<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 JUNE 30, 1997 Commission file number 0-7099
------------- ------
CECO ENVIRONMENTAL CORP.
--------------------------------------------------------------------------
NEW YORK 13-2566064
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 UNIVERSITY AVENUE, SUITE 1400, TORONTO, ONTARIO, CANADA M5G 1X3
- ------------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 416-593-6543
------------
111 ELIZABETH STREET, SUITE 600, TORONTO, ONTARIO, CANADA M5G 1P7
- -----------------------------------------------------------------------------
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, 1997 7,386,628
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1997
------------------------------------------------------------------------------
INDEX
Part I - Financial Information:
Condensed consolidated balance sheet as of
June 30, 1997 and December 31, 1996 2
Condensed consolidated statement of operations
for the three-month and six-month periods ended
June 30, 1997 and 1996 3
Condensed consolidated statement of cash flows for the
six-month periods ended June 30, 1997 and 1996 4
Notes to condensed consolidated financial statements 5
Management's discussion and analysis of the
financial condition and results of operations 6 to 8
Signature 9
- -1-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 994,620 $ 412,174
Marketable securities - trading 913,346 1,015,521
Accounts receivable 806,845 2,077,045
Inventories 490,816 565,371
Prepaid expenses and other current assets 47,125 45,464
Deferred income taxes 58,735 58,735
----------- -----------
Total current assets 3,311,487 4,174,310
Property and equipment, at cost, net 1,798,831 1,806,126
Intangible assets, at cost, net 107,484 36,031
Goodwill 3,324,668 3,184,810
----------- -----------
Total assets $ 8,542,470 $ 9,201,277
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ - $ 400,000
Current portion of long-term debt 66,959 83,100
Current portion of capital lease obligation 6,043 6,043
Accounts payable and accrued expenses 716,764 1,220,595
Income taxes payable 32,686 276,976
----------- -----------
Total current liabilities 822,452 1,986,714
Long-term debt, less current portion 1,094,336 1,132,869
Capital lease obligation, less current portion 6,262 9,882
----------- -----------
Total liabilities 1,923,050 3,129,465
----------- -----------
Minority interest 1,038,451 964,203
----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued - -
Common stock, $.01 par value; 100,000,000 shares
authorized, 7,524,548 and 7,338,548 shares issued,
respectively 75,245 73,385
Capital in excess of par value 8,409,638 8,178,998
Accumulated deficit ( 2,555,245) ( 2,796,105)
----------- -----------
5,929,638 5,456,278
Less treasury stock, at cost ( 348,669) ( 348,669)
----------- -----------
Net shareholders' equity 5,580,969 5,107,609
----------- -----------
Total liabilities and shareholders' equity $8,542,470 $9,201,277
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- -2-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $2,927,091 $1,874,440 $5,467,487 $4,025,097
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 1,482,156 964,867 2,797,027 2,105,189
Selling and administrative 1,059,297 795,282 1,975,761 1,623,354
Depreciation and amortization 120,423 103,562 239,789 215,906
---------- ---------- ---------- ----------
2,661,876 1,863,711 5,012,577 3,944,449
---------- ---------- ---------- ----------
Income from operations 265,215 10,729 454,910 80,648
Investment income 48,581 22,889 70,576 22,889
Interest expense (net) ( 20,745) ( 40,591) ( 49,378) ( 84,050)
---------- ---------- ---------- ----------
Income (loss) before provision
(credit) for income taxes 293,051 ( 6,973) 476,108 19,487
Provision (credit) for income taxes 97,400 ( 2,000) 161,000 8,000
---------- ---------- ---------- ----------
Income (loss) before minority interest 195,651 ( 4,973) 315,108 11,487
Minority interest ( 43,769) 2,808 ( 74,248) ( 2,820)
---------- ---------- ---------- ----------
Net income (loss) $ 151,882 ($ 2,165) $ 240,860 $ 8,667
========== ========== ========== ==========
Net income (loss) per share,
primary and fully diluted $ .02 ($ .00) $ .03 $ .00
========== ========== ========== ==========
Weighted average number of
common shares outstanding 7,262,628 6,913,228 7,231,628 6,902,228
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- -3-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
---------- ----------
INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income $ 240,860 $ 8,667
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 199,260 179,318
Goodwill amortization 40,529 36,588
Amortization of deferred charges - 50,000
Accrued bond interest ( 18,989)
Minority interest 74,248 2,820
Noncash expenses, officer's compensation 17,500 -
(Increase) decrease in operating assets:
Accounts receivable 1,270,200 887,826
Inventories 74,555 ( 29,032)
Prepaid expenses and other current assets ( 1,661) ( 56,587)
Purchases of marketable securities ( 515,054) ( 841,586)
Proceeds from sales of marketable securities 617,229 -
(Decrease) in operating liabilities:
Accounts payable and accrued expenses ( 521,331) ( 483,896)
Income taxes payable ( 244,290) ( 5,901)
---------- ----------
Net cash provided by (used in) operating activities 1,252,045 ( 270,772)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment and intangible assets ( 211,305) ( 65,926)
Advances to officers - ( 32,000)
---------- ----------
Net cash (used in) investing activities ( 211,305) ( 97,926)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock - 27,500
Net repayments of short-term obligations ( 400,000) ( 300,000)
Repayments of long-term debt and capital lease obligation ( 58,294) ( 152,128)
---------- ----------
Net cash (used in) financing activities ( 458,294) ( 424,628)
---------- ----------
Net increase (decrease) in cash 582,446 ( 793,326)
Cash at beginning of period 412,174 1,043,011
---------- ----------
Cash at end of period $ 994,620 $ 249,685
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 20,745 $ 84,050
---------- ----------
Income taxes $ 373,850 $ 23,800
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- -4-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- --------------------------------------------------------------------------------
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of June 30, 1997 and the
results of operations for the three-month and six-month periods ended
June 30, 1997 and 1996 and cash flows for the six-month periods ended
June 30, 1997 and 1996. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto, together with management's discussion and analysis of
financial condition and results of operations, contained in the
Company's 1996 Annual Report to stockholders. The results of operations
for the six-month period ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year, or any
future interim period.
2. Inventories consisted of the following:
June 30, December 31,
1997 1996
-------- ------------
Raw materials $369,095 $410,949
Finished goods 121,721 154,422
------- -------
$490,816 $565,371
======= =======
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 1996, the Company exchanged 2,953,964 additional
shares of its common stock for 2,953,964 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. In June, 1997, the Company exchanged 186,000
additional shares of its common stock for 186,000 shares of CECO's
common stock with unrelated third parties. As of June 30, 1997, the
Company owned 70.3% of CECO's common stock.
Summarized financial information of CECO as of and for its six months
ended June 30, 1997, is as follows:
Financial position:
Working capital $1,332,720
=========
Total assets $4,235,148
=========
Net shareholders' equity $2,344,398
=========
Results of operations:
Net sales $5,467,487
=========
Income before income taxes $ 404,056
==========
Net income $ 243,056
==========
- -5-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
Financial Condition, Liquidity and Capital Resources - The Company
The Company's consolidated cash and marketable securities position increased
from $1,427,695 at December 31, 1996 to $1,907,966 at June 30, 1997. This
increase of $480,271 is attributable principally to the source of cash from
operating activities of $1,149,870 (excluding activities involving marketable
securities) during the six months ended June 30, 1997. The cash generation is
the result of a substantial increase in net income compared to the same period
in the previous year and the collection of accounts receivable offset by
payments for accounts payable, accrued expenses and income taxes. A portion of
this increase was offset by the use of $211,305 of cash in investing activities
for the acquisition of equipment and intangible assets and the use of $458,294
in financing activities to repay debt.
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 during 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 and investment income from its investment in marketable
securities should provide sufficient revenue to meet its general and
administrative expenses.
Results of Operations - The Company
The Company's consolidated statement of operations for the six-month periods
ended June 30, 1997 and 1996 reflects the operations of the Company consolidated
with the operations of CECO. As a result of multiple stock acquisitions, the
Company, effective April 7, 1993, owned a greater than 50% interest in CECO.
Minority interest in the consolidated statement of operations has been presented
as a reduction in net income or loss.
The Company received $60,000 during each quarter 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, revenues or expenses
other than as a result of its investment in CECO and its investment in
marketable securities and except for its investment activities the Company does
not engage in operations other than through its operating subsidiary, CECO.
CECO is comprised of the CECO Group of companies - CECO Filters, Inc., Air
Purator Corporation, Compliance Systems International, Inc., and U.S. Facilities
Management Company, Inc. - which provide innovative solutions to air quality
problems through particle and chemical control technologies and services.
- -6-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
CECO manufacturers and markets filters known as fiber bed mist eliminators,
designed to trap, collect and remove solid soluble and liquid particulate matter
suspended in an air or other gas stream whether generated from a point source
emission or otherwise. Air Purator Corporation ("APC"), designs and manufactures
high performance filter media and bags for use in high temperature pulse-jet
baghouses, the most effective type of baghouse for capturing submicron
particulate from gas streams. Compliance Systems International ("CSI") offers
innovative patented technologies, Catenary Grid(R) and Narrow Gap Venturi(TM),
designed for use with heat and mass transfer operations and particulate control.
CSI also offers a complete range of air quality consulting services using a
proprietary network of industry experts with years of air quality and
purification system knowledge. U.S. Facilities Management Company, Inc. ("USFM")
provides facilities management and software, as well as outsourced plant-wide
maintenance management to help customers achieve their performance goals.
Results of Operations - CECO (Company's Subsidiary)
Comparison of Six Months ended June 30, 1997 to Six Months ended June 30, 1996
Sales were approximately $5.5 million and $4.0 million for the six-month periods
ended June 30, 1997 and 1996, respectively, an increase of 35.8% from 1996 to
1997. The increase in sales from 1996 to 1997 resulted primarily from more sales
orders and higher backlog at the end of 1996. APC's sales increased by 71%
compared to the same period in the previous year. Sales of our core CECO filter
media benefited from contractual supply agreements in the private sector. These
increases were offset by a reduction of new system sales of CSI scrubbers and
CECO mist eliminators caused by capital spending constraints in our targeted
market segments.
CECO's backlog of orders at June 30, 1997 was approximately $1.5 million as
compared to $3.3 million at June 30, 1996. 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 change in the demand for its
products, decrease in the average selling price over the life of a product as
competition increases, and CECO's implementation of its target marketing
approach.
CECO's overall cost of sales slightly decreased as a percentage of sales for the
six months ended June 30, 1997 (51.2%) compared to the six months ended June 30,
1996 (52.3%). The decrease can be attributed to decreases in raw material costs
as well as lower costs incurred to service CECO's products.
CECO's selling and administrative expenses amounted to $1,897,766 for the
six-month period ended June 30, 1997 compared to $1,520,748 for the six-month
period ended June 30, 1996, representing an increase of $377,018 or 24.8%. A
substantial portion of the selling and administrative expenses are fixed in
nature. However, sales and customer service positions were increased as part of
CECO's overall restructuring to strengthen marketing approach and accommodate
anticipated growth. In addition, a portion of this increase in selling and
administrative expenses resulted from the newly formed subsidiary, USFM.
- -7-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
During 1994, CECO entered into a management and consulting agreement with the
Company, a majority shareholder of CECO. 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; and 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, 1997 and 1996.
Interest expense decreased during the six-month period ended June 30, 1997, when
compared to the same period in 1996. The decrease in interest expense can be
attributed to non-utilization of the line of credit.
CECO generated pre-tax income of $404,056 for the six-month period ended June
30, 1997 as compared to pre-tax income of $15,792 for the six-month period ended
June 30, 1996. 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,
1997 compared to same period in 1996.
The provision for federal and state tax income taxes for the six-month period
ended June 30, 1997 amounted to $161,000 compared to $8,000 for the six-month
period ended June 30, 1996.
Comparison of Three Months ended June 30, 1997 to Three Months ended June 30,
1996
Sales were approximately $2.9 million and $1.9 million for the three-month
periods ended June 30, 1997 and 1996, respectively. This represents an increase
of 56.2% compared to the three months ended June 30, 1996.
CECO's overall cost of sales slightly decreased as a percentage of sales for the
three months ended June 30, 1997 compared to the three months ended June 30,
1996. 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 $1,019,619 for the
three-month period ended June 30, 1997 compared to $733,168 for the three-month
period ended June 30, 1996, representing an increase of $286,451 or 39%, for the
same reasons described in the six-month comparison described previously.
CECO paid the Company $60,000 during each of the three-months periods ended June
30, 1997 and 1996 in connection with its management consulting agreement.
Interest expense decreased during the three-month period ended June 30, 1997,
when compared to the same period in 1996, due to lower utilization of the line
of credit.
CECO generated pre-tax income of $244,941 for the three-month period ended June
30, 1997, as compared to a pre-tax loss of $9,454 for the three-month period
ended June 30, 1996. This change is attributed principally to the increase in
sales along with the increase in gross margins.
The provision for federal and state income taxes for the three-month period
ended June 30, 1997 amounted to $97,400 as compared to the credit for federal
and state income taxes of $2,000 for the three-month period ended June 30, 1996.
- -8-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
SIGNATURE
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CECO ENVIRONMENTAL CORP.
------------------------
Phillip DeZwirek
Chief Financial Officer
Chief Executive Officer
Date: July 31, 1997
- -9-
<PAGE>
CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES
APPENDIX A TO ITEM 601(c) OF REGULATION S-B
- --------------------------------------------------------------------------------
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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
ITEM NUMBER AMOUNT ITEM DESCRIPTION
- ----------- ------ ----------------
5-02(1) $ 994,620 Cash and cash items
5-02(2) 913,346 Marketable securities
5-02(3)(a)(1) 806,845 Notes and accounts receivable, trade
5-02(4) 0 Allowances for doubtful accounts
5-02(6) 490,816 Inventories
5-02(9) 3,311,487 Total current assets
5-02(13) 3,530,823 Property, plant and equipment
5-02(14) 1,731,992 Accumulated depreciation
5-02(18) 8,542,470 Total assets
5-02(21) 822,452 Total current liabilities
5-02(22) 1,161,295 Bonds, mortgages and similar debt
5-02(28) - Preferred stock, mandatory redemption
5-02(29) - Preferred stock, no mandatory redemption
5-02(30) 75,245 Common stock
5-02(31) 5,505,724 Other stockholders' equity
5-02(32) 8,542,470 Total liabilities and stockholders' equity
5-03(b)1(a) 5,467,487 Net sales of tangible products
5-03(b)1 5,467,487 Total revenues
5-03(b)2(a) 2,797,027 Cost of tangible goods sold
5-03(b)2 5,012,577 Total costs and expenses applicable to
sales and revenues
5-03(b)3 49,378 Other costs and expenses
5-03(b)5 0 Provision for doubtful accounts and notes
5-03(b)(8) 70,576 Interest and amortization of debt discount
5-03(b)(10) 476,108 Income (loss) before taxes and other items
5-03(b)(11) 161,000 Income tax expense (credit)
5-03(b)(14) 240,860 Income (loss) continuing operations
5-03(b)(15) 0 Discontinued operations
5-03(b)(17) 0 Extraordinary items
5-03(b)(18) 0 Cumulative effect, changes in
accounting principles
5-03(b)(19) 240,860 Net income or loss
5-03(b)(20) .03 Earnings (loss) per share, primary
5-03(b)(20) .03 Earnings (loss) per share, fully diluted
