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 SEPTEMBER 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 ------- ------- State the number of shares outstanding of each of the issuer's classes of common stock as of latest practicable date. Class: COMMON, PAR VALUE $.01 PER SHARE -------------------------------- OUTSTANDING at November 8, 2000 7,875,872 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 SEPTEMBER 30, 2000 INDEX ----- Part I - Financial Information (unaudited): Item 1. Condensed consolidated balance sheets as of September 30, 2000 (as restated) and December 31, 1999 2 Condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2000 (as restated) and 1999 (as restated) 3 Condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2000 (as restated) and 1999 (as restated) 4 Notes to condensed consolidated financial statements 6 Item 2. Management's discussion and analysis of financial condition and results of operations 10 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 15 Signature 16 1

CECO ENVIRONMENTAL CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ ASSETS (as restated) see note 7 Current assets: Cash and cash equivalents $ 1,320,558 $ 1,134,792 Marketable securities - trading 1,316,257 2,690,919 Accounts receivable, net 16,319,962 17,204,539 Costs and estimated earnings in excess of billings on uncompleted contracts 5,705,286 2,951,773 Inventories 2,280,697 2,173,010 Prepaid expenses and other current assets 949,109 635,423 Deferred income taxes 647,600 647,600 ------------ ------------ Total current assets 28,539,469 27,438,056 Property and equipment, net 13,763,920 14,244,457 Goodwill, net 8,433,394 8,917,290 Other intangible assets, net 4,266,143 4,375,070 Deferred charges and other assets 1,093,157 1,473,054 Deferred income taxes -- -- ------------ ------------ Total assets $ 56,096,083 $ 56,447,927 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Debt $ 1,775,662 $ 2,788,054 Accounts payable and accrued expenses 9,167,405 9,569,882 Billings in excess of costs and estimated earnings on uncompleted contracts 1,765,369 460,092 Other current liabilities 22,762 116,056 ------------ ------------ Total current liabilities 12,731,198 12,934,084 Debt, less current portion 29,773,012 28,289,680 Deferred income taxes 5,342,251 5,374,501 Other liabilities 799,841 713,003 ------------ ------------ Total liabilities 48,646,302 47,311,268 ------------ ------------ Minority interest 51,589 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 in 2000 and 1999 86,279 86,234 Capital in excess of par value 12,570,126 12,560,667 Accumulated deficit (3,593,093) (3,260,114) ------------ ------------ 9,063,312 9,386,787 Less treasury stock, at cost, 753,920 and 137,920 shares, respectively (1,665,120) (348,669) ------------ ------------ Net shareholders' equity 7,398,192 9,038,118 ------------ ------------ Total liabilities and shareholders' equity $ 56,096,083 $ 56,447,927 ============ ============ See accompanying notes to condensed consolidated financial statements. 2

CECO ENVIRONMENTAL CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) THREE-MONTHS ENDED NINE-MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------ ------ ------ ------ as restated as restated as restated as restated see note 7 see note 7 see note 7 see note 7 Revenues: Contract revenues $ 18,945,289 $ 2,125,528 $ 56,824,702 $ 6,268,807 Net sales - products 3,445,304 1,846,168 11,148,030 6,440,403 ------------- ------------ ------------- ----------- Total revenues 22,390,593 3,971,696 67,972,732 12,709,210 ------------- ------------ ------------- ----------- Costs and expenses: Cost of contract revenues, exclusive of depreciation shown separately below 15,269,963 1,481,754 47,065,394 4,017,047 Cost of sales - products, exclusive of depreciation shown separately below 2,652,672 1,100,469 7,081,792 3,450,196 Selling and administrative 3,472,583 1,374,733 10,834,138 4,520,151 Depreciation and amortization 554,160 155,044 1,609,561 453,732 ------------- ------------ ------------- ----------- 21,949,378 4,112,000 66,590,885 12,441,126 ------------- ------------ ------------- ----------- Income (loss) from continuing operations before investment income and interest expense 441,215 ( 140,304) 1,381,847 268,084 Investment income (loss) 178,565 ( 91,815) 921,309 66,653 Interest expense ( 987,921) ( 628,768) ( 2,834,161) ( 768,279) ------------- ------------ ------------- ----------- Loss from continuing operations before income tax benefit and minority interest ( 368,141) ( 860,887) ( 531,005) (433,542) Income tax provision (benefit) ( 119,484) ( 133,400) ( 151,074) 46,000 ------------- ------------ ------------- ----------- Loss from continuing operations before minority interest ( 248,657) ( 727,487) ( 379,931) (479,542) Minority interest 24,219 9,907 46,952 4,286 ------------- ------------ ------------- ----------- Loss from continuing operations ( 224,438) ( 717,580) ( 332,979) (475,256) ------------- ------------ ------------- ----------- Discontinued operations: Profit (loss) from operations of discontinued division, net of income taxes and minority interest - 7,489 - ( 113,756) Loss from disposal of discontinued division - - - ( 12,482) ------------- ------------ ------------- ----------- - 7,489 - ( 126,238) ------------- ------------ ------------- ----------- Net loss ($ 224,438) ($ 710,091) ($ 332,979) ($ 601,494) ============= ============ ============= =========== Net loss per share, basic: Loss from continuing operations ($ .03) ($ .08) ($ .04) ($ .06) Loss from discontinued operations - - - ( .01) ------------- ------------ ------------- ----------- Net loss per share ($ .03) ($ .08) ($ .04) ($ .07) ============= ============ ============= =========== Net loss per share, diluted: Loss from continuing operations ($ .03) ($ .08) ($ .04) ($ .06) Loss from discontinued operations - - - ( .01) ------------- ------------ ------------- ----------- Net loss per share ($ .03) ($ .08) ($ .04) ($ .07) ============= ============ ============= =========== Weighted average number of common shares outstanding: Basic 7,930,008 8,485,471 8,298,981 8,485,471 ============= ============ ============= =========== Diluted 7,930,008 8,485,471 8,298,981 8,485,471 ============= ============ ============= =========== See accompanying notes to condensed consolidated financial statements. 3

CECO ENVIRONMENTAL CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) NINE-MONTHS ENDED SEPTEMBER 30, 2000 1999 ------ ------ as restated as restated see note 7 see note 7 INCREASE (DECREASE) IN CASH Cash flows from operating activities: Net loss ($ 332,979) ($ 601,494) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Loss from discontinued operations - 126,238 Depreciation and amortization 1,609,561 453,732 Deferred income tax ( 32,250) - Minority interest ( 46,952) ( 4,286) Gain on sales of marketable securities, trading ( 789,108) - Changes in operating assets and liabilities, net of acquired businesses: Marketable securities 2,163,770 ( 1,757,449) Accounts receivable 1,075,377 64,104 Inventories ( 107,687) ( 377,783) Costs and estimated earnings in excess of billings on uncompleted contracts ( 2,753,513) ( 35,763) Prepaid expenses and other current assets ( 313,686) ( 76,399) Deferred charges and other assets 86,348 ( 348,849) Accounts payable and accrued expenses ( 352,477) 296,285 Billings in excess of costs and estimated earnings on uncompleted contracts 1,305,277 ( 320,428) Other 159,403 310,850 ----------- ----------- Net cash provided by (used in) continuing operations 1,671,084 ( 2,271,242) Net cash used in discontinued operations - ( 9,289) ----------- ----------- Net cash provided by (used in) operating activities 1,671,084 ( 2,280,531) ----------- ----------- Cash flows from investing activities: Acquisitions of property and equipment and intangible assets ( 687,006) ( 340,621) Cash received from purchase price adjustment 253,550 - Acquisition of additional shares of CECO Filters, Inc. - ( 55,459) ----------- ----------- Net cash used in continuing operations ( 433,456) ( 396,080) Net cash used in discontinued operations - ( 1,856) ----------- ----------- Net cash used in investing activities ( 433,456) ( 397,936) ----------- ----------- Cash flows from financing activities: Net change in short-term debt ( 1,012,391) 2,725,000 Proceeds from issuance of stock 9,504 - Purchases of treasury stock ( 1,316,451) - Net increase (decrease) in long-term debt 1,267,476 ( 340,504) ----------- ----------- Net cash provided by (used in) financing activities ( 1,051,862) 2,384,496 ----------- ----------- CONTINUED ON NEXT PAGE See accompanying notes to condensed consolidated financial statements. 4

CECO ENVIRONMENTAL CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (unaudited) NINE-MONTHS ENDED SEPTEMBER 30, 2000 1999 ------------ ---------- as restated as restated see note 7 see note 7 Net increase (decrease) in cash 185,766 ( 293,971) Cash and cash equivalents at beginning of the period 1,134,792 364,648 ------------ ------------ Cash and cash equivalents at end of the period $ 1,320,558 $ 70,677 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 2,413,680 $ 191,279 ------------ ------------ Income taxes $ 285,600 $ 527,758 ------------ ------------ 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. (the "Company") contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2000 and the results of operations for the three-month and nine-month periods ended September 30, 2000 and 1999 and cash flows for the nine-month periods ended September 30, 2000 and 1999. The results of operations for the three-month and nine-month periods ended September 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 operation 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 nine-months ended September 30, 1999: Revenues $387,656 Cost of revenues, exclusive of depreciation shown separately below ( 493,439) Selling and administrative ( 114,224) Depreciation and amortization ( 7,998) --------- Operating loss ( 228,005) Income tax benefit 105,800 Minority interest 8,449 --------- Loss from operations of discontinued operation ($113,756) ========= The following is a summary of the loss recorded from the disposal of this operation for the nine-months ended September 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) ========= 6

CECO ENVIRONMENTAL CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (unaudited) 3. Inventories consisted of the following: SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ Raw materials $1,398,598 $1,328,175 Finished goods 729,795 626,033 Parts for resale 152,304 218,802 ---------- ---------- $2,280,697 $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. During the second quarter of 2000, the Company received $253,550 as a post-closing price adjustment related to this acquisition. On a pro forma basis, unaudited results of operations for the three-month and nine-month periods ended September 30, 1999 would have been as follows, if the acquisition had been made as of January 1, 1999: THREE-MONTHS ENDED NINE-MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 ------------------ ------------------ Total revenues $25,055,034 $ 65,185,583 Net loss (39,169) (398,533) Net loss per share: Basic $ -- $ (.05) Diluted $ -- $ (.05) 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 discontinued operations disposed in 1999. ELIMINATION CORPORATE OF INTER- AND SEGMENT SYSTEMS MEDIA OTHER ACTIVITY CONSOLIDATED ------- ------------ ------- -------- ------------ Three-months ended September 30, 2000: Revenues $21,078,771 $1,506,081 $ - ($ 194,259) $22,390,593 Operating income (loss) 1,277,226 ( 446,286) ( 389,725) - 441,215 Three-months ended September 30, 1999: Revenues $ 2,503,109 $1,577,359 $ 12,513 ($ 121,285) $ 3,971,696 Operating income (loss) ( 111,525) ( 110,342) 81,563 - ( 140,304) Nine-months ended September 30, 2000: Revenues $64,278,713 $4,346,132 $ - ($ 652,113) $67,972,732 Operating income (loss) 3,588,200 ( 916,460) (1,289,893) - 1,381,847 Nine-months ended September 30, 1999: Revenues $ 7,629,298 $5,393,953 $ 36,050 ($ 350,091) $12,709,210 Operating income (loss) 172,663 ( 40,510) 135,931 - 268,084 6. Related Parties Debt includes loans from related parties to the Company in the amounts of $3,066,000 and $3,607,000 at September 30, 2000 and December 31, 1999, respectively. The change in debt from December 31, 1999 to September 30, 2000 includes $800,000 that was repaid to a related party. In August 1999, the Company issued a demand note and warrants to purchase 1 million shares of common stock to a related party. The inherent discount associated with the value for the warrants was immediately amortized, and $.6 million of interest expense was recognized in the quarter ending September 30, 1999. Management of the Company and the holder of the warrants believed that the inherent interest rate resulting from the valuation was higher than originally contemplated when the transaction was structured and, therefore, in September 2000 the holder cancelled the warrants after repayment of the debt. 8

CECO ENVIRONMENTAL CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (unaudited) 7. Restatement Subsequent to the issuance of the Company's condensed consolidated financial statements as of and for the three and nine months ended September 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. Management of the Company and the holder of the warrants believed that the inherent interest rate resulting from the valuation was higher then originally contemplated when the transaction was structured and, therefore, in September 2000 the holder cancelled the warrants after repayment of the debt. 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 $6,246,206 and $6,914,546 for the three and nine month periods ended September 30, 2000, respectively. As a result, the condensed consolidated financial statements as of and for the three and nine month periods ended September 30, 2000 and 1999 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 September 30, 2000: Current deferred income tax asset $ 485,800 $ 647,600 Goodwill, net 6,152,690 8,433,394 Other intangibles assets, net 1,230,518 4,266,143 Deferred income tax asset 309,200 -- Deferred income tax liability -- 5,342,251 Capital in excess of par 11,993,126 12,570,126 Accumulated deficit (2,842,771) (3,593,093) For the three months ended September 30, 2000: Contract revenues 25,191,495 18,945,289 Cost of contract revenues 21,516,169 15,269,963 Depreciation and amortization 486,536 554,160 Income tax benefit (108,734) (119,484) Net loss (167,564) (224,438) Net loss per share - basic (.02) (.03) Net loss per share - diluted (.02) (.03) For the nine months ended September 30, 2000: Contract revenues 63,739,248 56,824,702 Cost of contract revenues 53,979,940 47,065,394 Depreciation and amortization 1,403,989 1,609,561 Income tax benefit (118,824) (151,074) Net loss (159,657) (332,979) Net loss per share - basic (.02) (.04) Net loss per share - diluted (.02) (.04) For the three months ended September 30, 1999: Interest expense (51,768) (628,768) Loss from continuing operations (140,580) (717,580) Net loss (133,091) (710,091) Loss from continuing operations (0.02) (0.08) Net loss per share basic and diluted (0.02) (0.08) For the nine months ended September 30, 1999: Interest expense (191,279) (768,279) Income (loss) from continuing operations 101,744 (475,256) Net loss (24,494) (601,494) Income (loss) from continuing operations per share basic and diluted 0.01 (0.06) Net loss per share basic and diluted -- (0.07) 9

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited) Overview The principal operating units of CECO Environmental Corp. (the "Company") are The Kirk & Blum Manufacturing Company ("Kirk & Blum"), kbd Technic, Inc. ("kbd Technic"), CECO Filters, Inc. ("Filters"), Air Purator Corporation and New Busch Co., Inc. ("Busch") 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 Kirk & Blum, kbd Technic, and Busch. 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 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 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. The results of operations reflect the Company's acquisition of all the issued stock of Kirk & Blum and kbd Technic as of December 7, 1999. Results of Operations The Company's consolidated statements of operations for the three-month and nine-month periods ended September 30, 2000 and 1999 reflect the operations of the Company consolidated with the operations of its subsidiaries. At September 30, 2000, the Company owned approximately 94% of Filters. Minority interest has been separately presented in the statements of operations. The Company's condensed consolidated balance sheet as of September 30, 2000 and 1999 and the condensed consolidated statements of operations for the three and nine month periods ended September 30, 2000 and 1999 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 FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (unaudited) Revenues Consolidated net revenues increased 464% for the third quarter of 2000 to $22.4 million, up $18.4 million over the third quarter of 1999. For the first nine months, consolidated net revenues of $68.0 million were $55.3 million or 435% higher than the same period in 1999. The increases in both the third quarter and first nine months 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 $18.6 million and $56.6 million in the third quarter and first nine months of 2000 compared to the same periods in 1999. The primary factors contributing to this increase were 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 its 1999 levels. The Busch unit has booked an increased level of orders over the second quarter of 2000 for fume exhaust systems at aluminum rolling mills. Revenue from these orders is expected to be recognized within the next twelve months. Demand at steel rolling mills for fume exhaust systems and demand for Busch's proprietary JET*STAR(TM) cooling technology continued to be soft into the third quarter of 2000. Media segment sales reflect declines of $0.1 million and $1.0 million in the third quarter and first nine months 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 for these decreased media segment sales. Gross Profit Gross profit increased by $3.1 million and $8.6 million to $4.5 million and $13.8 million for the third quarter and first nine months of 2000, respectively, compared with the same periods in 1999. Gross profit as a percentage of revenues was 20.0% and 20.3% in the third quarter and first nine months of 2000 compared with 35.0% and 41.2% in the same periods for the prior year. The declines are attributable to increased sales by the lower margin Systems segment 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 third quarter and first nine months of 1999 by $2.1 million and $6.3 million to $3.5 million and $10.8 million during the third quarter and first nine months of 2000 primarily due to the acquisition of Kirk & Blum and kbd Technic. Selling and administrative expenses as a percentage of revenues for the third quarter and first nine months of 2000 were 15.5% and 15.9%, respectively. A significant portion of these expenses, which are considered fixed, have been under review by the Company for cost savings opportunities resulting from administrative efficiencies that could be realized from consolidating the Company's operating headquarters in Cincinnati, Ohio. Additionally, selling expenses have been under review to better align performance with compensation. Management has identified in the first nine months of 2000 overhead reductions at an annualized rate of approximately $1 million. Savings that should be realized from this realignment and cost reduction efforts have favorably impacted results in the third quarter by approximately $0.1 million and should, management believes, result in an additional $0.3 million in savings in the fourth quarter of 2000 and the balance of overhead reductions in 2001. 11

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (unaudited) Depreciation and amortization increased by $0.4 million and $1.2 million to $0.6 million and $1.6 million in the third quarter and first nine months of 2000 primarily due to the larger base of depreciable assets and the goodwill resulting from the acquisition of Kirk & Blum and kbd Technic. Investment Income Investment income increased by $0.3 million and $0.9 million to $0.2 million and $0.9 million during the third quarter and first nine months of 2000. The increase in investment income resulted from interest income, dividend income, realized gains and unrealized appreciation in investments. At September 30, 2000, the Company's most significant investment is 59,000 shares of Peerless Manufacturing Company common stock which is listed on the Nasdaq Stock Market(R) traded under the symbol PMFG. At September 30, 2000, the fair market value of the Company's Peerless common stock was $18.56 per share. Interest Expense Interest expense increased by $0.4 million and $2.1 million to $1.0 million and $2.8 million during the third quarter and first nine months 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. The bulk of such debt was incurred in connection with the acquisition of Kirk & Blum and kbd Technic. In August 1999, the Company issued a demand note and warrants to purchase 1 million shares of common stock to a related party. The inherent discount associated with the value for the warrants, was immediately amortized and $.6 million of interest expense was recognized in the quarter ending September 30, 1999. Management of the Company and the holder of the warrants believed that the inherent interest rate resulting from the valuation was higher than originally contemplated when the transaction was structured and, therefore, in September 2000 the holder cancelled the warrants after repayment of the debt. Income Taxes Federal and state income tax benefits were $119,484 and $151,074 in the third quarter and first nine months of 2000. The effective income tax rates were 32.5% and 28.5% during the third quarter and first nine months of 2000. The Company's effective tax rate during 2000 has been impacted by increased amounts of non-deductible goodwill amortization relating to investments in Filters, 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 $7,489 (income) and $126,238 (loss) in the third quarter and first nine months of 1999. Net Loss Net loss for the three and nine months ended September 30, 2000 was $224,438 and $332,979 compared with net loss of $479,291 and $370,694 in the same periods in 1999. 12

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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 September 30, 2000, was approximately $23.4 million, an increase of $7.8 million over December 31, 1999. The Systems segment generated approximately 90% of the backlog. There can be no assurance that backlog will be replicated, 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 September 30, 2000, the Company had total cash and cash equivalents and marketable securities of $2.6 million compared to $3.8 million at December 31, 1999. Cash provided by operating activities for the nine months ended September 30, 2000 was $1.7 million compared with cash used of $2.3 million for the same period in 1999. In December 1999, the Company consummated new credit facilities totaling $38.0 million under a senior secured syndicated banking facility of $33.0 million maturing in 2004 - 2006, and $5.0 million of subordinated debt maturing in 2006. The Company's investment in marketable securities, consisted principally of its investment in Peerless Manufacturing Company and other investments with a fair market value of $1.3 million on September 30, 2000. Total bank and related debt as of September 30, 2000 was $31.5 million an increase of $0.5 million, primarily due to net borrowings under bank credit facilities and offset by payments made with respect to other notes payable. The senior secured credit facility was amended by reducing minimum coverage under two financial covenants as of September 30, 2000. Unused credit availability at September 30, 2000, was $3.7 million under the Company's bank line of credit. Investing activities used cash of $0.4 million during both the first nine months of 2000 and the same period in 1999. During the second quarter of 2000, the Company received $0.3 million as a post-closing price adjustment related to its December 1999 acquisition of Kirk & Blum and kbd Technic. Capital expenditures for property and equipment and intangibles were $0.7 million and $0.3 million for the nine months ended September 30, 2000 and 1999, respectively. Capital expenditures for property and equipment are anticipated to be in the range of $0.7 million to $0.9 million for fiscal year 2000. Financing activities used $1.1 million during the first nine months of 2000 compared with cash provided of $2.4 million during the same period of 1999. In the third quarter of 2000, the Company purchased 566,000 shares of common stock as treasury shares at a total cost of $1.2 million from the former president of CECO Filters, Inc. and his family in connection with his resignation that was effective June 30, 2000. Additionally, current year financing activities included net borrowings under senior credit facilities and payments to Green Diamond Oil Corp. offset by proceeds from common stock issued under the Company's Employee Stock Purchase Plan. 13

CECO ENVIRONMENTAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED (unaudited) The Company believes that its cash and cash equivalents and marketable securities, its cash flows from operating activities, and its 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. OTHER INFORMATION Part II Item 6(b) EXHIBITS AND REPORTS ON FORM 8-K A report on Form 8-K, dated September 29, 2000, was filed under Item 4, changes in Registrant's Certifying Accountant, in connection with the dismissal of Margolis & Company P.C. and the appointment of Deloitte & Touche LLP as the Company's independent accountants. 15

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 16

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

9-MOS DEC-31-2000 SEP-30-2000 1,320,558 1,316,257 16,319,962 0 2,280,697 28,539,469 16,998,129 3,234,209 56,096,083 12,731,198 31,548,674 0 0 86,279 7,311,913 56,096,083 11,148,030 67,972,732 7,081,792 66,590,885 0 0 2,834,161 (531,005) (151,074) (332,979) 0 0 0 (332,979) (.04) (.04)