<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, 1996 Commission file number 0-17804
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CECO FILTERS, INC.
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DELAWARE 23-2399315
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1027-29 CONSHOHOCKEN ROAD, CONSHOHOCKEN, PA 19428-0683
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-825-8585
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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
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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 $.001 PER SHARE OUTSTANDING at 6/30/96 6,867,667
---------------------------------
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CECO FILTERS, INC.
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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
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Part I - 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
Management's discussion and analysis of the
financial condition and results of operations 6 to 9
Report on Review by Independent Accountants 10
Signature 11
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CECO FILTERS, INC.
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CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
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<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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ASSETS
<S> <C> <C>
Current assets:
Cash $ 165,014 $ 184,248
Accounts receivable 968,715 1,856,541
Advance to officer 23,200 -
Inventories 683,858 654,826
Prepaid expenses and other current assets 108,298 54,211
Deferred income taxes 20,889 20,889
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Total current assets 1,969,974 2,770,715
Property and equipment, net 1,882,157 1,995,592
Intangible assets, at cost, net 97,873 97,830
Investment in CECO Environmental Corp. 280,000 280,000
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$4,230,004 $5,144,137
========== ==========
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 667,310 1,131,206
Accrued income taxes 4,844 10,745
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Total current liabilities 1,314,857 2,170,182
Long-term debt, less current portion 1,175,672 1,238,795
Capital lease obligation, less current portion 11,478 14,955
Deferred income taxes 19,888 19,888
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2,521,895 3,443,820
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Shareholders' equity:
Common stock, $.001 par value; 20,000,000
shares authorized, 6,867,667 shares issued
and outstanding 6,868 6,868
Capital in excess of par value 915,984 915,984
Retained earnings 785,257 777,465
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Total shareholders' equity 1,708,109 1,700,317
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$4,230,004 $5,144,137
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CECO FILTERS, INC.
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
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<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 $3,836,534
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 964,867 1,291,188 2,105,189 2,424,610
Selling and administrative 733,168 672,565 1,520,748 1,352,838
Management fees, CECO
Environmental Corp. 60,000 60,000 120,000 120,000
Depreciation and amortization 85,268 88,993 179,318 178,050
---------- ---------- ---------- ----------
1,843,303 2,112,746 3,925,255 4,075,498
---------- ---------- ---------- ----------
Income (loss) from operations 31,137 ( 155,627) 99,842 ( 238,964)
Interest expense ( 40,591) ( 43,975) ( 84,050) ( 78,369)
---------- ---------- ---------- ----------
Income (loss) before provision
(credit) for income taxes ( 9,454) ( 199,602) 15,792 ( 317,333)
Provision (credit) for income taxes ( 2,000) ( 53,687) 8,000 ( 106,688)
---------- ---------- ---------- ----------
Net income (loss) ($ 7,454) ($ 145,915) $ 7,792 ($ 210,645)
========== ========== =========== ==========
Net income (loss) per share * ($ .00) ($ .02) $ .00 ($ .03)
========== ========== =========== ==========
</TABLE>
* Based on weighted average shares outstanding of 6,867,667 for each period.
See accompanying notes to condensed consolidated financial statements.
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CECO FILTERS, INC.
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,792 ($210,645)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 179,318 178,050
(Increase) decrease in operating assets:
Accounts receivable 887,826 ( 93,903)
Inventories ( 29,032) 10,690
Prepaid expenses and other current assets ( 54,087) ( 28,409)
Refundable income taxes -- ( 123,447)
(Decrease) in operating liabilities:
Accounts payable and accrued expenses ( 463,896) ( 377,327)
Accrued income taxes ( 5,901) ( 89,368)
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Net cash provided by (used in) operating activities 522,020 ( 734,359)
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Cash flows from investing activities:
Additions to property and equipment and intangible assets ( 65,926) ( 103,797)
Advance to officer ( 23,200) --
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Net cash (used in) investing activities ( 89,126) ( 103,797)
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Cash flows from financing activities:
Net borrowings (repayment) of short-term obligations ( 300,000) 800,000
Repayments of long-term debt and capital lease obligation ( 152,128) ( 85,647)
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Net cash provided by (used in) financing activities ( 452,128) 714,353
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Net (decrease) in cash ( 19,234) ( 123,803)
Cash at beginning of period 184,248 177,449
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Cash at end of period $165,014 $ 53,646
========== =========
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 FILTERS, INC.
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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 its operations for the three-month and six-month periods
ended June 30, 1996 and 1995 and its cash flows for the six-month
periods ended June 30, 1996 and 1995. The results of operations for the
six-month period ended June 30, 1996 are not necessarily indicative of
the results to be expected for the full year.
2. Margolis & Company P.C., the Company's auditors, has performed a limited
review of the financial information as of and for the three-month and
six-month periods ended June 30, 1996 and 1995 which is included herein.
Their report on such review accompanies this filing.
3. Inventories consisted of the following:
JUNE 30, DECEMBER 31,
1996 1995
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Raw materials $576,535 $514,489
Finished goods 107,323 140,337
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$683,858 $654,826
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4. Related Party Transactions
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Management Fees
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The Company incurred management fees amounting to $120,000 during the
six-month periods ended June 30, 1996 and 1995, pursuant to an agreement
between the Company and CECO Environmental Corp. ("CEC"), a majority
shareholder of the Company. Under such agreement, effective July 1,
1994, CEC provides management and financial consulting services to the
Company in exchange for a management fee.
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CECO FILTERS, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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General
CECO Filters, Inc. ("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.
In March, 1992, CECO completed the acquisition of Air Purator Corporation
("APC"), a privately held Massachusetts company engaged in the manufacture of
patented specialty needled fiberglass fabrics, mainly used in a particulate
collection device known as a pulse jet baghouse which is fabricated by a number
of companies. On October 1, 1992, CECO created a wholly-owned subsidiary,
Compliance Systems International ("CSI"), to pursue domestic and foreign
environmental service markets and the manufacture and sales of the patented
Catenary Grid Scrubber, designed for use with heat and mass transfer operations
and particulate control.
The condensed consolidated financial statements include the accounts of CECO and
its wholly-owned subsidiaries, APC and CSI ("the Company").
Results of Operations
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The following table sets forth income line items shown on the condensed
consolidated statement of operations, as a percentage of net sales for the
periods indicated. This table should be read in conjunction with the condensed
consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses:
Cost of sales 51.5 66.0 52.3 63.2
Selling and administrative 39.1 34.4 37.7 35.3
Management fees - CECO Environmental Corp. 3.2 3.0 3.0 3.1
Depreciation and amortization 4.5 4.5 4.4 4.6
----- ----- ----- -----
98.3 107.9 97.6 106.2
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Income (loss) from operations 1.7 ( 7.9 ) 2.5 ( 6.2 )
Interest expense ( 2.2 ) ( 2.3 ) ( 2.1 ) ( 2.0 )
----- ----- ----- -----
Income (loss) before provision (credit)
for income taxes ( .5 ) ( 10.2 ) .4 ( 8.2 )
Provision (credit) for income taxes ( .1 ) ( 2.7 ) .2 ( 2.7 )
----- ----- ----- -----
Net income (loss) ( .4%) ( 7.5%) .2% ( 5.5%)
====== ====== ===== ======
</TABLE>
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CECO FILTERS, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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Results of Operations - Continued
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Comparison of Six Months Ended June 30, 1996 to Six Months Ended June 30, 1995
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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.
The Company'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 the Company'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
product, decrease in the average selling price over the life of a product,
decrease in the average selling price over the life of a product as competition
increases, and the Company's target marketing approach implemented in 1995.
The Company'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 the Company's products. Engineering and sales
management positions were increased while certain factory positions were
eliminated. These changes were made as part of the Company's overall
restructuring to strengthen management and accommodate anticipated growth.
Direct labor was augmented with temporary labor on an as-needed basis.
The Company'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, the Company entered into a management and consulting agreement with
CECO Environmental Corp. ("CEC"), a majority shareholder of 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. The Company
incurred management fees to CEC 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.
The Company 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.
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CECO FILTERS, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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Results of Operations - Continued
- ---------------------------------
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.
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.
The Company'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 as well as
lower costs incurred to service the Company's products. The Company 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.
The Company'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%.
The Company 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.
The Company 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 income 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 FILTERS, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
The Company's consolidated cash position decreased from $184,248 at December 31,
1995 to $165,014 at June 30, 1996. This decrease of $19,234 cash provided by
operating activities of $522,020 during the six-month period ended June 30, 1996
as compared to the same period in 1995 when the Company used cash of $734,359 in
its consolidated operating activities. The timing of sales orders and shipments
can heavily affect cash provided by or used in operations. The Company maintains
a $1,250,000 line of credit with a commercial bank of which $550,000 was
outstanding as of June 30, 1996. The credit facility is available for working
capital needs, investment activities and other general corporate needs.
The Company's current ratio increased from 1.3 on December 31, 1995 to 1.5 on
June 30, 1996.
Expenditures for property and equipment and intangible assets amounted to
$65,926 for the six months ended June 30, 1996 compared to $103,797 for the
six-month period ended June 30, 1995. The Company intends to continue to invest
in capital equipment to support its continued growth.
The Company believes that the existing sources of liquidity and funds expected
to be generated from operations will provide adequate cash to fund the Company's
anticipated working capital and other cash needs in the short term. As the
Company's business continues to grow in the long term, additional working
capital funds may be required and to the extent these additional funds are not
generated by operations, the Company may seek access to debt or equity markets.
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<PAGE>
[LETTERHEAD OF MARGOLIS & COMPANY]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
CECO Filters, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of CECO
Filters, Inc. as of June 30, 1996 and the related condensed consolidated
statements of operations for the three-month and six-month periods ended June
30, 1996 and 1995, and of cash flows for the six-month periods ended June 30,
1996 and 1995. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
January 26, 1996, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1995 is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
/s/ Margolis & Company, Inc.
-----------------------------
Certified Public Accountants
Bala Cynwyd, PA
July 11, 1996
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CECO FILTERS, INC.
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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 FILTERS, INC.
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(REGISTRANT)
DATE
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STEVEN I. TAUB, PRESIDENT
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 165,014
<SECURITIES> 0
<RECEIVABLES> 968,715
<ALLOWANCES> 0
<INVENTORY> 683,858
<CURRENT-ASSETS> 1,969,974
<PP&E> 3,297,499
<DEPRECIATION> 1,415,342
<TOTAL-ASSETS> 4,230,004
<CURRENT-LIABILITIES> 1,314,857
<BONDS> 1,263,537
0
0
<COMMON> 6,868
<OTHER-SE> 1,701,241
<TOTAL-LIABILITY-AND-EQUITY> 4,230,004
<SALES> 4,025,097
<TOTAL-REVENUES> 4,025,097
<CGS> 2,105,189
<TOTAL-COSTS> 3,925,255
<OTHER-EXPENSES> 84,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,050
<INCOME-PRETAX> 15,792
<INCOME-TAX> 8,000
<INCOME-CONTINUING> 7,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,792
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
