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<SEC-DOCUMENT>0000950116-01-500728.txt : 20010821
<SEC-HEADER>0000950116-01-500728.hdr.sgml : 20010821
ACCESSION NUMBER:		0000950116-01-500728
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010630
FILED AS OF DATE:		20010820

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CECO ENVIRONMENTAL CORP
		CENTRAL INDEX KEY:			0000003197
		STANDARD INDUSTRIAL CLASSIFICATION:	INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564]
		IRS NUMBER:				132566064
		STATE OF INCORPORATION:			NY
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-07099
		FILM NUMBER:		1718935

	BUSINESS ADDRESS:	
		STREET 1:		505 UNIVERSITY AVE
		STREET 2:		STE 1400
		CITY:			TORONTO ONTARIO MSG
		STATE:			A6
		BUSINESS PHONE:		4165936543

	MAIL ADDRESS:	
		STREET 1:		111 ELIZABETH STREET SUITE 600
		CITY:			TORONTO ONTARIO
		STATE:			A6

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ALARM PRODUCTS INTERNATIONAL INC
		DATE OF NAME CHANGE:	19851210

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	API ENTERPRISES INC
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>tenqsb.txt
<DESCRIPTION>10QSB
<TEXT>
<PAGE>
                                  UNITED STATES
                       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, 2001
                  ----------------------

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 officers)             (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 latest practical date.

Class: COMMON, PAR VALUE $.01 PER SHARE
       --------------------------------
OUTSTANDING at August 9, 2001    7,898,403


<PAGE>
                            CECO ENVIRONMENTAL CORP.
                            ========================

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                  JUNE 30, 2001

- --------------------------------------------------------------------------------



                                      INDEX
                                      ------



Part I - Financial Information (unaudited):

         Item 1.   Condensed consolidated balance sheet as of
                   June 30, 2001 and December 31, 2000                        2


                   Condensed consolidated statement of operations
                   for the three-month and six-month periods ended
                   June 30, 2001 and 2000                                     3


                   Condensed consolidated statement of cash flows for the
                   six-month periods ended June 30, 2001 and 2000             4


                   Notes to condensed consolidated financial statements       5

         Item 2.   Management's discussion and analysis of
                   financial condition and results of operations              7

Part II - Other Information

         Item 6.   Exhibits and Reports on Form 8-K                          12


Signature                                                                    13


<PAGE>


                            CECO ENVIRONMENTAL CORP.
                            ========================

                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (unaudited)
- --------------------------------------------------------------------------------

Dollars in thousands, except per share data
<TABLE>
<CAPTION>
                                                                           JUNE 30,             DECEMBER 31,
                                                                             2001                  2000
                                                                           --------             ------------
<S>                                                                           <C>                     <C>
ASSETS

Current assets:
  Cash and cash equivalents                                                 $   157               $   664
  Marketable securities - trading                                                13                 1,002
  Accounts receivable, net                                                   15,437                17,372
  Costs and estimated earnings in excess of
     billings on uncompleted contracts                                        5,817                 5,099
  Inventories                                                                 2,466                 2,373
  Other assets                                                                2,581                 1,881
                                                                            -------               -------

           Total current assets                                              26,471                28,391

Property and equipment, net                                                  13,313                13,587
Goodwill, net                                                                 8,326                 8,479
Other intangible assets, net                                                  3,912                 4,149
Deferred charges and other assets                                             1,755                 1,290
                                                                            -------               -------

                                                                            $53,777               $55,896
                                                                            =======               =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Current portion of debt                                                   $ 2,776               $ 3,776
  Accounts payable and accrued expenses                                      11,038                11,808
  Billings in excess of costs and estimated
    earnings on uncompleted contracts                                         1,330                 1,175
                                                                            -------               -------

           Total current liabilities                                         15,144                16,759
                                                                            -------               -------

Other liabilities                                                             1,047                   704
                                                                            -------               -------

Debt, less current portion                                                   22,451                22,640
                                                                            -------               -------

Deferred income tax                                                           5,123                 5,264
                                                                            -------               -------

Minority interest                                                                35                    60
                                                                            -------               -------

Subordinated notes (related party, $2,883
    and $2,769, respectively)                                                 3,604                 3,461
                                                                            -------               -------

Common stock, $0.01 par value; 100,000,000 shares
   authorized and 8,662,323 and 8,639,792 shares
   issued in 2001 and 2000, respectively                                         87                    86
Capital in excess of par value                                               12,625                12,592
Accumulated deficit                                                          (4,408)              ( 3,950)
Accumulated other comprehensive loss                                           (245)                  (34)
                                                                            -------               -------

                                                                              8,059                 8,694

Less treasury stock, at cost, 763,920 shares                                 (1,686)               (1,686)
                                                                            -------               -------

                                                                              6,373                 7,008
                                                                            -------               -------

                                                                            $53,777               $55,896
                                                                            =======               =======
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                        2
<PAGE>

                            CECO ENVIRONMENTAL CORP.
                            ========================

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (unaudited)
- --------------------------------------------------------------------------------


Dollars in thousands, except per share data
<TABLE>
<CAPTION>

                                                                         THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                               JUNE 30,                    JUNE 30,
                                                                          2001          2000            2001        2000
                                                                       ---------    ----------     ----------    ---------


<S>                                                                    <C>          <C>            <C>              <C>
Net sales                                                              $  23,074    $   22,028      $  42,843       45,582
                                                                       ---------     ---------       ---------    ---------
Costs and expenses:
   Cost of sales, exclusive of
        items shown separately below                                      18,728        17,445         34,932       36,225
   Selling and administrative                                              3,634         3,840          6,363        7,362
   Depreciation and amortization                                             584           559          1,136        1,054
                                                                       ---------     ---------       ---------    ---------

                                                                          22,946        21,844         42,431       44,641
                                                                       ---------     ---------       ---------    ---------

Income before investment income
  and interest expense                                                       128           184             412          941

Investment income                                                            462           448             401          743

Interest expense (including related
  party interest of $177 and $177, and
  $352 and $354, respectively)                                              (893)         (970)         (1,840)      (1,846)
                                                                       ---------     ---------       ---------    ---------

Loss before benefit for income
  taxes and minority interest                                               (303)         (338)         (1,027)        (162)

Benefit for income taxes                                                    (161)         (138)           (544)         (31)
                                                                       ---------     ---------       ---------    ---------

Loss before minority interest                                               (142)         (200)           (483)        (131)

Minority interest                                                             25            17              25           23
                                                                       ---------     ---------       ---------    ---------

Net loss                                                              $     (117)   $     (183)     $     (458)  $     (108)
                                                                       =========     =========       =========    =========

Per share data:

Basic loss                                                            $     (.01)   $     (.02)     $     (.06)  $     (.01)
                                                                       =========     =========       =========    =========

Diluted loss                                                          $     (.01)   $     (.02)     $     (.06)  $     (.01)
                                                                       =========     =========       =========    =========

  Weighted average number of common shares outstanding:

    Basic                                                              7,898,403     8,485,520       7,887,324    8,485,496
                                                                       =========     =========       =========    =========

    Diluted                                                            7,898,403     8,825,520       7,887,324    8,825,496
                                                                       =========     =========       =========    =========

</TABLE>


   See accompanying notes to condensed consolidated financial statements.



                                       3
<PAGE>


                            CECO ENVIRONMENTAL CORP.
                            ========================

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (unaudited)
- --------------------------------------------------------------------------------


Dollars in thousands
<TABLE>
<CAPTION>
                                                                                               SIX MONTHS ENDED
                                                                                                   JUNE 30,
                                                                                        2001                     2000
                                                                                      ---------                --------
<S>                                                                                       <C>                     <C>

                                    INCREASE (DECREASE) IN CASH

Cash flows from operating activities:
   Net loss                                                                           $  (458)                  $  (108)
   Adjustments to reconcile net loss to net cash
         provided by (used in) operating activities:
     Depreciation and amortization                                                      1,136                     1,054
     Gain on sales of marketable securities, trading                                     (396)                     (622)
     Changes in operating assets and liabilities  - net                                   724                    (1,081)
                                                                                      -------                   -------

Net cash provided by (used in) operating activities                                     1,006                      (757)
                                                                                      -------                   -------

Net cash (used in) provided by investing activities                                      (357)                      172
                                                                                      -------                   -------

Net cash (used in) financing activities                                                (1,156)                     (298)
                                                                                      -------                   -------

Net decrease in cash                                                                     (507)                     (883)

Cash and cash equivalents at beginning of the period                                      664                     1,135
                                                                                      -------                   -------

Cash and cash equivalents at end of the period                                        $   157                   $   252
                                                                                      =======                   =======

                      SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   Cash paid during the period for:
     Interest                                                                         $ 1,467                   $ 1,564
                                                                                      -------                   -------

     Income taxes                                                                     $   394                   $   261
                                                                                      -------                   -------

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                        4



<PAGE>

                            CECO ENVIRONMENTAL CORP.
                            ========================

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)
- --------------------------------------------------------------------------------


1.       The accompanying unaudited condensed consolidated financial statements
         of CECO Environmental Corp. (the "Company") and subsidiaries have been
         prepared in accordance with accounting principles generally accepted in
         the United States of America. In the opinion of management, the
         accompanying unaudited condensed consolidated financial statements of
         the Company contain all adjustments (consisting only of normal
         recurring accruals) necessary to present fairly the financial position
         as of June 30, 2001 and the results of operations for the three-month
         and six-month periods ended June 30, 2001 and 2000 and its cash flows
         for the six-month periods ended June 30, 2001 and 2000. The results of
         operations for the interim periods ended June 30, 2001 are not
         necessarily indicative of the results to be expected for the full year.


         These financial statements should be read in conjunction with the
         audited financial statements and notes thereto in the Company's Annual
         Report on Form 10-KSB filed with the Securities and Exchange
         Commission.

         Recent accounting pronouncements - On January 1, 2001, the Company
         adopted Statement of Financial Accounting Standard ("SFAS") No. 133,
         "Accounting for Derivative Instruments and Hedging Activities," as
         amended by SFAS No. 138, "Accounting for Certain Derivative Instruments
         and Certain Hedging Activities". SFAS No. 133 establishes accounting
         and reporting standards for derivative instruments and for hedging
         activities. It requires that all derivative instruments, including
         those embedded in other contracts, be recognized as either assets or
         liabilities and that those financial instruments be measured at fair
         value. The accounting for changes in the fair value of derivatives
         depends on their intended use and designation.

         The Company has an interest rate swap agreement to manage its exposure
         to interest rate fluctuations. The interest rate swap agreement meets
         the criteria for hedge accounting under SFAS No. 133 and accordingly,
         the cumulative after-tax fair value of the interest rate hedges is
         included in other comprehensive loss in the second quarter of 2001.
         During the first quarter ended March 31, 2001, the Company recognized a
         transition obligation of $350,000 related to this swap.

         Other comprehensive loss for the quarter ended June 30, 2001 was
         $120,000, which included the change in the fair value of the interest
         rate swap.

         In July 2001, the Financial Accounting Standards Board issued SFAS No.
         141 Business Combinations and SFAS No. 142 Goodwill and Other
         Intangible Assets. SFAS No. 141 requires that all business combinations
         be accounted for under the purchase method only and that certain
         acquired intangible assets in a business combination be recognized as
         assets apart from goodwill. SFAS No. 142 requires that ratable
         amortization of goodwill be replaced with periodic tests of the
         goodwill's impairment and that intangible assets other than goodwill
         should be amortized over their useful lives. Implementation of SFAS No.
         141 and SFAS No. 142 is required for fiscal 2002. Management is
         currently assessing the impact SFAS No. 141 and SFAS No. 142 will have
         on the results of operations.


2.       Inventories consisted of the following:
<TABLE>
<CAPTION>

                                                     JUNE 30,            DECEMBER 31,
                                                       2001                  2000
                                                   ------------     ---------------------
                                                                    (Dollars in thousands)

<S>                                                 <C>                     <C>
           Raw materials                            $   1,440              $   1,450
           Finished goods                                 871                    734
           Parts for resale                               155                    189
                                                   ----------             ----------

                                                   $    2,466             $    2,373
                                                   ==========             ==========

</TABLE>



                                        5

<PAGE>
                            CECO ENVIRONMENTAL CORP.
                            ========================

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)
- --------------------------------------------------------------------------------




3.       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.


         (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                          ELIMINATION
                                                                       CORPORATE           OF INTER-
                                                                         AND                SEGMENT
                                       SYSTEMS        MEDIA             OTHER              ACTIVITY          CONSOLIDATED
                                       -------        -----             ------             --------          ------------

<S>                                       <C>          <C>                <C>                 <C>                 <C>
         Six-months ended
         June 30, 2001:
         ----------------

         Revenues                     $ 40,682     $  2,393           $     --              $  (232)            $ 42,843
         Operating income (loss)         1,549         (101)            (1,036)                  --                  412


         Six-months ended
         June 30, 2000:
         ----------------

         Revenues                     $ 43,200     $  2,840           $     --              $  (458)            $ 45,582
         Operating income (loss)         2,311         (470)              (900)                  --                  941

         Three-months ended
         June 30, 2001:
         ------------------

         Revenues                     $ 21,913     $  1,324           $     --              $  (163)            $ 23,074
         Operating income (loss)           897         (228)              (541)                  --                  128


         Three-months ended
         June 30, 2000:
         ------------------

         Revenues                     $ 20,805     $  1,608           $     --              $  (385)            $ 22,028
         Operating income (loss)         1,092         (369)              (539)                  --                  184

</TABLE>



  4.     In August 2001, the bank credit facility was amended by (i) reducing
         minimum coverage requirements under several financial covenants as of
         June 30, 2001 and September 30, 2001, (ii) raising interest rates by
         1%, (iii) reducing the total amount available under the revolving line
         of credit to $8 million from $9 million and (iv) changing the maturity
         of the revolving line of credit to April 2003 from December 2004. The
         Company would not have been in compliance with the June 30, 2001
         financial covenants had the amendment not been made. In consideration
         for this amendment, additional fees were paid to the lenders.



                                        6


<PAGE>
                            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 ("Kirk & Blum"), kbd/Technic, Inc.
("kbd/Technic"), CECO Filters, Inc. ("Filters"), Air Purator Corporation and New
Busch Co., Inc. ("Busch"). These units 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, a leading provider of turnkey engineering, design, manufacturing
and installation services in the air pollution control industry, focuses on
designing, building and installing systems which remove airborne contaminants
from industrial facilities as well as equipment that control emissions from such
facilities. Busch provides 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, a
specialty-engineering firm, concentrates in industrial ventilation as well as
providing 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, such as
the Catenary Grid(R) and Narrow Gap Venturi(R) 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, an extremely 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, 2001 and 2000 reflect the operations of the
Company consolidated with the operations of its subsidiaries. At June 30, 2001,
the Company owned approximately 94% of Filters. Minority interest has been
separately presented in the statements of operations.


                                        7

<PAGE>

                            CECO ENVIRONMENTAL CORP.
                            ========================

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED
                                   (unaudited)
- --------------------------------------------------------------------------------


Revenues
- --------

Consolidated total revenues increased $1.0 million or 4.7% to $23.1 million
during the three months ended June 30, 2001 as compared to the three months
ended June 30, 2000 and decreased $2.7 million during the six-month period ended
June 30, 2001 as compared with the same period in 2000. The Company booked
orders totaling $19.5 million during the second quarter of 2001 and $48.2
million for the first six-months of 2001 as compared to $21.6 million during the
second quarter of 2000 and $45.3 million in the first half of 2000. Backlog at
June 30, 2001 was $17.3 million. Consolidated total revenue for the six months
ended June 30, 2001, was $42.8 million versus comparable 2000 revenues of $45.6
million. Revenue is anticipated to continue to increase during the second half
of 2001 compared with the first half 2001 as the Company works down its current
backlog.

Systems segment revenue increased $1.1 million to $21.9 million during the three
months ended June 30, 2001 as compared to the same period of 2000. Systems
segment revenue was $40.7 million during the first six months of 2001 compared
to $43.2 million during the same period of 2000. This decrease was partly due to
the slower revenue recognition under percentage completion accounting as a
result of the current mix of projects where a greater percentage of costs are
incurred toward the end of the project. Kirk & Blum's decrease is partially
attributable to a decline in sales to the automotive, communications and cement
industries. Busch's bookings level continued strong throughout the first half of
2001 totaling $4.4 million versus $2.2 million in the first six months of 2000.
Busch's backlog for the year increased $2.2 million to $3.4 million at June 30,
2001 from the previous year end.

Media segment revenue decreased $0.3 million during the three months ended June
30, 2001 as compared to the same period in 2000. Media segment revenue was $2.4
million for the first six months of 2001 compared to $2.8 million during the
same period of 2000. Filters saw an increase in revenues for the first six
months of 2001 of $0.1 million while the Company's high performance filter media
unit, Air Purator Corporation, revenues declined $0.5 million. Filters booked
orders totaling $1.6 million during the second quarter of 2001, an increase of
$0.7 million as compared to the same period in 2000. A new marketing initiative
for this segment, focusing on nurturing relationships and increasing repeat
orders from existing customers, was rolled out in the first quarter of 2001. As
a result, the Company recorded $2.4 million in bookings for the six-month period
ended June 30, 2001, which was an increase of $0.8 million over the same period
in 2000. The Company believes that an increase in revenue from this initiative
may be realized in the second half of 2001.

Gross Profit
- ------------

Gross profit exclusive of depreciation and amortization was $4.3 million during
the second quarter of 2001 as compared to $4.6 million during the second quarter
of 2000. Gross margin during the second quarter of 2001 was 18.9% as compared to
20.8% during the second quarter of 2000. Gross profit exclusive of depreciation
and amortization was $7.9 million during the first six months of 2001 compared
with $9.4 million in the same period of 2000. Gross margin was 18.4% in the
first six months of 2001 compared with 20.5% in the same period of 2000. The
decline is attributable to decreased sales by the higher margin Media segment as
well as lower margins realized in the Systems segment.



                                        8
<PAGE>


                            CECO ENVIRONMENTAL CORP.
                            ========================

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED
                                   (unaudited)
- --------------------------------------------------------------------------------



Expenses
- --------

Selling and administrative expenses decreased $0.2 million during the three
months ended June 30, 2001 as compared to the same period in 2000. Selling and
administrative expenses decreased for the first six months of 2001 by $1.0
million to $6.4 million as compared to the same period in 2000. Selling and
administrative expenses as a percentage of revenues for the first six months of
2001 were 14.8% versus 16.1% for the same period in 2000. The majority of the
decrease for the first six months of 2001 related to cost saving initiatives put
into place in 2000, and a reversal of a contingency reserve held in connection
with a customer bankruptcy.

Depreciation and amortization increased slightly during the three months ended
June 30, 2001 as compared to the same period in 2000. Depreciation and
amortization increased $0.1 million to $1.1 million in the first six months of
2001 primarily due to the larger base of depreciable assets.

Investment Income
- -----------------

Investment income increased slightly during the three months ended June 30, 2001
as compared to the same period of 2000. Investment income was $0.4 million
during the first half of 2001 compared with $0.7 million in the same period of
2000. The decrease in investment income was primarily due to sales of the
Company's largest holding of marketable securities in the first half of 2001.


Interest Expense
- ----------------

Interest expense decreased slightly during the three months ended June 30, 2001
as compared to the same period of 2000. Interest expense decreased slightly for
the first half of 2001 compared with the same period of 2000.


Income Taxes
- ------------

Federal and state income tax benefits increased slightly during the three months
ended June 30, 2001 as compared to the same period of 2000. Federal and state
income tax benefits increased $0.5 million in the first six months of 2001 as
compared to the same period in 2000. The effective income tax rate was 53%
during the first and second quarters of 2001. The Company's effective tax rate
during 2001 is affected by non-deductible goodwill amortization and interest
expense.


Net Loss
- --------

Net loss decreased slightly during the three months ended June 30, 2001 as
compared to the same period in 2000. Net loss for the six months ended June 30,
2001 was $0.5 million compared with net loss of $0.1 million in the same period
in 2000.


                                        9


<PAGE>

                           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 from products
and services it expects to deliver within the next 12 months. The Company's
backlog, as of June 30, 2001, was approximately $17 million, an increase of $5
million over December 31, 2000. The Systems segment generated in excess of 90%
of the backlog. There can be no assurance that backlog will be replicated,
increased or translated into higher revenues in the future.


Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------

Cash provided by operating activities for the six months ended June 30, 2001 was
$1.0 million compared with cash used in operations of $0.8 million for the same
period in 2000. At June 30, 2001, the Company had total cash and cash
equivalents and marketable securities of $0.2 million compared to $1.7 million
at December 31, 2000.

Bank and related debt as of June 30, 2001 was $25.2 million, a decrease of $1.2
million, primarily due to principal reductions against the bank credit
facilities. Unused credit availability at June 30, 2001, was $3.3 million under
the bank line of credit. An amendment to the subordinated note agreements was
executed during the second quarter which eliminated the Company's right to
convert the notes to equity. The bank credit facility was amended in March 2001,
as discussed in the Company's Form 10-KSB for the year ended December 31, 2000.
In August 2001, the lenders amended the credit facility by (i) reducing minimum
coverage requirements under several financial covenants as of June 30, 2001 and
September 30, 2001, (ii) raising interest rates by 1%, (iii) reducing the total
amount available under the revolving line of credit to $8 million from $9
million and (iv) changing the maturity of the revolving line of credit to April
2003 from December 2004. The Company would not have been in compliance with the
June 30, 2001 financial covenants had the amendment not been made. In
consideration for this amendment, additional fees were paid to the lenders.

Investing activities used cash of $0.4 million during the first six months of
2001 related to capital expenditures for property and equipment and intangibles.
Capital expenditures for property and equipment are anticipated to be in the
range of $0.7 million to $0.9 million for fiscal year 2001.

Financing activities used $1.2 million during the first six months of 2001
compared with cash used of $0.3 million during the same period of 2000. Current
year financing activities included net borrowings under bank credit facilities
and proceeds from common stock issued under the Company's Employee Stock
Purchase Plan.



                                       10



<PAGE>
                            CECO ENVIRONMENTAL CORP.
                            ========================

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED
                                   (unaudited)
- --------------------------------------------------------------------------------


The Company believes that its cash and cash equivalents, 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, 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 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, 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.

                                       11


<PAGE>

                            CECO ENVIRONMENTAL CORP.
                            ========================

                                OTHER INFORMATION
                                   (unaudited)

- --------------------------------------------------------------------------------


Part II

Item 6 (e)        EXHIBITS AND REPORTS ON FORM 8-K


The Company did not file any reports on Form 8-K during the three months ended
June 30, 2001.





                                       12



<PAGE>


                            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:  August 20, 2001








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