglass (both
treated and non-treated), polyester, Ryton(R), Nomex(R) and several other
fabrics.
CECO's marketing efforts have consisted of telemarketing and direct
solicitation of orders from existing customers. CECO is also utilizing direct
mail solicitation and selected advertising in trade journals and product guides
and trade shows and uses sales representatives located in the United States,
Canada and overseas. The Company also uses six full-time employees, called
Sales Directors, in its marketing efforts.
Employees
As of March 22, 1996, the Company did not have any full-time employees.
CECO and its subsidiaries had 42 full-time employees as of March 15, 1996. In
addition, CECO utilizes the services of one full-time consultant. CECO's
consultant, Mr. Lazarus Thomaides, has worked with air-cleaning and filtration
equipment for over thirty years. He has been involved in the design and
maintenance of fiber bed mist eliminator systems at CECO (and its predecessors)
and with Clermont Engineering since 1974. Mr. Thomaides has a B.S. degree in
chemical engineering from Syracuse University. None of CECO's employees is
currently unionized and CECO considers its relationship with its employees to
be satisfactory.
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Key Employee
CECO's operations to date have been largely dependent on the efforts of
its President, Dr. Steven I. Taub. The loss to CECO of Dr. Taub would have a
material adverse effect upon the operations of CECO. CECO has obtained key man
life insurance in face amount of $2 million on the life of Dr. Taub in an
effort to reduce, to the extent possible, the immediate adverse economic impact
to its business that would occur if it were to lose the services of Dr. Taub.
Product Liability Insurance
As of October, 1989 CECO obtained product liability insurance covering its
products. The policy excludes environmental liability.
Patents
CECO currently holds one US patent for its N-SERT(R) and X-SERT(R)
prefilters. CECO also holds a patent on its N-ESTED(R) multiple bed fiberbed
filter. APC holds two patents on the Huyglas material and CSI holds an
exclusive world-wide license to the patent on the Catenary Grid Scrubber plus a
new patent on the Narrow Gap Venturi Scrubber. There is no assurance that
measurable revenues will accrue to CECO or its subsidiaries as a result of
their patents. However, the prefilters, multiple bed units and Huyglas
material have contributed to CECO's performance during 1995.
DEVELOPMENT OF CECO
CECO was incorporated on July 25, 1985. CECO commenced operations in
August 1985 when it acquired substantially all of the fixed and intangible
assets and the business (but did not assume any liabilities, except with
respect to bona fide purchase orders) of CECO Filters, Inc., a Pennsylvania
corporation ("CECO-PA"), which was not affiliated with CECO or its founders.
Prior to the sale of its assets to CECO, CECO-PA was also engaged in the
manufacture and sale of fiber bed mist eliminators, and many customers of
CECO-PA have remained customers of CECO. CECO-PA and its predecessors were
engaged in the business of manufacturing fiber bed mist eliminators for over
ten years prior to the sale of certain of CECO-PA's assets to CECO in August
1985. CECO believes that neither CECO-PA nor its immediate predecessor is
currently engaged in the manufacture or sale of fiber bed mist eliminators. In
connection with the sale of the business of CECO-PA, CECO-PA and its principal
shareholder covenanted not to compete with the business of CECO, however, that
covenant not to compete expired in August 1988.
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Proposed Merger with Ceco Environmental Corp.
On January 8, 1992, CECO announced that it intended to merge into the
Company. As contemplated, CECO's shareholders would have exchanged their
shares on a one-for-one basis, which would have given them ownership of
approximately 75% of the merged entity. Mr. DeZwirek is the President and
Chairman of the Board of CEC and directly or indirectly owns approximately
37.47% of its stock. On February 4, 1993, CECO announced that the proposed
merger was indefinitely postponed and that CEC intended to acquire more than
50% of CECO through private transactions and stock purchases. As of March 15,
1996, CEC owned 4,354,330 shares of CECO's common stock, equivalent to 63.4% of
CECO's outstanding common stock.
Acquisition of Assets
Pursuant to an Agreement of Purchase and Sale of Assets dated as of March
10, 1992, CECO, through a wholly-owned subsidiary formed specifically for the
purpose of effectuating the acquisition, purchased substantially all of the
assets (and assumed certain specific liabilities) of Air Purator Corporation, a
Massachusetts corporation specializing in the manufacture of a coated needled
fiberglass fabric, used in air pollution control devices and other
applications. The total purchase price was $482,826 of which $382,826 was paid
by cash and the rest by a two-year promissory note in the principal amount of
$100,000 with interest thereon at a rate of 10% per annum. In December 1992,
CECO redeemed the note in exchange for 66,667 shares of common stock. APC is a
Delaware corporation and is qualified to do business in Massachusetts.
For over 10 years prior to the transaction with APC, Air Purator
Corporation was engaged in the manufacture and sale of specialty needled fabric
material with the Huyglas trade name.
Creation of New Subsidiary
Effective October 1, 1992, CECO formed a wholly-owned subsidiary,
Compliance Systems International, Inc., a Delaware corporation to pursue
domestic and foreign environmental service markets. CECO's initial investment
in CSI consisted only of short term working capital loans. CSI is based in San
Diego and is qualified to do business in the State of California under the name
CECO Systems International, Inc. CSI also has an office located at CECO's
headquarters.
CSI acquired the exclusive patent rights to the Catenary Grid Scrubber
from Mr. Kenneth Schifftner, its inventor who is also a CSI employee. These
rights pertain to all market areas. Prior to this, the Catenary Grid Scrubber
was engineered, marketed and sold by the Otto York Company, a subsidiary of
Raytheon Corporation.
CECO believes that neither Air Purator Corporation nor Otto York Company
is engaged in the manufacture of similar devices or products to those it
acquired from them.
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Investment by CECO in the Company
On May 26, 1993, CECO purchased 100,000 shares of newly issued CEC Common
Stock for $2.80 per share or $280,000 in the aggregate. The market price for
CEC stock closed at $4.00 per share at that date. The purchase price was paid
for with $160,000 in cash, with the balance due on demand, without interest.
The balance was paid in full during the first quarter of 1994. On the date of
purchase CEC owned 52.1% of CECO's stock.
Background
Through May 31, 1987 and for the five years prior thereto, substantially
all of the Company's activities related to the manufacture and distribution of
components for burglar and fire alarm systems. Effective May 31, 1987, the
Company sold its alarm products business to API Electronics, Inc., a New York
corporation ("Electronics"). Part of the consideration for the sale of the
alarm products business consisted of a $550,000 principal amount ten-year ten
percent (10%) convertible debenture of Electronics (the "Electronics
Debenture") convertible at the option of the Company into 6.7 shares of
Electronics common stock representing approximately 25% of Electronics' then
outstanding common stock. The Company converted the Electronics Debenture on
February 28, 1989. During June of 1993, the Company sold the 25% of
Electronics' outstanding common stock it then owned to Phillip DeZwirek in
satisfaction of $150,000 of the amounts owed by the Company to Mr. DeZwirek.
The Electronics stock owned by CEC had a value of zero on CEC's books.
Prior to April 7, 1993, the date the Company's interest in CECO became a
majority interest, the Company's primary assets were minority interests in
other entities. At December 31, 1992, the Company had minority investments in
CECO, Electronics and Can-Med Technology Inc. (formerly Green Diamond Oil
Corporation), a Canadian corporation ("Can-Med"). The Company's interests in
Electronics (see above) and Can-Med were sold to Phillip DeZwirek during the
fiscal year ended December 31, 1993 for $150,000 and $250,000, respectively, of
the amounts owed to Mr. DeZwirek by the Company. The value of the Company's
investment in Electronics and Can-Med had been written off during the fiscal
year ended May 31, 1991.
Item 2. Properties
The Company maintains its offices in Toronto, Ontario at premises made
available to them at no charge by Phillip DeZwirek, the Chief Executive
Officer, Chief Financial Officer, Chairman of the Board of Directors and a
controlling shareholder of the Company.
On July 3, 1991, CECO entered into an agreement to purchase a plant
facility in Conshohocken, Pennsylvania. The closing for such acquisition
occurred on October 28, 1991. The cost of this facility, which includes real
property and manufacturing equipment, was $1,500,000. A tax free industrial
development bond in the amount of $1,200,000 issued by the
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Pennsylvania Economic Development Funding Authority (PEDFA) funded substantially
the entire purchase price. The balance was funded on an interim basis from
CECO's existing line of credit and existing cash. CECO received further funding
from the Pennsylvania Industrial Development Authority (PIDA) in the form of a
$405,000 loan at 3% for 15 years, the proceeds of which replaced CECO's
short-term borrowings under its line of credit. The property is encumbered by a
first and second mortgage to PEDFA and PIDA, respectively. On February 25, 1993
CECO refinanced its mortgage and replaced the PEDFA mortgage with a fourteen
year commercial mortgage from CoreStates Bank at 8% through March 1, 1998 and
thereafter at 3/4% over the Bank's prime rate.
As part of the acquisition of APC, CECO entered into a one year renewable
lease with BTR North America, Inc. for the premises formerly occupied by APC in
Taunton, Massachusetts consisting of approximately 10,000 square feet at a
rental of $47,500 for the year. On March 1, 1994, CECO exercised its option to
renew the lease and acquired an additional 1,500 square feet which has raised
the annual rental to $54,625. This lease expires on February 28 of each year
and is renewable yearly upon mutual consent and APC continues to lease the
premises as a tenant-at-will. ACP is currently negotiating with the landlord
for a lease and anticipates entering into a new lease on similar terms to its
prior lease shortly.
Until December 31, 1994, CECO was also party to a one year renewable lease
dated October 1, 1992 for approximately 475 square feet at an annual rental of
$4,800.00 for office space in California used by CSI. In January 1995, CECO
moved into larger quarters in the same building and now occupies 1,418 square
feet at an annual rental of $13,783.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or to which any of their property is
subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Annual Period Report on Form 10-KSB.
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PART II
Item 5. Market of the Registrant's Common Stock and Related Stockholder
Matters.
(a) The Company's common stock is traded in the over-the-counter market
and is quoted in the NASDAQ automated quotation system under the symbol CECE.
The following table sets forth the range of bid prices for the common stock of
the Company as reported in the NASDAQ system during the periods indicated, and
represents prices between broker-dealers, which do not include retail mark-ups
and mark-downs, or any commissions to the broker-dealers. The bid prices do
not reflect prices in actual transactions.
<TABLE>
<CAPTION>
CEC Common Stock - Bids CEC Common Stock - Bids
----------------------- -----------------------
High Low High Low
----- ---- ----- ----
1994 1995
- ----------- -----------
<S> <C> <C> <C> <C> <C>
1st Quarter 3.75 2.50 1st Quarter 2.50 1.75
2nd Quarter 3.125 1.875 2nd Quarter 4.50 2.50
3rd Quarter 2.875 2.00 3rd Quarter 5.626 3.875
4th Quarter 2.75 1.75 4th Quarter 4.438 2.938
1996
- -----------
1st Quarter 4.00 2.75
(through March 15, 1996)
</TABLE>
(b) The approximate number of beneficial holders of common stock of the
Company as of March 22, 1996 was 880.
(c) The Company has paid no dividends during the fiscal year ended
December 31, 1994 or the fiscal year ended December 31, 1995. The Company does
not expect to pay dividends in the foreseeable future.
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Item 6. Management Discussion and Analysis or Plan of Operation.
Financial Condition, Liquidity and Capital Resources
The Company's cash position increased from $329,885 on December 31, 1994 to
$1,043,011 on December 31, 1995. This net increase of $713,126 is attributed
principally to the proceeds of $900,000 from the issuance of the Company's
common stock during 1995. Other factors influencing the net increase in cash
were as follows:
CECO's cash flows used in operating activities amounted to $61,034
during 1995. The most significant factor affecting this use of
cash flows was the increase in CECO's inventories of $249,818 at
December 31, 1995 compared to the previous year end. The increase
in inventories was the result of the increase in the number of
sales orders during the latter half of 1995 and the anticipated
increase in production expected for 1996. Other factors affecting
the use of cash flows in operating activities was the increase in
CECO's accounts receivable of $340,301 compared to the previous
year resulting primarily from an increase of approximately 35% of
fourth quarter sales in 1995 compared to the same period in 1994.
This was partially offset by the increase in accounts payable of
$245,115, substantially most of which were the result of the
increase in CECO's inventories.
Cash flows used in investing activities of $184,929 was primarily
the result of CECO's additional acquisitions of equipment during
1995. Expenditures for property and equipment by CECO amounted to
$168,059 for the year ended December 31, 1995, such expenditures
relating to product design equipment, computer hardware and
software upgrades, and plant renovations. CECO intends to
continue to invest in capital equipment to support continued
growth.
The Company's financing activities provided $959,089 of cash,
including the $900,000 described previously, and an increase in
borrowings on CECO's bank line of credit of $600,000, offset by
$174,270 of payments under CECO's long-term debt arrangements. In
addition, the Company repaid the entire balance of the officer's
loan during 1995 amounting to $366,641.
The Company's current ratio improved from 1.27 on December 31, 1994 to 1.65 on
December 31, 1995, primarily as the result of the Company's significant
increase in consolidated cash flows.
The Company also improved its debt to equity ratio which was 1.3 at December
31, 1994 compared to 1.0 at December 31, 1995. This improvement was primarily
the result of additional capital which the Company raised through the issuance
of common stock during 1995.
14
<PAGE> 15
CECO maintains a $1,250,000 line of credit with a commercial bank, of which
$850,000 was outstanding as of December 31, 1995. This credit facility is
available for working capital needs, investment activities and other general
corporate needs.
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 1996.
Prior to July 1, 1994, the Company's operating expenses had been funded by
Phillip DeZwirek for the past several years. After July 1, 1994, the Company's
operating expenses have been funded by the revenue earned from its consulting
agreement with CECO and, during 1994, with other consulting revenue and, during
1995, with proceeds from the sale of its stock.
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 provided management and financial
consulting services to CECO for a monthly fee of $40,000 through December 31,
1994 and thereafter has continued and will continue to provide such services
for a monthly fee of $20,000 through December 1998. Such revenue should be
sufficient to cover the Company's general and administrative expenses.
The Company believes its consulting agreement with CECO should provide
sufficient revenue to meet its general and administrative, and interest
expenses. However, to the extent CECO is unable to pay such amounts, unless
the Company generates revenue from other sources, none of which exist
currently, the Company would have to borrow additional funds from Mr. DeZwirek.
Results of Operations - The Company
The Company's consolidated statement of operations for the years ended December
31, 1995 and 1994 reflect the operations of the Company consolidated with
operations of CECO. As a result of a number of privately negotiated exchanges
of shares of stock of CECO for shares of stock of the Company, the Company,
effective April 7, 1993, owned a greater than 50% interest in CECO. During
1995, the Company earned consulting fees from CECO and continued to incur
general and administrative and interest expenses. As of December 31, 1995, the
Company owned approximately 63% of the outstanding stock of CECO. Minority
interest on the consolidated statement of operations has been presented as a
reduction in net loss.
15
<PAGE> 16
The Company's consolidated net sales, including CECO's consolidated net sales,
were $8,435,309 for the year ended December 31, 1995 and $10,327,441 for the
year ended December 31, 1994, a decrease of 18.3%. During the year ended
December 31, 1995 all of the Company's consolidated net sales were attributable
to the operations of CECO. During 1994, $80,000 of consolidated net sales was
attributable to consulting fees paid to the Company from an unaffiliated third
party.
The Company incurred general and administrative expenses which were $163,032
for the year ended December 31, 1995 and $107,220 for the year ended December
31, 1994, excluding those expenses incurred by CECO that are reflected on the
Company's consolidated statement of operations. Those expenses included
accounting and legal fees, and fees relating to acquisition consulting and
shareholder relations.
During 1995, the Company also incurred $8,800 of interest expense on account of
advances made by Phillip DeZwirek, the Company's Chief Executive Officer and
Chief Financial Officer and a major shareholder of the Company. Interest
expense on advances made by Mr. DeZwirek was $28,115 for the year ended
December 31, 1994.
The Company received $240,000 for each of the years ended December 31, 1995 and
1994 for management and financial consulting services provided to CECO. This
amount is not reflected in the consolidated results of operations since it is
eliminated in consolidation.
Except as set forth above, the Company has no other income (loss), revenues or
expenses other than as a result of its investment in CECO. Except as described
above, the Company does not engage in operations other than through its
operating subsidiary CECO. See discussion of CECO herein.
Results of Operations - CECO
1995 As Compared to 1994
CECO's consolidated net sales decreased by $1,812,132, or 17.7% from
$10,247,441 in 1994 compared to $8,435,309 in 1995 with the result that net
income from operations decreased from $751,948 in 1994 to $52,595 in 1995. The
share drop in sales resulted in a consolidated net loss of $71,241 as compared
to consolidated net income of $317,946 in 1994. Set forth below is the change
in strategy on which CECO has embarked to increase sales and net income:
The decrease in consolidated net sales from 1994 to 1995 reflects the
continuing competition that exists in CECO's traditional markets and
CECO's limited success using commission agents with exclusive territories
to sell its products and targeting customers primarily in the filter
replacement and filter installation markets. Prior to 1995, CECO
16
<PAGE> 17
spread its sales efforts over a multitude of markets with limited focus
to its marketing efforts.
In the recognition that this approach was becoming increasingly
unsuccessful in an increasingly competitive market place, as evidenced by
declining sales, CECO has embarked on a reorganization of its marketing
efforts and an expansion of its core businesses.
During 1995 CECO has attempted to transform itself from being primarily a
seller of filter replacements and filters installation through commission
agents to a company providing ongoing environmental emission control
services to remove particulates and other airborne emissions from the
work place as well as its prior lines of business. The objective of this
new focus on emission control is to attempt to become a service
contractor who will first consult with its customers on their emission
control needs, then enter into contracts pursuant to which it will design
and install systems to remove particulates and other airborne emissions
from the work place, and lastly establish a continuing relationship with
the client in order to service and monitor the filtration system and,
when necessary, modify the emission control system as the work
environment changes. Such a business CECO's management believes will be
more advantageous because it will allow CECO to have direct and
continuous contact with its customers, allow CECO to provide a wider
range of services, and allow for continuous revenues from monitoring and
servicing. Moreover, CECO believes that such business will have higher
profit margins than the filter installation and replacement businesses.
CECO's plan, which it is in the process of implementing, is to target
certain key industries such as the automotive, asphalt, semi-conductor,
and other industries where the work place environments have (i)
relatively similar particulate and other emission control problems
because of the similar nature of the manufacturing processes used and
(ii) an absence of effective particulate and other emission control
strategies. CECO believes that its specialized knowledge and filtration
technologies provide it with the opportunity to provide more effective
solutions to these problems to the ones presently being supplied.
In line with this new focus on specialized services to certain target
industries, CECO has attempted to change its sales arrangement to one
which allows it more closely to control its sales efforts and focus them
on the service businesses it is attempting to cultivate. In line with
this change, CECO has modified its relationship with all its commission
agents. Previously commission agents received a commission for all sales
in their territories. All these territory based arrangements were
terminated. Since November, commission agents who have elected to
continue to represent CECO only receive commissions with respect to sales
that they have personally generated. In lieu of the largely commission
agent sales force, CECO has hired six full-time sales directors. Each
sales director has been designated to focus on a particular industry.
This focus should allow the sales directors to acquire greater knowledge
about his assigned industry and its technical
17
<PAGE> 18
problems and therefore enable such sales directors to sell CECO's services
to these industries with more expertise and experience. There can be no
assurance this approach will generate increased sales.
During the transition period CECO's sales decreased but overall
profitmargins, based on 1993 results, a year with similar sales
volumes, increased. For example, in 1993 CECO's sales were
$8,634,452 compared to 1995 sales of $8,435,309 and the 1993 loss
from operations was $710 compared to 1995's operating income of
$52,595. Although sales decreased by nearly $200,000 in 1995 over
1993, income rose by over $53,000 in 1995 over 1993.
CECO's management believes that if CECO's sales can be increased
to surpass levels achieved in 1994, profitability as a percentage
of sales will also increase. Unfortunately, there is no assurance
of this occurring. Although CECO re-focused its efforts on more
defined markets, there are significant competitors present in
these markets with long track records and market acceptance.
CECO's management believes that CECO's technology and systems are
superior to its competitors and hopes to be able to educate its
target audience about CECO's advantages. CECO is in the early
stages of this process and while CECO is unable to predict
success, CECO's management expects steady improvement despite
competitive pressure.
One promising development is CECO's introduction of its PEEK
PERFORMANCE(TM) monitoring system. With the use of CECO's
proprietary PEEK PERFORMANCE(TM) system, the customer can monitor
all the operational aspects of CECO's filtration equipment. In
addition, CECO also can monitor the equipment from its offices via
a modem installed at the customer's site. With this ability, CECO
can advise its customer of changes in the performance of the
filter system without an on-site visit. CECO introduced this
system to a limited market late in the third quarter of 1995 and
CECO now has one system on line. The software and system
architecture is a CECO development.
CECO markets its products in the United States and Canada with company sales
personnel and with independent industrial sales representatives. CECO markets
its products through magazine advertising, direct mail, telemarketing,
networking, trade shows, and other channels. Sales and marketing efforts were
increased in 1995 compared with 1994 and 1993 by the addition of six Sales
Directors. CECO also began to introduce the concept of target markets to its
internal sales force. CECO plans to direct its internal sales personnel toward
specifically target markets to which it will supply a high level of service
with its customer service personnel and mobile technicians.
CECO's order backlog as of March 15, 1996 was approximately $3.8 million, which
was about $2.2 million higher than its order backlog as of March 15, 1995.
This increase in backlog is
18
<PAGE> 19
a result of structuring and defining specific target markets and having
separate Sales Directors managing these target markets. 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 CECO's control. CECO's operating results can be significantly
impacted by the introduction of new products, new manufacturing technologies,
rapid changes in the demand for its products, decreases in the average selling
price over the life of a product as competition increases, and CECO's
dependence on the efforts of commission salesmen and other third-parties to
sell a significant portion of its products.
CECO's market scope is international. Most overseas orders are received from
developed countries with some from less developed countries. CECO is
represented by agents in five countries in addition to the United States.
Orders from overseas sources increased in 1995 from 1994. Given that CECO is
removed from its international markets, CECO finds it difficult to reasonably
predict overseas growth rates for its products.
CECO had two customers representing 15% and 10% of sales respectively in 1995
compared to one customer representing 15% of sales in 1994. CECO is continuing
its strategy to target more accounts with large dollar volume order potential.
There can be no assurance that CECO will be successful in its attempts to
increase order size or its market breadth.
CECO's cost of sales as a percentage of sales was relatively stable at 56.1% in
1995 compared to 55.9% in 1994. During 1995, permanent direct and indirect
labor costs decreased by 16.1% (from $823,151 in 1994 to $690,990 in 1995)
while sales decreased by 17.7% from 1994 to 1995.
CECO's selling and administrative expenses decreased from $3,190,216 in 1994 to
$3,050,817 in 1995. A substantial portion of the selling and administrative
expenses are fixed in nature as the largest variable expense in this category
relates to sales commissions which amounted to approximately 3% of net sales in
each year.
CECO entered into a management and consulting agreement with the Company which
was made as of January 1, 1994, and became effective July 1, 1994. The Company
owned approximately 63% of CECO's common stock as of March 15, 1996. The terms
of the agreement required monthly fees of $40,000 from July 1994 through
December 1994 and require monthly fees of $20,000 from January 1995 through
December 1998 in exchange for management and financial consulting services
involving corporate policies, marketing, strategic and financial planning,
mergers, acquisitions and related matters.
CECO's depreciation and amortization expense increased by $24,444 from $332,190
in 1994 to $356,634 in 1995 principally due to the addition of equipment in
1995.
CECO's interest expense increased slightly from $173,034 in 1994 to $175,028 in
1995.
19
<PAGE> 20
1994 As Compared to 1993
Consolidated net sales increased by $1,612,989, or 18.7% from $8,634,452 in
1993 compared to $10,247,441 in 1994. The significant factors attributable to
this increase were the result of the following:
Sales contributed from APC accounted for approximately 95% of the
increase and sales contributed from CSI accounted for
approximately 40% of the increase. However, sales of products by
CECO declined during 1994 to reduce the consolidated sales
increase by approximately 35%. This decline in sales of CECO's
products is a result of the decrease in the number of sales
orders. In general, CECO believes that the net increase in sales
can be attributed to its increased marketing efforts and a
receptive marketplace.
CECO's order backlog as of March 15, 1995 was approximately $1.6 million, which
was about $0.6 million lower than its order backlog as of March 15, 1994. The
reason for the lower order backlog is fewer orders for filters and scrubbers.
CECO's cost of sales as a percentage of sales decreased to 55.9% in 1994 from
59.6% in 1993. This 3.7% decrease was due primarily to decreased raw material
costs. During 1994, permanent direct and indirect labor costs increased by
26.6 % (from $649,914 in 1993 to $823,151 in 1994) while sales increased by
18.7% from 1993 to 1994. This continued a trend from previous years.
Production management, supervisory positions, engineering and sales positions
were increased, while certain factory and clerical positions were eliminated.
These changes were made as 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 were virtually unchanged from
$3,175,438 in 1993 to $3,190,216 in 1994. A substantial portion of the selling
and administrative expenses are fixed in nature as the largest variable expense
in this category relates to sales commissions which amounted to approximately
3% of net sales in each year.
CECO's depreciation and amortization expense increased by $25,259 from $306,931
in 1993 to $332,190 in 1994 principally due to the addition of equipment in
1994.
CECO's interest expense increased by $56,072 from $116,962 in 1993 to $173,034
in 1994. The increase in interest expense is a result of higher borrowing
during 1995 and higher interest rates and fees associated with CECO's line of
credit.
20
<PAGE> 21
Discussion of Other Matters Affecting Results of Operations
Key factors that affect CECO's operations include raw material prices and
changes in product mix resulting from market shifts. CECO believes that market
trends are veering toward new uses for fiber bed filters, high efficiency
filter fabric and scrubbers. Specifically, more traditional markets for fiber
bed filters are growing much slower than in the recent past. CECO is
constantly seeking new markets for its products to insure a more predictable
and continuous demand and to make up for existing market satiation. APC's high
temperature filter fabric constantly encounters new and aggressive competition
from other products. We attribute APC's present growth to the recognition by
the market that higher efficiency collection devices, especially for sub-micron
particles, is required. CSI and CECO also are subject to intense technological
and price competition.
CECO began to recognize that one significant factor effecting the growth rate
of APC is that APC sells it high efficiency product to middle men who then
convert the product to special customer specifications. The ultimate customer
of APC is the middle man's customer. APC has set, as one of its goals, to
learn more about its ultimate customers and deal more directly with them. This
will help insure a more consistent order path and more direct involvement with
the end customer's needs. Without this market approach, APC's sales will be
subject to the sales efforts of independent suppliers with little or no
interest in APC's or CECO's future growth and business potential.
CECO's replacement filter media business is subject to extreme competitive
pressures. Although a significant portion of CECO's business is with
replacement filter media, many of CECO's filters have an unlimited life, or at
the very least, an unpredictably long life. Some of CECO's filter units must
be replaced frequently. These units can become subject to competitive
pressures and reduced pricing. Because of these factors, it is nearly
impossible to predict the precise growth, or decline, in revenues and profits
of the filter replacement business. However, it is our belief that as CECO
places more of its products into the field, the likelihood is that the
replacement business will increase, but there is no assurance of this
occurring.
Based on these observations, CECO's operating results are subject to quarterly
fluctuations as a result of the factors discussed above and other factors
including, but not limited to, changes in the mix of products sold, the timing
and success of new product introductions and the scheduling of orders by
customers. CECO believes that its future quarterly operating results may also
fluctuate as a result of a variety of factors, including pricing pressure in
its more mature markets and products, growth of new market areas for CECO's
products, and the growth and prosperity of its customers' businesses. Due to
the cumulative effect of these factors on future operations, past performance
is a limited indicator in assessing potential future performance.
21
<PAGE> 22
CECO intends to concentrate its efforts on a few market segments that appear to
be at an early stage of development. CECO anticipates that it may take several
years to fully realize the market potential of these new business areas. There
is always the possibility that the selected market segments will not develop as
planned and that CECO may be forced to adjust its strategy, including marketing
approach and product development, due to these unanticipated events. Should
this occur, there can be no assurance that CECO will continue to grow.
22
<PAGE> 23
Item 7. Financial Statements
The Company's Consolidated Financial Statements of CECO Environmental
Corp. and Subsidiaries for Years Ended December 31, 1995 and 1994, and other
data are presented on the following pages:
Cover Page
Table of Contents for the Years
Ended December 31, 1995 and 1994 F-1
Independent Auditor's Report F-2
(Margolis & Company P.C.)
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Shareholders' F-5
Equity
Consolidated Statement of Cash Flows F-6
Supplemental Disclosures of Cash F-7
Flow Information
Supplemental Disclosures of Non-Cash F-7
Investing and Financing Activities
Notes to Consolidated Financial Statements F-8
for the Years Ended December 31, 1995,
and 1994
23
<PAGE> 24
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
<PAGE> 25
TABLE OF CONTENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
-------------------------------------------------------
PAGE
NUMBER
------
Independent Auditor's Report 2
Consolidated Financial Statements:
Balance sheet 3
Operations 4
Shareholders' equity 5
Cash flows 6 & 7
Notes to financial statements 8 to 17
F-1
<PAGE> 26
[LETTERHEAD OF MARGOLIS & COMPANY P.C.]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
CECO Environmental Corp. and Subsidiaries
Toronto, Ontario Canada
We have audited the accompanying consolidated balance sheet of CECO
Environmental Corp. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CECO Environmental Corp. and
Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Margolis & Company P.C.
Certified Public Accountants
Bala Cynwyd, PA
January 26, 1996
F-2
<PAGE> 27
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $1,043,011 $ 329,885
Accounts receivable 1,856,541 1,516,240
Inventories 654,826 405,008
Prepaid expenses and other current assets 56,736 51,124
Deferred income taxes 20,889 7,769
----------- -----------
Total current assets 3,632,003 2,310,026
Property and equipment, net 2,019,631 2,138,117
Intangible assets, at cost, net 45,717 79,143
Goodwill, net of accumulated amortization of $178,233
and $105,207, respectively 2,872,825 2,703,776
Deferred charges 75,000 -
----------- ---------------
Total assets $8,645,176 $7,231,062
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 850,000 $ 250,000
Due to officer - 366,641
Current portion of long-term debt 173,393 187,424
Current portion of capital lease obligation 4,838 -
Accounts payable and accrued expenses 1,166,006 920,891
Income taxes payable 10,745 89,368
----------- ----------
Total current liabilities 2,204,982 1,814,324
Long-term debt, less current portion 1,238,795 1,399,034
Capital lease obligation, less current portion 14,955 -
Deferred income taxes 19,888 67,124
----------- -----------
Total liabilities 3,478,620 3,280,482
--------- ---------
Minority interest 824,905 852,267
---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued - -
Common stock, $.01 par value; 100,000,000
shares authorized, 6,956,348 and 6,229,148
shares issued, respectively 69,563 62,291
Capital in excess of par value 7,767,945 6,483,142
Accumulated deficit (3,097,188) (3,048,451)
--------- ---------
4,740,320 3,496,982
Less treasury stock, at cost (398,669) (398,669)
---------- ----------
Net shareholders' equity 4,341,651 3,098,313
--------- ---------
Total liabilities and shareholders' equity $8,645,176 $7,231,062
========= =========
</TABLE>
The notes to consolidated financial statements are an integral part of the
above statement.
F-3
<PAGE> 28
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
------------- --------------
<S> <C> <C>
Net sales $8,435,309 $10,327,441
--------- ----------
Costs and expenses:
Cost of sales 4,735,263 5,733,087
Selling and administrative 3,213,849 3,297,436
Depreciation and amortization 429,660 396,881
---------- -----------
8,378,772 9,427,404
--------- ----------
Income from operations 56,537 900,037
Interest expense (183,828) (201,149)
---------- ----------
Income (loss) before income taxes (credit) (127,291) 698,888
Income taxes (credit) (51,192) 260,968
----------- ----------
Income (loss) before minority interest (76,099) 437,920
Minority interest in net (income) loss of
consolidated subsidiary 27,362 (137,784)
----------- ----------
Net income (loss) ($48,737) $ 300,136
=========== ==========
Net income (loss) per share, primary and fully diluted ($.01) $ .05
=========== ==========
Weighted average number of common shares outstanding 6,437,345 5,895,895
=========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of the
above statement.
F-4
<PAGE> 29
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL DEFICIT STOCK
--------- --------- -------------------- -----------
<S> <C> <C> <<C> <C>
Balance, December 31, 1993 $59,553 $6,199,613 ($3,348,587) ($398,669)
Net income for year ended
December 31, 1994 300,136
Contribution of officer's services 35,000
3.8% acquisition of CECO Filters, Inc.
common stock through issuance of
263,800 shares of common stock 2,638 223,629
Issuance of 10,000 shares of common
stock in lieu of consulting fees 100 24,900
------- ----------- --------------- ------------
Balance, December 31, 1994 62,291 6,483,142 (3,048,451) (398,669)
Net loss for year ended
December 31, 1995 (48,737)
3.3% acquisition of CECO Filters, Inc.
common stock through issuance of
227,200 shares of common stock 2,272 239,803
Issuance of 100,000 shares of common
stock (and stock options) in lieu
of consulting services 1,000 149,000
Exercise of stock options 4,000 896,000
------- ---------- ---------------- -------------
$69,563 $7,767,945 ($3,097,188) ($398,669)
====== ========= ========= =======
</TABLE>
The notes to consolidated financial statements are an integral part of the
above statement.
F-5
<PAGE> 30
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) ( $ 48,737) $ 300,136
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Non-cash consulting fees 75,000 25,000
Depreciation and amortization 356,634 332,190
Goodwill amortization 73,026 64,692
Deferred income taxes ( 60,356) 6,988
Contribution of officer's services - 35,000
Minority interest ( 27,362) 137,784
(Increase) decrease in operating assets:
Accounts receivable ( 340,301) 1,083,730
Inventories ( 249,818) ( 39,013)
Prepaid expenses and other current assets ( 5,612) 76,443
Refundable income taxes - 37,290
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 245,115 ( 136,971)
Accrued interest on officer's loan - 28,115
Customer advances - ( 39,855)
Income taxes payable ( 78,623) 89,368
----------- ----------
Net cash provided by
(used in) operating activities ( 61,034) 2,000,897
----------- ---------
Cash flows from investing activities:
Additions to property and equipment ( 168,059) ( 156,058)
Acquisitions of intangible assets ( 16,870) ( 4,405)
----------- -----------
Net cash (used in) investing activities ( 184,929) ( 160,463)
---------- ----------
</TABLE>
CONTINUED ON NEXT PAGE
The notes to consolidated financial statements are an integral part of the
above statement.
F-6
<PAGE> 31
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Increase (decrease) in cash overdraft $ - ($298,611)
Proceeds from issuance of common stock 900,000 -
Net borrowings (repayments),
short-term obligations 600,000 (759,000)
Repayments, note payable, bank - (84,717)
Proceeds from long-term debt - 120,436
Repayments of long-term debt (174,270) (248,366)
Net repayment of officer's loan (366,641) (263,635)
--------- ----------
Net cash provided by (used in)
financing activities 959,089 (1,533,893)
--------- ----------
Net increase in cash 713,126 306,541
Cash at beginning of year 329,885 23,344
--------- ----------
Cash at end of year $1,043,011 $ 329,885
========= ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<S> <C> <C>
Cash paid during the year for:
Interest $ 171,435 $ 173,134
---------- ----------
Income taxes $ 106,002 $ 142,000
---------- ----------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company exchanged 227,200 and 263,800 shares of its common stock for
227,200 and 263,800 shares of CECO Filters, Inc. common stock with unrelated
third parties in 1995 and 1994, respectively.
During 1995, CFI acquired $19,793 of equipment under a capital lease.
The notes to consolidated financial statements are an integral part of the
above statement.
F-7
<PAGE> 32
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business - The principal business of the Company's
subsidiaries is the manufacture and sale, primarily in the United
States, of fiber bed mist eliminators to the chemical, printing,
plating, power generation, food processing, waste incineration and
textile industries.
Principles of consolidation - The consolidated financial statements
include the accounts of CECO Environmental Corp. (the "Company"), and
CECO Filters, Inc. ("CFI"), a 63% owned subsidiary. The Company
acquired its majority ownership in CFI in April 1993 (see Note 2). All
intercompany balances and transactions have been eliminated.
Use of estimates - The presentation 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.
Inventories and revenue recognition - Inventories are valued at cost
using the first-in, first-out (FIFO) method which does not exceed
market. Revenue is recognized upon shipment of completed products.
Property and equipment - Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to income as
incurred. Depreciation, for financial reporting purposes, is computed
on the straight-line method based on the estimated useful lives of the
assets.
Intangible assets - Goodwill is being amortized on a straight-line basis
over 40 years. The Company's policy is to continually monitor the
recoverability of goodwill using a fair value approach. Intangible
assets are being amortized on a straight-line basis over their estimated
useful lives, which range from 5 to 17 years.
Advertising costs - Advertising costs are charged to operations in the
year incurred and totaled $139,307 in 1995 and $72,432 in 1994.
Research and development - Research and development costs are charged to
expense as incurred. The amount charged was $17,484 and $43,720 for
1995 and 1994, respectively.
Per share data - Per share data is computed using the weighted average
number of shares outstanding during each period. The number of
outstanding shares has been reduced by 137,920 shares of acquired
treasury stock as of December 31, 1995 and 1994, respectively.
Reclassifications - Certain reclassifications have been made to the 1994
financial statements to conform with the 1995 presentation.
F-8
<PAGE> 33
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1. Nature of Business and Summary of Significant Accounting Policies -
Continued
Stock option plan - CFI accounts for its employee stock compensation
plan using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25). Under such method, compensation is measured by
the quoted market price of the stock at the measurement date less the
amount, if any, that the employee is required to pay. The measurement
date is the first date on which the number of shares that an individual
employee is entitled to receive and the option or purchase price, if
any, are known. CFI did not incur any compensation expense related to
its stock option plan during 1995 and 1994.
Recently issued accounting standards - In October, 1995, the Financial
Accounting Standards Board adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123).
SFAS 123 permits companies to choose between a "fair value based method
of accounting" for employee stock options or to continue to measure
compensation cost for employee stock compensation plans using the
intrinsic value based method of accounting prescribed by APB 25. CFI
intends to continue to use the APB 25 method. Entities electing to
remain with this method must make pro forma disclosures of net income
(loss) and earnings (loss) per share as if the fair value based method
of accounting defined in SFAS 123 had been applied to all awards granted
in fiscal years beginning after December 15, 1994. The Company, as
permitted under SFAS 123, will make such disclosures for all awards
granted after December 31, 1994 in its 1996 annual financial statements.
2. Investment in CFI/Goodwill
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 CFI common stock owned by
IntroTech. CFI is a publicly-held Delaware corporation. The 1,666,666
shares of CFI common stock acquired by the Company are restricted.
Those shares represented 24.51% of the outstanding shares of common
stock of CFI.
During March 1993, the Company acquired 858,564 additional shares of
CFI's common stock in exchange for newly issued shares of its own common
stock, bringing the Company's holdings to 37.1% of CFI's common stock.
Between April and December 1993, the Company acquired 1,254,300 more
shares of CFI's common stock of which 1,233,200 shares were exchanged
for newly issued shares of the Company's common stock and 21,100 shares
were acquired for cash on the open market. During 1994 and 1995,
respectively, the Company acquired 263,800 and 227,200 more shares of
CFI's common stock in exchange for newly issued shares of the Company's
common stock.
The Company included CFI and its wholly-owned subsidiaries in its
consolidated financial statements as of April 1993 when the Company's
ownership of CFI's common stock exceeded 50%.
F-9
<PAGE> 34
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
3. Financial Instruments
Fair value of financial instruments:
The fair values of current asset financial instruments, consisting of
cash and accounts receivable and current liability financial
instruments, consisting, of short-term obligations and accounts payable,
are assumed to be equal to their reported carrying amounts. The fair
values of noncurrent financial instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Long-term debt $1,412,188 $1,392,349 $1,586,458 $1,566,079
========= ========= ========= =========
</TABLE>
Valuations for long-term debt are determined based on future payments
discounted at current interest rates for similar obligations.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to credit
risk consist principally of cash and accounts receivable. The Company
performs periodic evaluations of the financial institutions in which its
cash is invested. The Company performs ongoing credit evaluations of
its customers' financial condition, and generally requires no collateral
from its customers.
4. Inventories
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Raw material $514,489 $247,520
Work-in-process - 45,906
Finished goods 140,337 111,582
--------- ---------
$654,826 $405,008
========= =========
</TABLE>
F-10
<PAGE> 35
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
5. Property and Equipment
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Land $ 139,342 $ 137,342
Building 1,662,908 1,637,786
Machinery and equipment 1,488,539 1,325,809
--------- ---------
3,288,789 3,100,937
Less accumulated depreciation 1,269,158 962,820
--------- ---------
$2,019,631 $2,138,117
========= =========
</TABLE>
Depreciation expense was $306,338 and $285,696 for 1995 and 1994,
respectively. Machinery and equipment at December 31, 1995 included
equipment acquired under a capital lease with a cost of $19,793 and
accumulated depreciation of $3,959.
6. Intangible Assets
Intangible assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Customer lists $ 81,500 $ 81,500
Non-compete agreement 62,500 62,500
Patents 77,406 60,536
-------- --------
221,406 204,536
Less accumulated amortization 175,689 125,393
------- -------
$ 45,717 $ 79,143
======== ========
</TABLE>
7. Debt
Short-term obligations consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Note payable, bank, under line of credit. CFI has a
line of credit with a bank permitting borrowings of up
to $1,250,000 with interest at the prime rate plus 1/4%
(effective rate of 8.75% at December 31, 1995). In
addition to outstanding borrowings at December 31,
1995, there was also a $150,000 standby letter of
credit to the Pennsylvania Industrial Development
Authority which was outstanding. $850,000 $250,000
======== ========
</TABLE>
CFI is required to maintain compensating cash balances of 5% of the
total line of credit offered, or is subject to additional fees.
F-11
<PAGE> 36
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
7. Debt - Continued
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Mortgage note payable, bank, monthly installments of
$10,149, including interest at 8% per annum through
March 1, 1998 at which time the interest rate will be
adjusted to a per annum rate equal to 3/4% in
excess of the prime rate. Remaining principal will
be repaid in 110 equal monthly installments beginning
April 1, 1998, plus interest. $953,818 $ 996,351
Bank note, payable in equal monthly installments of
$7,000 plus interest at 3/4% in excess of the prime
rate, (effective rate of 9.25% at December 31, 1995)
through March, 1996, at which time the remaining
principal balance of $84,000 will be due 105,000 189,000
Pennsylvania Industrial Development Authority, payable
in equal monthly installments of $2,797 including interest
at 3% per annum, through May, 2007, secured by a
second mortgage on land and building 324,102 347,559
Delaware Valley Industrial Resource Center, payable in
equal monthly installments of $834 through January,
1996. Non-interest bearing. 834 10,834
Delaware Valley Industrial Resource Center, payable in
equal monthly installments of $489 including interest
at 3% per annum, through February, 1997 6,715 12,288
Delaware Valley Industrial Resource Center, payable in
in equal monthly installments of $273 including
interest at 3% per annum, through May, 1997 4,540 7,630
Delaware Valley Industrial Resource Center, payable in
equal monthly installments of $131 including
interest at 3% per annum, through April, 1997 2,053 3,539
Delaware Valley Industrial Resource Center, payable
in equal monthly installments of $560 including
interest at 3% per annum, through March, 1998. 15,126 19,257
----------- -----------
1,412,188 1,586,458
Less current portion 173,393 187,424
---------- ---------
$1,238,795 $1,399,034
========= =========
</TABLE>
F-12
<PAGE> 37
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
7. Debt - Continued
Maturities of all long-term debt over the next five years are estimated
as follows:
<TABLE>
<S> <C>
1996 $173,393
1997 100,282
1998 83,732
1999 90,958
2000 98,165
</TABLE>
CFI's property and equipment, accounts receivable, and inventories serve
as collateral for its bank debt. The bank debt is also subject to
financial covenants which require CFI to limit its leverage and maintain
a minimum cash flow coverage.
8. Capital Lease Obligations
CFI acquired equipment under the provisions of a long-term lease.
Future minimum lease payments under the capital lease are as follows:
<TABLE>
<S> <C>
1996 $ 6,953
1997 6,953
1998 6,953
1999 3,478
-------
24,337
Less amount representing interest 4,544
-------
Present value of net minimum
capital lease payments 19,793
Less current portion 4,838
-------
Long-term portion $14,955
======
</TABLE>
9. Due to Officer
These advances, bearing interest at 6% per annum and payable on demand
to the Company's Chief Executive Officer, were repaid during 1995.
10. Shareholders' Equity
CFI maintains a stock option plan for its employees. Under the plan,
options to purchase 500,000 shares of CFI's common stock may be granted
at not less than 100% of the market price of the shares on the date of
grant. Options are generally exercisable one year from the date of
grant and expire between five and ten years of the date of grant.
F-13
<PAGE> 38
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
10. Shareholders' Equity - Continued
The status of the stock option plan for CECO Filters, Inc., the
Company's subsidiary, is as follows:
<TABLE>
<CAPTION>
AVERAGE OPTION
SHARES PRICE PER SHARE
------ ---------------
<S> <C> <C>
Options granted:
1988 38,400 $2.43
1989 6,200 2.50
1991 39,250 .95
1992 47,400 1.90
1993 90,700 .95
1994 89,800 1.08
1995 85,500 1.09
Options exercised:
1989 1,000 2.25
Options terminated or expired:
1989 200
1990 200
1993 33,400
1994 2,150
1995 6,200
Outstanding at year end:
1994 274,800
1995 354,100
Available for grant:
1994 188,250
1995 102,750
</TABLE>
11. Sales to Major Customers
During 1995, CFI had two customers representing 15% and 10%,
respectively, of consolidated net sales. During 1994, CFI had sales to
one major customer representing 15% of consolidated net sales.
12. Employee Benefit Plans
CFI has a 401(k) Savings and Retirement Plan which covers substantially
all employees. Under the terms of the Plan, employees can contribute
between 1% and 15% of their annual compensation to the Plan. CFI
matches 50% of the first 3% of employee contributions and 25% of the
next 3% of employee contributions. Plan expense for the years ended
December 31, 1995 and 1994 was $28,216 and $24,521, respectively.
CFI also has a profit-sharing plan which covers substantially all
employees. There were no contributions to the Plan for 1995 or 1994.
F-14
<PAGE> 39
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
13. Rent
CFI leases certain facilities on a year-to-year basis. CFI also has
future annual minimum rental commitments under a noncancelable operating
lease as follows:
<TABLE>
<S> <C>
1996 $13,328
1997 14,010
1998 1,177
</TABLE>
Total rent expense under all operating leases for 1995 and 1994 was
$66,363 and $72,209, respectively.
14. Income Taxes
Income taxes (benefit) consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current:
Federal ($15,118) $195,325
State 24,282 58,655
------ --------
9,164 253,980
Deferred (60,356) 6,988
------ ---------
($51,192) $260,968
====== =======
</TABLE>
The provision (benefit) for income taxes differs from the statutory rate
due to the following for the year ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Tax (benefit) at statutory rate ($43,279) $237,622
Increase (decrease) in tax resulting from:
Net operating loss deduction (26,169) (74,800)
Surtax exemption 10,629 -
State tax, net of federal benefit 16,026 38,712
Change in tax versus book basis of assets (37,672) -
Permanent differences, principally goodwill 35,803 21,995
Nondeductible officer compensation - 11,900
(Over) under accrual of prior years' taxes (6,331) 22,615
Other (199) 2,924
-------- --------
($51,192) $260,968
======= =======
</TABLE>
F-15
<PAGE> 40
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
14. Income Taxes - Continued
Deferred income taxes reflect the future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The net deferred tax liability consisted of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax asset:
Inventory capitalization $ 20,889 $ 7,769
Net operating loss carryforwards 135,000 165,600
Less valuation allowance (135,000) (165,600)
------- -------
20,889 7,769
Deferred tax liability:
Accelerated depreciation 19,888 67,124
-------- --------
Net deferred tax liability $ 1,001 $ 59,355
========= ========
</TABLE>
The Company has federal net operating loss carryforwards of
approximately $337,015 which expire as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------
<S> <C>
2006 $142,015
2008 195,000
</TABLE>
The change in valuation allowance reflects current utilization of net
operating loss carryforwards. A valuation allowance is provided since
the utilization of tax benefits of net operating loss carryforwards is
not assured.
CECO Environmental Corp. and CFI each file separate federal income tax
returns since the Company's ownership interest in CFI is not sufficient
to allow for a consolidated federal income tax return. In addition, the
federal net operating loss carryforwards are not available to offset
taxable income of CFI.
15. Related Party Transactions
Effective January 1, 1994, the Company entered into a consulting
agreement with CFI. The terms of the agreement require monthly fees by
CFI 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. CFI paid the Company $240,000 during each of the years ended
December 31, 1995 and 1994. These fees have been eliminated in
consolidation.
F-16
<PAGE> 41
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
16. Consulting Agreement
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. Options exercised on or prior to December 31, 1995 were
exercisable at $2.25 per share. In addition, the Company issued 100,000
shares of its common stock to the consultant.
The value of the options and shares issued, as determined by an
unrelated third party, was $150,000, such amount being deferred and
amortized over the eighteen-month period of the consulting agreement.
Amortization of $75,000 was recorded during 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. As of December 31, 1995, options for
600,000 shares remain outstanding.
F-17
<PAGE> 42
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has had no changes in or disagreements with its independent
accountants during the Company's two most recent fiscal years.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following are the directors and executive officers of the Company.
The terms of all directors expire at the next annual meeting of shareholders
and upon election of their successors. The terms of all officers expire at the
next annual meeting of the board of directors and upon the election of the
successors of such officers.
Name Age Position
- ---- --- --------
Phillip DeZwirek 58 Chairman of the Board of Directors;
Chief Executive Officer and Chief
Financial Officer
Jason Louis DeZwirek 25 Director
Josephine Grivas 56 Director and Secretary
The business backgrounds during the past five years of the Company's
directors and officers are as follows:
Phillip DeZwirek became a director, the Chairman of the Board and the
Chief Executive Officer of the Company in August 1979. Mr. DeZwirek's
principal occupations during the past five years have been as President (since
May 1982 until 1993) and Chairman of the Board of Digital Fusion Multimedia
Corp. (formerly Akers Medical Technologies Limited and herein called "Digital
Fusion") of Toronto Canada; Chairman of the Board and Vice President of CECO
Filters, Inc., a Delaware corporation (since 1985); President of Can-Med (since
1990); and President and a director of Technapower (since August 1988). Mr.
DeZwirek has also been involved in private investment activities for the past
five years. Digital Fusion's common stock is traded over-the-counter on the
NASDAQ Bulletin Board. CECO's common stock is listed on the Philadelphia Stock
Exchange. CECO is a manufacturer and distributor of filters used to trap,
collect and remove solid soluble and liquid particulate matter suspended in an
air or other gas streams. Technapower has no operations, but owns 75% of an
operating subsidiary, Electronics. See Item 1 - Business.
Jason Louis DeZwirek, the son of Phillip DeZwirek, became a director of the
Company in February, 1994, following the resignation of the then third director.
Mr. DeZwirek's principal occupation since 1993 has been as the President of
Digital Fusion, a company that adapts books and movies to the CD Rom medium.
From 1992 until 1993, Mr. DeZwirek was
24
<PAGE> 43
the Chief Financial Officer of Missing Treasurers Productions, a
television production company. From 1988 to 1992, Mr. DeZwirek was a student
at Concordia University in Montreal, Quebec where he received a B.A. in
philosophy.
Josephine Grivas has been a director of the Company since February, 1991
and its Secretary since October, 1992. Ms. Grivas has been an administrative
assistant for Phillip DeZwirek, Icarus Investment Corp. and other entities he
controls since 1975. Ms. Grivas also is the Secretary and Treasurer and a
director of Can-Med.
During the fiscal year ended December 31, 1993, the Board held no
meetings. During and since the end of such period, action has been taken by
unanimous written consent of the Board of Directors.
Compliance with Section 16(a) of the Exchange Act. The Company is not
aware of any persons who beneficially own or owned more than 10 percent of the
outstanding common stock of the Company or any officer, director or other
person subject to the requirements of Section 16 of the Securities Exchange Act
of 1934 who, during the period covered by this Annual Report on Form 10-KSB,
failed to file, or failed to file on a timely basis, any reports or forms
required to be filed under said Section 16 or the rules and regulations
promulgated thereunder.
Item 10. Executive Compensation
Neither the Company nor any of its subsidiaries paid, set aside or accrued
any salary or other remuneration or bonus, or any amount pursuant to a
profit-sharing, pension, retirement, deferred compensation or other similar
plan, during its last fiscal year, to or for any of the Company's executive
officers or directors.
The directors of the Company received no consideration for serving in
their capacity as directors of the Company. The Company has no annuity,
pension or retirement plans.
Stock Options
During the fiscal year ended December 31, 1995 the Company did not grant
any stock options. The Company does not have any stock options currently
outstanding.
The following table summarizes the total compensation of the Chief
Executive Officer of CECO Filters, Inc. for 1995 and the two previous years
(the "Named Executive Officer"). There were no other executive officers of
CECO Filters, Inc. who received compensation in excess of $100,000 for 1995.
25
<PAGE> 44
SUMMARY COMPENSATION TABLE FOR CECO FILTERS, INC.:
<TABLE>
<CAPTION>
Name/ Annual Compensation Long Term Compensation
Principal Position Year Salary Other(1) Options (#)
- ------------------ ---------------- -------- ----------------------
<S> <C> <C> <C> <C>
Steven I. Taub, Ph.D./ 1995 $200,000 $36,200 75,000
President and
Chief Executive Officer 1994 $200,000 $20,399 75,000
1993 $200,000 - 75,000
</TABLE>
The following tables set forth information with respect to the Named
Executive Officer concerning exercise of options on stock of CECO Filters, Inc.
during the last fiscal year and unexercised options on stock of CECO Filters,
Inc. held as of the end of the fiscal year.
OPTION/SAR GRANTS ON CECO FILTERS, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995:
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration
Name Granted (#) Fiscal Year ($/SH) Date
- ---- ------------ ------------ -------- ----------
<S> <C> <C> <C> <C>
Steven I.Taub, Ph.D. 75,000(2) 74.6% $1.10 December 31, 2000
</TABLE>
AGGREGATED OPTION/SAR ON CECO FILTERS, INC.
EXERCISES FOR THE YEAR ENDED DECEMBER 31, 1995
AND OPTION/SAR VALUES ON CECO FILTERS, INC. AS OF DECEMBER 31, 1995:
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
on Value Options/SARs Options/SARs
Exercise Realized at 12/31/95 at 12/31/95
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven I. Taub, Ph.D. 0 0 225,000 75,000 $17,806 0
</TABLE>
(1) Includes $12,931 as a car allowance and the balance as an IRA contribution
and insurance premiums.
(2) Not exercisable for one year from date of grant.
26
<PAGE> 45
Dr. Taub is presently negotiating a new employment agreement with CECO.
Dr. Taub's previous employment agreement with CECO expired in 1990 and Dr. Taub
has worked in the interim without an agreement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth the name and address of each beneficial
owner of more than five percent (5%) of the Company's common stock known to the
Company, the number of shares of common stock of the Company beneficially owned
as of February 28, 1996, and the percent of the class so owned by each such
person.
<TABLE>
<CAPTION>
No. of Shares % of Total CEC
Name of of Common Stock Common Shares
Beneficial Owner Beneficially Owned Outstanding(1)
---------------------------- ------------------ ----------------
<S> <C> <C>
Icarus Investment Corp.(2)
111 Elizabeth St., Suite 600
Toronto, Ontario M5G 1P7 1,334,360 19.0%
Phillip DeZwirek(2),(3)
111 Elizabeth St., Suite 600
Toronto, Ontario M5G 1P7 1,339,857 19.0%
IntroTech Investments, Inc.(4)
195 Hillsdale Avenue East
Toronto, Ontario M5S 1T4 1,598,666 22.7%
Jason Louis DeZwirek(2),(4)
195 Hillsdale Avenue East
Toronto, Ontario M5S 1T4 2,933,026 41.7%
</TABLE>
- ---------------
(1) Based upon 7,040,148 shares of common stock of the Company
outstanding as of February 28, 1996.
(2) Icarus Investment Corp. ("Icarus") is owned 50% by Phillip DeZwirek
and 50% by Jason Louis DeZwirek. Ownership of the shares of common stock of
CEC owned by Icarus Investment Corp. also are attributed to both Messrs.
Phillip DeZwirek and Jason Louis DeZwirek. With respect to the shares owned by
Icarus, Icarus has sole dispositive and voting power and Phillip DeZwirek and
Jason Louis DeZwirek are deemed to have shared voting and shared dispositive
power.
(3) Phillip DeZwirek is the Chief Executive Officer, Chief Financial
Officer and Chairman of the Board of Directors of CEC.
(4) IntroTech Investments, Inc. ("IntroTech") is owned 100% by Jason
Louis DeZwirek. Ownership of the shares of common stock of the Company owned
by IntroTech also are attributed to Jason Louis DeZwirek. IntroTech and Jason
Louis DeZwirek are each deemed to have sole dispositive and sole voting power
with respect to such shares.
27
<PAGE> 46
(b) Security Ownership of Management
As of February 28, 1996, the present directors and executive officers of
the Company are the beneficial owners of the numbers of shares of common stock
of the Company set forth below:
<TABLE>
<CAPTION>
Name of Number of
Beneficial Shares of % of Total CEC
Owner and Common Stock Common Shares
Position Held Beneficially Owned Outstanding (5)
-------------------- ------------------- ------------------
<S> <C> <C>
Phillip DeZwirek
Chief Financial
Officer, Chief
Executive Officer,
Chairman of the
Board of Directors 1,339,857(6) 19.0%
Jason Louis DeZwirek
Director 2,933,026(7) 41.7%
Josephine Grivas
Director, Secretary --- ---
Officers and
Directors as a
group (3 persons) 2,938,523(6),(7) 41.7%
</TABLE>
(c) Changes in Control
The Company is not aware of any current arrangement(s) that may result in
a change in control of the Company.
(5) See Note 1 to the foregoing table.
(6) See Notes 2 and 3 to the foregoing table.
(7) See Notes 2 and 4 to the foregoing table.
28
<PAGE> 47
Item 12. Certain Relationships and Related Transactions
Since January 1, 1995, the following transactions have occurred in which
persons who, at the time of such transactions, were directors, officers or
owners of more than 5% of the Company's common stock, had a direct or indirect
material interest.
Phillip DeZwirek, from time to time, has advanced funds to the Company in
order to provide it with working capital and in order to enable it to meet
certain expenses. As of December 31, 1994, the Company owed Mr. DeZwirek an
aggregate of $366,641 (including interest) on account of such advances. During
the fiscal year ended December 31, 1995, Mr. DeZwirek advanced no additional
funds to the Company and was repaid all amounts due him by the Company. All of
such advances while outstanding to the Company accrued interest at the rate of
6%. (See: Management's Discussion and Analysis on Plan of Operation and Notes
to Consolidated Financial Statements.)
The Company and CECO have entered into a five (5) year written management
and consulting agreement pursuant to which the Company provides management and
financial consulting services to CECO. The Company advises CECO on corporate
policies, strategic and financial planning, mergers and acquisitions,
financing, long-term financial goals and growth plans and related matters.
This agreement was made as of January 1, 1994 and became effective as of July
1, 1994. Pursuant to this agreement CECO paid the Company management and
financial consulting fees of $40,000 per month from July 1, 1994 through
December 31, 1994 ($240,000 total), and paid $20,000 per month ($240,000 total)
for the 1995 fiscal year and thereafter, until the end of the term of the
contract will pay the Company management and financial consulting fees of
$20,000 per month. The consulting agreement with CECO terminates on December
31, 1998, and may be terminated earlier upon the bankruptcy or liquidation of
CECO or the Company, by the non-bankrupt party. The consulting agreement may
also be terminated upon the sale of substantially all of the assets of CECO or
the merger of CECO into another company, in which event the Company is entitled
to receive a severance fee of $240,000.
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits
3(i) Articles of Incorporation (Incorporated by reference from Form
10-KSB dated December 31, 1993 of the Company)
3(ii) Bylaws (Incorporated by reference from Form 10-KSB dated December
31, 1993 of the Company)
29
<PAGE> 48
4.1 Form of Warrant to be issued to broker-dealers and dealers in
securities (Incorporated by reference from CECO's Registration
Statement on Form S-18 declared effective on August 12, 1987)
4.2 1987 CECO Filters, Inc. Key Employees and Key Personnel Stock
Option Plan (Incorporated by reference from CECO's Registration
Statement on Form S-18 declared effective on August 12, 1987)
4.3 CECO Filters, Inc. Savings and Retirement Plan (Incorporated by
reference from CECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990)
10.1.1 Lease Agreement, dated December 2, 1985, between CECO and T & T
Supply Company (Incorporated by reference from CECO's Registration
Statement on Form S-18 declared effective August 12, 1987)
10.1.2 Lease Amendment, dated November 13, 1986, between CECO and T & T
Supply Company (Incorporated by reference from CECO's Registration
Statement on Form S-18 declared effective August 12, 1987)
10.1.3 Lease Amendment No. 2 dated January 4, 1989 between CECO and T & T
Supply Company (Incorporated by reference from CECO's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988)
10.3.1 Note, dated August 28, 1985, issued by CECO to Continental Bank,
N.A. (Incorporated by reference from CECO's Registration Statement
on Form S-18 declared effective on August 12, 1987)
10.3.2 Note issued by CECO to Continental Bank, N.A. (Incorporated by
reference from CECO's Registration Statement on Form S-18 declared
effective on August 12, 1987)
10.12 Lease dated April 18, 1990 between CECO and Bayshore Office Center
(Incorporated by reference from CECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990)
10.13 Stock Purchase Agreement dated as of March 27, 1991 between CECO
and Michael Edge (Incorporated by reference from CECO's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990)
*10.14 Agreement of Sale dated July 2, 1991 between CECO and Bassett
Properties, Inc.
*10.14.1 Addendum to Agreement of Sale dated July 14, 1991
30
<PAGE> 49
*10.14.2 Second Addendum to Agreement of Sale dated July 23, 1991
*10.15 Loan Agreement dated September 1, 1991 between CECO and
Philadelphia Economic Development Financing Authority
*10.16 Reimbursement Agreement dated September 1, 1991 between CECO
and Philadelphia National Bank
*10.17 Mortgage dated October 28, 1991 by CECO and the Montgomery
County Industrial Development Corporation ("MCIDC")
*10.18 Mortgage dated October 28, 1991 by CECO and MCIDC
*10.19 Installment Sale Agreement dated October 28, 1991 between
CECO and MCIDC
*10.20 Acquisition Agreement dated October 28, 1991 between CECO and
MCIDC
*10.21 Lease dated as of March 10, 1992 between CECO and BTR North
America, Inc.
*10.22 Agreement of Purchase and Sale of Assets dated as of March
10, 1992 by and among A.P. Acquisition Corp., CECO, Air Purator
Corporation and Vericon Corporation
10.23 Stock Purchase Agreement dated as of December 23, 1991, between
CECO, Steven I. Taub, Introtech Investments, Inc. and Trio Growth
Trust (Incorporated by reference from CECO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992)
10.24 Promissory Note from Steven I. Taub to CECO in the amount of
$83,334 (Incorporated by reference from CECO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992)
10.25 Commercial Promissory Note dated February 25, 1993 between CECO
and Corestates Bank, N.A. (Incorporated by reference from CECO's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1993)
10.26 Commercial-Industrial Mortgage dated February 25, 1993 between
CECO and Corestates Bank, N.A. (Incorporated by reference from
CECO's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993)
31
<PAGE> 50
10.27 Stock Sale Agreement, dated June 18, 1992, between Registrant and
Phillip DeZwirek relating to Can-Med Technology, Inc. stock
(Incorporated by reference from Form 8-K dated June 18, 1993 of the
Company)
10.28 Stock Sale Agreement, dated June 18, 1993, between Registrant and
Phillip DeZwirek relating to API Electronics, Inc. stock
(Incorporated by reference from Form 8-K dated June 18, 1993 of the
Company)
10.29 Consulting Agreement dated as of January 1, 1994 and effective as
of July 1, 1994 between the Company and CECO (Incorporated by
reference to Form 10-QSB dated September 30, 1994 of the Company)
10.30 Consulting Agreement, dated as of April 1, 1995 between the Company
and Pioneer Capital Consulting Corp. (Incorporated by reference
from the Company's Quarterly Report on 10-QSB for the quarter ended
March 31, 1995)
10.31 Consulting Agreement among the Company, Robert A. Lerman and John
F. Ferraro, dated as of April 1, 1995, which agreement replaced
Exhibit 10.30. (Incorporated by reference from the Company's
Registration Statement on Form S-8 dated August 29, 1995)
21 Subsidiaries of the Company (Incorporated by reference from Form
10-KSB dated December 31, 1993 of the Company)
27 Financial Data Schedule
________________________
* Incorporated by reference from CECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fiscal quarter ended
December 31, 1995.
32
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Phillip DeZwirek
---------------------
Phillip DeZwirek,
Chief Executive Officer
Chief Financial Officer
Dated: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Principal Executive, Financial
and Accounting Officer
/s/ Phillip DeZwirek March 28, 1996
- ---------------------------------
Phillip DeZwirek, Chairman of the
Board and Director,
Principal Executive, Financial
and Accounting Officer
/s/ Jason Louis DeZwirek March 28, 1996
- ---------------------------------
Jason Louis DeZwirek, Director
/s/ Josephine Grivas March 28, 1996
- ---------------------------------
Joseph Grivas, Director
33
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,043,011
<SECURITIES> 0
<RECEIVABLES> 1,856,541
<ALLOWANCES> 0
<INVENTORY> 654,826
<CURRENT-ASSETS> 3,632,789
<PP&E> 3,288,789
<DEPRECIATION> 1,269,158
<TOTAL-ASSETS> 8,645,176
<CURRENT-LIABILITIES> 2,204,982
<BONDS> 1,412,188
0
0
<COMMON> 69,563
<OTHER-SE> 4,272,088
<TOTAL-LIABILITY-AND-EQUITY> 8,645,176
<SALES> 8,435,309
<TOTAL-REVENUES> 8,435,309
<CGS> 4,735,263
<TOTAL-COSTS> 8,378,772
<OTHER-EXPENSES> 183,828
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183,828
<INCOME-PRETAX> (127,291)
<INCOME-TAX> (51,192)
<INCOME-CONTINUING> (76,099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,737)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
