<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended SEPTEMBER 30, 1996 Commission file number 0-7099
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CECO ENVIRONMENTAL CORP.
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NEW YORK 13-2566064
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 ELIZABETH STREET, SUITE 600, TORONTO, ONTARIO, CANADA MSG 1P7
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 416-593-6543
----------------
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
__X__ Yes _____ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class: COMMON, PAR VALUE $.01 PER SHARE
--------------------------------
OUTSTANDING at September 30, 1996 - 7,061,828 shares
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1996
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INDEX
Part I - Financial Information:
Condensed consolidated balance sheet as of
September 30, 1996 and December 31, 1995 2
Condensed consolidated statement of operations
for the three-month and nine-month periods ended
September 30, 1996 and 1995 3
Condensed consolidated statement of cash flows for the
nine-month periods ended September 30, 1996 and 1995 4 & 5
Notes to condensed consolidated financial statements 6 & 7
Management's discussion and analysis of the
financial condition and results of operations 8 to 10
Signature 11
1
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 261,343 $1,043,011
Marketable securities 905,324 -
Accounts receivable 1,386,566 1,856,541
Advances to officers 34,000 -
Inventories 679,806 654,826
Prepaid expenses and other current assets 122,142 56,736
Deferred income taxes 20,889 20,889
---------- ----------
Total current assets 3,410,070 3,632,003
Property and equipment, net 1,820,648 2,019,631
Intangible assets, at cost, net 90,998 45,717
Goodwill 2,978,892 2,872,825
Deferred charges - 75,000
---------- ----------
Total assets $8,300,608 $8,645,176
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 700,000 $ 850,000
Current portion of long-term debt 85,241 173,393
Current portion of capital lease obligation 4,838 4,838
Accounts payable and accrued expenses 759,292 1,166,006
Income taxes payable 84,006 10,745
---------- ----------
Total current liabilities 1,633,377 2,204,982
Long-term debt, less current portion 1,156,528 1,238,795
Capital lease obligation, less current portion 10,319 14,955
Deferred income taxes 19,888 19,888
---------- ----------
Total liabilities 2,820,112 3,478,620
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Minority interest 847,694 824,905
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Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 100,000,000 shares
authorized, 7,199,748 and 6,956,348 shares
issued, respectively 71,997 69,563
Capital in excess of par value 8,006,886 7,767,945
Accumulated deficit (3,047,412) (3,097,188)
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5,031,471 4,740,320
Less treasury stock, at cost ( 398,669) ( 398,669)
---------- ----------
Net shareholders' equity 4,632,802 4,341,651
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Total liabilities and shareholders' equity $8,300,608 $8,645,176
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Net sales $2,195,120 $1,627,425 $6,220,217 $5,463,959
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 1,172,444 953,132 3,277,633 3,377,742
Selling and administrative 792,709 819,069 2,416,063 2,252,436
Depreciation and amortization 118,107 107,863 334,013 321,263
----------- ----------- ---------- ----------
2,083,260 1,880,064 6,027,709 5,951,441
----------- ----------- ---------- ----------
Income (loss) from operations 111,860 ( 252,639) 192,508 ( 487,482)
Investment income 27,801 - 50,690 -
Interest expense ( 34,390) ( 48,809) ( 118,440) ( 135,478)
----------- ----------- ---------- ----------
Income (loss) before provision
(credit) for income taxes 105,271 ( 301,448) 124,758 ( 622,960)
Provision (credit) for income taxes 44,192 ( 79,642) 52,192 ( 186,330)
----------- ----------- ---------- ----------
Income (loss) before
minority interest 61,079 ( 221,806) 72,566 ( 436,630)
Minority interest ( 19,969) 83,091 ( 22,789) ( 166,756)
----------- ----------- ---------- ----------
Net income (loss) $ 41,110 ($ 138,715) $ 49,777 ($ 269,874)
========== ========== =========== ==========
Net income (loss) per share,
primary and fully diluted $ .01 ($ .02) $ .01 ($ .04)
========== ========== =========== ===========
Weighted average number of
common shares outstanding 7,037,128 6,579,095 6,950,861 6,249,206
========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 49,777 ($269,874)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 278,318 267,075
Goodwill amortization 55,695 54,188
Amortization of deferred charges 75,000 50,000
Non-cash expenses - officer's compensation and interest - 35,050
Accrued bond interest ( 6,084) -
Minority interest 22,789 ( 166,756)
(Increase) decrease in operating assets:
Accounts receivable 469,975 392,611
Inventories ( 24,980) ( 48,580)
Prepaid expenses ( 65,406) ( 14,663)
Refundable income taxes - ( 184,750)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses ( 406,714) ( 374,243)
Income taxes payable 73,261 ( 89,368)
----------- -------
Net cash provided by (used in) operating activities 521,631 ( 349,310)
---------- -------
Cash flows from investing activities:
Purchases of marketable securities ( 1,402,116) -
Proceeds from sales of marketable securities 502,876 -
Additions to property and equipment and intangible assets ( 72,503) ( 138,220)
Advances to officers ( 34,000) -
----------- --------
Net cash (used in) investing activities ( 1,005,743) ( 138,220)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of stock 27,500 810,000
Proceeds from (reduction of) short-term obligations ( 150,000) 650,000
Repayments of long-term debt and capital lease obligation ( 175,056) ( 129,704)
Net repayments of officer's loan - ( 366,641)
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Net cash provided by (used in) financing activities ( 297,556) 963,655
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Net increase (decrease) in cash ( 781,668) 476,125
Cash at beginning of period 1,043,011 329,885
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Cash at end of period $ 261,343 $806,010
========== ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CONTINUED ON FOLLOWING PAGE
See accompanying notes to condensed consolidated financial statements.
4
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(unaudited)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C>
Cash paid during the period for:
Interest $ 118,441 $126,695
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Income taxes $ 23,800 $ 21,480
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of September 30, 1996 and the
results of operations for the three-month and nine-month periods ended
September 30, 1996 and 1995 and cash flows for the nine-month periods
ended September 30, 1996 and 1995. The results of operations for the
three-month and nine-month periods ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
2. Inventories consisted of the following:
September 30, December 31,
1996 1995
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Raw materials $548,262 $514,489
Work-in-process 6,686 -
Finished goods 124,858 140,337
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$679,806 $654,826
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3. Other Assets
Investment in CECO Filters, Inc.
Pursuant to a Stock Exchange Agreement dated May 30, 1992, between the
Company and IntroTech Investments, Inc. ("IntroTech"), a privately-held
Ontario corporation, the Company exchanged 1,666,666 newly issued shares
of its common stock for 1,666,666 shares of CECO Filters, Inc. ("CECO")
owned by IntroTech. CECO is a Delaware corporation engaged in the
pollution controls industry. It is a manufacturer of industrial air
filters, with its corporate headquarters located in Conshohocken,
Pennsylvania. The 1,666,666 shares of CECO common stock acquired by the
Company are restricted. Those shares represented 24.51% of the
outstanding shares of common stock of CECO.
During 1993 through 1995, the Company exchanged 2,582,764 additional
shares of its common stock for 2,582,764 shares of CECO's common stock
with unrelated third parties. Also, during 1993, the Company acquired,
for cash, an additional 21,100 shares of CECO's common stock from
unrelated third parties. During the nine months ended September 30,
1996, the Company exchanged 232,400 shares of its common stock for
232,400 shares of CECO's common stock with unrelated third parties. As
of September 30, 1996, the Company owned 66% of CECO's common stock.
Summarized financial information of CECO as of and for the nine months
ended September 30, 1996, is as follows:
Financial position:
Working capital $ 784,162
=========
Total assets $4,570,346
=========
Total shareholders' equity $1,765,034
=========
Results of operations:
Net sales $6,220,217
=========
Income before income taxes $ 116,910
=========
Net income $ 64,718
=========
6
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
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4. Other Matters
The Company entered into an eighteen-month consulting agreement with an
unrelated third party, effective April 1, 1995, to provide financial
consulting services to the Company which will, among other things, help
the Company to broaden its stock market appeal. As compensation, the
consultant received an option to purchase 1,000,000 shares of the
Company's common stock at $2.50 per share, such option expiring April
30, 1996. The option price was reduced to $2.25 per share if such
options were exercised on or prior to December 31, 1995. (During the
year ended December 31, 1995, the consultant exercised options to
acquire 400,000 shares of the Company's common stock at an exercise
price of $2.25 per share. During the nine months ended September 30,
1996, the consultant exercised options to acquire an additional 11,000
shares of the Company's common stock at an exercise price of $2.50). In
addition, the Company issued 100,000 shares of its common stock to the
consultant in April, 1995.
7
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Financial Condition, Liquidity and Capital Resources - The Company
The Company's consolidated cash position decreased from $1,043,011 at December
31, 1995 to $261,343 at September 30, 1996. This decrease of $781,668 is
attributable principally to the use of cash in investing activities of
$1,005,743, principally for net purchases of marketable securities in the amount
of $899,240, use of cash in financing activities, principally to repay
short-term and long-term debt of $325,056, all of which was offset by cash
provided from operations of $521,631. The investments in marketable securities
in 1996 are primarily in high yield bonds of major U.S. corporations. CECO
Filters, Inc. ("CECO") maintains a $1,250,000 line of credit with a commercial
bank of which $700,000 was outstanding as of September 30, 1996, compared to
$850,000 at December 31, 1995.
The Company's current ratio was 1.65 on December 31, 1995 and 2.1 on September
30, 1996.
Management believes that CECO's expected revenues from operations, supplemented
by the available line of credit, will be sufficient to provide adequate cash to
fund anticipated working capital and other cash needs during the remainder of
the year.
The Company and CECO have entered into a five year management and consulting
agreement, dated January 1, 1994, which became effective on July 1, 1994,
pursuant to which the Company provides management and financial consulting
services to CECO for a monthly fee of $20,000 until the agreement expires in
December, 1998. The Company believes its consulting agreement with CECO should
provide sufficient revenue to meet its general and administrative, and interest
expenses.
Results of Operations - The Company
The Company's consolidated statement of operations for the three-month and
nine-month periods ended September 30, 1996 and 1995 reflect the operations of
the Company consolidated with the operations of CECO. As a result of multiple
stock acquisitions, the Company, effective April 7, 1993, owned a greater than
50% interest in CECO. Transactions not related to the operations of CECO were
minimal, and included consulting, legal and accounting fees, as well as interest
and stock issuance related expenses. As of September 30, 1996, the Company owned
approximately 66% of the outstanding stock of CECO. Minority interest in the
consolidated statement of operations has been presented as a reduction in net
income or loss.
Results of Operations - CECO (Company's Subsidiary)
Comparison of Nine Months ended September 30, 1996 to Nine Months ended
September 30, 1995
Sales were approximately $6.2 million and $5.4 million for the nine-month
periods ended September 30, 1996 and 1995, respectively, an increase of 13.8%.
The increase in sales from 1995 to 1996 resulted primarily from an increase in
sales orders, particularly new orders, which is a result of the implementation
of a target marketing approach, focusing CECO's efforts on opportunities in
markets that are ready for its specialized systems and services.
8
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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Results of Operations - CECO (Company's Subsidiary) - Continued
Comparison of Nine Months ended September 30, 1996 to Nine Months ended
September 30, 1995 - Continued
CECO's backlog of orders at September 30, 1996 was approximately $5.8 million as
compared to approximately $4.6 million at September 30, 1995, an increase of
$1.2 million or 26.1%. There can be no assurance that order backlog will be
replicated, or increased, or translate into higher revenue in the future. 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 change in
the demand for its product, decrease in the average selling price over the life
of a product as competition increases, and CECO's dependence on the efforts of
middle men to sell a portion of its products.
CECO's overall cost of sales decreased as a percentage of sales for the nine
months ended September 30, 1996 (52.7%) compared to the nine months ended
September 30, 1995 (61.8%). The decrease can be attributed to lower material
costs, as well as lower costs incurred to service CECO's products. CECO
continues to use the latest technology available in an effort to reduce both
cost of sales (and the maintenance of optimal inventory levels) and operating
expenses, and ultimately increase overall company profits.
CECO's selling and administrative expenses amounted to $2,248,916 for the
nine-month period ended September 30, 1996 compared to $2,125,361 for the
nine-month period ended September 30, 1995, representing an increase of 5.8%. 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 period.
During 1994, CECO entered into a management and consulting agreement with the
Company. The terms of the agreement require payment of 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 incurred
management fees to the Company of $180,000 during each of the nine-month periods
ended September 30, 1996 and 1995.
Interest expense decreased by $8,238 or 6.5% during the nine-month period ended
September 30, 1996, when compared to the same period in 1995. The decrease in
interest expense can be attributed to a reduced utilization of the bank line of
credit during the nine months ended September 30, 1996 compared to the previous
year.
CECO earned pre-tax income of $116,910 for the nine-month period ended September
30, 1996, as compared to a pre-tax loss of $612,897 for the nine-month period
ended September 30, 1995. This change resulted primarily from the increase in
sales, as well as the increase in gross margins for the nine-month period ended
September 30, 1996 compared with the same period in 1995.
The provision for federal and state income taxes for the nine-month period ended
September 30, 1996 amounted to $52,192 compared to a credit for federal and
state income taxes of $186,330 for the nine-month period ended September 30,
1995.
9
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
Comparison of Three Months ended September 30, 1996 to Three Months ended
September 30, 1995
Sales were approximately $2.2 million and $1.6 million for the three-month
periods ended September 30, 1996 and 1995, respectively, an increase of 34.9%.
The increase in sales occurred primarily as a result of an increase in new sales
orders attributable to CECO's specialized target marketing approach.
CECO's overall cost of sales decreased as a percentage of sales for the three
months ended September 30, 1996 (53.4%) compared to the three months ended
September 30, 1995 (58.5%). The decrease can be attributed to lower raw material
costs, as well as lower costs incurred to service CECO's products. CECO
continues to use the latest technology available in an effort to reduce both
cost of sales (and the maintenance of optimal inventory levels) and operating
expenses, and ultimately increase overall company profits.
CECO's selling and administrative expenses amounted to $728,168 for the
three-month period ended September 30, 1996 compared to $772,523 for the
three-month period ended September 30, 1995, representing a decrease of $44,355
or 6%. CECO's selling and administrative expenses have declined for each of the
last three quarterly periods as management continues to focus on its target
marketing approach instituted during the latter part of 1995.
Interest expense decreased during the three-month period ended September 30,
1996, when compared to the same period in 1995, as a result of reduced
utilization of the bank line of credit.
CECO earned pre-tax income of $101,118 for the three-month period ended
September 30, 1996 compared to a pre-tax loss of $295,564 for the three-month
period ended September 30, 1995. This change is attributed principally to the
increase in sales and lower overall costs for the three-month period ended
September 30, 1996 with the comparable period of 1995.
The provision for federal and state income taxes for the three-month period
ended September 30, 1996 amounted to $44,192 compared to a credit for federal
and state income taxes of $79,643 for the three-month period ended September 30,
1995.
10
<PAGE>
NOT USING IN 1996 REPORT
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
There have been no changes since the Company's last report in
Item 3, "Legal Proceedings" of Form 10-KSB for the year ended
December 31, 1994.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
11
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CECO ENVIRONMENTAL CORP.
__________________________________
Phillip DeZwirek
Chief Financial Officer
Chief Executive Officer
Date: October 31, 1996
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 261,343
<SECURITIES> 905,324
<RECEIVABLES> 1,386,566
<ALLOWANCES> 0
<INVENTORY> 679,806
<CURRENT-ASSETS> 3,410,070
<PP&E> 3,326,850
<DEPRECIATION> 1,506,202
<TOTAL-ASSETS> 8,300,608
<CURRENT-LIABILITIES> 1,633,377
<BONDS> 1,241,769
0
0
<COMMON> 71,997
<OTHER-SE> 4,560,805
<TOTAL-LIABILITY-AND-EQUITY> 8,300,608
<SALES> 6,220,217
<TOTAL-REVENUES> 6,220,217
<CGS> 3,277,633
<TOTAL-COSTS> 6,027,709
<OTHER-EXPENSES> 118,440
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,440
<INCOME-PRETAX> 124,758
<INCOME-TAX> 52,192
<INCOME-CONTINUING> 49,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,777
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
