SEC Filing | CECO Environmental

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB/A QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended JUNE 30, 2000 -------------------- Commission file number 0-7099 ---------- CECO ENVIRONMENTAL CORP. ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEW YORK 13-2566064 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 505 UNIVERSITY AVENUE, SUITE 1400, TORONTO, ONTARIO, CANADA M5G 1X3 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 416-593-6543 ------------ (Registrant's telephone number, including area code) NOT APPLICABLE - -------------------------------------------------------------------------------- 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, 2000 8,489,933 This amendment of Form 10-QSB is being filed to give effect to the restatement of the Company's condensed consolidated financial statements included in Item 1 as discussed in Note 7.

CECO ENVIRONMENTAL CORP. QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 JUNE 30, 2000 - -------------------------------------------------------------------------------- INDEX ----- Part I - Financial Information (unaudited): Item 1. Condensed consolidated balance sheet as of June 30, 2000 (as restated) and December 31, 1999 2 Condensed consolidated statement of operations for the three-month and six-month periods ended June 30, 2000 (as restated) and 1999 3 Condensed consolidated statement of cash flows for the six-month periods ended June 30, 2000 (as restated) and 1999 4 Notes to condensed consolidated financial statements 6 Item 2. Management's discussion and analysis of the financial condition and results of operations 10 Signature 15 1

CECO ENVIRONMENTAL CORP. CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) - -------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, 2000 1999 ------------- ------------- as restated see note 7 ASSETS Current assets: Cash and cash equivalents $ 251,686 $ 1,134,792 Marketable securities - trading 2,937,662 2,690,919 Accounts receivable, net 14,458,673 17,204,539 Costs and estimated earnings in excess of billings on uncompleted contracts 6,743,161 2,951,773 Inventories 2,405,270 2,173,010 Prepaid expenses and other current assets 829,566 635,423 Deferred income taxes 647,600 647,600 ------------- ------------ Total current assets 28,273,618 27,438,056 Property and equipment, net 13,705,574 14,244,457 Goodwill, net 8,490,556 8,917,290 Other intangible assets, net 4,164,295 4,375,070 Deferred charges and other assets 1,337,004 1,473,054 Deferred income taxes - - ------------- ------------ Total assets $ 55,971,047 $ 56,447,927 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Debt $ 2,268,845 $ 2,788,054 Accounts payable and accrued expenses 8,832,765 9,569,882 Billings in excess of costs and estimated earnings on uncompleted contracts 967,683 460,092 Other current liabilities 110,366 116,056 ------------- ------------ Total current liabilities 12,179,659 12,934,084 Debt, less current portion 28,644,759 28,289,680 Deferred income taxes 5,353,001 5,374,501 Other liabilities 777,839 713,003 ------------- ------------ Total liabilities 46,955,258 47,311,268 ------------- ------------ Minority interest 75,808 98,541 ------------- ------------ 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, 8,627,853 and 8,623,391 shares issued and outstanding in 2000 and 1999 86,279 86,234 Capital in excess of par value 12,570,126 12,560,667 Accumulated deficit (3,367,755) (3,260,114) ------------- ------------ 9,288,650 9,386,787 Less treasury stock, at cost (348,669) (348,669) ------------- ------------ Net shareholders' equity 8,939,981 9,038,118 ------------- ------------ Total liabilities and shareholders' equity $ 55,971,047 $ 56,447,927 ============= ============ See accompanying notes to condensed consolidated financial statements. 2

CECO ENVIRONMENTAL CORP. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) - -------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 ---- ---- ---- ---- as restated as restated see note 7 see note 7 Revenues: Contract revenues $18,029,637 $1,900,468 $37,879,413 $4,143,279 Net sales - products 3,998,682 2,064,389 7,702,726 4,594,235 ----------- ----------- ----------- --------- Total revenues 22,028,319 3,964,857 45,582,139 8,737,514 ----------- ----------- ----------- --------- Costs and expenses: Cost of revenues - contracts 15,142,133 1,038,578 31,795,431 2,535,293 Cost of sales - products 2,303,808 1,065,081 4,429,120 2,349,727 Selling and administrative 3,839,894 1,651,638 7,361,555 3,145,418 Depreciation and amortization 558,668 155,664 1,054,501 298,688 ----------- ----------- ----------- --------- 21,844,503 3,910,961 44,640,607 8,329,126 ----------- ----------- ----------- --------- Income from continuing operations before investment income and interest expense 183,816 53,896 941,532 408,388 Investment income 448,558 120,289 742,744 158,468 Interest expense (970,086) (64,013) (1,846,240) (139,511) ----------- ------------ ------------- ----------- Income (loss) from continuing operations before provision (credit) for income taxes and minority interest (337,712) 110,172 (161,964) 427,345 Provision (credit) for income taxes (137,898) 35,840 (31,590) 179,400 ------------- ------------ --------------- ------------ Income (loss) from continuing operations before minority interest (199,814) 74,332 (130,374) 247,945 Minority interest 17,191 2,709 22,733 (5,621) ------------ ------------- -------------- ------------- Income (loss) from continuing operations (182,623) 77,041 (107,641) 242,324 Discontinued operations: Profit (loss) from operations of discontinued division, net of income tax benefit and minority interest - 3,200 - (121,245) Loss from disposal of discontinued division - - - (12,482) ------------ ------------- -------------- ------------- - 3,200 - (133,727) ------------ ------------- -------------- ------------- Net income (loss) ($ 182,623) $ 80,241 $ (107,641) $ 108,597 ============ ============= ============== ============= Net income (loss) per share, basic: Income from continuing operations ($ .02) $ .01 ($ .01) $ .03 (Loss) from discontinued operations - - - ( .02) ------------ ------------- -------------- ------------- Net income (loss) per share ($ .02) $ .01 ($ .01) $ .01 Net income (loss) per share, diluted: Income (loss) from continuing operations ($ .02) $ .01 ($ .01) $ .02 (Loss) from discontinued operations - - - ( .01) ------------ ------------- -------------- ------------- Net income (loss) per share ($ .02) $ .01 ($ .01) $ .01 ============ ============ ============== ============= Weighted average number of common shares outstanding: Basic 8,485,520 8,250,896 8,485,496 8,250,896 ============ ============ =========== ========== Diluted 8,485,520 9,414,640 8,485,496 9,445,495 ============ ============ =========== ========== See accompanying notes to condensed consolidated financial statements. 3

CECO ENVIRONMENTAL CORP. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) - -------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2000 1999 --------- -------- as restated see note 7 INCREASE (DECREASE) IN CASH Cash flows from operating activities: Net income (loss) ($ 107,641) $ 108,597 Adjustments to reconcile net income to net cash (used in) operating activities: Loss from discontinued operations - 133,727 Depreciation and amortization 1,054,501 298,688 Deferred income taxes ( 21,500) - Minority interest ( 22,733) 5,621 Gain on sales of marketable securities, trading ( 622,199) - Changes in operating assets and liabilities, net of acquired businesses: Marketable securities 375,456 ( 366,170) Accounts receivable 2,745,866 575,058 Inventories ( 232,260) ( 297,671) Costs and estimated earnings in excess of billings on uncompleted contracts (3,791,388) ( 144,471) Prepaid expenses and other current assets ( 194,143) ( 151,049) Deferred charges and other assets 86,348 ( 235,378) Accounts payable and accrued expenses ( 687,117) ( 143,708) Billings in excess of costs and estimated earnings on uncompleted contracts 507,591 ( 301,052) Other 152,524 ( 8,700) --------- -------- Net cash (used in) continuing operations ( 756,695) ( 526,508) Net cash provided by discontinued operations - 35,896 --------- -------- Net cash (used in) operating activities ( 756,695) ( 490,612) --------- -------- Cash flows from investing activities: Acquisitions of property and equipment ( 81,957) ( 113,071) Purchase price adjustment - The Kirk & Blum Manufacturing Company and kbd/Technic, Inc. 253,550 - Acquisition of additional shares of CECO Filters, Inc. - ( 55,459) --------- -------- Net cash provided by (used in) continuing operations 171,593 ( 168,530) Net cash (used in) discontinued operations - ( 1,856) --------- -------- Net cash provided by (used in) investing activities 171,593 ( 170,386) --------- -------- Cash flows from financing activities: Net change in short-term debt ( 519,208) 900,000 Proceeds from issuance of stock 9,504 - Net increase (decrease) in long-term debt 211,700 ( 400,068) --------- -------- Net cash provided by (used in) financing activities ( 298,004) 499,932 --------- -------- CONTINUED ON NEXT PAGE See accompanying notes to condensed consolidated financial statements. 4

CECO ENVIRONMENTAL CORP. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED (unaudited) - -------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2000 1999 ------------ ---------- as restated see note 7 Net (decrease) in cash ($ 883,106) ($ 161,066) Cash and cash equivalents at beginning of the period 1,134,792 364,648 ----------- ----------- Cash and cash equivalents at end of the period $ 251,686 $ 203,582 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 1,564,446 $ 139,511 ------------ ------------ Income taxes $ 261,100 $ 485,960 ------------ ------------ See accompanying notes to condensed consolidated financial statements. 5

CECO ENVIRONMENTAL CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - -------------------------------------------------------------------------------- 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements of CECO Environmental Corp. contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of June 30, 2000 and the results of operations for the three-month and six-month periods ended June 30, 2000 and 1999 and cash flows for the six-month periods ended June 30, 2000 and 1999. The results of operations for the six-month period ended June 30, 2000 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., sold the contracts and customer list of U.S. Facilities Management Arizona division for $250,000. The sales price was paid through a non-interest bearing promissory note from the purchaser. The following is a summary of operating activity for this discontinued operation for the six months ended June 30, 1999: Revenues $ 387,656 Cost of revenues ( 493,439) Selling and administrative ( 128,651) Depreciation and amortization ( 7,998) --------- Operating loss ( 242,432) Income tax benefit 112,200 Minority interest 8,987 --------- Loss from operations of discontinued operation ($121,245) ======== The following is a summary of the loss recorded from the disposal of this operation for the six months ended June 30, 1999: Net present value of note receivable from sale $ 174,493 Impairment of goodwill ( 166,932) Disposition costs ( 20,043) -------- Loss from disposal of discontinued operation ($ 12,482) ======== Net liabilities of discontinued operations as of June 30, 2000 and December 31, 1999 were $306,513. 6

CECO ENVIRONMENTAL CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (unaudited) - -------------------------------------------------------------------------------- 3. Inventories consisted of the following: JUNE 30, DECEMBER 31, 2000 1999 ---------- ---------- Raw materials $1,319,939 $1,328,175 Finished goods 905,450 626,033 Parts for resale 179,881 218,802 ---------- ---------- $2,405,270 $2,173,010 =========== ========== 4. Acquisition of Business ----------------------- On December 7, 1999, the Company purchased all of the issued stock of The Kirk & Blum Manufacturing Company ("K & B") and kbd/Technic, Inc., two companies with related ownership. The purchase price was approximately $25 million plus the assumption of $5 million of existing indebtedness of the companies, in addition to acquisition costs the Company incurred. The transaction was accounted for as a purchase. K & B, headquartered in Cincinnati, Ohio, is a provider of turnkey engineering, design, manufacturing and installation services in the air pollution control industry. K & B's business is focused on designing, building and installing systems which remove airborne contaminants from industrial facilities, as well as equipment that control emissions from such facilities. K & B serves its customers from offices and plants in Cincinnati, Ohio; Indianapolis, Indiana; Louisville and Lexington, Kentucky; Columbia, Tennessee; and Greensboro, North Carolina. kbd/Technic, Inc. is a specialty engineering firm concentrating in industrial ventilation. Services offered include air system testing and balancing, source emission testing, industrial ventilation, engineering, turnkey project engineering (civil, structural and electrical), sound and vibration system engineering and other special projects. The excess of the aggregate purchase price over the fair value of the net assets acquired, based upon estimates of fair value resulted in goodwill of $4,019,450. On a pro forma basis, unaudited results of operations for the six-month period ended June 30, 1999 would have been as follows, if the acquisition had been made as of January 1, 1999: SIX MONTHS ENDED JUNE 30, 1999 ---------------- Total revenues $ 40,130,549 Net income (loss) ( 359,364) Net income (loss) per share: Basic ($ .04) Diluted ($ .04) 7

CECO ENVIRONMENTAL CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (unaudited) - -------------------------------------------------------------------------------- 5. Segments and Related Information -------------------------------- The Company has two reportable segments: Systems and Media. The Systems segment assembles and manufactures ventilation, environmental and process-related products. The Company provides standard and engineered systems and filter media for air quality improvement through its Media segment. Included in the "Corporate and Other" category are the corporate functional departments plus the discontinued operations disposed of in 1999. ELIMINATION CORPORATE OF INTER- AND SEGMENT SYSTEMS MEDIA OTHER ACTIVITY CONSOLIDATED ------- ------------ ------- -------- ------------ Six months ended June 30, 2000: ---------------- Revenues $43,199,942 $2,840,051 $ - ($457,854) $45,582,139 Operating income (loss) 2,310,974 ( 470,174) ( 899,268) - 941,532 Six months ended June 30, 1999: ---------------- Revenues $ 5,126,189 $3,816,594 $ 23,537 ($228,806) $8,737,514 Operating income 284,188 69,832 54,368 - 408,388 6. Subsequent Event ---------------- During July 2000, the Company repurchased 566,000 shares of common stock at a total cost of $1,203,000 from the former president of CECO Filters, Inc. and his family in connection with his resignation that was effective June 30, 2000. The Company funded this purchase with the proceeds from the sale of marketable securities. The Company will hold shares acquired as treasury shares. 8

7. RESTATEMENT Subsequent to the issuance of the Company's condensed consolidated financial statements as of and for the three and six months ended June 30, 2000, the Company's management determined that in connection with the December 7, 1999 acquisition of K & B and kbd/Technic, Inc. deferred tax liabilities had not been established for the fair value adjustments to property, equipment, and inventory or for accrued workers compensation and accrued post-retirement benefits. The Company's management also determined that a portion of the purchase price of K & B was not allocated to the identifiable intangible assets acquired in the purchase based on the estimated fair values. In addition, the Company's management determined that warrants issued to a related party in August 1999 in conjunction with a demand loan should have been valued based on a proper valuation of their relative fair values and that the resulting debt discount should have been immediately amortized to interest expense. Additionally, the Company's management identified an error in the percentage of contract completion calculation that resulted in overstatements of contract revenue and cost of contract revenue of $1,993,786 and $668,340 for the three and six month periods ended June 30, 2000, respectively. As a result, the condensed consolidated financial statements as of and for the three and six month periods ended June 30, 2000 have been restated from amounts previously reported to correct the accounting for the above described items. A summary of the significant effects of the restatements is as follows: As Previously As Reported Restated ---------- ---------- At June 30, 2000: Current deferred income tax asset 485,800 647,600 Goodwill, net 6,179,453 8,490,556 Other intangible assets, net 1,090,545 4,164,295 Deferred income tax asset 309,200 -0- Deferred income tax liability -0- 5,353,001 Common Stock 83,933 86,279 Capital in excess of par 11,995,472 12,570,126 Accumulated deficit (2,675,207) (3,367,755) For the three months ended June 30, 2000: Contract revenues 20,033,423 18,029,637 Cost of contract revenues 17,145,919 15,142,133 Depreciation and amortization 490,144 558,668 Credit for income taxes (127,148) (137,898) Net loss (124,849) (182,623) Net loss per share - diluted (.01) (.02) For the six months ended June 30, 2000: Contract revenues 38,547,753 37,879,413 Cost of contract revenues 32,463,771 31,795,431 Depreciation and amortization 917,453 1,054,501 Credit for income taxes (10,090) (31,590) Net income (loss) 7,907 (107,641) Net loss per share - basic .00 (.01) Net loss per share - diluted .00 (.01) 9

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited) - -------------------------------------------------------------------------------- Overview - -------- The principal operating units of CECO Environmental Corp. (The "Company") are The Kirk & Blum Manufacturing Company, kbd/Technic, Inc., CECO Filters, Inc., Air Purator Corporation and New Busch Co., Inc. which provide innovative solutions to industrial ventilation and air quality problems through dust, mist, and fume control systems, and particle and chemical control technologies. The Company's Systems segment consists of The Kirk & Blum Manufacturing Company, kbd/Technic, Inc. and New Busch Co., Inc. Kirk & Blum is a leading provider of turnkey engineering, design, manufacturing and installation services in the air pollution control industry. Kirk & Blum's business is focused on designing, building and installing systems, which remove airborne contaminants from industrial facilities as well as equipment that control emissions from such facilities. Busch is engaged in providing system-based solutions for industrial ventilation and air pollution control problems through its design, fabrication, supplying and installation of equipment used to control the environment in and around industrial plants with a variety of standard, proprietary and patented technologies including its JET*STAR(TM) cooling system. kbd/Technic, Inc. is a specialty-engineering firm concentrating in industrial ventilation. kbd/Technic provides air systems testing and balancing, source emissions testing, industrial ventilation engineering, turnkey project engineering (civil, structural and electrical), and sound and vibration systems engineering. These companies have extensive knowledge and experience in providing complete turnkey systems in new installations and renovating existing systems. The Company's Media segment consists of CECO Filters, Inc. ("Filters") and Air Purator Corporation. Filters 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. Filters offers innovative patented technologies, Catenary Grid(R) and Narrow Gap Venturi Scrubbers, designed for use with heat and mass transfer operations and particulate control. Air Purator Corporation designs and manufactures high performance filter media for use in high temperature pulse jet baghouses, a highly effective type of baghouse for capturing submicron particulate from gas streams. Results of Operations - --------------------- The Company's consolidated statement of operations for the three-month and six month periods ended June 30, 2000 and 1999 reflects the operations of the Company consolidated with the operations of its subsidiaries. At June 30, 2000, the Company owned approximately 94% of CECO Filters, Inc. Minority interest in the consolidated statement of operations has been separately presented in the statement of operations. The Company's condensed consolidated balance sheet as of June 30, 2000 and the condensed consolidated statements of operation for the three and six month periods ended June 30, 2000, have been restated. Refer to Note 7 in the accompanying condensed consolidated financial statements for further discussion. The information included in the following discussion reflects the effects of these restatements. 10

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (unaudited) - -------------------------------------------------------------------------------- Revenues - -------- Consolidated net revenues increased 456% for the second quarter of 2000 to $22.0 million, up $18.1 million over the second quarter of 1999. For the first six months, consolidated net revenues of $45.6 million were $36.8 million or 422% higher than the same period in 1999. The increases in both the second quarter and first half of 2000 were due to the combination of increased revenues from the Systems segment (principally due to the positive impact from the acquisition of Kirk & Blum and kbd/Technic in December 1999) offset by decreases in the Media segment. Systems segment revenues increased by $18.5 million and $38.1 million in the second quarter and first half of 2000 compared to the same periods in 1999. The primary factors contributing to this increase was the inclusion of Kirk & Blum and kbd/Technic offset by lower revenue generated from Busch. The Company's newly acquired Kirk & Blum operating unit is generating increased revenues over 1999 levels. Demand at rolling mills for fume exhaust systems and demand for Busch's proprietary JET*STAR(TM) cooling technology continued to decline into the second quarter of 2000. Media segment sales reflect declines of $29,000 and $977,000 in the second quarter and first half of 2000 compared with the same periods in 1999. Decreased sales from the Company's high performance filter media unit, Air Purator Corporation, and a decline in sales from Filters were the principal reasons. Market conditions tightened for environmental service companies like the Company's during the first half of 2000, as sales declined to technology-based industries such as semi-conductor and printed circuit board companies. Gross Profit - ------------ Gross profit increased by $2,721,000 and $5,505,000 to $4,582,000 and $9,358,000 for the second quarter and first half of 2000, respectively, compared with the same periods in 1999. Gross profit as a percentage of revenues was 20.8% and 20.5% in the second quarter and first half of 2000 compared with 46.9% and 44.1% in same periods for the prior year. The declines are attributable to increased sales by the lower margin Systems segment sales and decreased sales by the higher margin Media segment. Overall, margins as a percentage of revenues will be impacted by the addition of Kirk & Blum to the Systems segment as this operating unit will continue to represent a larger factor in the Company's total revenues during calendar year 2000. Expenses - -------- Selling and administrative expenses increased from the second quarter and first half of 1999 by $2,188,000 and $4,216,000 to $3,840,000 and $7,362,000 during the second quarter and first half of 2000 primarily due to the acquisition of Kirk & Blum and kbd/Technic. Selling and administrative expenses as a percentage of revenues for the second quarter and first half of 2000 were 17.4% and 16.2%, respectively. A substantial portion of these expenses, which are considered fixed, have been under review by the Company for cost savings opportunities resulting from administrative efficiencies that may be realized from consolidating the Company's operating headquarters in Cincinnati, Ohio. Additionally, selling expenses are continuing to be reviewed to better align performance with compensation. Savings that may be realized from this realignment and cost reduction efforts should favorably impact results in the third and fourth quarters of 2000. 11

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION (unaudited) - -------------------------------------------------------------------------------- Depreciation and amortization increased $403,004 and $755,813 to $558,668 and $1,054,501 in the second quarter and first half of 2000 primarily due to additional costs associated with the acquisition of Kirk & Blum and kbd/Technic. Investment Income - ----------------- Investment income increased by $328,000 and $584,000 to $449,000 and $743,000 during the second quarter and first half of 2000. The increase in investment income resulted from interest income, dividend income, and realized gains and unrealized appreciation in investments. At June 30, 2000, the Company's most significant investment is 103,500 shares of Peerless Manufacturing Company common stock which is listed on the Nasdaq Stock Market(R) traded under the symbol PMFG. At June 30, 2000, the fair market value of the Company's Peerless common stock was $16.875 per share. Interest Expense - ---------------- Interest expense increased by $906,000 and $1,707,000 to $970,000 and $1,846,000 during the second quarter and first half of 2000 compared with the same periods in 1999, principally due to higher borrowing levels and increased rates under the newly established bank credit facilities, and subordinated and related party debt. Income Taxes - ------------ Federal and state income tax credits were $137,898 and $31,590 in the second quarter and first half of 2000. The effective income tax rates were 40.8% and 19.5% during the second quarter and first half of 2000. The Company' effective tax rate during 2000 will be impacted by increased amounts of non-deductible goodwill amortization relating to investments in CECO Filters, Inc., Kirk & Blum and kbd/Technic. Discontinued Operations - ----------------------- Discontinued operations reflect the closure of the Company's operations in Arizona during the first quarter of 1999. Operating losses and disposal costs, net of income tax benefit and minority interest from this discontinued division, amounted to $3,200 (income) and $134,000 (loss) in the second quarter and first half of 1999. Net Income - ----------- Net income (loss) for the three and six months ended June 30, 2000 was ($182,623) and ($107,641) compared with net income of $80,241 and $108,597 in the same periods in 1999. 12

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (unaudited) - -------------------------------------------------------------------------------- Backlog - ------- The Company's backlog consists of purchase orders it has received for products and services it expects to deliver within the next 12 months. The Company's backlog, as of June 30, 2000, was approximately $22.7 million, an increase of $7.1 million over December 31, 1999. The Systems segment generated approximately 90% of the backlog. There can be no assurance that backlog will be replicated or increased or translated into higher revenues in the future. The success of the Company's business depends on a multitude of factors that are out of the Company's control. Financial Condition, Liquidity and Capital Resources - ---------------------------------------------------- At June 30, 2000, the Company had total cash and cash equivalents and marketable securities of $3,189,000 compared to $3,826,000 at December 31, 1999. Cash used by operating activities for the six months ended June 30, 2000 was $757,000 compared with cash used of $491,000 for the comparable period in 1999. In December 1999, the Company consummated new credit facilities totaling $38 million under a senior secured syndicated banking facility of $33 million expiring in 2004 - 2006, and $5 million of subordinated debt expiring in 2006. The Company's investment in marketable securities, which generated investment income of $743,000 in the six months ended June 30, 2000, consisted principally of its investment in Peerless Manufacturing Company and other investments with a fair market value of $2,938,000 on June 30, 2000. Total bank and related debt as of June 30, 2000 was $30,914,000, a decrease of $308,000, due to principal payments against bank credit facilities and Green Diamond Oil Corp. The unused credit availability at June 30, 2000 was $6,100,000 under the Company's bank line of credit. Investing activities provided cash of $172,000 during the first half of 2000 compared with cash used of $170,000 used during the same period in 1999. During the second quarter of 2000, the Company received $254,000 as a post-closing price adjustment related to its acquisition of Kirk & Blum and kbd/Technic in December 1999. Capital expenditures were $82,000 and $113,000 for the six months ended June 30, 2000 and 1999, respectively. Capital expenditures are expected to increase and are anticipated to be in the range of $500,000 to $900,000 for fiscal year 2000. Financing activities used $298,000 during the first half of 2000 compared with cash provided of $500,000 during the same period of 1999. Current year financing activities were principal payments from borrowings under senior credit facilities and Green Diamond Oil Corp offset by short-term borrowings and common stock issued under the Company's Employee Stock Purchase Plan. During July 2000, the Company repurchased 566,000 shares of common stock at a total cost of $1,203,000 from the former president of CECO Filters, Inc. and his family in connection with his resignation that was effective June 30, 2000. The Company funded this purchase with the proceeds from the sale of marketable securities. The Company will hold shares acquired as treasury shares. 13

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (unaudited) - -------------------------------------------------------------------------------- The Company believes that its cash, cash equivalents and marketable securities, cash flows from operating activities, and existing credit facilities are adequate to meet the Company's cash requirements over the next twelve months. Forward-Looking Statements - -------------------------- The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is making this cautionary statement in connection with such safe harbor legislation. This Form 10-QSB/A, the Annual Report to Shareholders, Form 10-KSB or Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. The words "believe," "expect," "anticipate," "intends," "estimate," "forecast," "project," "should" and similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this Form 10-QSB/A are "forward-looking statements," and are based on management's current expectations of the Company's near-term results, based on current information available pertaining to the Company, including the risk factors noted below. The Company wishes to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to: changing economic and political conditions in the United States and in other countries, changes in governmental spending and budgetary policies, governmental laws and regulations surrounding various matters such as environmental remediation, contract pricing, and international trading restrictions, customer product acceptance, and continued access to capital markets, and foreign currency risks. The Company wishes to caution investors that other factors may, in the future, prove to be important in affecting the Company's results of operations. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Investors are further cautioned not to place undue reliance on such forward-looking statements as they speak only to the Company's views as of the date the statement is made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 14

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. /s/ M. J. Morris -------------------------------- M. J. Morris V.P., Finance and Administration Chief Financial Officer Date: April 2, 2001 15

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, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 251,686 2,937,662 14,458,673 0 2,405,270 28,273,618 16,621,973 2,916,399 55,971,047 12,179,659 30,913,604 0 0 86,279 8,853,702 55,971,047 7,702,726 45,582,139 4,429,120 44,640,607 0 0 1,846,240 (161,964) (31,590) (107,641) 0 0 0 (107,641) (.01) (.01)