##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-Q







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

For the quarterly period ended June 30, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File No. 000-07099





CECO ENVIRONMENTAL CORP.

(Exact name of registrant as specified in its
charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 13-2566064                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

3120 Forrer Street, Cincinnati, Ohio 45209

(Address of principal executive offices) (Zip Code)

513-458-2600

(Registrants telephone number, including area code)





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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232, 405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ̈  Yes     ̈  No

Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈ |  | Accelerated Filer         |  | x
|                        |  |   | 
|Non-Accelerated Filer   |  |  ̈ |  | Smaller Reporting Company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.):     ̈  Yes    x  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 3, 2009  14,289,331









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CECO ENVIRONMENTAL CORP.

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

JUNE 30, 2009





TABLE OF CONTENTS



|                                |  |                                                                                                              |  |   
|------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|Part I - Financial Information: |  |                                                                                                             
|                                |  |                                                                                                             
|Item 1.                         |  | Consolidated balance sheets as of June 30, 2009 and December 31, 2008                                        |  | 2 
|                                |  |                                                                                                             
|                                |  | Consolidated statements of operations for the three-month and six-month periods ended June 30, 2009 and 2008 |  | 3 
|                                |  |                                                                                                             
|                                |  | Consolidated statements of cash flows for the six-month periods ended June 30, 2009 and 2008                 |  | 4 
|                                |  |                                                                                                             
|                                |  | Notes to consolidated financial statements                                                                   |  | 6 
|                                |  |                                                                                                             
|Item 2.                         |  | Managements discussion and analysis of financial condition and results of operations                        |  | 18
|                                |  |                                                                                                             
|Item 3.                         |  | Quantitative and Qualitative Disclosure about Market Risk                                                    |  | 24
|                                |  |                                                                                                             
|Item 4.                         |  | Controls and Procedures                                                                                      |  | 25
|                                | 
|Part II - Other Information     |  |                                                                                                             
|                                |  |                                                                                                             
|Item 4.                         |  | Submission of matters to a vote of security holders                                                          |  | 27
|                                |  |                                                                                                             
|Item 6.                         |  | Exhibits                                                                                                     |  | 27
|                                | 
|Signature                       |  | 29                                                                                                          



1



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CECO ENVIRONMENTAL CORP.

Part I. Financial Information



|ITEM 1. | Financial Statements
|------- | --------------------

CONDENSED CONSOLIDATED BALANCE
SHEETS





Dollars in thousands, except per share data



|                                                                                                                                     |  |              |        |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ | - | ---------------- | - | ------- | -
|                                                                                                                                     |  | JUNE 30,2009 |        |   | DECEMBER 31,2008 |  
|                                                                                                                                     |  | (unaudited)  |        |   |                  |  
|ASSETS                                                                                                                               |  |              |        |   |                  |   |         |  
|                                                                                                                                     |  |             
|Current assets:                                                                                                                      |  |              |        |   |                  |   |         |  
|Cash and cash equivalents                                                                                                            |  | $            | 1,121  |   |                  | $ | 1,169   |  
|Accounts receivable, net of allowance for doubtful accounts of $550 and $251 respectively                                            |  |              | 18,257 |   |                  |   | 47,574  |  
|Costs and estimated earnings in excess of billings on uncompleted contracts                                                          |  |              | 9,818  |   |                  |   | 12,687  |  
|Inventories, net                                                                                                                     |  |              | 5,521  |   |                  |   | 6,169   |  
|Prepaid expenses and other current assets                                                                                            |  |              | 2,283  |   |                  |   | 2,220   |  
|                                                                                                                                     |  |              |        |   |                  |   |         |  
|Total current assets                                                                                                                 |  |              | 37,000 |   |                  |   | 69,819  |  
|                                                                                                                                     |  |             
|Property and equipment, net                                                                                                          |  |              | 12,155 |   |                  |   | 12,205  |  
|Goodwill                                                                                                                             |  |              | 31,323 |   |                  |   | 31,116  |  
|Intangibles  finite life, net                                                                                                       |  |              | 1,727  |   |                  |   | 2,190   |  
|Intangibles  indefinite life                                                                                                        |  |              | 3,180  |   |                  |   | 3,165   |  
|Deferred charges and other assets                                                                                                    |  |              | 1,458  |   |                  |   | 1,522   |  
|                                                                                                                                     |  |              |        |   |                  |   |         |  
|                                                                                                                                     |  | $            | 86,843 |   |                  | $ | 120,017 |  
|                                                                                                                                     |  |              |        |   |                  |   |         |  
|                                                                                                                                     |  |             
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                 |  |              |        |   |                  |   |         |  
|                                                                                                                                     |  |             
|Current liabilities:                                                                                                                 |  |              |        |   |                  |   |         |  
|Current portion of debt                                                                                                              |  | $            | 1,021  |   |                  | $ | 1,474   |  
|Accounts payable and accrued expenses                                                                                                |  |              | 15,686 |   |                  |   | 33,153  |  
|Billings in excess of costs and estimated earnings on uncompleted contracts                                                          |  |              | 6,925  |   |                  |   | 8,058   |  
|Accrued income taxes                                                                                                                 |  |              | 59     |   |                  |   | 2,291   |  
|                                                                                                                                     |  |              |        |   |                  |   |         |  
|Total current liabilities                                                                                                            |  |              | 23,691 |   |                  |   | 44,976  |  
|Other liabilities                                                                                                                    |  |              | 3,036  |   |                  |   | 3,017   |  
|Debt, less current portion                                                                                                           |  |              | 8,567  |   |                  |   | 21,111  |  
|Deferred income tax liability                                                                                                        |  |              | 2,311  |   |                  |   | 2,311   |  
|Related party subordinated notes                                                                                                     |  |              | 4,162  |   |                  |   | 4,089   |  
|                                                                                                                                     |  |              |        |   |                  |   |         |  
|Total liabilities                                                                                                                    |  |              | 41,767 |   |                  |   | 75,504  |  
|                                                                                                                                     |  |             
|Shareholders equity:                                                                                                                |  |              |        |   |                  |   |         |  
|Common stock, $0.01 par value; 100,000,000 shares authorized, 15,045,372 and 15,087,272 shares issued in 2009 and 2008,
respectively |  |              | 150    |   |                  |   | 150     |  
|Capital in excess of par value                                                                                                       |  |              | 43,397 |   |                  |   | 42,924  |  
|Accumulated earnings                                                                                                                 |  |              | 6,414  |   |                  |   | 6,684   |  
|Accumulated other comprehensive loss                                                                                                 |  |              | (2,943 | ) |                  |   | (3,303  | )
|                                                                                                                                     |  |              |        |   |                  |   |         |  
|                                                                                                                                     |  |              | 47,018 |   |                  |   | 46,455  |  
|Less treasury stock, at cost, 764,041 shares in 2009 and 2008                                                                        |  |              | (1,942 | ) |                  |   | (1,942  | )
|                                                                                                                                     |  |              |        |   |                  |   |         |  
|Total shareholders equity                                                                                                           |  |              | 45,076 |   |                  |   | 44,513  |  
|                                                                                                                                     |  |              |        |   |                  |   |         |  
|                                                                                                                                     |  | $            | 86,843 |   |                  | $ | 120,017 |  
|                                                                                                                                     |  |              |        |   |                  |   |         |  

The notes to consolidated financial statements are an integral part of the above statements.



2



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CECO ENVIRONMENTAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)





Dollars in thousands, except per share data



|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------ |  | -------------------------- | ---------- | - | ------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                 |  | THREE MONTHS ENDEDJUNE 30, |            |   | SIX MONTHS ENDEDJUNE 30, |  
|                                                                                                 |  | 2009                       |            |   | 2008                     |   |            | 2009 |  |   | 2008       |  
|                                                                                                 |  |                            |            |  
|Net sales                                                                                        |  | $                          | 33,547     |   |                          | $ | 57,446     |      |  | $ | 73,298     |   |  | $ | 104,308    |  
|Cost of sales                                                                                    |  |                            | 25,952     |   |                          |   | 46,989     |      |  |   | 57,036     |   |  |   | 87,556     |  
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Gross profit                                                                                     |  |                            | 7,595      |   |                          |   | 10,457     |      |  |   | 16,262     |   |  |   | 16,752     |  
|Selling and administrative                                                                       |  |                            | 7,803      |   |                          |   | 8,007      |      |  |   | 15,316     |   |  |   | 14,823     |  
|Amortization                                                                                     |  |                            | 166        |   |                          |   | 392        |      |  |   | 479        |   |  |   | 606        |  
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|(Loss) income from operations                                                                    |  |                            | (374       | ) |                          |   | 2,058      |      |  |   | 467        |   |  |   | 1,323      |  
|Other expense, net                                                                               |  |                            | (261       | ) |                          |   |           |      |  |   | (172       | ) |  |   |           |  
|Interest expense (including related party interest of $78 and $0, and $187 and $0, respectively) |  |                            | (347       | ) |                          |   | (370       | )    |  |   | (709       | ) |  |   | (579       | )
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|                                                                                                 |  |                            |            |  
|(Loss) income before income taxes                                                                |  |                            | (982       | ) |                          |   | 1,688      |      |  |   | (414       | ) |  |   | 744        |  
|                                                                                                 |  |                            |            |  
|Income tax (benefit) expense                                                                     |  |                            | (343       | ) |                          |   | 659        |      |  |   | (144       | ) |  |   | 290        |  
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|                                                                                                 |  |                            |            |  
|Net (loss) income                                                                                |  | $                          | (639       | ) |                          | $ | 1,029      |      |  | $ | (270       | ) |  | $ | 454        |  
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|                                                                                                 |  |                            |            |  
|Per share data:                                                                                  |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Basic net (loss) income                                                                          |  | $                          | (0.04      | ) |                          | $ | 0.07       |      |  | $ | (0.02      | ) |  | $ | 0.03       |  
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Diluted net (loss) income                                                                        |  | $                          | (0.04      | ) |                          | $ | 0.07       |      |  | $ | (0.02      | ) |  | $ | 0.03       |  
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|                                                                                                 |  |                            |            |  
|Weighted average number of common shares outstanding:                                            |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|                                                                                                 |  |                            |            |  
|Basic                                                                                            |  |                            | 14,204,447 |   |                          |   | 14,918,888 |      |  |   | 14,200,072 |   |  |   | 14,873,554 |  
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|                                                                                                 |  |                            |            |  
|Diluted                                                                                          |  |                            | 14,204,447 |   |                          |   | 15,299,944 |      |  |   | 14,200,072 |   |  |   | 15,274,513 |  
|                                                                                                 |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  

The notes to consolidated financial statements are

an integral part of the above statements.



3



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CECO ENVIRONMENTAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)





Dollars in thousands



|                                                                                         |  |                          |         |   |      |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                         |  | SIX MONTHS ENDEDJUNE 30, |        
|                                                                                         |  | 2009                     |         |   | 2008 |  
|Cash flows from operating activities:                                                    |  |                          |         |   |      |   |         |  
|Net (loss) income                                                                        |  | $                        | (270    | ) |      | $ | 454     |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |                          |         |   |      |   |         |  
|Depreciation and amortization                                                            |  |                          | 1,336   |   |      |   | 1,386   |  
|Non cash interest expense included in net (loss) income                                  |  |                          | 6       |   |      |   | 31      |  
|Non cash loss on remeasurement of subordinated debt                                      |  |                          | 73      |   |      |   |        |  
|Compensation expense  stock awards                                                      |  |                          | 473     |   |      |   | 558     |  
|Bad debt expense                                                                         |  |                          | 300     |   |      |   |        |  
|Changes in operating assets and liabilities, net of business acquisitions:               |  |                          |         |   |      |   |         |  
|Accounts receivable                                                                      |  |                          | 29,017  |   |      |   | 11,627  |  
|Inventories                                                                              |  |                          | 648     |   |      |   | (1,086  | )
|Costs and estimated earnings in excess of billings on uncompleted contracts              |  |                          | 2,869   |   |      |   | (2,824  | )
|Prepaid expenses and other current assets                                                |  |                          | (63     | ) |      |   | (11     | )
|Deferred charges and other assets                                                        |  |                          | 58      |   |      |   | (101    | )
|Accounts payable and accrued expenses                                                    |  |                          | (17,455 | ) |      |   | (10,197 | )
|Billings in excess of costs and estimated earnings on uncompleted contracts              |  |                          | (1,133  | ) |      |   | 1,910   |  
|Accrued income taxes                                                                     |  |                          | (2,232  | ) |      |   |        |  
|Other liabilities                                                                        |  |                          | 130     |   |      |   | (90     | )
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash provided by operating activities                                                |  |                          | 13,757  |   |      |   | 1,657   |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Cash flows from investing activities:                                                    |  |                          |         |   |      |   |         |  
|Acquisition of property and equipment                                                    |  |                          | (807    | ) |      |   | (1,274  | )
|Net cash paid for acquisition                                                            |  |                          |        |   |      |   | (15,347 | )
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash used in investing activities                                                    |  |                          | (807    | ) |      |   | (16,621 | )
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Cash flows from financing activities:                                                    |  |                          |         |   |      |   |         |  
|Net (repayments) borrowings on revolving credit lines                                    |  |                          | (11,498 | ) |      |   | 10,378  |  
|Proceeds from exercise of stock options                                                  |  |                          |        |   |      |   | 43      |  
|Subordinated debt borrowings                                                             |  |                          | 3,000   |   |      |   |        |  
|Subordinated debt repayments                                                             |  |                          | (3,000  | ) |      |   |        |  
|Proceeds from term debt                                                                  |  |                          |        |   |      |   | 5,000   |  
|Repayment of term debt                                                                   |  |                          | (1,500  | ) |      |   | (250    | )
|                                                                                         |  |                          |         |   |      |   |         |  
|Net cash (used in) provided by financing activities                                      |  |                          | (12,998 | ) |      |   | 15,171  |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Net (decrease) increase in cash and cash equivalents                                     |  |                          | (48     | ) |      |   | 207     |  
|Cash and cash equivalents at beginning of the period                                     |  |                          | 1,169   |   |      |   | 656     |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Cash and cash equivalents at end of the period                                           |  | $                        | 1,121   |   |      | $ | 863     |  
|                                                                                         |  |                          |         |   |      |   |         |  
|                                                                                         |  |                         
|Supplemental Schedule of Non-Cash Activities:                                            |  |                          |         |   |      |   |         |  
|Stock based consideration for acquisition                                                |  | $                        |        |   |      | $ | 898     |  
|                                                                                         |  |                          |         |   |      |   |         |  



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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION



|                                 |  |   |       |  |   |    
|-------------------------------- |  | - | ----- |  | - | ---
|Cash paid during the period for: |  |   |       |  |   |    
|Interest                         |  | $ | 862   |  | $ | 582
|                                 |  |   |       |  |   |    
|Income taxes                     |  | $ | 2,209 |  | $ | 447
|                                 |  |   |       |  |   |    

The notes to consolidated financial statements are

an integral part of the above statements.



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CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







|1. | Basis of reporting for consolidated financial statements
|-- | --------------------------------------------------------

The accompanying unaudited, condensed consolidated financial statements of CECO Environmental Corp. and subsidiaries (the Company, we, us, or our) have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. In the opinion of
management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2009 and
December 31, 2008 and the results of operations for the three-month and six-month periods ended June 30, 2009 and 2008 and of cash flows for the six-month periods ended June 30, 2009 and 2008. The results of operations for the
three-month period and six-month period ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2008 has been derived from the audited consolidated financial
statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008.

Use of estimatesThe
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company has evaluated subsequent events through August 10, 2009, the date these financial statements were issued.

These financial statements and accompanying notes should be read in conjunction with the audited financial statements and the notes thereto included in
the Companys Annual Report on Form 10-K filed for the fiscal year ended December 31, 2008 with the Securities and Exchange Commission.



|2. | New Accounting Pronouncements
|-- | -----------------------------

New Financial
Accounting Pronouncements Adopted

Statement of Financial Accounting Standard (SFAS) 165  In May 2009, the Financial
Accounting Standards Board (FASB) issued SFAS No. 165, Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. SFAS 165 is effective for interim or annual reporting periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on the Companys consolidated financial
position, results of operations or cash flows.

FSP FAS 107-1 and APB 28-1In April 2009, the FASB issued Staff Position FAS 107-1
and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which enhances consistency in financial reporting by increasing the frequency of fair value disclosures. This FSP is effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for interim and annual periods ending after March 15, 2009 subject to certain restrictions. The Company did not elect early adoption in the quarter ended March 31,
2009 and, therefore, has applied the provisions of this FSP for the quarter ending June 30, 2009. See Note 14.

SFAS
141(R)In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS



6



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







141(R)). This statement defines the acquirer in a business combination as the entity that obtains control of one or more businesses, and establishes
the acquisition date as the date the acquirer achieves this control. This statement also refines the application of the purchase method by requiring the acquirer to recognize assets acquired and liabilities assumed at fair value and replacing the
cost-allocation process previously required under SFAS 141. Furthermore, acquisition-related costs and restructuring costs that are expected but not obligatory are required to be recognized separately from the business combination. SFAS 141(R) is
effective prospectively for business combinations with acquisition dates on or after January 1, 2009. There was no material impact to the Companys consolidated financial position, results of operations, or cash flows as a result of the
adoption of SFAS 141(R). However, management believes this statement could have a material impact on the Companys future financial statements depending on its acquisition plans.

In April 2009, the FASB released FSP FAS 141R-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies. The FSP amends Statement No. 141R related to the accounting for assets and liabilities arising from contingencies in a business combination. The FSP requires that an asset or a liability arising from a contingency in a
business combination be recognized at fair value if fair value can be reasonably determined and provides guidance on how to make that determination. If the fair value of an asset or liability cannot be reasonably determined, the FSP requires that an
asset or liability be recognized at the amount that would be recognized in accordance with FASB Statement No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a
Loss, for liabilities and an amount using similar criteria for assets. The FSP is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. There was no material impact to the Companys consolidated financial position, results of operations, or cash flows as a result of the adoption of SFAS 141(R)-1. However, management believes this statement could have a
material impact on the Companys future financial statements depending on its acquisition plans.

EITF
No. 07-05During June 2008, the FASB issued EITF Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock became effective for the Company on January 1,
2009. This Issue addresses the determination of whether an instrument (or an embedded feature) is indexed to an entitys own stock, which is the first part of the scope exception in paragraph 11(a) of Statement 133. If an instrument (or an
embedded feature) that has the characteristics of a derivative instrument under paragraphs 69 of Statement 133 is indexed to an entitys own stock, it is still necessary to evaluate whether it is classified in stockholders equity
(or would be classified in stockholders equity if it were a freestanding instrument). Other applicable authoritative accounting literature, including Issues EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company Own Stock, and EITF 05-2, The Meaning of Conventional Debt Instrument in Issue No. 00-19, provides guidance for determining whether an instrument (or an embedded feature) is classified in
stockholders equity (or would be classified in stockholders equity if it were a freestanding instrument). This Issue did not have a material impact to the Companys consolidated financial position, results of operations, or cash
flows upon its effective date.

FSP 142-3 In April 2008, the FASB issued Staff Position No. 142-3, Determination of the
Useful Life of Intangible Assets. FSP 142-3 provides guidance on the determination of useful lives of intangible assets in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets. For intangible assets
acquired after the effective date, a company is not



7



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







required to consider renewal or extension at substantial cost or with material modification of existing terms to be factors that limit the useful life of the
asset. Rather the Company must consider its own historical experience in renewing or extending similar arrangements. FSP 142-3 became effective on January 1, 2009 and did not have a material impact to the Companys consolidated financial
position, results of operations, or cash flows.

FSP EITF 03-6-1 In June 2008, the FASB issued Staff Position No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. FSP EITF 03-6-1 concludes that non-vested shares with non-forfeitable dividend rights are considered participating securities and,
thus, subject to the two-class method pursuant to SFAS 128, Earnings per Share, when computing basic and diluted EPS. FSP EITF 03-6-1 became effective for the Company on January 1, 2009. Because the Companys Restricted Share
awards contain non-forfeitable dividend rights, the provisions of this FSP must be applied. Upon adoption, the Company was required to adjust all prior period EPS data on a retrospective basis to conform with the provisions of this FSP. Due to the
net loss incurred for the quarter ended March 31, 2008, the Companys previously-reported basic and diluted weighted average shares outstanding, and earnings (loss) per share, for this period were not affected by the adoption of this FSP.
There is no impact on previously reported basic and diluted earnings (loss) per share for any reported period during 2008 or for the year ended December 31, 2007. Periods prior to 2007 were not impacted as the Company had not issued Restricted
Share awards in such periods. The impact on basic and diluted weighted average shares outstanding for the remaining quarters and year to date periods in 2008 and for the year ended December 31, 2007 is as follows:



|                                     |  |                                                 |  |                                                   |  |                    |  |                                        
|------------------------------------ |  | ----------------------------------------------- |  | ------------------------------------------------- |  | ------------------ |  | ---------------------------------------
|                                     |  | Basic Weighted Average CommonShares
Outstanding |  | Diluted Weighted Average CommonShares Outstanding
|                                     |  | PreviouslyReported                              |  | Adjusted uponadoption of FSPEITF 03-6-1           |  | PreviouslyReported |  | Adjusted uponadoption of FSPEITF 03-6-1
|                                     |  |                                                 |  |                                                  
|Quarter ended June 30, 2008          |  | 14,780,369                                      |  | 14,918,888                                        |  | 15,207,924         |  | 15,299,944                             
|                                     |  |                                                 |  |                                                  
|Six months ended June 30, 2008       |  | 14,735,290                                      |  | 14,873,554                                        |  | 15,186,105         |  | 15,274,513                             
|                                     |  |                                                 |  |                                                  
|Quarter ended September 30, 2008     |  | 14,821,253                                      |  | 14,949,352                                        |  | 15,593,959         |  | 15,722,058                             
|                                     |  |                                                 |  |                                                  
|Nine months ended September 30, 2008 |  | 14,764,154                                      |  | 14,899,005                                        |  | 15,304,657         |  | 15,434,682                             
|                                     |  |                                                 |  |                                                  
|Quarter ended December 31, 2008      |  | 14,243,221                                      |  | 14,370,871                                        |  | 15,242,537         |  | 15,370,187                             
|                                     |  |                                                 |  |                                                  
|Year ended December 31, 2008         |  | 14,633,209                                      |  | 14,766,250                                        |  | 15,275,690         |  | 15,405,221                             
|                                     |  |                                                 |  |                                                  
|Year ended December 31, 2007         |  | 13,456,580                                      |  | 13,512,963                                        |  | 14,042,324         |  | 14,087,992                             

SFAS 157Effective January 1, 2008, the Company partially adopted SFAS No. 157,
Fair Value Measurements (SFAS 157). SFAS 157 applies to most current accounting pronouncements that require or permit fair value measurements. SFAS 157 provides a framework for measuring fair value and requires expanded disclosures about
fair value methods and inputs by establishing a hierarchy for ranking the quality and reliability of the information used by management to measure and report amounts at fair value.

The Company had only partially applied the provisions of SFAS 157 as management elected the deferral provisions of FASB



8



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







Staff Position (FSP) SFAS 157-2 as it applies to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. FSP SFAS 157-2 delayed the effective date of SFAS 157 for non-financial assets and liabilities which are not measured at fair value on a recurring basis (at least annually) until January 1, 2009 for
the Company. The major categories of assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis include certain amounts of property and equipment, intangibles and goodwill reported at fair value as a result of
impairment testing, and certain other assets, liabilities and equity instruments recognized as a result of prior business combinations. There was no impact to the Companys consolidated financial position, results of operations, or cash flows
as a result of the adoption of SFAS 157 for non-financial assets and liabilities.

Recently Issued Accounting Pronouncements

SFAS 167On June 12, 2009, the Financial Accounting Standards Board (FASB) published two new accounting standards (Statement of Financial
Accounting Standard [SFAS] 166 and SFAS 167) that determine whether securitizations and other transfers of financial instruments are given off-balance sheet treatment. The revisions to the standards, expected to be effective January 1, 2010 for
issuers with calendar year ends, will result in many existing off-balance sheet securitizations being treated as secured financing and returning on-balance sheet. SFAS 166, Accounting for Transfers of Financial Assets, will amend SFAS
140 and SFAS 167, Amendments to FASB Interpretation (FIN) No. 46(R), will amend FIN 46(R). The adoption of SFAS 167 will not have an impact on the Companys consolidated financial position, results of operations or cash flows.

SFAS 168In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles. SFAS 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles, superseding existing accounting literature. While not intended to change U.S.
GAAP, the Codification significantly changes the way in which accounting literature is organized. SFAS 168 is effective for interim or annual reporting periods ending after September 15, 2009. The adoption of SFAS 168 will not have an impact on
the Companys consolidated financial position, results of operations or cash flows. However, because the Codification completely replaces existing standards, it will affect the way U.S. GAAP are disclosed in our consolidated financial
statements.

FSP 132(R)-1In December 2008, the FASB issued Staff Position No. 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets. FSP 132(R)-1 amends FASB Statement No. 132 (Revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits to provide guidance on an employers disclosures
about plan assets of a defined benefit pension or other postretirement plan. The disclosure requirements addressed by FSP 132(R)-1 provide for greater transparency surrounding the types of assets and associated risks in a plan, events in the economy
and markets that could have a significant effect on the value of plan assets, and information about fair value measurements similar to those required by SFAS 157. FSP 132(R)-1 is effective for fiscal years ending after December 15, 2009. The
Company does not expect that the adoption of this standard will have a material effect on the Companys consolidated results of operations, financial position or cash flows.



|3. | Inventories
|-- | -----------

$in thousands



|                                |  |              |       |   |                  |   |      
|------------------------------- |  | ------------ | ----- | - | ---------------- | - | -----
|                                |  | June 30,2009 |       |   | December 31,2008
|Raw materials and subassemblies |  | $            | 4,011 |   |                  | $ | 4,272
|Finished goods                  |  |              | 818   |   |                  |   | 932  
|Parts for resale                |  |              | 767   |   |                  |   | 965  
|Reserve for obsolescence        |  |              | (75   | ) |                  |   |     
|                                |  |              |       |   |                  |   |      
|                                |  | $            | 5,521 |   |                  | $ | 6,169
|                                |  |              |       |   |                  |   |      



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







|4. | Costs and Estimated Earnings on Uncompleted Contracts
|-- | -----------------------------------------------------



|                                                                                       |  |              |          |   |                  |   |          |  
|-------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---------------- | - | -------- | -
|$in thousands                                                                          |  | June 30,2009 |          |   | December 31,2008 |  
|Costs incurred on uncompleted contracts                                                |  | $            | 108,077  |   |                  | $ | 203,500  |  
|Estimated earnings                                                                     |  |              | 23,963   |   |                  |   | 28,450   |  
|                                                                                       |  |              |          |   |                  |   |          |  
|                                                                                       |  |              | 132,040  |   |                  |   | 231,950  |  
|Less billings to date                                                                  |  |              | (129,147 | ) |                  |   | (227,321 | )
|                                                                                       |  |              |          |   |                  |   |          |  
|                                                                                       |  | $            | 2,893    |   |                  | $ | 4,629    |  
|                                                                                       |  |              |          |   |                  |   |          |  
|Included in the accompanying consolidated balance sheets under the following captions: |  |              |          |   |                  |   |          |  
|Costs and estimated earnings in excess of billings on uncompleted contracts            |  | $            | 9,818    |   |                  | $ | 12,687   |  
|Billings in excess of costs and estimated earnings on uncompleted contracts            |  |              | (6,925   | ) |                  |   | (8,058   | )
|                                                                                       |  |              |          |   |                  |   |          |  
|                                                                                       |  |             
|                                                                                       |  | $            | 2,893    |   |                  | $ | 4,629    |  
|                                                                                       |  |              |          |   |                  |   |          |  



|5. | Goodwill and Intangible Assets
|-- | ------------------------------



|                                |  |                               |        |                             |   |          |  |             |        |  |   |      
|------------------------------- |  | ----------------------------- | ------ | --------------------------- | - | -------- |  | ----------- | ------ |  | - | -----
|$ in thousands                  |  | Six months endedJune 30, 2009 |        | Year endedDecember 31, 2008
|Goodwill / Tradename            |  | Goodwill                      |        | Tradename                   |   | Goodwill |  | Tradename  
|                                |  |                               |        |                            
|Beginning balance               |  | $                             | 31,116 |                             | $ | 3,165    |  | $           | 14,761 |  | $ | 2,095
|                                |  |                               |        |                            
|Acquisitions                    |  |                               |       |                             |   |         |  |             | 16,355 |  |   | 1,070
|                                |  |                               |        |                            
|Foreign currency adjustments    |  |                               | 207    |                             |   | 15       |  |             |       |  |   |     
|                                |  |                               |        |                             |   |          |  |             |        |  |   |      
|                                |  |                               |        |                            
|                                |  | $                             | 31,323 |                             | $ | 3,180    |  | $           | 31,116 |  | $ | 3,165
|                                |  |                               |        |                             |   |          |  |             |        |  |   |      
|                                |  |                              
|                                |  | As of June 30, 2009           |        | As of December 31, 2008    
|Intangible assets  finite life |  | Cost                          |        | Accum.Amort.                |   | Cost     |  | Accum.Amort
|                                |  |                               |        |                            
|Patents                         |  | $                             | 1,412  |                             | $ | 978      |  | $           | 1,412  |  | $ | 932  
|                                |  |                               |        |                            
|Backlog                         |  |                               | 565    |                             |   | 565      |  |             | 1,451  |  |   | 1,249
|                                |  |                               |        |                            
|Customer Lists                  |  |                               | 1,612  |                             |   | 515      |  |             | 1,595  |  |   | 352  
|                                |  |                               |        |                            
|Employment contracts            |  |                               | 414    |                             |   | 233      |  |             | 410    |  |   | 163  
|                                |  |                               |        |                            
|Other                           |  |                               | 118    |                             |   | 103      |  |             | 111    |  |   | 93   
|                                |  |                               |        |                             |   |          |  |             |        |  |   |      
|                                |  |                               |        |                            
|                                |  | $                             | 4,121  |                             | $ | 2,394    |  | $           | 4,979  |  | $ | 2,789
|                                |  |                               |        |                             |   |          |  |             |        |  |   |      

Amortization of finite life intangibles is on a straight line basis and amortization expense for
the three months ended June 30, 2009 and 2008 was $166,000 and $393,000 respectively and for the six months ended June 30, 2009 and 2008 was $479,000 and $606,000 respectively. Over the next five years amortization expense for these finite
life intangible assets will be $271,000 for the remainder of 2009, $494,000 in 2010, $424,000 in 2011, $316,000 in 2012 and $130,000 in 2013.



10



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







|6. | Business Segment Information
|-- | ----------------------------

Our structure and
operational integration results in one reportable segment that focuses on engineering, designing, building and installing systems that remove airborne contaminants from industrial facilities, as well as equipment that controls emissions from such
facilities. Accordingly, the consolidated financial statements herein reflect the operating results of the reportable segment.



|7. | Earnings Per Share
|-- | ------------------

Effective January 1, 2009,
the Company adopted FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. As a result of the adoption of FSP EITF 03-6-1, non-vested shares with non-forfeitable
dividend rights are considered participating securities and, thus, subject to the two-class method pursuant to SFAS 128, Earnings per Share, when computing basic and diluted EPS. Losses are only allocable to participating securities if
the holder has the contractual obligation to share in the losses of the Company as further defined in EITF 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128. The Companys restricted stock
awards contain non-forfeitable dividend rights but do not contractually obligate the holders to share in losses of the Company. Accordingly, during periods of net income, unvested restricted shares are included in the determination of both basic and
diluted earnings per share. During periods of net loss, these shares are excluded from both basic and diluted earnings per share. For the three and six month periods ended June 30, 2009, 102,022 non-vested restricted share awards were excluded
from the computation of basic and diluted weighted average common shares outstanding due to the reported net loss for the periods. For the three and six month periods ended June 30, 2008, the weighted average number of non-vested restricted
share awards which were included in the basic weighted average common shares outstanding totaled 138,519 and 138,264, respectively. We consider outstanding options and warrants in computing diluted net income per share only when they are dilutive.
For the three and six month periods ended June 30, 2009, 1,283,105 and 485,000, respectively, outstanding options and warrants were excluded from the computation of diluted weighted average common shares outstanding as their effect would have
been anti-dilutive. Additionally, pursuant to the if-converted method, net income used for purposes of computing diluted earnings per share is adjusted for the net impact of interest and other items related to the Convertible Subdebt Note (see Note
8) unless the effect is anti-dilutive. The net impact of interest and other items related to the convertible Subdebt Note for the three and six month periods ended June 30, 2009 was income of approximately $73,000 and $99,000, respectively.
Because of an anti-dilutive effect, net income (loss) was not adjusted for this net impact for the three and six month periods ended June 30, 2009. The convertible Subdebt Note was not outstanding during the three and six month periods ended
June 30, 2008 and, accordingly, there was no adjustment to net income for the diluted earnings per share computation for those periods.



|8. | Debt
|-- | ----

Total bank debt at June 30, 2009 was
$9.6 million and $22.6 million at December 31, 2008. The bank debt at June 30, 2009 includes $6.8 million due on the revolving line of credit. Unused credit availability under our $30.0 million revolving line of credit at June 30,
2009 was $1.6 million. Availability is limited as determined by a borrowing base formula contained in the credit agreement.



11



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







We entered into our current credit facility (the Bank Facility) on December 29, 2005
with Fifth Third Bank. The Bank Facility was amended on various dates and fees paid for these amendments were deferred and are being amortized over the remaining term of the Bank Facility.

On May 1, 2009, the Company entered into a Sixth Amendment to the Bank Facility effective as of March 31, 2009. The Amendment amends the Bank
Facility to extend the termination date of the line of credit from January 31, 2010 to April 1, 2011, make certain changes to the interest rates applicable to the obligations under the Bank Facility, including the implementation of a daily
reset, one-month LIBOR-based rate and the unavailability of a prime-based rate except in certain circumstances, which results in an increase of the borrowing rates by one percent, consent to a one-time payment of principal on the Subordinated
Convertible Promissory Note of Icarus Investment Corp. in an amount not to exceed $3,000,000, and consent to an extension fee of CAD $38,000 payable to Icarus.

As of June 30, 2009, the Bank Facility, as amended, includes a revolving line of credit of up to $30 million, including letters of credit, limited to a borrowing base amount computed as 70% of eligible accounts
receivable plus 50% of eligible inventories. The loan covenants currently require a ratio of funded debt to adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) of not greater than 3.2 to 1.0, a ratio
of fixed charges to adjusted EBITDA of not less than 1.25 to 1.0 and a requirement to attain $5.0 million of loan availability on or before June 1, 2009. As of June 30, 2009, we are in compliance with all covenants.

Interest on the outstanding borrowings is charged at the daily LIBOR rate plus 3.5% or the tranche LIBOR rate plus 3.0% for the revolver and the daily
LIBOR rate plus 3.75% or the tranche LIBOR rate plus 3.25% for the term note. The weighted average interest rate under the Bank Facility as of June 30, 2009 was 3.95%.

On August 14, 2008, the Company issued a Subordinated Convertible Promissory Note (the Convertible Subdebt Note) in the amount of
Canadian $5,000,000 to Icarus Investment Corp., an Ontario corporation (Icarus), which is controlled by Phillip DeZwirek, our Chairman and CEO, and Jason DeZwirek, our Secretary and one of our Directors. The Convertible Subdebt Note
provides for interest to accrue at the rate of 10% per annum in 2008, 11% per annum in 2009, and 12% per annum commencing January 1, 2010 until paid. The holder of the Convertible Subdebt Note may convert at any time, the
outstanding principal and accrued interest under the Convertible Subdebt Note into common stock of the Company at a per share price of $4.75, which was the closing consolidated bid price immediately preceding the entering into of the Convertible
Subdebt Note. The Convertible Subdebt Note was amended in February 2009 to provide for interest payments to be payable monthly, instead of semi-annually, subject to the Subordination Agreement between Fifth Third Bank and Icarus Investment Corp. The
Convertible Subdebt Note was further amended on May 1, 2009 to extend its maturity date to October 1, 2011 from July 31, 2010. Fees of Canadian $38,000 were paid for this amendment and are being deferred and amortized over the
remaining term of the Subdebt. The Convertible Subdebt Note also matures in the event of a merger or reorganization of the Company that results in a change of control, upon the sale of 50% of the assets of the Company, or any sale of any division of
the Company in excess of $5 million. To the extent that the Company completes an equity financing in excess of $10 million, 25% of the amounts in excess of the $10 million are required to be used



12



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







to repay the Convertible Subdebt Note, provided that the Company is not in default under the Bank Facility. We repaid Canadian $3,726,000 under the
Convertible Subdebt Note on March 31, 2009 and the outstanding balance of the Convertible Subdebt Note at June 30, 2009, as translated into U.S. dollars was $1.1 million. A foreign exchange translation loss of $82,550 was recognized during
the quarter as other expense.

On May 15, 2009, the Company issued a Promissory Note (Note) to Icarus in the amount of
$3,000,000. The Note, which is subordinated to the Companys Facility with Fifth Third, bears interest at 12% per annum with interest payable monthly. The maturity date of the note is the earlier of May 15, 2012 or six months after
repayment of the Bank Facility. The Note also matures in the event of a merger or reorganization of the Company that results in a change of control, upon the sale of 50% of the assets of the Company, or any sale of any division of the Company in
excess of $5 million. To the extent that the Company completes an equity financing in excess of $10 million, 25% of the amount in excess of the $10 million is required to be used to repay the Note, provided that the Company is not in default under
its Bank Facility. At the option of Icarus, the note is repayable in Canadian funds with a stated conversion rate of 1.1789, or CAD $3,536,700, representing the conversion rate at the issuance date of the Note. In accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, this option has been bifurcated and recorded at fair value. The liability of $0.1 million is included in the corresponding debt balance in the Companys condensed
consolidated balance sheet as of June 30, 2009. Gains and losses resulting from the revaluation of this liability are included in other income (expense) in the condensed consolidated statements of operations.

The Company may repay the Note at any time with no prepayment penalty. The outstanding balance of the Note at June 30, 2009, was $3.1 million in U.S.
dollars and the total subordinated debt was $4.2 million in U.S. dollars.



|9. | Employee Benefit Plans
|-- | ----------------------

We sponsor a
non-contributory defined benefit pension plan for certain union employees. The plan is funded in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974.

We also sponsor a post-retirement health care plan for office employees retiring before January 1, 1990. The plan allows retirees who have attained
the age of 65 to elect the type of coverage desired.

Retirement and health care plan expense is based on valuations performed by plan
actuaries as of the beginning of each fiscal year. The components of the expense consisted of the following:



|                                   |  |                            |     |   |                          |   |      |      |  |   |      |   |  |   |      |  
|---------------------------------- |  | -------------------------- | --- | - | ------------------------ | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|$ in thousands                     |  | Three Months EndedJune 30, |     |   | Six Months EndedJune 30, |  
|                                   |  | 2009                       |     |   | 2008                     |   |      | 2009 |  |   | 2008 |  
|Retirement plan:                   |  |                            |     |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Service cost                       |  | $                          | 44  |   |                          | $ | 44   |      |  | $ | 88   |   |  | $ | 88   |  
|Interest cost                      |  |                            | 95  |   |                          |   | 91   |      |  |   | 190  |   |  |   | 182  |  
|Expected return on plan assets     |  |                            | (80 | ) |                          |   | (105 | )    |  |   | (160 | ) |  |   | (210 | )
|Amortization of prior service cost |  |                            | 2   |   |                          |   | 2    |      |  |   | 4    |   |  |   | 4    |  
|Amortization of net actuarial loss |  |                            | 61  |   |                          |   | 35   |      |  |   | 122  |   |  |   | 70   |  
|                                   |  |                            |     |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Net periodic benefit cost          |  | $                          | 122 |   |                          | $ | 67   |      |  | $ | 244  |   |  | $ | 134  |  
|                                   |  |                            |     |   |                          |   |      |      |  |   |      |   |  |   |      |  
|                                   |  |                            |     |  
|Health care plan:                  |  |                            |     |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Interest cost                      |  | $                          | 4   |   |                          | $ | 4    |      |  | $ | 8    |   |  | $ | 8    |  
|Amortization of gain               |  |                            | (1  | ) |                          |   | (1   | )    |  |   | (2   | ) |  |   | (3   | )
|                                   |  |                            |     |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Net periodic benefit cost          |  | $                          | 3   |   |                          | $ | 3    |      |  | $ | 6    |   |  | $ | 5    |  
|                                   |  |                            |     |   |                          |   |      |      |  |   |      |   |  |   |      |  



13



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







As of June 30, 2009 we have made contributions to our defined benefit plans totaling $255,000.
We anticipate contributing $231,000 to fund the pension plan during the remainder of fiscal 2009.



|10. | Stock-Based Compensation
|--- | ------------------------

The Company recognizes
compensation expense for stock-based awards, measured at the fair value of the awards at the grant date. The Company recognized expense of approximately $239,000 and $304,000 during the quarters ended June 30, 2009 and 2008, respectively and
$473,000 and $558,000 for the six months ended June 30, 2009 and 2008, respectively.

During 2009, the Company awarded 138,400 shares
of performance-based, restricted stock with a fair value of $3.50 per share which vest subject to attainment of predetermined Company performance goals by fiscal year end 2009. These shares will vest on March 31, 2010, if certain minimum
financial targets are attained. If the minimum level of performance is not attained by the end of 2009, these stock awards will be forfeited and any expense recognized to date will be reversed. Currently no expense has been recorded due to the
expectation that the related financial objectives will not be met.

Additionally, on May 21, 2009, a total of 8,000 shares of
restricted stock with a fair value of $3.50 per share were granted to four independent directors. These shares vest over a one year period.

On May 21, 2009, at the 2009 Annual Meeting (the Annual Meeting) of Stockholders of CECO Environmental Corp. (the Company), the Companys stockholders approved the CECO Environmental Corp. Employee Stock
Purchase Plan (the ESPP). The ESPP is administered by the Compensation Committee. The aggregate maximum number of shares of the Companys common stock that may be granted under the ESPP is one million five hundred shares over the
ten year term of the ESPP, subject to adjustment in the event there is a reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, or similar transaction with respect to the common stock. The plan will become
effective on August 1, 2009.



|11. | Income Taxes
|--- | ------------

The Company files income tax returns
in various federal, state and local jurisdictions. The Company is no longer subject to federal, state and local income tax examinations by tax authorities for years before 2004.



14



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







As of June 30, 2009 and December 31, 2008, the liability for uncertain tax benefits totaled
approximately $432,000 and $420,000 respectively. Included in these balances is a $178,000 tax position for which the ultimate outcome is highly certain. The Company included interest and penalties in the unrecognized tax benefit as of
June 30, 2009 and December 31, 2008.



|12. | Comprehensive Income (Loss)
|--- | ---------------------------

Comprehensive income
(loss) consists of net income (loss), changes in the pension liability that do not directly impact net earnings, if any during the period, and translation gains and losses for foreign operations.

Comprehensive loss of $(132,000) included net loss of $(639,000) and a translation gain of $507,000 for the three month period ended June 30, 2009,
and comprehensive income of $1,038,000 for the three month period ended June 30, 2008 included net income of $1,029,000 and a translation gain of $9,000.

Comprehensive income of $90,000 included net loss of $(270,000) and a translation gain of $360,000 for the six month period ended June 30, 2009, and comprehensive income of $465,000 for the six month period ended
June 30, 2008 included net income of $454,000 and a translation gain of $11,000.



|13. | Product Warranties
|--- | ------------------

The Companys warranty
reserve is to cover the products sold and is principally at our Effox subsidiary. The warranty accrual is based on historical claims information. The warranty reserve is reviewed and adjusted as necessary on a quarterly basis. Warranty accrual is
not significant at the Companys other operations due to the nature of the work of including installation. The change in accrued warranty expense is summarized in the following table:



|                  |  |                            |     |   |                          |   |     |      |  |   |      |   |  |   |     |  
|----------------- |  | -------------------------- | --- | - | ------------------------ | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|$ in thousands    |  | Three Months EndedJune 30, |     |   | Six Months EndedJune 30, |  
|                  |  | 2009                       |     |   | 2008                     |   |     | 2009 |  |   | 2008 |  
|Beginning balance |  | $                          | 553 |   |                          | $ | 578 |      |  | $ | 574  |   |  | $ | 605 |  
|Provision         |  |                            | 43  |   |                          |   | 25  |      |  |   | 81   |   |  |   | 50  |  
|Payments          |  |                            | (85 | ) |                          |   | (29 | )    |  |   | (144 | ) |  |   | (81 | )
|                  |  |                            |     |   |                          |   |     |      |  |   |      |   |  |   |     |  
|Ending balance    |  | $                          | 511 |   |                          | $ | 574 |      |  | $ | 511  |   |  | $ | 574 |  
|                  |  |                            |     |   |                          |   |     |      |  |   |      |   |  |   |     |  



|14. | Financial Instruments
|--- | ---------------------

Our financial instruments
consist primarily of investments in cash and cash equivalents, receivables and certain other assets, such as cash surrender life insurance, as well as obligations under accounts payable, long-term debt and subordinated notes. The carrying values of
these financial instruments approximate fair value at June 30, 2009 and December 31, 2008, except for subordinated notes for which fair value was $4.2 million.

Most of the debt obligations approximate their reported carrying amounts based on future payments discounted at current interest rates for similar obligations or interest rates which fluctuate with the market.



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CECO ENVIRONMENTAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)







Concentrations of credit risk:

Financial instruments that potentially subject us to credit risk consist principally of cash and accounts receivable. We maintain cash and cash
equivalents with various major financial institutions.

We perform periodic evaluations of the financial institutions in which our cash is
invested. Concentrations of credit risk with respect to trade and contract receivables are limited due to the large number of customers and various geographic areas. Additionally, we perform ongoing credit evaluations of our customers
financial condition.



|15. | Acquisitions
|--- | ------------

On February 29, 2008, the
Company, through its wholly owned subsidiary FKI Acquisition Corp., purchased substantially all of the assets of Fisher-Klosterman, Inc. ( FKI). We acquired FKI to obtain air pollution and particulate recovery products in the fields of
petroleum refinery, power production, petrochemicals, and manufacturing. The acquisition also expands our operations into China with FKIs 40,000 square foot facility in Shanghai, China. The purchase price was approximately $23.3 million,
consisting of net cash paid plus transaction costs totaling approximately $15.3 million (funded under the amended Bank Facility), liabilities assumed of approximately $7.1 million and 98,580 shares of restricted common stock valued at $0.9 million.
Additionally, the former owners of FKI are entitled to earn-out payments payable in shares of common stock of up to $3.5 million upon the attainment of specified gross profit amounts through February 28, 2011. The following table summarizes the
approximate fair values of the assets acquired and liabilities assumed at the date of closing.

$ in thousands



|                                    |  |   |        |  
|----------------------------------- |  | - | ------ | -
|Current assets                      |  | $ | 6,934  |  
|Other assets                        |  |   | 41     |  
|Property and equipment              |  |   | 1,823  |  
|Intangible assets  finite life     |  |   | 1,634  |  
|Intangible assets  indefinite life |  |   | 800    |  
|Goodwill                            |  |   | 12,087 |  
|                                    |  |   |        |  
|Total assets acquired               |  |   | 23,319 |  
|Current liabilities assumed         |  |   | (7,074 | )
|                                    |  |   |        |  
|Net assets acquired                 |  | $ | 16,245 |  
|                                    |  |   |        |  

The purchase price allocation is preliminary and subject to further refinement based upon
completion of asset valuations.

On August 1, 2008, the Company, through a subsidiary, acquired all of the stock of Flextor Inc., a
Quebec company (Flextor), pursuant to the terms of a Stock Purchase Agreement dated August 1, 2008, among the Company, 9199-3626 Quebec Inc., Michael dos Santos, The Dos Santos Family Trust, Thierry Allegrucci, The Allegrucci Family
Trust, Francois Rouviere and Antandamy Investments Inc. Additionally, the former owners are entitled to earn-out payments of up to $.5 million upon the attainment of specified gross profit amounts through July 31, 2011.



16



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##### Table of Contents

Flextor is a provider of engineered-to-order dampers and expansion joints for the power, natural gas,
cement, smelting, incineration, and other industries. The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the date of closing.

$ in thousands



|                                |  |   |        |  
|------------------------------- |  | - | ------ | -
|Current assets                  |  | $ | 5,247  |  
|Property and equipment          |  |   | 286    |  
|Intangible assets  finite life |  |   | 16     |  
|Goodwill                        |  |   | 5,058  |  
|                                |  |   |        |  
|Total assets acquired           |  |   | 10,607 |  
|Current liabilities assumed     |  |   | (3,769 | )
|                                |  |   |        |  
|Net assets acquired             |  | $ | 6,838  |  
|                                |  |   |        |  

The purchase price allocation is preliminary and subject to further refinement based upon
completion of asset valuations.

FKI, purchased all of the assets and assumed certain liabilities of Shideler, Inc. (f/k/a/ A.V.C.
Specialists, Inc.) (AVC) on August 1, 2008 pursuant to an Asset Purchase Agreement dated August 1, 2008 by and among FKI, AVC, and Thomas J. Shideler and Barbara Shideler. Additionally, the former owners are entitled to
earn-out payments of up to $.4 million upon the attainment of specified gross profit amounts through July 31, 2010. AVC is a provider of electrostatic precipitator components for the power, refining, petrochemical, pulp and paper, cement, and
other industries.

The following table summarizes the approximate fair values of the assets acquired and liabilities assumed at the date of
closing.

$ in thousands



|                            |  |   |       |  
|--------------------------- |  | - | ----- | -
|Current assets              |  | $ | 486   |  
|Property and equipment      |  |   | 302   |  
|Goodwill                    |  |   | 636   |  
|                            |  |   |       |  
|Total assets acquired       |  |   | 1,424 |  
|Current liabilities assumed |  |   | (74   | )
|                            |  |   |       |  
|Net assets acquired         |  | $ | 1,350 |  
|                            |  |   |       |  

These two acquisitions, which were not considered significant subsidiaries, were financed with a
combination of the proceeds of the Subordinated Debt described in Note 8 and the Bank Facility.



|16. | Related Party Transactions
|--- | --------------------------

On August 14, 2008, the
Company issued a Subordinated Convertible Promissory Note (the Convertible Subdebt Note) in the amount of Canadian $5,000,000 to Icarus Investment Corp., an Ontario corporation (Icarus), which is controlled by Phillip
DeZwirek, our Chairman and CEO, and Jason DeZwirek, our Secretary and one of our Directors. The Convertible Subdebt Note was amended on May 1, 2009 to extend its maturity date to October 1, 2011 from July 31, 2010. We repaid Canadian $3,726,000
under the Convertible Subdebt Note on March 31, 2009 and the outstanding balance on the Convertible Subdebt Note at June 30, 2009, was $1.1 million in U.S. dollars.

On May 15, 2009, the Company issued a Promissory Note (Note) to Icarus in the amount of $3,000,000. The Company may repay the Convertible Subdebt Note and the Note at any time with no prepayment penalty.
The Convertible Subdebt Note and the Note are secured by a second lien on the Company and its U.S. subsidiaries assets, which lien is subordinate to Fifth Third Bank. The outstanding balance of the Note at June 30, 2009, was $3.1 million in
U.S. dollars. See Note 8.



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##### Table of Contents

CECO ENVIRONMENTAL CORP.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF
OPERATIONS

(unaudited)







|ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Our consolidated statements of operations for the three-month and six-month periods ended June 30, 2009 and 2008 reflect our operations consolidated with the operations of our subsidiaries.



|                                    |  |                            |      |    |                          |   |      |      |  |   |      |   |  |   |       |  
|----------------------------------- |  | -------------------------- | ---- | -- | ------------------------ | - | ---- | ---- |  | - | ---- | - |  | - | ----- | -
|                                    |  | Three Months EndedJune 30, |      |    | Six Months EndedJune 30, |  
|($s in millions)                   |  | 2009                       |      |    | 2008                     |   |      | 2009 |  |   | 2008 |  
|Net sales                           |  | $                          | 33.5 |    |                          | $ | 57.4 |      |  | $ | 73.3 |   |  | $ | 104.3 |  
|Cost of sales                       |  |                            | 26.0 |    |                          |   | 46.9 |      |  |   | 57.0 |   |  |   | 87.5  |  
|                                    |  |                            |      |    |                          |   |      |      |  |   |      |   |  |   |       |  
|Gross profit                        |  | $                          | 7.6  |    |                          | $ | 10.5 |      |  | $ | 16.3 |   |  | $ | 16.8  |  
|Percent of sales                    |  |                            | 22.7 | %  |                          |   | 18.3 | %    |  |   | 22.2 | % |  |   | 16.1  | %
|                                    |  |                            |      |   
|Selling and administrative expenses |  | $                          | 7.8  |    |                          | $ | 8.0  |      |  | $ | 15.3 |   |  | $ | 14.8  |  
|Percent of sales                    |  |                            | 23.3 | %  |                          |   | 13.9 | %    |  |   | 20.9 | % |  |   | 14.2  | %
|                                    |  |                            |      |   
|Operating (loss) income             |  | $                          | (0.4 | )  |                          | $ | 2.1  |      |  | $ | 0.5  |   |  | $ | 1.3   |  
|Percent of sales                    |  |                            | (1.2 | )% |                          |   | 3.7  | %    |  |   | 0.7  | % |  |   | 1.2   | %

Consolidated net sales for the second quarter decreased 41.6% or $23.9 million to $33.5 million in 2009 compared
to $57.4 million in 2008. Consolidated net sales for the first six months of 2009 were $73.3 million, a decrease of $31.0 million or 29.7% compared to $104.3 million in 2008. The decrease in revenues for the three months ended June 30, 2009 was
due to the weak economy which resulted in a 57% decrease in contracting revenues, a 34% decrease in equipment revenues and a 27% decrease in parts sales. The comparative six month decrease in net sales was also attributable to significant decreases
in all groups although to a lesser degree because of an increase in equipment sales in the first quarter of 2009 as compared to the same quarter in 2008. Equipment group customers in power and refining have not been as adversely affected by the weak
economy.

Orders booked were $32.7 million during the second quarter of 2009 and $67.7 million for the first six months of 2009, as compared to $54.1
million during the second quarter of 2008 and $106.9 million in the first half of 2008.

Second quarter 2009 gross profit was $7.6 million. This compares
to gross profit of $10.5 million during the same period in 2008. Gross profit as a percentage of revenues for the three-month period ended June 30, 2009, increased by 4.4 percentage points to 22.7% compared with 18.3% for the comparable period
in 2008. This anticipated increase was primarily the result of an increase in the proportion of sales of higher margin equipment and component parts to total sales. The equipment group sales, before intercompany eliminations, were 57.5% of total
sales for the second quarter of 2009 compared to 49.2% of total sales for the second quarter of 2008 and the component parts sales, before intercompany eliminations, were 9.2% of total sales for the second quarter of 2009 compared to 7.1% sales for
the second quarter of 2008. Additionally, gross margin percentages in equipment sales, contracting and parts sales also increased in the second quarter of 2009 compared to the second quarter of 2008.

Gross profit was $16.3 million for the first six months of 2009, a decrease of $.5 million compared to $16.8 million for the same period in 2008. Gross profit as a
percentage of revenues for the first six months of 2009 increased to 22.2% compared to 16.1% for the same period in 2008. This increase was the result of the same factors described for the second quarter as well as the fact that the six month 2008
gross profit percentage was lower due to the impact of significant ongoing costs incurred on a large project caused by customer scope changes and site conditions.



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CECO ENVIRONMENTAL CORP.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF
OPERATIONS

(unaudited)







Selling and administrative expenses decreased by $0.2 million, or 2.5%, from $8.0 million to $7.8 million during the
second quarter and increased by $0.5 million, or 3.3%, from $14.8 million to $15.3 million during the first six months of 2009 compared to 2008. The three and six month periods ended June 30, 2009 reflect additional selling and administrative
expenses of entities acquired during 2008, approximating $0.4 million and $1.8 million, respectively, and a $300,000 non-cash charge to increase the allowance for bad debts during the second quarter of 2009. These increases were offset by
significant reductions in selling and administrative wages and fringes due to staff reductions of $0.7 million for the second quarter of 2009 and $1.0 million for the six months ended June 30, 2009 as compared to the same periods in 2008.
The addition to the allowance for bad debts was due to an increase in the percentage of past due accounts as a percentage of the total receivables. None of these past due accounts relate to the automotive industry and our outstanding receivables
related to the auto industry have been significantly reduced through collection.

Selling and administrative expense as a percentage of sales increased
from 13.9% to 23.3% for the quarter ended June 30, 2009 and increased from 14.2% to 20.9% for the six months ended June 30, 2009. The increase in selling and administrative expenses as a percentage of sales is primarily due to the overall
decline in sales volume as well as the increase to the allowance for bad debts during the second quarter of 2009.

Amortization expense decreased by
$226,000 to $166,000 during the second quarter of 2009 from $392,000 in the same period of 2008 and decreased by $127,000 to $479,000 in the first six months of 2009 from $606,000 in the same period of 2008. These decreases were the result of
certain definite life intangibles related to earlier acquisitions becoming fully amortized.

Operating loss was $(0.4) million in the second quarter of
2009, a decrease of $2.5 million compared to operating income of $2.1 million during the same quarter of 2008. Operating loss as a percent of sales in the second quarter of 2009 was (1.2%) compared to operating income of 3.7% for the same
period in 2008.

Operating income for the first six months of 2009 was $0.5 million, a decrease of $0.8 million compared to operating income of $1.3
million during the same period of 2008. Operating income as a percent of sales for the six months ended June 30, 2009 was 0.7% compared to 1.2% for the same period in 2008.

Low sales volume was the primary factor for the decreases in operating income and operating margin percentages.

Other
expense of $261,000 for the three months ended June 30, 2009 consists of losses on foreign currency translations and revaluation of the embedded derivative on the subordinated debt. For the six months ended June 30, 2009, other expense of
$172,000 consisted of foreign currency translation losses and revaluation of the embedded derivative on the subordinated debt.

Interest expense decreased
by $0.1 million from $0.4 million in the second quarter of 2008 to $0.3 million during the second quarter of 2009. Interest expense increased slightly to $0.7 million during the first six months of 2009 compared to $0.6 million during the first six
months of 2008. The decrease for the quarter was due primarily to lower borrowings on the Companys credit facility offset by higher interest rates on the facility which was amended effective March 31, 2009 and an additional $0.1million
charge to interest expense resulting from a state sales tax audit. The six month period was affected by the same factors.



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CECO ENVIRONMENTAL CORP.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF
OPERATIONS

(unaudited)







Federal and state income tax benefit was $0.3 million during the second quarter of 2009 compared to expense of $0.7
million during the second quarter of 2008. Federal and state income tax benefit was $0.1 million for the first six months of 2009 compared to a tax expense of $0.3 million in 2008. The federal and state income tax provision for the first six months
of 2009 was 35%, which reflects the estimated effective tax rate for 2009. Our statutory income tax rate is affected by certain permanent differences including income or expense for market valuation of warrants, non-deductible interest expense
related to the subordinated debt and non-deductible expense related to incentive stock options.

Net loss for the quarter ended June 30, 2009 was $0.6
million compared with net income of $1.0 million for the same period in 2008. Net loss for the six months ended June 30, 2009 was $0.3 million compared with a net income of $0.5 million for the same period in 2008.

Backlog

Our backlog consists of the amount of revenues we expect from full
performance of open, signed, firm fixed price contracts that have not been completed for products and services we expect to substantially deliver within the next 12 months. Our backlog, as of June 30, 2009, was $62.4 million compared to $68.0
million as of December 31, 2008. There can be no assurances that backlog will be replicated, increased or translated into higher revenues in the future. The success of our business depends on a multitude of factors related to our backlog and
the orders secured during the subsequent period(s). Certain contracts are highly dependent on the work of contractors and other subcontractors participating in a project, over which we have no or limited control, and their performance on such
project could have an adverse effect on the profitability of our contracts. Delays resulting from these contractors and subcontractors, changes in the scope of the project, weather, and labor availability also can have an effect on a contracts
profitability.

Financial Condition, Liquidity and Capital Resources

Our principal sources of liquidity are cash flow from operations and available borrowings under our revolving credit facility. Our principal uses of cash are operating costs, debt service, payment of interest on our outstanding senior debt,
working capital and other general corporate requirements.

At June 30, 2009 and December 31, 2008, cash and cash equivalents totaled $1.1million
and $1.2 million respectively. Generally, we do not carry significant cash and cash equivalent balances because excess amounts are used to pay down our revolving line of credit.

Total bank debt at June 30, 2009 was $9.6 million versus $22.6 million at December 31, 2008. The bank debt at June 30, 2009 includes $6.8 million due on the revolving line of credit. Unused credit
availability under our $30.0 million revolving line of credit at June 30, 2009 was $1.6 million. Availability is limited as determined by a borrowing base formula contained in the credit agreement.

On May 1, 2009, the Company entered into a Sixth Amendment to Credit Agreement effective as of March 31, 2009. The Amendment amends the Bank Facility to extend
the termination date of the line of credit from January 31, 2010 to April 1, 2011, make certain changes to the interest rates applicable to the obligations under the Bank Facility, including the implementation of a



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CECO ENVIRONMENTAL CORP.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF
OPERATIONS

(unaudited)







daily reset, one-month LIBOR-based rate and the unavailability of a prime-based rate except in certain circumstances, which results in an increase of the
borrowing rates by one percent, consent to a one-time payment of principal on the Subordinated Convertible Promissory Note of Icarus Investment Corp. in an amount not to exceed $3,000,000, and consent to an extension fee of CAD $38,000 payable to
Icarus.

As of June 30, 2009, the Bank Facility, as amended, includes a revolving line of credit of up to $30 million, including letters of credit,
limited to a borrowing base amount computed as 70% of eligible accounts receivable plus 50% of eligible inventories. The loan covenants currently require a ratio of funded debt to adjusted earnings before interest, taxes, depreciation and
amortization (adjusted EBITDA) of not greater than 3.2 to 1.0, a ratio of fixed charges to adjusted EBITDA of not less than 1.25 to 1.0 and a requirement to attain $5.0 million of loan availability on or before June 1, 2009. As of
June 30, 2009, we are in compliance with all covenants.

Interest on the outstanding borrowings is charged at the daily LIBOR rate plus 3.5% or the
tranche LIBOR rate plus 3.0% for the revolving credit line and the daily LIBOR rate plus 3.75% or the tranche LIBOR rate plus 3.25% for the term note. The weighted average interest rate under the Bank Facility as of June 30, 2009 was 3.95%.

On August 14, 2008, the Company issued the Convertible Subdebt Note in the amount of Canadian $5,000,000 to Icarus. The Convertible Subdebt Note
provides for interest to accrue at the rate of 10% per annum in 2008, 11% per annum in 2009, and 12% per annum commencing January 1, 2010 until paid. The holder of the Convertible Subdebt Note may convert at any time, the
outstanding principal and accrued interest under the Note into common stock of the Company at a per share price of $4.75, which was the closing consolidated bid price immediately preceding the entering into of the Convertible Subdebt Note. The
Convertible Subdebt Note was amended in February 2009 to provide for interest payments to be payable monthly, instead of semi-annually, subject to the Subordination Agreement between Fifth Third Bank and Icarus Investment Corp. The Convertible
Subdebt Note was further amended on May 1, 2009 to extend its maturity date to October 1, 2011 from July 31, 2010. Fees of Canadian $38,000 were paid for this amendment and are being deferred and amortized over the remaining term of
the subdebt. The Convertible Subdebt Note also matures in the event of a merger or reorganization of the Company that results in a change of control, upon the sale of 50% of the assets of the Company, or any sale of any division of the Company in
excess of $5 million. To the extent that the Company completes an equity financing in excess of $10 million, 25% of the amounts in excess of the $10 million are required to be used to repay the Convertible Subdebt Note, provided that the Company is
not in default under the Bank Facility. The outstanding balance of the Convertible Subdebt Note at June 30, 2009, as translated into U.S. dollars, was $1.1 million.

On May 15, 2009, the Company issued a Promissory Note (Note) to Icarus in the amount of $3,000,000. The Note, which is subordinated to the Companys Bank Facility with Fifth Third, bears interest
at 12% per annum with interest payable monthly. The maturity date of the note is the earlier of May 15, 2012 or six months after repayment of the facility. The Note also matures in the event of a merger or reorganization of the Company
that results in a change of control, upon the sale of 50% of the assets of the Company, or any sale of any division of the Company in excess of $5 million. To the extent that the Company completes an equity financing in excess of $10 million, 25% of
the amount in excess of the $10 million is required to be used to repay the Note, provided that the Company is not in default under its Bank Facility with its senior lender. At the option of Icarus, the note is repayable in Canadian funds with a
stated conversion rate of 1.1789, or CAD $3,536,700, representing the conversion rate at the issuance date of the Note. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, this option has
been bifurcated and recorded at fair value. The liability of $0.1 million is included in the corresponding debt balance in the Companys



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CECO ENVIRONMENTAL CORP.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF
OPERATIONS

(unaudited)







condensed consolidated balance sheet as of June 30, 2009. Gains and losses resulting from the revaluation of this liability are included in other income
(expense) in the condensed consolidated statements of operations.

The Company may repay the note at any time with no prepayment penalty. The outstanding
balance of the Note at June 30, 2009, was $3.1 million in U.S. dollars and the total subordinated debt was $4.2 million in U.S. dollars.

Overview
of Cash Flows and Liquidity



|                                                    |  |                                   |         |   |      |   |         |  
|--------------------------------------------------- |  | --------------------------------- | ------- | - | ---- | - | ------- | -
|                                                    |  | For the six months ended June 30, |        
|($s in thousands)                                  |  | 2009                              |         |   | 2008 |  
|Net cash provided by operating activities           |  | $                                 | 13,757  |   |      | $ | 1,657   |  
|                                                    |  |                                  
|Net cash used in investing activities               |  |                                   | (807    | ) |      |   | (16,621 | )
|                                                    |  |                                  
|Net cash (used in) provided by financing activities |  |                                   | (12,998 | ) |      |   | 15,171  |  
|                                                    |  |                                   |         |   |      |   |         |  
|                                                    |  |                                  
|Net (decrease) increase                             |  | $                                 | (48     | ) |      | $ | 207     |  
|                                                    |  |                                   |         |   |      |   |         |  

Net cash provided by operating activities was $13.8 million in 2009 compared to cash provided by operating
activities in 2008 of $1.7 million. Cash provided by operating activities for the first six months of 2009 was primarily the result of a net loss of $0.3 million, non cash depreciation and amortization expense of $1.3 million, non cash compensation
expense for stock awards of $0.5 million, non cash bad debt expense of $0.3 million, a decrease of $29.0 million in accounts receivable, decrease in costs and estimated earnings in excess of billings and estimated earnings of $2.9 million and a
decrease in inventories of $0.6 million offset by an decrease in accounts payable of $17.5 million, a decrease in accrued income taxes of $2.2 million and a decrease in billings in excess of costs and estimated earnings of $1.1 million. Other
changes in working capital items provided cash of $0.1 million. Our net investment in working capital (excluding cash and cash equivalents and current portion of debt) at June 30, 2009 and December 31, 2008 was $13.3 million and $25.1
million, respectively.

Net cash used in investing activities was $0.8 million for the first six months of 2009 compared with $16.6 million for the same
period in 2008. For the six months ended June 30, 2008, net cash used for the acquisition of FKI, which was financed by additional borrowings on the Companys credit facility, amounted to $15.3 million. We are managing our capital
expenditure spending in light of the current level of sales. We anticipate lower capital spending in 2009, which will be funded with cash provided by operating activities and additional borrowings on our revolving credit facility.

Financing activities used cash of $13.0 million during the first six months of 2009 compared with cash provided by financing activities of $15.2 million during the same
period of 2008. This consisted of repayments on the credit facility of $11.5 million and payments on term debt of $1.5 million.

Forward-Looking Statements

This Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact, including statements regarding industry prospects or future results of operations or financial position made in this Form 10-Q are forward-looking. We use words such as believe, expect,
anticipate, intends, estimate, forecast, project, will, plan, should, and similar expressions to identify forward-looking statements.



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CECO ENVIRONMENTAL CORP.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF
OPERATIONS

(unaudited)







Forward-looking statements are based on managements current expectations and assumptions that are subject to risks and uncertainties, many of which are
beyond our control, which may cause actual results, performance or trends to differ materially from those expressed in the forward-looking statements. Potential risks, among others, that could cause actual results to differ materially are discussed
under Item 1A Risk Factors of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and include, but are not limited to: our dependence on fixed price contracts and the risks associated therewith,
including actual costs exceeding our estimates and our method of accounting for contract revenue; our history of losses and possibility of further losses; fluctuations in operating results from period to period due to seasonality of our business;
the effect of growth on our infrastructure, resources, and existing sales; our ability to expand our operations in both new and existing markets; the potential for contract delay or cancellation; the potential for fluctuations in prices for
manufactured components and raw materials; our ability to raise capital and the availability of capital resources; our ability to fully utilize and retain executives; the impact of federal, state, or local government regulations; labor shortages or
increases in labor costs; economic and political conditions generally; and the effect of competition in the air pollution control and industrial ventilation industry.

We caution investors that other factors might, in the future, prove to be important in affecting our 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 our views as of the date the statement is made. We undertake no obligation to publicly update or revise any forward-looking
statements, whether because of new information, future events or otherwise.



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CECO ENVIRONMENTAL CORP.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





Risk Management Activities

In the normal course of business, we are exposed to market risk including changes in interest and raw material commodity prices. We may use derivative instruments to
manage our interest rate exposures. We do not use derivative instruments for speculative or trading purposes. Generally, we enter into hedging relationships such that changes in the fair values of cash flows of items and transactions being hedged
are expected to be offset by corresponding changes in the values of the derivatives.

Interest Rate Management

We may use interest rate swap contracts to adjust the proportion of our total debt that is subject to variable interest rates.

The remaining amount of loans outstanding under the Bank Facility bear interest at the floating rates as described in Note 8.

Raw Materials

The profitability of our manufactured products is affected by
changing purchase prices of steel and other materials. If higher steel or other material prices cannot be passed on to our customers, operating income will be adversely affected.



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CECO ENVIRONMENTAL CORP.

ITEM 4. CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this quarterly report. Based on this evaluation, such officers have concluded
that these controls and procedures are not effective as of the end of the period covered by this quarterly report on Form 10-Q in ensuring that the information we are required to disclose in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (SEC) rules and forms and is accumulated and communicated to management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely discussions regarding required disclosure. This conclusion was based on the existence of a material weakness in our Entity-level Controls as further disclosed in Item 9A
(Managements Annual Report on Internal Control Over Financial Reporting ) in the Companys annual report on Form 10-K for the year ended December 31, 2008.

The Company is in the process of developing and implementing a remediation plan to address the material weakness described above. The Company has taken
and/or plans on taking the following actions to improve internal control over financial reporting:

The Internal Audit division, with
senior management input, is in the process of identifying, documenting, and testing key controls. An on-going, sustainable process is currently being developed which will encompass significant operating units throughout the Company.

The Company plans to continue to enhance the staffing and competency level within the Finance division.

We have engaged three third party professionals to advise the Company in connection with (1) the remediation of existing deficiencies including the
conversion to a new information technology enterprise management system, (2) SEC related activities including accounting guidance and periodic reporting, and (3) all tax related activities.

In addition, the following are specific remedial actions to be taken for matters related to accounting for significant or non-routine transactions:

In addition to the review performed by the Companys management, implement an additional review by subject matter experts for complex
accounting estimates and accounting treatments, where appropriate.

Continue to develop and implement focused monitoring controls and other
procedures in the Internal Audit organization.

Continue to develop and implement effective communications of and education on a control
framework and effectively communicate managements expectations for controls, and business process owners accountability for controls.

Require all significant or non-routine transactions to be thoroughly researched, analyzed, approved at the appropriate level, and documents by qualified accounting personnel. In addition, all major transactions will require the additional
review and approval of the Chief Financial Officer.

The Company has developed and implemented an approval policy requiring Board of
Directors approval of all major agreements and contracts prior to acceptance. Additionally, improved methods of documentation, including minutes and transcripts, and retention of such documents has been established.



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The Company will develop a formal policy requiring proper approval for sales contracts less than $50,000.

Lastly, we are in the process of implementing an integrated IT system, which is expected to be operational during the current year.
Effective controls over end user computing applications are inherent in the system. Access to programs will be designed in the system with access privileges to be consistent with job responsibilities. System database access will also be restricted
to mitigate segregation of duties issues. When segregation of duties issues cannot be addressed systematically, compensating controls will be designed and implemented.

We anticipate the actions described above and resulting improvements in controls will strengthen our internal control over financial reporting and will, over time, address the material weakness identified as of
December 31, 2008. However, because the remedial actions relate to the hiring of additional personnel and many of the controls in our system of internal controls rely extensively on manual review and approval, the successful operation of
these new controls for at least several quarters may be required prior to management being able to conclude that the material weakness has been remediated.

The Company is committed to continuing to improve its internal control processes and will continue to review its disclosure controls and procedures and internal control over financial reporting. As management
continues to evaluate and work to improve the Companys controls, additional control deficiencies may be identified. Further, management may determine to take additional measures to address control deficiencies.

Other than as described above, there have been no changes in the Companys internal control over financial reporting during the quarter ended
June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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CECO ENVIRONMENTAL CORP.

PART II -OTHER INFORMATION







|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

At our Annual Meeting
on May 21, 2009, the shareholders of CECO Environmental Corp. took the following actions:

1. Elected the following seven directors, constituting the
entire Board of Directors, for terms to expire at the 2010 Annual Meeting of Shareholders, with votes as indicated opposite each directors name:



|                   |  |            |  |               
|------------------ |  | ---------- |  | --------------
|                   |  | Votes For  |  | Votes Withheld
|Richard J. Blum    |  | 10,830,524 |  | 2,185,291     
|Arthur Cape        |  | 11,824,755 |  | 1,191,060     
|Jason DeZwirek     |  | 10,524,933 |  | 2,490,882     
|Phillip DeZwirek   |  | 10,496,636 |  | 2,519,179     
|Thomas J. Flaherty |  | 12,019,421 |  | 996,394       
|Ronald E. Krieg    |  | 11,828,216 |  | 1,187,599     
|Donald A. Wright   |  | 11,682,718 |  | 1,333,097     

2. Approved the CECO Environmental Corp. Employee Stock Purchase Plan as follows:



|                  |  |          
|----------------- |  | ---------
|Votes for:        |  | 9,182,157
|Votes against:    |  | 82,480   
|Abstain:          |  | 19,670   
|Broker non-votes: |  | 3,731,508

3. Approved an amendment to the CECO Environmental Corp. 2007 Equity Incentive Plan to permit option repricing as
follows;



|                  |  |          
|----------------- |  | ---------
|Votes for:        |  | 6,513,041
|Votes against:    |  | 2,746,796
|Abstain:          |  | 24,496   
|Broker non-votes: |  | 3,731,509

4. Ratified the appointment of BDO Seidman, LLP as the Companys independent registered accounting firm for
the fiscal year ending December 31, 2009 as follows:



|               |  |           
|-------------- |  | ----------
|Votes for:     |  | 12,950,825
|Votes against: |  | 56,547    
|Abstain:       |  | 8,441     



|ITEM 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                                                                                                            
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Second Amendment to Subordinated Convertible Promissory Note between the Company and Icarus Investment Corp. dated May 1, 2009.                                                                            
|     | 
|10.2 |  | Sixth Amendment to Credit Agreement dated May 1, 2009, effective date March 31, 2009. (Incorporated by reference from Exhibit 10.1 of the Companys Current Report on Form 8-K filed on May
7, 2009.)      
|     | 
|10.3 |  | Fourth Amended and Restated Revolving Credit Promissory Note, effective date March 31, 2009 (Incorporated by reference from Exhibit 10.2 of the Companys Current Report on Form 8-K filed on
May 7, 2009.)



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|      |  |                                                                                                                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.4  |  | Amended and Restated Term Promissory Note, effective date March 31, 2009 (Incorporated by reference from Exhibit 10.3 of the Companys Current Report on Form 8-K filed on May 7,
2009.)                                                               
|      | 
|10.5  |  | Promissory Note between the Company and Icarus Investment Corp. dated May 15, 2009.                                                                                                                                                                    
|      | 
|10.6  |  | CECO Environmental Corp. Employee Stock Purchase Plan (Incorporated by reference to Exhibit A to CECO Environmental Corp.s definitive proxy statement on Schedule 14A filed with the
Security Exchange Commission on April 13, 2009.)                 
|      | 
|10.7  |  | First Amendment to CECO Environmental Corp. 2007 Equity Incentive Plan (Incorporated by reference to Exhibit B to CECO Environmental Corp.s definitive proxy statement on Schedule 14A filed
with the Security Exchange Commission on April 13, 2009.)
|      | 
|10.8  |  | Restricted Stock Award Agreement of Dennis W. Blazer dated May 21, 2009.                                                                                                                                                                               
|      | 
|10.9  |  | Restricted Stock Award Agreement of David D. Blum dated May 21, 2009.                                                                                                                                                                                  
|      | 
|10.10 |  | Restricted Stock Award Agreement of Richard J. Blum dated May 21, 2009.                                                                                                                                                                                
|      | 
|31.1  |  | Rule 13(a)/15d-14(a) Certification by Chief Executive Officer                                                                                                                                                                                          
|      | 
|31.2  |  | Rule 13(a)/15d-14(a) Certification by Chief Financial Officer                                                                                                                                                                                          
|      | 
|32.1  |  | Certification of Chief Executive Officer (18 U.S. Section 1350)                                                                                                                                                                                        
|      | 
|32.2  |  | Certification of Chief Financial Officer (18 U.S. Section 1350)                                                                                                                                                                                        



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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/ Dennis W. BlazerDennis W. BlazerV.P. - Finance and Administration and Chief Financial Officer


Date: August 10, 2009



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