<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 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 M5G1P7
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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 June 30, 1996 7,051,148
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1996
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INDEX
Part 1 - Financial Information:
Condensed consolidated balance sheet as of
June 30, 1996 and December 31, 1995 2
Condensed consolidated statement of operations
for the three-month and six-month periods ended
June 30, 1996 and 1995 3
Condensed consolidated statement of cash flows for the
six-month periods ended June 30, 1996 and 1995 4
Notes to condensed consolidated financial statements 5 & 6
Management's discussion and analysis of the
financial condition and results of operations 7 & 9
Signature 10
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
=========================================
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 249,685 $1,043,011
Accounts receivable 968,715 1,856,541
Advances to officers 32,000 -
Inventories 683,858 654,826
Prepaid expenses and other current assets 113,323 56,736
Deferred income taxes 20,889 20,889
---------- ----------
Total current assets 2,068,470 3,632,003
Marketable securities, available for sale 860,575 -
Property and equipment, net 1,906,196 2,019,631
Intangible assets, at cost, net 97,873 45,717
Goodwill 2,867,924 2,872,825
Deferred charges 25,000 75,000
---------- ----------
Total assets $7,826,038 $8,645,176
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 550,000 $ 850,000
Current portion of long-term debt 87,865 173,393
Current portion of capital lease obligation 4,838 4,838
Accounts payable and accrued expenses 682,110 1,166,006
Income taxes payable 4,844 10,745
---------- ----------
Total current liabilities 1,329,657 2,204,982
Long-term debt, less current portion 1,175,672 1,238,795
Capital lease obligations, less current portion 11,478 14,955
Deferred income taxes 19,888 19,888
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Total liabilities 2,536,695 3,478,620
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Minority interest 827,726 824,905
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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, 7,051,148 and 6,956,348 shares
issued, respectively 70,511 69,563
Capital in excess of par value 7,878,297 7,767,945
Accumulated deficit (3,088,522) (3,097,188)
--------- ---------
4,860,286 4,740,320
Less treasury stock, at cost ( 398,669) ( 398,669)
--------- ---------
Net shareholders' equity 4,461,617 4,341,651
--------- ---------
Total liabilities and shareholders' equity $7,826,038 $8,645,176
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $1,874,440 $1,957,119 $ 4,025,097 $3,836,534
--------- --------- ---------- ---------
Costs and expenses:
Cost of sales 964,867 1,291,188 2,105,189 2,424,610
Selling and administrative 820,282 723,078 1,623,354 1,433,367
Depreciation and amortization 78,562 106,994 215,906 213,400
--------- --------- ---------- ----------
1,863,711 2,121,260 3,944,449 4,071,377
--------- --------- ---------- ----------
Income (loss) from operations 10,729 ( 164,141) 80,648 ( 234,843)
Investment income 22,889 - 22,889 -
Interest expense (net) ( 40,591) ( 52,275) ( 84,050) ( 86,669)
--------- --------- ---------- ----------
Income (loss) before provision
(credit) for income taxes ( 6,973) ( 216,416) 19,487 ( 321,512)
Provision (credit) for income taxes ( 2,000) ( 53,688) 8,000 ( 106,688)
--------- --------- ---------- ----------
Income (loss) before minority interest ( 4,973) ( 162,728) 11,487 ( 214,824)
Minority interest 2,808 57,372 ( 2,820) 83,665
--------- --------- ---------- -----------
Net income (loss) ($ 2,165) ($105,356) $ 8,667 ($ 131,159)
========= ========= ========== ===========
Net income (loss) per share,
primary and fully diluted ($ .00) ($ .02) $ .00 ($ .02)
========= ========= ========== ===========
Weighted average number of
common shares outstanding 6,913,228 6,163,361 6,902,228 6,127,295
========= ========= ========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
SIX MONTHS ENDED
JUNE 3O,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,667 ($131,159)
Adjustments to reconcile net income (loss) to net cash
provided by (used in ) operating activities:
Depreciation and amortization 179,318 179,614
Goodwill amortization 36,588 33,786
Amortization of deferred charges 50,000 25,000
Accrued bond interest ( 18,989) -
Minority interest 2,820 ( 83,665)
Noncash expenses, officer's compensation and interest - 25,799
(Increase) decrease in operating assets:
Accounts receivable 887,826 ( 93,902)
Inventories ( 29,032) 10,690
Prepaid expenses and other current assets ( 56,587) ( 28,409)
Refundable income taxes - ( 123,447)
(Decrease) in operating liabilities:
Accounts payable and accrued expenses ( 483,896) ( 376,327)
Income taxes payable ( 5,901) ( 89,368)
-------- --------
Net cash provided by (used in) operating activities 570,814 ( 651,388)
-------- --------
Cash flows from investing activities:
Investments in marketable securities ( 841,586) -
Additions to property and equipment and intangible assets ( 65,926) ( 103,797)
Advances to officers ( 32,000) -
-------- --------
Net cash (used in) investing activities ( 939,512) ( 103,797)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 27,500 -
Net borrowings (repayments) of short-term obligations ( 300,000) 800,000
Repayments of long-term debt and capital lease obligation ( 152,128) ( 85,647)
Repayments of amounts due officer - ( 180,000)
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Net cash provided by (used in) financing activities ( 424,628) 534,353
--------- --------
Net (decrease) in cash ( 793,326) ( 220,832)
Cash at beginning of period 1,043,011 329,885
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Cash at end of period $ 249,685 $109,053
========= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 84,050 $ 78,369
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Income taxes $ 23,800 $113,345
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
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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 June 30, 1996 and the
results of operations for the three-month and six-month periods ended June
30, 1996 and 1995 and cash flows for the six-month periods ended June 30,
1996 and 1995. The results of operations for the three-month and six-month
periods ended June 30, 1996 are not necessarily indicative of the results
to be expected for the full year.
2. Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Raw materials $576,535 $514,489
Finished goods 107,323 140,337
-------- --------
$683,858 $654,826
======== ========
</TABLE>
3. Other Assets
Investments 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 six months ended June 30, 1996, the Company exchanged
83,800 shares of its common stock for 83,800 shares of CECO's common stock
with unrelated third parties. As of June 30, 1996, the Company owned 64% of
CECO's common stock.
Summarized financial information of CECO as of and for its six months ended
June 30, 1996, is as follows:
<TABLE>
<S> <C>
Financial position:
Working capital $ 655,117
=========
Total assets $4,230,004
=========
Net shareholders' equity $1,708,109
=========
Results of operations:
Net sales $4,025,097
=========
Income before income taxes $ 15,792
=========
Net income $ 7,792
=========
</TABLE>
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
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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 for such options exercised on or prior
to December 31, 1995. (During the year ended December 31, 1995, the
consultant exercised options to acquire 400,000 shares of the Company's
common stock at an exercise price of $2.25 per share. During the six
months ended June 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.
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
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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 $249,685 at June 30, 1996. This decrease of $793,326 is attributable
principally to the use of cash in investing activities of $939,512 during the
six months ended June 30, 1996 as compared to the same period of 1995 when the
Company used cash of $103,797 in its investing activities. The investments in
marketable securities in 1996 are primarily in high yield bonds of major U.S.
corporations. CECO Filters, Inc. ("CECO") maintains a $1,250,000 line of credit
with a commercial bank of which $550,000 was outstanding as of June 30, 1996.
The Company's current ratio was 1.65 on December 31, 1995 and 1.55 on
June 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
six-month periods ended June 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 June 30, 1996, the Company
owned approximately 64% of the outstanding stock of CECO. Minority interest in
the consolidated statement of operations has been presented as a reduction in
net income or loss.
Results of Operations - CECO (Company's Subsidiary)
Comparison of Six Months Ended June 30, 1996 to Six Months Ended
June 30, 1995
Sales were approximately $4.0 million and $3.8 million for the six-month periods
ended June 30, 1996 and 1995, respectively, an increase of 4.9% from 1995 to
1996. This increase in sales was attributable principally to increased sales
orders during the period.
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
========================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
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CECO's backlog of orders at June 30, 1996 was approximately $3.3 million as
compared to $4 million at June 30, 1995. There can be no assurance that order
backlog will be replicated, or increased or that it will translate into higher
revenues in the future. The success of CECO's operating results can be
significantly impacted by the introduction of new products and/or new
manufacturing technologies by competitors, rapid changes in the demand for its
products, decreases in the average selling prices over the life of a product,
decreases in the average selling prices over the life of a product as
competition increases, and CECO's implementation of its target marketing
approach introduced in 1995.
CECO's overall cost of sales decreased as a percentage of sales for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995. The
decrease can be attributed to decreases in raw material costs as well as lower
costs incurred to service CECO's products. Engineering and sales management
positions were increased while certain factory positions were eliminated. These
changes were made as part of CECO's overall restructuring to strengthen
management and accommodate anticipated growth. Direct labor was augmented with
temporary labor on an as-needed basis.
CECO's selling and administrative expenses amounted to $1,520,748 for the
six-month period ended June 30, 1996 compared to $1,352,838 for the six-month
period ended June 30, 1995, representing an increase of $167,910 or 12.4%. A
substantial portion of the selling and administrative expenses are fixed in
nature. As discussed above, certain management positions were added compared
to the six-month period ended June 30, 1995.
During 1994, CECO entered into a management and consulting agreement with the
Company. The terms of the agreement require payment of fees of $20,000 per
month 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 $120,000 during each of the
six-month periods ended June 30, 1996 and 1995.
Interest expense increased during the six-month period ended June 30, 1996,
when compared to the same period in 1995. The increase in interest expense can
be attributed to higher prime interest rates.
CECO generated pre-tax income of $15,792 for the six-month period ended June
30, 1996 as compared to a pre-tax loss of $317,333 for the six-month period
ended June 30, 1995. This change is attributed principally to the increase in
sales as well as the increase in gross margins for the six-month period ended
June 30, 1996 with the comparable period in 1995.
The provision for federal and state tax income taxes for the six-month period
ended June 30, 1996 amounted to $8,000 compared to a credit for federal and
state income taxes of $106,688 for the six-month period ended June 30, 1995.
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CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
=========================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
Comparison of Three Months Ended June 30, 1996 to June 30, 1995
Sales were approximately $1.9 million and $2 million for the three-month
periods ended June 30, 1996 and June 30, 1995, respectively. This represents a
decrease of 4.2%. The decrease in sales from 1995 to 1996 was attributable
principally to less sales orders.
CECO's overall cost of sales decreased as a percentage of sales for the three
months ended June 30, 1996 compared to the three months ended June 30, 1995.
The decrease can be attributed to decreases in raw material costs as well as
lower costs incurred to service CECO's products. CECO continues to use advanced
technology 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 $733,168 for the
three-month period ended June 30, 1996 compared to $672,565 for the three-month
period ended June 30, 1995, representing an increase of $60,603 or 9%.
CECO paid CEC $60,000 during each of the three-month periods ended June 30,
1996 and 1995 in connection with its management and consulting agreement.
Interest expense during the three-month period ended June 30, 1996, when
compared to the same period ended June 30, 1995, was approximately the same.
CECO incurred a pre-tax loss of $9,454 for the three-month period ended June
30, 1996, as compared to pre-tax loss of $199,602 for the three-month period
ended June 30, 1995. This change is attributed principally to the increase in
gross margins.
The credit for federal and state incomes taxes for the three-month period ended
June 30, 1996 amounted to $2,000 as compared to the credit for federal and
state income taxes of $53,687 for the three-month period ended June 30, 1995.
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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: July 29, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES AS OF AND FOR
THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 249,685
<SECURITIES> 860,575
<RECEIVABLES> 968,715
<ALLOWANCES> 0
<INVENTORY> 683,858
<CURRENT-ASSETS> 2,068,470
<PP&E> 3,321,538
<DEPRECIATION> 1,415,342
<TOTAL-ASSETS> 7,826,038
<CURRENT-LIABILITIES> 1,329,657
<BONDS> 1,263,537
<COMMON> 0
0
70,511
<OTHER-SE> 4,391,106
<TOTAL-LIABILITY-AND-EQUITY> 7,826,038
<SALES> 4,025,097
<TOTAL-REVENUES> 4,025,097
<CGS> 2,105,189
<TOTAL-COSTS> 3,943,049
<OTHER-EXPENSES> 84,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,050
<INCOME-PRETAX> 19,487
<INCOME-TAX> 8,000
<INCOME-CONTINUING> 8,667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,667
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
