SEC Filing | CECO Environmental

1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended JUNE 30, 1995 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.) 111 ELIZABETH STREET, SUITE 600, TORONTO, ONTARIO, CANADA MSG 1P7 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 416-593-6543 -------------------------------------------------------------------------------- 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, 1995 6,437,348

2 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 JUNE 30, 1995 INDEX Part I - Financial Information: Condensed consolidated balance sheet as of June 30, 1995 and December 31, 1994 2 Condensed consolidated statement of operations for the three-month and six-month periods ended June 30, 1995 and 1994 3 Condensed consolidated statement of cash flows for the six-month periods ended June 30, 1995 and 1994 4 Notes to condensed consolidated financial statements 5 & 6 Management's discussion and analysis of the financial condition and results of operations 7 to 9 Part II - Other Information 10 Signature 11 - 1 -

3 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) JUNE 30, DECEMBER 31, 1995 1994 ------------ ------------------ ASSETS Current assets: Cash $ 109,053 $ 329,885 Accounts receivable 1,610,142 1,516,240 Inventories 394,318 405,008 Prepaid expenses and other current assets 79,533 51,124 Refundable income taxes 123,447 - Deferred income taxes 7,769 7,769 ---------- ---------- Total current assets 2,324,262 2,310,026 Property and equipment, net 2,085,595 2,138,117 Intangible assets, at cost, net 57,413 79,143 Goodwill 2,776,626 2,703,776 Deferred charges 125,000 - --------- ---------- Total assets $7,368,896 $7,231,062 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term obligations $1,050,000 $ 250,000 Due to officer 186,641 366,641 Current portion of long-term debt 164,887 187,424 Accounts payable and accrued expenses 544,564 920,891 Income taxes payable - 89,368 --------- ---------- Total current liabilities 1,946,092 1,814,324 Long-term debt, less current portion 1,335,924 1,399,034 Deferred income taxes 67,124 67,124 --------- ---------- Total liabilities 3,349,140 3,280,482 --------- ---------- Minority interest 768,602 852,267 --------- ---------- Shareholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized, none issued - - Common stock, $.01 par value; 100,000,000 shares authorized, 6,437,348 and 6,229,148 shares issued 64,373 62,291 Capital in excess of par value 6,765,060 6,483,142 Accumulated deficit (3,179,610) (3,048,451) --------- --------- 3,649,823 3,496,982 Less treasury stock, at cost ( 398,669) ( 398,669) --------- --------- Net shareholders' equity 3,251,154 3,098,313 --------- --------- Total liabilities and shareholders' equity $7,368,896 $7,231,062 ========= ========= See accompanying notes to condensed consolidated financial statements. - 2 -

4 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1995 1994 1995 1994 ------------ ----------- ------------ ------------ Net sales $1,957,119 $3,046,044 $3,836,534 $5,369,282 --------- --------- --------- --------- Costs and expenses: Cost of sales 1,291,188 1,768,057 2,424,610 3,029,542 Selling and administrative 723,078 781,370 1,433,367 1,628,937 Depreciation and amortization 106,994 108,586 213,400 185,656 --------- --------- --------- --------- 2,121,260 2,658,013 4,071,377 4,844,135 --------- --------- --------- --------- Income (loss) from operations ( 164,141) 388,031 ( 234,843) 525,147 Interest expense (net) ( 52,275) ( 60,109) ( 86,669) ( 116,901) ---------- ---------- ---------- --------- Income (loss) before provision (credit) for income taxes ( 216,416) 327,922 ( 321,512) 408,246 Provision (credit) for income taxes ( 53,688) 150,300 ( 106,688) 200,000 ---------- --------- --------- --------- Income (loss) before minority interest ( 162,728) 177,622 ( 214,824) 208,246 Minority interest 57,372 ( 97,626) 83,665 ( 131,494) ---------- ---------- ---------- --------- Net income (loss) ($ 105,356) $ 79,996 ($ 131,159) $ 76,752 ========== ========== ========= ========== Net income (loss) per share, primary and fully diluted ($ .02) $ .01 ($ .02) $ .01 ============= ============ ============ ============ Weighted average number of common shares outstanding 6,163,361 5,955,348 6,127,295 5,955,348 ========= ========= ========= ========= See accompanying notes to condensed consolidated financial statements. - 3 -

5 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) SIX MONTHS ENDED JUNE 30, 1995 1994 --------- --------- INCREASE (DECREASE) IN CASH Cash flows from operating activities: Net income (loss) ($131,159) $ 76,752 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 213,400 217,172 Amortization of deferred charges 25,000 - Minority interest ( 83,665) 131,494 Noncash expenses, officer's compensation and interest 25,799 - (Increase) decrease in operating assets: Accounts receivable ( 93,902) 195,624 Inventories 10,690 ( 33,120) Prepaid expenses and other current assets ( 28,409) 30,336 Refundable income taxes ( 123,447) 37,290 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses ( 376,327) ( 27,091) Customer advances - ( 39,855) Income taxes payable ( 89,368) 148,710 ------- ------- Net cash provided by (used in) operating activities ( 651,388) 737,312 ------- ------- Cash flows from investing activities: Additions to property and equipment and intangible assets ( 103,797) ( 75,833) ------- ------- Net cash (used in) investing activities ( 103,797) ( 75,833) ------- ------- Cash flows from financing activities: Decrease in cash overdraft - ( 298,611) Net borrowings (repayments) of short-term obligations 800,000 ( 214,888) Repayments of long-term debt ( 85,647) ( 63,861) Repayments of amounts due officer ( 180,000) ( 88,520) ------- ------- Net cash provided by (used in) financing activities 534,353 ( 665,880) ------- ------- Net (decrease) in cash ( 220,832) ( 4,401) Cash at beginning of period 329,885 23,344 ------- ------- Cash at end of period $109,053 $ 18,943 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 78,369 $ 88,787 ---------- ---------- Income taxes $113,345 $ 14,000 --------- ---------- See accompanying notes to condensed consolidated financial statements. - 4 -

6 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, 1995 and the results of operations for the three-month and six-month periods ended June 30, 1995 and 1994 and cash flows for the six-month periods ended June 30, 1995 and 1994. The results of operations for the three-month and six-month periods ended June 30, 1995 are not necessarily indicative of the results to be expected for the full year. 2. Inventories consisted of the following: June 30, December 31, 1995 1994 ---------- ---------------- Raw materials $247,579 $247,520 Work-in-process 27,806 45,906 Finished goods 118,933 111,582 ------- ------- $394,318 $405,008 ======= ======= 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 and 1994, the Company exchanged 2,091,764 and 263,800 additional shares, respectively, of its common stock for 2,091,764 and 263,800 shares of CECO's common stock with unrelated third parties. Also, during 1993, the Company acquired, for cash, an additional 20,100 shares of CECO's common stock from unrelated third parties. During the six months ended June 30, 1995, the Company exchanged 108,200 shares of its common stock for 108,200 shares of CECO's common stock with unrelated third parties. As of June 30, 1995, the Company owned 61% of CECO's common stock. Summarized financial information of CECO as of and for the six months ended June 30, 1995, is as follows: Financial position: Working capital $ 512,879 ========= Total assets $ 4,717,412 ========= Net shareholders' equity $ 1,560,913 ========= Results of operations: Net sales $ 3,836,534 ========= Loss before income taxes ($ 317,333) ========= Net loss ($ 210,645) ========= - 5 -

7 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (unaudited) 4. Other Matters The Company entered into an eighteen-month consulting agreement with an unrelated third party, effective April 1, 1995, to provide financial consulting services to the Company which will, among other things, help the Company to broaden its stock market appeal. As compensation, the consultant received an option to purchase 1,000,000 shares of the Company's common stock at $2.50 per share, such option expiring April 30, 1996. The option price will be reduced to $2.25 per share if such options are exercised on or prior to December 31, 1995. In addition, the Company issued 100,000 shares of its common stock to the consultant. The aforementioned stock options and common stock were valued by an independent third party to have an aggregate value of $150,000 on April 1, 1995, such amount being recorded as a deferred charge to be amortized over the term of the consulting agreement. - 6 -

8 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition, Liquidity and Capital Resources The Company's consolidated cash position decreased from $329,885 at December 31, 1994 to $109,053 at June 30, 1995. This decrease of $220,832 is attributable principally to the use of cash in operating activities of $651,388 during the six months ended June 30, 1995 as compared to the same period in 1994 when the Company generated cash of $737,312 from its consolidated operating activities. The timing of sales orders and shipments can heavily affect cash provided by or used in operations. The Company increased its borrowings under its line of credit by $800,000 during the six months ended June 30, 1995 to $1,050,000. CECO maintains a $1,250,000 line of credit with a commercial bank. The credit facility is available for working capital needs, investment activities and other general corporate needs. During the six months ended June 30, 1995, the Company also repaid $180,000 of the amount due to officer. The Company's current ratio declined slightly from 1.27 on December 31, 1994 to 1.19 on June 30, 1995. Expenditures for property and equipment amounted to $103,797 for the six months ended June 30, 1995. The Company intends to continue to invest in capital equipment to support continued growth. 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. Prior to July 1, 1994, the Company's operating expenses had been funded by Phillip DeZwirek for the past several years. After July 1, 1994, the Company's operating expenses have been funded by the revenue earned from its consulting agreement with CECO and other consulting revenue. As of March 31, 1995, the Company owed Mr. DeZwirek an aggregate of $186,641 (including interest) on account of advances from Mr. DeZwirek. All advances from Mr. DeZwirek are repayable on demand, though Mr. DeZwirek has advised the Company that he has no present intention of demanding repayment for at least one year. However, the Company will continue to repay such advances to Mr. DeZwirek if there are sufficient funds available for repayment. Mr. DeZwirek has also advised the Company that he intends to continue to make advances to the Company if needed during the current fiscal year. The Company and CECO have entered into a five year written management and consulting agreement, dated January 1, 1994, which became effective on July 1, 1994, pursuant to which the Company provides management and financial consulting services to CECO for a monthly fee of $20,000 until the agreement expires in December, 1998. Such revenue should be sufficient to cover the Company's general and administrative expenses and interest expense. - 7 -

9 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - The Company The Company's consolidated statement of operations for the three-month and six-month periods ended June 30, 1995 and 1994 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. Transactions not related to the operations of CECO were minimal, and included consulting, legal and accounting fees, as well as interest and stock issuance related expenses. Minority interest has been presented as a reduction in loss before minority interest, and accordingly, is representative of 39% of CECO's net loss for the six-month period ended June 30, 1995. Results of Operations - CECO Filters, Inc. Comparison of six months ended June 30, 1995 to six months ended June 30, 1994 Sales were approximately $3.8 million and $5.4 million for the six-month periods ended June 30, 1995 and 1994, respectively. This represents a decrease of 28.5%. The decrease in sales from 1994 to 1995 was attributable principally to less sales orders and lower sales backlog at the end of the year. CECO's backlog of orders at August 1, 1995 was approximately $4,000,000 as compared to approximately $3,900,000 at August 1, 1994 and has increased from $1,500,000 at March 31, 1995. There can be no assurance that order backlog will be replicated, or increase, from quarter to quarter. The success of CECO's business depends on a multitude of factors that are out of the 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 portion of its products. CECO's overall cost of sales increased as a percentage of sales for the six months ended June 30, 1995 compared to the six months ended June 30, 1994. The increase can be attributed to increases in raw material costs, as well as higher 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 $1,352,838 for the six-month period ended June 30, 1995 compared to $1,601,057 for the six-month period ended June 30, 1994, representing a reduction of $248,219 or 16%. A substantial portion of the selling and administrative expenses are fixed in nature. - 8 -

10 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - CECO Filters, Inc. - Continued Interest expense decreased during the six-month period ended June 30, 1995, when compared to the same period in 1994. The decrease in interest expense can be attributed to a reduced utilization of the bank line of credit during the six months ended June 30, 1995 compared to the previous year. The credit for federal and state tax income taxes for the six-month period ended June 30, 1995 amounted to $106,688 compared to a provision for federal and state income taxes of $200,000 for the six-month period ended June 30, 1994. CECO incurred a pre-tax loss of $317,333 for the six-month period ended June 30, 1995, as compared to pre-tax income of $495,756 for the six-month period ended June 30, 1994. This change is attributed primarily to the decrease in sales for the six-month period ended June 30, 1995 over the comparable period in 1994. Comparison of three months ended June 30, 1995 to three months ended June 30, 1994 Sales were approximately $2 million and $3 million for the three-month periods ended June 30, 1995 and June 30, 1994, respectively. This represents a decrease of 35.7%. The decrease in sales from 1994 to 1995 was attributable principally to less sales orders and lower sales backlog at the end of the year. CECO's overall cost of sales increased as a percentage of sales for the three months ended June 30, 1995 compared to the three months ended June 30, 1994. The increase can be attributed to increases in raw material, as well as higher 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 $672,565 for the three month period ended June 30, 1995 compared to $785,646 for the three month period ended June 30, 1994, representing a reduction of $113,081 or 14%. CECO paid the Company $60,000 during the three-month period ended June 30, 1995 in connection with its management and consulting agreement. CECO incurred a pre-tax loss of $199,602 for the three-month period ended June 30, 1995, as compared to pre-tax income of $369,879 for the three-month period ended June 30, 1994. The change is attributed primarily to the decrease in sales for the three-month period ended June 30, 1995 over the comparable period in 1994. Interest expense during the three-month period ended June 30, 1995, when compared to the same period in 1994 was approximately the same. The credit for federal and state tax income taxes for the three month period ended June 30, 1995 amounted to $53,687 compared to a provision for federal and state income taxes of $150,300 for the three-month period ended June 30, 1994. - 9 -

11 CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings There have been no changes since the Company's last report in Item 3, "Legal Proceedings" of Form 10-KSB for the year ended December 31, 1994. Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K - None - 10 -

12 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 ------------------------------------ Phillip DeZwirek Chief Financial Officer Chief Executive Officer Date: August 10, 1995 - 11 -

5 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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

6-MOS DEC-31-1995 JUN-30-1995 109,053 0 1,610,142 0 394,318 2,324,262 3,165,436 1,079,841 7,368,896 1,946,092 1,500,811 64,373 0 0 3,186,781 7,368,896 3,836,534 3,836,534 2,424,610 4,071,377 86,669 0 86,669 (321,512) (106,688) (131,159) 0 0 0 (131,159) (.02) (.02)