<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, 1999 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.)
505 UNIVERSITY AVENUE, SUITE 1400, TORONTO, ONTARIO, CANADA M5G 1X3
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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, 1999 8,388,816
<PAGE>
CECO ENVIRONMENTAL CORP.
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1999
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INDEX
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Part I - Financial Information:
Condensed consolidated balance sheet as of
September 30, 1999 and December 31, 1998 2
Condensed consolidated statement of operations
for the three-month and nine-month periods ended
September 30, 1999 and 1998 3
Condensed consolidated statement of cash flows
for the nine-month periods ended
September 30, 1999 and 1998 4 & 5
Notes to condensed consolidated financial statements 6 to 9
Management's discussion and analysis of the
financial condition and results of operations 10 to 13
Signature 14
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<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
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ASSETS
<S> <C> <C>
Current assets:
Cash $ 70,677 $ 364,648
Marketable securities - trading 2,453,393 695,944
Accounts receivable 3,192,966 4,068,640
Inventories 919,098 541,315
Costs and estimated earnings in excess of
billings on uncompleted contracts 228,879 226,504
Due from former owners of Busch 243,212 147,939
Investment in sales-type lease 103,350 95,400
Prepaid expenses and other current assets 227,116 344,961
Prepaid income taxes 88,144 --
Deferred income taxes 84,500 84,500
------------ ------------
Total current assets 7,611,335 6,569,851
Property and equipment, net 2,028,099 2,062,452
Goodwill, net 4,929,612 5,169,353
Other intangible assets, at cost, net 1,290,003 1,270,780
Investment in sales-type lease 262,350 333,900
Other assets 356,567 --
Deferred income taxes 296,900 68,500
------------ ------------
$ 16,774,866 $ 15,474,836
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 2,800,000 $ 1,200,000
Current portion of long-term debt 494,628 385,149
Accounts payable and accrued expenses 2,813,551 3,107,227
Billings in excess of costs and estimated
earnings on uncompleted contracts 708,636 1,174,427
Unearned income 64,950 78,000
Income taxes payable -- 253,100
------------ ------------
Total current liabilities 6,881,765 6,197,903
Long-term debt, less current portion 1,119,730 1,569,713
Due to officer 1,125,000 --
------------ ------------
Total liabilities 9,126,495 7,767,616
------------ ------------
Minority interest 115,586 149,941
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized and none issued -- --
Common stock, $.01 par value; 100,000,000
shares authorized and 8,388,816 shares issued 83,888 83,888
Capital in excess of par value 10,139,013 10,139,013
Accumulated deficit (2,341,447) (2,316,953)
------------ ------------
7,881,454 7,905,948
Less treasury stock, at cost (348,669) (348,669)
------------ ------------
Net shareholders' equity 7,532,785 7,557,279
------------ ------------
$ 16,774,866 $ 15,474,836
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Net sales - products $ 1,846,168 $ 1,940,593 $ 6,440,403 $ 6,131,363
Contract revenues 2,125,528 3,736,404 6,268,807 10,798,532
------------ ------------ ------------ ------------
Total revenues 3,971,696 5,676,997 12,709,210 16,929,895
------------ ------------ ------------ ------------
Costs and expenses:
Cost of revenues - products 1,100,469 803,882 3,450,196 2,907,091
Cost of revenues - contracts 1,481,754 2,731,994 4,017,047 7,526,960
Selling and administrative 1,374,733 1,493,803 4,520,151 4,505,289
Depreciation and amortization 155,044 128,596 453,732 340,142
------------ ------------ ------------ ------------
4,112,000 5,158,275 12,441,126 15,279,482
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before investment income (loss) and
interest expense (140,304) 518,722 268,084 1,650,413
Investment income (loss) (91,815) (46,802) 66,653 (11,357)
Interest expense (51,768) (67,630) (191,279) (176,350)
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before provision for (recovery of)
income taxes (283,887) 404,290 143,458 1,462,706
Provision for (recovery of) income taxes (133,400) 169,000 46,000 606,000
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before minority interest (150,487) 235,290 97,458 856,706
Minority interest (9,907) (16,839) 4,286 (75,841)
------------ ------------ ------------ ------------
Income (loss) from continuing operations (140,580) 218,451 101,744 780,865
------------ ------------ ------------ ------------
Discontinued operations:
Income (loss) from operations of
discontinued division, net of income
tax benefit and minority interest 7,489 (124,255) (113,756) (344,791)
Loss from disposal of discontinued
division -- -- (12,482) --
------------ ------------ ------------ ------------
7,489 (124,255) (126,238) (344,791)
------------ ------------ ------------ ------------
Net income (loss) ($ 133,091) $ 94,196 ($ 24,494) $ 436,074
============ ============ ============ ============
Net income (loss) per share, basic and diluted:
Income (loss) from
continuing operations ($ .02) $ .03 $ .01 $ .09
Income (loss) from
discontinued operations -- (.02) (.01) (.04)
------------ ------------ ------------ ------------
Net income (loss) per share ($ .02) $ .01 $ -- $ .05
============ ============ ============ ============
Weighted average number of common shares outstanding:
Basic 8,250,896 8,250,896 8,250,896 8,219,588
============ ============ ============ ============
Diluted 9,072,348 8,725,175 9,321,113 8,650,990
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 24,494) $ 436,074
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities:
Loss from discontinued operations 126,238 344,791
Depreciation and amortization 365,928 254,420
Deferred income taxes (228,400) --
Unearned income (13,050) --
Goodwill amortization - CECO Filters, Inc. 87,804 85,722
Minority interest (4,286) 75,841
(Increase) decrease in operating assets:
Accounts receivable 64,104 (2,769,265)
Inventories (377,783) 230,575
Costs and estimated earnings in excess of
billings on uncompleted contracts (35,763) 5,414
Due from former owners of Busch (95,273) --
Investment in sales-type lease 63,600 --
Prepaid expenses and other current assets 107,018 (68,382)
Prepaid income taxes (88,144) 150,200
Other assets (184,049) --
Marketable securities - trading (1,757,449) (48,245)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 296,285 1,197,153
Billings in excess of costs and estimated
earnings on uncompleted contracts (320,428) (1,152,403)
Income taxes payable (253,100) 145,000
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Net cash (used in) continuing operations (2,271,242) (1,113,105)
Net cash provided by discontinued operations (9,289) 712,201
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Net cash (used in) operating activities (2,280,531) (400,904)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment and intangible assets (340,621) (76,997)
Capital expenditures of discontinued operations (1,856) (94,681)
Acquisition of additional shares of CECO Filters, Inc. (55,459) (103,335)
Acquisition of IFM, net of cash acquired, comprised of the following:
Excess of current liabilities over current
assets, net of cash acquired -- 169,756
Equipment -- (125,132)
Goodwill -- (171,235)
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Net cash (used in) investing activities (397,936) (401,624)
----------- -----------
</TABLE>
CONTINUED ON NEXT PAGE
See accompanying notes to condensed consolidated financial statements.
- -4-
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(unaudited)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from short-term obligations $ 2,286,014 $ --
Net borrowings (repayments) of short-term obligations (686,014) 1,200,000
Proceeds from long-term debt 1,561,709 --
Repayments of long-term debt and capital lease obligation (1,902,213) (363,387)
Proceeds from shareholder 1,125,000 --
Due to former owners of Busch -- (502,592)
Due from former owners of Busch -- (156,269)
----------- -----------
Net cash provided by (used in) financing activities 2,384,496 177,752
----------- -----------
Net (decrease) in cash (293,971) (624,776)
Cash at beginning of period 364,648 847,827
----------- -----------
Cash at end of period $ 70,677 $ 223,051
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 191,279 $ 218,348
----------- -----------
Income taxes $ 527,758 $ 118,000
----------- -----------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
On March 31, 1999, the Company sold the contracts and customer list of a
division in exchange for a non-interest bearing promissory note with a present
value of $174,493.
See accompanying notes to condensed consolidated financial statements.
- -5-
<PAGE>
CECO ENVIRONMENTAL CORP.
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, 1999 and the
results of operations for the three-month and nine-month periods ended
September 30, 1999 and 1998 and cash flows for the nine-month periods
ended September 30, 1999 and 1998. The results of operations for the
three-month and nine-month periods ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
2. Discontinued Operations
On March 31, 1999, the Company's subsidiary, CECO Filters, Inc.
("CECO"), sold the contracts and customer list of a division for
$250,000. The sales price was paid through a non-interest bearing
promissory note from the purchaser. Monthly principal payments of $1,500
commence October 1, 1999 with a balloon payment for the balance due on
April 1, 2007.
The following is a summary of operating activity for this discontinued
division:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
<S> <C> <C>
Revenues $387,656 $3,438,961
Cost of revenues ( 493,439) ( 3,323,074)
Selling and administrative ( 114,224) ( 714,329)
Depreciation and amortization ( 7,998) ( 24,253)
Interest expense - ( 4,498)
------------ ------------
Operating loss ( 228,005) ( 627,193)
Income tax benefit 105,800 251,000
Minority interest 8,449 31,402
--------- -----------
Loss from operations of discontinued division ( $113,756) ( $ 344,791)
======= ==========
The following is a summary of the loss recorded from the disposal of
this division:
Net present value note receivable $174,493
Impairment of goodwill ( 166,932)
Disposition costs ( 20,043)
--------
Loss from disposal of discontinued division ( $ 12,482)
========
The following is a summary of the balance sheet for this discontinued
division:
DECEMBER 31,
1998
Current assets $1,332,463
Property and equipment, net 233,740
Other assets 166,932
Current liabilities ( 992,384)
----------
Net assets of discontinued operations $ 740,751
==========
</TABLE>
- -6-
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
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3. Inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
Raw materials $518,435 $380,477
Finished goods 275,002 46,742
Parts for resale 125,661 114,096
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$919,098 $541,315
======= =======
4. Investment in CECO Filters, Inc.
The Company acquired 65,800 shares of CECO's common stock on the open
market for the amount of $55,459 during the nine-month period ended
September 30, 1999. As of September 30, 1999, the Company owned 93.8%
of CECO's common stock.
Summarized financial information of CECO as of and for its nine months
ended September 30, 1999, is as follows:
Financial position:
Working capital (deficiency) ($ 1,386,981)
============
Total assets $ 10,517,485
============
Net shareholders' equity $ 2,252,045
============
Results of operations:
Continuing:
Total revenues $ 12,709,210
============
(Loss) before income taxes ($ 132,317)
============
(Loss) from continuing operations ($ 68,317)
============
Discontinued:
Loss from discontinued operations ($ 134,687)
============
Net loss ($ 203,004)
============
5. Investments in Marketable Securities
The Company's investments in marketable securities comprise corporate
debt and equity securities, all classified as trading securities, which
are carried at their fair value based on the quoted market prices.
Accordingly, net realized and unrealized gains and losses on trading
securities are included in net income. Investment income consists of
interest income, dividend income, realized and unrealized gains and
losses. The Company owned 177,900 shares of Peerless Manufacturing
Company's common stock at September 30, 1999 which had a fair market
value of $10.625 per share at September 30, 1999 and a fair market
value of $11.75 per share at November 3, 1999.
- -7-
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
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5. Investments in Marketable Securities - Continued
The Company acquired $177,900 shares of Peerless Manufacturing Company
("Peerless"), which represents 12.25% of its outstanding common stock.
The shares were acquired using approximately 50% of working capital
funds and 50% of funds that were advanced to the Company by Phillip
DeZwirek, Chief Executive Officer. The loan from the Mr. DeZwirek is a
demand loan accruing interest at the prime interest rate plus one
percent. The Company acquired this common stock for the purpose of
pursuing the possibility of acquiring the majority or all of its common
stock.
6. Debt
On March 16, 1999, CECO entered into a formal financing arrangement
with a bank which provides for a $5,000,000 line of credit, a $625,000
term loan, a $787,155 mortgage note payable and a $2,000,000
acquisition line of credit. A portion of the proceeds was used to repay
the previous line of credit, term loan and mortgage note payable.
The $5,000,000 line of credit expires March 16, 2000. The term loan is
payable in monthly installments of $20,833 plus interest through
September 1, 2001. The mortgage note payable is due in monthly
installments of $8,032, plus interest, with a balloon payment on March
1, 2006. Interest is charged at prime less .25% or LIBOR plus 2.25%.
The bank financing is collateralized by CECO's receivables,
intangibles, property and equipment. The bank debt is also subject to
certain financial covenants.
7. Potential Acquisition
In September 1999, the Company executed a Letter of Intent to acquire
100% of the common stock of The Kirk & Blum Manufacturing Company and
kbd Technic, Inc. in an all cash transaction for approximately $25
million. The transaction will be financed principally with bank debt.
Kirk & Blum, which is headquartered in Cincinnati, Ohio is a leading
provider of turnkey engineering, design, manufacturing and installation
services in the air pollution control industry. kbd Technic, Inc. is an
associated company of Kirk and Blum and provides engineering services
concentrated in industrial ventilation. Combined revenues of both
companies approximated $71 million for 1998.
- -8-
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
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7. Segment and Related Information
The Company has two reportable segments: Air Quality Improvement and
Ventilation and Environmental Products. The Company provides standard
and engineered systems and filter media for air quality improvement
through its Air Quality Improvement segment. The Ventilation and
Environmental Products segment assembles and manufactures ventilation,
environmental and process-related products. The Interfacility
Maintenance segment, which provided interfacility repair, preventative
maintenance and inter-facility construction, was discontinued on March
31, 1999.
<TABLE>
<CAPTION>
VENTILATION ELIMINATION
AIR AND OF INTER-
QUALITY ENVIRONMENTAL SEGMENT TOTAL
IMPROVEMENT PRODUCTS OTHER ACTIVITY CONSOLIDATED
----------- -------- ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Nine Months ended September 30, 1999
Revenues $5,393,953 $7,629,298 $ 36,050 ($350,091) $12,709,210
Operating income (loss) ( 40,510) 172,663 135,931 268,084
Nine Months ended September 30, 1998
Revenues $6,222,563 $10,302,806 $495,726 ($91,200) $16,929,895
Operating income 904,564 665,861 79,988 1,650,413
</TABLE>
- -9-
<PAGE>
CECO ENVIRONMENTAL CORP.
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 and marketable securities position increased
from $1,060,592 at December 31, 1998 to $2,524,070 at September 30, 1999. This
increase of $1,463,478 is attributable to net cash provided by financing
activities of $2,384,496, offset by cash used in operating activities of
$523,082 (excluding activities relating to marketable securities), additions to
property and equipment and intangible assets of $342,477, and the acquisition of
additional shares of CECO for $55,459. The investment in marketable securities
is primarily in high yield bonds and common stock of U.S. corporations. CECO
Filters, Inc. ("CECO") maintains a $5,000,000 line of credit with a commercial
bank of which $2,800,000 was outstanding as of September 30, 1999.
Management believes that the expected revenues from operations of CECO,
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.
Since January 1, 1994, the Company and CECO have been parties to a management
and consulting agreement pursuant to which the Company has provided management
and financial consulting services to CECO for a monthly fee of $20,000 through
July, 1998, $35,000 per month from August, 1998 through May, 1999, and $50,000
per month from June, 1999. This agreement automatically renews at December 31 of
each year for one-year terms unless canceled by the Company.
The Company believes its consulting agreement with CECO and interest income from
its investments 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 nine-month periods
ended September 30, 1999 and 1998 reflects the operations of the Company
consolidated with the operations of CECO. At September 30, 1999, the Company
owned approximately 93.8% of CECO. Minority interest in the consolidated
statement of operations has been presented as a reduction in net income.
The Company received $375,000 and $210,000 during the nine-month periods ended
September 30, 1999 and 1998, respectively, 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.
The Company has no income, revenues or expenses other than as a result of its
investment in CECO, its consulting agreement with CECO, and its investment in
marketable securities. The Company does not engage in operations other than
through its operating subsidiary, CECO.
CECO is comprised of CECO Filters, Inc., Air Purator Corporation ("APC"), U.S.
Facilities Management Company, Inc. ("USFM-Indiana") and New Busch Co., Inc.
(collectively referred to as" the CECO Group") which provide innovative
solutions to air quality problems through particle and chemical control
technologies and services.
- -10-
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- -------------------------------------------------------------------------------
Results of Operations - The Company - Continued
CECO manufactures 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. CECO offers innovative patented technologies, Catenary
Grid(R) and Narrow Gap Venturi(TM) designed for use with heat and mass transfer
operations and particulate control. 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. USFM-Indiana provides facilities management, as
well as outsourced plant-wide maintenance management to help customers achieve
their performance goals. Busch is engaged in designing, manufacturing and
supplying equipment used to control the environment in and around industrial
plants with a variety of proprietary and patented technologies.
On March 31, 1999, CECO sold the contracts and customer list of a division for
$250,000. The sales price was paid through a non-interest bearing promissory
note from the purchaser. Monthly principal payments of $1,500 commenced October
1, 1999 with a balloon payment for the balance due on April 1, 2007.
Results of Operations - CECO (Company's Subsidiary)
Comparison of Nine Months Ended September 30, 1999 to
Nine Months Ended September 30, 1998
Revenues from continuing operations were approximately $12.7 million and $16.9
million for the nine months ended September 30, 1999 and 1998, respectively, a
decrease of 25%. The decrease in revenues from 1998 to 1999 resulted primarily
from a decrease in sales orders, particularly new orders. The sales in CECO's
Air Quality Improvement segment were approximately 13% lower ($5.4 million for
the nine months ended September 30, 1999 compared to $6.2 million for the nine
month ended September 30, 1998) and revenues in CECO's Ventilation and
Environmental Product segment were approximately 26% lower ($7.6 million for the
nine months ended September 30, 1999 compared to $10.3 million for the nine
months ended September 30, 1998).
CECO's Group's backlog of orders at September 30, 1999 was approximately $5.0
million as compared to approximately $9.8 million at September 30, 1998, a
decrease of $4.8 million or 49%. There can be no assurance that order backlog
will be replicated, or increased, or translate into higher revenues 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 significant portion of its product.
- -11-
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- -------------------------------------------------------------------------------
CECO's overall cost of revenues from continuing operations decreased as a
percentage of sales for the nine months ended September 30, 1999 (59%) compared
to the nine months ended September 30, 1998 (62%). The decrease is attributed to
lower material costs, as well as lower costs incurred to service CECO products.
CECO continues to use the latest technology available in an effort to reduce
both cost of revenues (and the maintenance of optimal inventory levels) and
operating expenses, and ultimately increase overall company profits.
CECO's selling and administrative expenses from continuing operations amounted
to $4,408,471 for the nine-month period ended September 30, 1999 compared to
$4,303,009 for the nine-month period ended September 30, 1998, representing an
increase of $105,462 or 2% predominantly resulting from non-recurring costs
incurred in 1999.
CECO incurred management fees to the Company of $375,000 and $210,000 during the
nine months ended September 30, 1999 and 1998, respectively.
Interest expense increased by $11,035, or 5%, during the nine-month period ended
September 30, 1999 when compared to the same period in 1998. The increase in
interest expense can be attributed to an increased utilization of the bank line
of credit from a new credit facility during the nine months ended September 30,
1999, compared to the previous year.
CECO incurred a pre-tax loss from continuing operations, of $132,317 for the
nine months ended September 30, 1999 as compared to pre-tax income of $1,514,565
for the nine months ended September 30, 1998. This change is attributed
principally to the decrease in revenues and increase in selling and
administrative expenses resulting from non-recurring costs for the nine-month
period ended September 30, 1999 over the comparable period in 1998.
The provision for federal and state income taxes for the nine-month period ended
September 30, 1999 amounted to a recovery of $64,000 compared to a provision of
$606,000 for the nine-month period ended September 30, 1998 and reflects an
effective income tax rate of approximately 48% and 40% each respective period.
Comparison of Three Months Ended September 30, 1999 to Three Months Ended
September 30, 1998
Revenues from continuing operations were approximately $4.0 million and $5.7
million for the three months ended September 30, 1999 and 1998, respectively, a
decrease of 30%. The decrease in revenues from 1998 to 1999 resulted primarily
from a decrease in sales orders, particularly new orders.
CECO's overall cost of revenues from continuing operations increased as a
percentage of revenues for the three months ended September 30, 1999 (65%)
compared to the three months ended September 30, 1998 (62%). The increase,
compared to the prior year, is attributed to selling products and contracts at
lower margins due to competitive pressures. CECO continues to use the latest
technology available in an effort to reduce both cost of revenues (and the
maintenance of optimal inventory levels) and operating expenses, and ultimately
increase overall company profits.
CECO's selling and administrative expenses amounted to $1,339,653 for the
three-month period ended September 30, 1999 compared to $1,449,009 for the
three-month period ended September 30, 1998, representing a decrease of $109,356
or 8%.
12
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- -------------------------------------------------------------------------------
Comparison of Three Months Ended September 30, 1999 to Three Months Ended
September 30, 1998 - Continued
CECO incurred management fees to the Company of $150,000 and $90,000 during the
three months ended September 30, 1999 and 1998, respectively.
Interest expense decreased by $19,755 or 25% during the three-month period ended
September 30, 1999 when compared to the same period in 1998. The decrease in
interest expense can be attributed to a decrease in outstanding long-term debt
obligations during the three months ended September 30, 1999 compared to the
previous year.
CECO incurred a pre-tax loss from continuing operations, of $286,280 for the
three months ended September 30, 1999 as compared to pre-tax income of $422,375
for the three months ended September 30, 1998. This change is attributed
principally to the decrease in revenues.
Federal and state income taxes for the three-month period ended September 30,
1999 amounted to a recovery of $128,600 compared to a provision of $169,000 for
the three-month period ended September 30, 1998 and reflects an effective income
tax rate of approximately 45% and 40% for each respective period.
Other Matters
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this document
and other materials filed or to be filed with the Securities and Exchange
Commission, as well as information included in oral or other written statements
made or to be made by the Company, contains statements that are forward-
looking. Such statements may relate to plans for future expansion, business
development activities, other capital spending, financing, or other effects of
regulation and competition. Such information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any forward-
looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to product and
service development activities, dependence on existing management, global
economic and market conditions, and changes in federal or state laws.
- -13-
<PAGE>
CECO ENVIRONMENTAL CORP.
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: August 6, 1999
- -14-
<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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 70,677
<SECURITIES> 2,453,393
<RECEIVABLES> 3,192,966
<ALLOWANCES> 0
<INVENTORY> 919,098
<CURRENT-ASSETS> 7,611,335
<PP&E> 4,161,484
<DEPRECIATION> 2,133,385
<TOTAL-ASSETS> 16,774,866
<CURRENT-LIABILITIES> 6,881,765
<BONDS> 5,539,358
0
0
<COMMON> 83,888
<OTHER-SE> 7,448,897
<TOTAL-LIABILITY-AND-EQUITY> 16,774,866
<SALES> 6,440,403
<TOTAL-REVENUES> 12,709,210
<CGS> 3,450,196
<TOTAL-COSTS> 12,441,126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,279
<INCOME-PRETAX> 143,458
<INCOME-TAX> 46,000
<INCOME-CONTINUING> 97,458
<DISCONTINUED> (126,238)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,494)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
