<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended SEPTEMBER 30, 1996 Commission file number 0-17804
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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
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 9/30/96 6,867,667
---------------------------------
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CECO FILTERS, INC.
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1996
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INDEX
Part I - Financial Information:
Condensed consolidated balance sheet as of
September 30, 1996 and December 31, 1995 2
Condensed consolidated statement of operations
for the three-month and nine-month periods ended
September 30, 1996 and 1995 3
Condensed consolidated statement of cash flows
for the nine-month periods ended September 30,
1996 and 1995 4
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
1
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CECO FILTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash $ 173,161 $ 184,248
Accounts receivable 1,386,566 1,856,541
Advance to officer 25,200 -
Inventories 679,806 654,826
Prepaid expenses and other current assets 117,117 54,211
Deferred income taxes 20,889 20,889
----------- -----------
Total current assets 2,402,739 2,770,715
Property and equipment, net 1,796,609 1,995,592
Intangible assets, at cost, net 90,998 97,830
Investment in CECO Environmental Corp. 280,000 280,000
---------- ----------
$4,570,346 $5,144,137
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 700,000 $ 850,000
Current portion of long-term debt 85,241 173,393
Current portion of capital lease obligation 4,838 4,838
Accounts payable and accrued expenses 744,492 1,131,206
Accrued income taxes 84,006 10,745
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Total current liabilities 1,618,577 2,170,182
Long-term debt, less current portion 1,156,528 1,238,795
Capital lease obligation, less current portion 10,319 14,955
Deferred income taxes 19,888 19,888
----------- -----------
2,805,312 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 842,182 777,465
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Total shareholders' equity 1,765,034 1,700,317
--------- ---------
$4,570,346 $5,144,137
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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CECO FILTERS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------ ------------- --------
<S> <C> <C> <C> <C>
Net sales $2,195,120 $1,627,425 $6,220,217 $5,463,959
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 1,172,444 953,132 3,277,633 3,377,742
Selling and administrative 728,168 772,523 2,248,916 2,125,361
Management fees, CECO
Environmental Corp. 60,000 60,000 180,000 180,000
Depreciation and amortization 99,000 89,025 278,318 267,075
----------- ----------- ---------- ----------
2,059,612 1,874,680 5,984,867 5,950,178
--------- --------- --------- ---------
Income (loss) from operations 135,508 ( 247,255) 235,350 ( 486,219)
Interest expense ( 34,390) ( 48,309) ( 118,440) ( 126,678)
----------- ----------- ---------- ----------
Income (loss) before provision
(credit) for income taxes 101,118 ( 295,564) 116,910 ( 612,897)
Provision (credit) for income taxes 44,192 ( 79,643) 52,192 ( 186,330)
----------- ----------- ----------- ----------
Net income (loss) $ 56,926 ($ 215,921) $ 64,718 ($ 426,567)
=========== ========== =========== ==========
Net income (loss) per share * $ .01 ($ .03) $ .01 ($ .06)
============ =========== =========== ===========
</TABLE>
* Based on weighted average shares outstanding of 6,867,667 for each period.
See accompanying notes to condensed consolidated financial statements.
3
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CECO FILTERS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 64,718 ( $426,567)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 278,318 267,075
(Increase) decrease in operating assets:
Accounts receivable 469,975 392,611
Inventories ( 24,980) ( 48,580)
Prepaid expenses and other current assets ( 62,906) ( 14,663)
Recoverable income taxes - ( 184,750)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses ( 386,714) ( 375,243)
Accrued income taxes 73,261 ( 89,368)
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Net cash provided by (used in) operating activities 411,672 ( 479,485)
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Cash flows from investing activities:
Additions to property and equipment and intangible assets ( 72,503) ( 138,220)
Advance to officer ( 25,200) -
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Net cash (used in) investing activities ( 97,703) ( 138,220)
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Cash flows from financing activities:
Net borrowings (repayment) of short-term obligations ( 150,000) 650,000
Repayments of long-term debt ( 175,056) ( 129,704)
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Net cash provided by (used in) financing activities ( 325,056) 520,296
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Net (decrease) in cash ( 11,087) ( 97,409)
Cash at beginning of period 184,248 177,449
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Cash at end of period $173,161 $ 80,040
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $118,441 $126,695
------- -------
Income taxes $ 23,800 $ 21,480
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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CECO FILTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of September 30, 1996 and the
results of operations for the three-month and nine-month periods ended
September 30, 1996 and 1995 and cash flows for the nine-month periods
ended September 30, 1996 and 1995. The results of operations for the
three-month and nine-month periods ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
2. 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 nine-month periods ended September 30, 1996 and 1995
which is included herein. Their report on such review accompanies this
filing.
3. Inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
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Raw materials $548,262 $514,489
Work-in-process 6,686 -
Finished goods 124,858 140,337
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$679,806 $654,826
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4. Related Party Transactions
Management Fees
The Company incurred management fees amounting to $180,000 during the
nine-month period ended September 30, 1996, pursuant to an agreement
between the Company and CECO Environmental Corp. ("CEC"), the 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.
5
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CECO FILTERS, INC.
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
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 NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
<S> <C> <C> <C> <C>
Cost and expenses:
Cost of sales 53.4 58.5 52.7 61.8
Selling and administrative 33.2 47.5 36.1 38.9
Management fees, CECO Environmental Corp. 2.7 3.7 2.9 3.3
Depreciation and amortization 4.5 5.5 4.5 4.9
------ ------- ------ ------
93.8 115.2 96.2 108.9
----- ----- ----- -----
Income (loss) from operations 6.2 ( 15.2) 3.8 ( 8.9)
Interest expense ( 1.6) ( 3.0) ( 1.9) ( 2.3)
----- ----- ----- -----
Income (loss) before provision (credit)
for income taxes 4.6 ( 18.2) 1.9 ( 11.2)
Provision (credit) for income taxes 2.0 ( 4.9) .9 ( 3.4)
----- ----- ----- -----
Net income (loss) 2.6% ( 13.3%) 1.0% ( 7.8%)
===== ===== ====== ======
</TABLE>
6
<PAGE>
CECO FILTERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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Results of Operations - Continued
Comparison of Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1995
Sales were approximately $6.2 million and $5.4 million for the nine-month
periods ended September 30, 1996 and 1995, respectively, an increase of 13.8%.
The increase in sales from 1995 to 1996 resulted primarily from an increase in
sales orders, particularly new orders, which is a result of the implementation
of a target marketing approach, focusing the Company's efforts on opportunities
in markets that are ready for its specialized systems and services.
The Company's backlog of orders at September 30, 1996 was approximately $5.8
million as compared to approximately $4.6 million at September 30, 1995, an
increase of $1.2 million or 26.1%. There can be no assurance that order backlog
will be replicated, or increased, or translate into higher revenue in the
future. The success of the Company's business depends on a multitude of factors
that are out of the Company's control. The Company'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
the Company's dependence on the efforts of middle men to sell a significant
portion of its product.
The Company's overall cost of sales decreased as a percentage of sales for the
nine months ended September 30, 1996 (52.7%) compared to the nine months ended
September 30, 1995 (61.8%). The decrease can be attributed to lower material
costs, as well as lower costs incurred to service the Company's products. The
Company 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.
The Company's selling and administrative expenses amounted to $2,248,916 for the
nine-month period ended September 30, 1996 compared to $2,125,361 for the
nine-month period ended September 30, 1995, representing an increase of 5.8%. A
substantial portion of the selling and administrative expenses are fixed in
nature, as the largest variable expense in this category relates to sales
commissions which amounted to approximately 3% of net sales in each period.
During 1994, 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 monthly fees of $20,000 from January,
1995 through December, 1998 in exchange for management and financial consulting
services involving corporate policies, marketing, strategic and financial
planning, mergers, acquisitions and related matters. The Company incurred
management fees to CEC of $180,000 during each of the nine-month periods ended
September 30, 1996 and 1995.
Interest expense decreased by $8,238, or 6.5%, during the nine-month period
ended September 30, 1996, when compared to the same period in 1995. The decrease
in interest expense can be attributed to a reduced utilization of the bank line
of credit during the nine months ended September 30, 1996 compared to the
previous year.
7
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CECO FILTERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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Results of Operations - Continued
The Company earned pre-tax income of $116,910 for the nine-month period ended
September 30, 1996 as compared to a pre-tax loss of $612,897 for the nine-month
period ended September 30, 1995. This change is attributed principally to the
increase in sales, as well as the increase in gross margins for the nine-month
period ended September 30, 1996 compared with the same period in 1995.
The provision for federal and state income taxes for the nine-month period ended
September 30, 1996 amounted to $52,192 compared to a credit for federal and
state income taxes of $186,330 for the nine-month period ended September 30,
1995.
Comparison of Three Months Ended September 30, 1996 to Three Months Ended
September 30, 1995
Sales were approximately $2.2 million and $1.6 million for the three-month
periods ended September 30, 1996 and September 30, 1995, respectively, an
increase of 34.9%. The increase in sales occurred primarily as a result of an
increase in new sales orders attributable to the Company's specialized target
marketing approach.
The Company's overall cost of sales decreased as a percentage of sales for the
three months ended September 30, 1996 (53.4%) compared to the three months ended
September 30, 1995 (58.5%). The decrease can be attributed to lower raw material
costs, as well as lower costs incurred to service the Company's products. The
Company 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.
The Company's selling and administrative expenses amounted to $728,168 for the
three-month period ended September 30, 1996 compared to $772,523 for the
three-month period ended September 30, 1995, representing a decrease of $44,355
or 6%. The Company's selling and administrative expenses have declined for each
of the last three quarterly periods as management continues to focus on its
target marketing approach instituted during the latter part of 1995.
Interest expense decreased during the three-month period ended September 30,
1996, when compared to the same period in 1995, as a result of reduced
utilization of the bank line of credit.
The Company earned pre-tax income of $101,118 for the three-month period ended
September 30, 1996 compared to pre-tax loss of $295,564 for the three-month
period ended September 30, 1995. This change is attributed principally to the
increase in sales and lower overall costs for the three-month period ended
September 30, 1996 with the comparable period of 1995.
The provision for federal and state income taxes for the three-month period
ended September 30, 1996 amounted to $44,192 compared to a credit for federal
and state income taxes of $79,643 for the three-month period ended September 30,
1995.
8
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CECO FILTERS, INC.
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 on September 30, 1996 compared to
December 31, 1995 was approximately the same. The Company maintains a $1,250,000
line of credit with a commercial bank of which $700,000 was outstanding as of
September 30, 1996 compared to $850,000 at December 31, 1995. The 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
September 30, 1996.
Expenditures for property and equipment and intangible assets amounted to
$72,503 for the nine months ended September 30, 1996 compared to $138,220 for
the nine-month period ended September 30, 1995. The Company intends to continue
to invest in capital equipment to support 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 attempt to access the debt or equity
markets.
9
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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 September 30, 1996 and 1995 and the related condensed
consolidated statements of operations for the three-month and nine-month periods
then ended, and of cash flows for the nine-month periods ended September 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.
Certified Public Accountants
Bala Cynwyd, PA
October 10, 1996
10
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CECO FILTERS, INC.
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.
-------------------------------
(REGISTRANT)
DATE ______________________________
_______________________________
STEVEN I. TAUB, PRESIDENT
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CECO FILTERS, INC. AND SUBSIDIARIES AS OF AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 173,161
<SECURITIES> 0
<RECEIVABLES> 1,386,566
<ALLOWANCES> 0
<INVENTORY> 679,806
<CURRENT-ASSETS> 2,402,739
<PP&E> 3,302,811
<DEPRECIATION> 1,506,202
<TOTAL-ASSETS> 4,570,346
<CURRENT-LIABILITIES> 1,618,577
<BONDS> 1,241,769
0
0
<COMMON> 6,868
<OTHER-SE> 1,758,166
<TOTAL-LIABILITY-AND-EQUITY> 4,570,346
<SALES> 6,220,217
<TOTAL-REVENUES> 6,220,217
<CGS> 3,277,633
<TOTAL-COSTS> 5,984,867
<OTHER-EXPENSES> 118,440
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,440
<INCOME-PRETAX> 116,910
<INCOME-TAX> 52,192
<INCOME-CONTINUING> 64,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,718
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
