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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

Commission File No. 0-7099

CECO ENVIRONMENTAL CORP.

(Exact name of registrant as specified in its charter)

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 is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

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 November 12, 2004 - 9,991,678

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CECO ENVIRONMENTAL CORP.

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

SEPTEMBER 30, 2004

INDEX

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CECO ENVIRONMENTAL CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except share data

The notes to condensed consolidated financial statements

are an integral part of the above statements.

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CECO ENVIRONMENTAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Dollars in thousands, except per share data

The notes to condensed consolidated financial statements are

an integral part of the above statements.

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CECO ENVIRONMENTAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Dollars in thousands

The notes to condensed consolidated financial statements are

an integral part of the above statements.

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CECO ENVIRONMENTAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollars in thousands)

The accompanying unaudited condensed consolidated financial statements of CECO Environmental Corp. and subsidiaries (the “Company”, “we”, “us”, or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2004 and December 31, 2003 and the results of operations for the three-month and nine-month periods ended September 30, 2004 and 2003 and of cash flows for the nine-month periods ended September 30, 2004 and 2003. The results of operations for the three-month period and nine-month period ended September 30, 2004 are not necessarily indicative of the results to be expected for the full year.

These financial statements should be read in conjunction with the audited financial statements and notes thereto in our 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission, from which the accompanying December 31, 2003 financial information was derived.

We apply Accounting Principles Board Opinion No. 25 and related interpretations in the accounting for stock option plans. Under such method, compensation is measured by the quoted market price of the stock at the measurement date less the amount, if any, that the employee is required to pay. The measurement date is the first date on which the number of shares that an individual employee is entitled to receive and the option or purchase price, if any, are known. We did not incur any compensation expense in 2004 or 2003 related to our stock option plans. We adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and related pronouncements.

The following table compares 2004 and 2003 as reported to the pro forma results, considering both options and warrants discussed in Note 11 in our 2003 Annual Report filed on Form 10-K, had we adopted the expense recognition provision of SFAS No. 123:

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CECO ENVIRONMENTAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” which we adopted in 2003. The Statement provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock options. We did not make any voluntary changes to our method of accounting for stock options.

On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, for hedging relationships designated after June 30, 2003, and to certain pre-existing contracts. We adopted SFAS No. 149 on a prospective basis at its effective date on July 1, 2003. The adoption of this statement did not have a material impact on our financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement was effective for financial instruments entered into or modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003, except for mandatorily redeemable financial instruments. Mandatorily redeemable financial instruments are subject to the provisions of this statement beginning on January 1, 2004. We have not entered into or modified any financial instruments subsequent to May 31, 2003 affected by this statement nor do we have any mandatorily redeemable financial instruments. The adoption of this statement did not have a material impact on our financial condition or results of operations.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”) “Consolidation of Variable Interest Entities”. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest in after that date. The adoption of this interpretation on January 1, 2004 did not affect our financial condition or results of operations, as we do not have any variable interest entities.

In November 2002, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”. EITF No. 00-21 provides guidance for revenue arrangements that involve the delivery or performance of multiple products or services where performance may occur at different points or over different periods of time. EITF No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003 (i.e., our fiscal 2004). The adoption of this interpretation on January 1, 2004 did not affect our financial condition or results of operations, as we do not have any revenue arrangements with multiple deliverables.

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CECO ENVIRONMENTAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In December 2003, the FASB issued FASB Statement No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. The statement increases the existing disclosure requirements by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. We are required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. We have adopted the disclosure requirement of SFAS No. 132-R for our December 31, 2003 financial statements, as well as disclosure requirements for various elements of pension and postretirement benefit costs in interim period financial statements beginning with our first quarter ended March 31, 2004.

Inventories consist of the following:

Amortization expense was $20 for the third quarters of 2004 and 2003, and $60 and $59 for the first nine months of 2004 and 2003, respectively. Amortization of finite life intangible assets over the next five years is $79 for 2005, $78 in 2006 and 2007, and $77 in 2008 and 2009.

Our structure and operational integration results in one 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 condensed consolidated financial statements herein reflect the operating results of the segment.

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CECO ENVIRONMENTAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding for the three months ended September 30, 2004 and 2003. There were no adjustments to net income for the basic or diluted earnings per share (EPS) computations.

For the nine months ended September 30, both basic and diluted weighted average common shares outstanding were 9,988,840 in 2004 and 9,808,574 in 2003. We consider outstanding options and warrants in computing diluted net loss per share only when they are dilutive. Options and warrants to purchase 3,503,700 and 3,446,000 shares for the nine-month periods ended September 30, 2004 and 2003, respectively, were not included in the computation of diluted earnings per share due to their having an anti-dilutive effect. Options and warrants to purchase 2,453,700 and 2,446,000 shares for the three-month periods ended September 30, 2004 and 2003, respectively, were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares. There were no adjustments to net loss for the basic or diluted earnings per share computations.

Total bank and related debt was $10,408 at September 30, 2004 and $9,957 at December 31, 2003. Unused credit availability under our $8 million revolving line of credit at September 30, 2004 was $2,304.

During November 2004, the revolving line of credit portion of the bank credit facility was amended by extending the termination date to January 2006. As a result, the amount outstanding under this line of $5,696 as of September 30, 2004 was reported as long-term debt in the accompanying balance sheet. In addition, the revolving line of credit was amended whereby the maximum amount available that could be borrowed under the line was increased by $2,000 to $10,000 as of November 2004 subject to the borrowing base formula contained in the credit agreement. No extinguishment loss was recognized as a result of this amendment. The amendment also waived minimum coverage requirements under several financial covenants as of September 30, 2004. The bank credit facility was also amended during August 2004 by extending the term loan to July 2005 and by waiving the leverage financial covenant as of June 30, 2004.

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CECO ENVIRONMENTAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

We are continuing to evaluate, in light of the current market conditions and company performance, our options and alternative financing. Our refinancing strategy for bank credit facility was to extend the maturities and increase our cash flow by lowering the scheduled principal amortization on term debt for our machinery, equipment and real estate, and reducing interest cost. We have extended the maturity on the term loan through July 2005 and the revolving line of credit to January 2006. While we have not yet lowered the scheduled amortization on term debt, we will continue to evaluate our options in this regard. However, there can be no assurance that we will be able to do so.

In addition to pursuing opportunities where we have been historically successful, we are evaluating new markets and exploring opportunities internationally. We have also identified and implemented various cost containment and reduction initiatives through better utilization of our manufacturing capacity, utilizing lower labor costs and making more efficient use of our central services and design/drafting staff. These efforts are expected to provide approximately $1.3 million in annualized savings, which began during the third quarter of 2004. We expect to be able to achieve these initiatives without disrupting services to current customers. We believe that the successful achievement of the refinancing and cost reduction initiatives should provide us with sufficient resources to meet our near term cash requirements.

In November 2003, we accepted an offer to sell our Cincinnati property with a contemplated closing date of May 1, 2004 subject to various contingencies. The agreement was terminated due to the purchaser failing to close in accordance with the terms of the agreement. In August 2004, the agreement was amended providing an opportunity to the potential purchaser to acquire the property until the end of November 2004 in exchange for which an escrow deposit of $100 was made. The escrow deposit reverted to us without any further obligation as of September 30, 2004 and was recognized in selling and administration expense as an offset to various costs incurred in connection with the proposed transaction.

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

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CECO ENVIRONMENTAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Accumulated other comprehensive loss of $894 at September 30, 2004 and December 31, 2003 results from recording minimum pension liability net of intangible asset and deferred tax assets.

We previously disclosed in our financial statements for the year ended December 31, 2003 that we expected to make $854 in contributions to the Pension Plan during the year ending December 31, 2004. As of September 30, 2004, $522 has been contributed to the Pension Plan and we anticipate making an additional $58 during the remainder of Fiscal Year 2004 for a revised total of $580. Legislation enacted in 2004 resulted in our total contribution for the year being less than we previously anticipated

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CECO ENVIRONMENTAL CORP.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(unaudited)

Our Critical Accounting Policies are discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations to our Annual Report on Form 10-K for the year ended December 31, 2003.

Results of Operations

Our condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2004 and 2003 reflect our operations consolidated with the operations of our subsidiaries.

Consolidated net sales for the third quarter were $18,378,000, an increase of $1,339,000 compared to the same quarter in 2003. Consolidated net sales for the first nine months of 2004 were $47,530,000, a decrease of $2,464,000, compared to the same period in 2003. For the quarter, we reported sales increases from our component parts and duct product lines as well as higher construction revenue (principally from automotive and steel related projects which began in 2004) offset by lower Busch revenue. Nine-month revenue declined due to lower construction revenue during the first half and lower Busch revenue offset by increased sales of our component parts and duct product lines. The completion of two steel rolling mill projects in 2003 was the primary reason for lower revenue from Busch.

Bookings during the third quarter of 2004 and for the first nine months of 2004 increased substantially as third quarter orders were $26,884,000, a $10,400,000 or 63% increase over the same period in 2003, while nine month orders totaled $57,785,000, a 21% increase over the comparable period in 2003. Orders booked for large projects during the quarter covered a diverse industry group (including automotive, ethanol, foundry and steel). A significant portion of the project revenue should be recognized in the fourth quarter of 2004. Smaller orders booked during the quarter and nine-months continued to be strong relative to 2003.

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CECO ENVIRONMENTAL CORP.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(unaudited)

Third quarter 2004 gross profit was $3,343,000 (18.2%). This compares to gross profit of $3,496,000 (20.5%) during the same period in 2003. Gross margin was lower by 2.3 percentage points principally due to decreased construction margins slightly offset by reduced factory overhead spending. Gross profit was $9,282,000 for the first nine months of 2004, a decrease of $445,000 compared to the same period in 2003. Gross margin held firm for the first nine months of 2004 and 2003 at 19.5% as reduced overhead spending was offset by slightly lower pricing due to competitive market conditions.

Selling and administrative expenses increased by $30,000 or 1.2% to $2,473,000 during the third quarter of 2004 from $2,443,000 in the same period of 2003. Selling and administrative expenses increased by $302,000 or 4.0% to $7,833,000 during the first nine months of 2004 from $7,531,000 in the same period of 2003. Cost reduction initiatives in 2003 were offset by increased healthcare and compensation costs in the third quarter and first nine months of 2004. In light of the current level of revenue, during 2004, we implemented additional cost reduction initiatives, which are expected to provide annualized savings of $1.3 million, beginning in the third quarter of 2004. As discussed in our Overview of Cash Flows and Liquidity section, a $100,000 escrow deposit reverted to us without any further obligation as of September 30, 2004 and was recognized in selling and administration expense as an offset to various costs incurred in connection with the proposed transaction.

Depreciation and amortization increased by $32,000 to $424,000 during the third quarter of 2004 from $392,000 in the same period of 2003. Depreciation and amortization increased by $65,000 to $1,256,000 in the first nine months of 2004 from $1,191,000 in the same period of 2003.

Other income was $19,000 in the third quarter of 2004 compared to $17,000 in the third quarter of 2003. Other income for the first nine months of 2004 was $55,000 compared to $239,000 during the same period in 2003. The other income during 2004 is the amortization of the deferred gain recognized from the sale and leaseback of our Conshohocken, Pennsylvania property. The other income during 2003 is the result of the gain recognized from the sale and leaseback of this property during the second quarter of 2003 of $222,000. A deferred gain of $218,000 is being recognized over the ensuing three-year leaseback period.

Operating income was $446,000 in the third quarter of 2004 compared to operating income of $661,000 during the same quarter of 2003. Operating income for the first nine months of 2004 was $193,000 compared to operating income of $1,005,000 during the same period of 2003.The impact on operating income from lower sales along with increases in selling and administrative expenses and depreciation and amortization, only partially offset by reduced factory overhead spending, were the primary factors for the decrease in operating income.

Interest expense increased by $13,000 to $567,000 from $554,000 during the third quarter of 2004. Interest expense decreased by $120,000 to $1,622,000 from $1,742,000 during the first nine months of 2004. The year-to-date decrease was due to lower debt balances during the nine months that was partially offset by higher interest rates during the third quarter.

Federal and state income tax benefit was $322,000 during the third quarter of 2004 compared to $113,000 during the third quarter of 2003. Federal and state income tax benefit was $895,000 for

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CECO ENVIRONMENTAL CORP.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(unaudited)

the first nine months of 2004, an increase $491,000 from the comparable period in 2003. The federal and state income tax benefit for the first nine months of 2004 was 65%, which reflects the estimated effective tax rate for 2004. Our effective income tax rate was adjusted in the third quarter from 45% to 65% to reflect the reduction in our estimated pretax income for the year. This adjustment had the affect of increasing the effective income tax rate for the 2004 third quarter to 316%. Our effective income tax rate is affected by certain permanent differences including non-deductible interest expense.

Net income for the quarter ended September 30, 2004 was $220,000 compared with net income of $237,000 for the same period in 2003. Net loss for the nine months ended September 30, 2004 was ($479,000) compared with a net loss of ($94,000) for the same period in 2003.

Backlog

Our backlog consists of orders we have received for products and services we expect to ship and deliver within the next 12 months. Our backlog, as of September 30, 2004 was $17.5 million compared to $7.3 million as of December 31, 2003. There can be no assurances that backlog will be replicated or increased or translated into higher revenues in the future. The success of our business depends on a multitude of factors that are out of our control. Our operating results can be affected by the introduction of new products, new manufacturing technologies, rapid change of the demand for our products, decrease in average selling prices over the life of the product as competition increases and our dependence to some degree on efforts of intermediaries to sell a portion of our product.

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 September 30, 2004 and December 31, 2003, cash and cash equivalents totaled $204,000 and $136,000, 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 and related debt as of September 30, 2004 was $10,408,000 and $9,957,000 at December 31, 2003. Unused credit availability under our $8.0 million revolving line of credit at September 30, 2004 was $2,304,000.

During November 2004, the revolving line of credit portion of the bank credit facility was amended by extending the termination date to January 2006. As a result, the amount outstanding under this line of $5,696,000 as of September 30, 2004 was reported as long-term debt in the accompanying balance sheet. In addition, the revolving line of credit was amended whereby the maximum amount available that could be borrowed under the line was increased by $2,000,000 to $10,000,000 as of

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CECO ENVIRONMENTAL CORP.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(unaudited)

November 2004 subject to the borrowing base formula contained in the credit agreement. No extinguishment loss was recognized as a result of this amendment. The amendment also waived minimum coverage requirements under several financial covenants as of September 30, 2004. The bank credit facility was also amended during August 2004 by extending the term loan to July 2005 and by waiving the leverage financial covenant as of June 30, 2004.

We are continuing to evaluate, in light of the current market conditions and company performance, our options and alternative financing. Our refinancing strategy for bank credit facility was to extend the maturities and increase our cash flow by lowering the scheduled principal amortization on term debt for our machinery, equipment and real estate, and reducing interest cost. We have extended the maturity on the term loan through July 2005 and the revolving line of credit to January 2006. While we have not yet lowered the scheduled amortization on term debt, we will continue to evaluate our options in this regard. However, there can be no assurance that we will be able to do so.

In addition to pursuing opportunities where we have been historically successful, we are evaluating new markets and exploring opportunities internationally. We have also identified and implemented various cost containment and reduction initiatives through better utilization of our manufacturing capacity, utilizing lower labor costs and making more efficient use of our central services and design/drafting staff. These efforts are expected to provide approximately $1.3 million in annualized savings, which began during the third quarter of 2004. We expect to be able to achieve these initiatives without disrupting services to current customers. We believe that the successful achievement of the refinancing and cost reduction initiatives should provide us with sufficient resources to meet our near term cash requirements.

Overview of Cash Flows and Liquidity

Cash provided by operating activities decreased in 2004 compared to 2003. Cash used in operating activities for the first nine months of 2004 was the result of an increase in the number of projects in process at quarter end and their relative early stage of completion. As a result, our investment in accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts and inventories increased $1,629,000, $1,204,000 and $450,000, respectively. We were able to partially offset these uses of cash by increasing our accounts payable and billings in excess of costs and estimated earnings on uncompleted contracts by $2,140,000 and $1,234,000, respectively.

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CECO ENVIRONMENTAL CORP.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(unaudited)

Our net investment in working capital (excluding cash and cash equivalents and current portion of debt) at September 30, 2004 and December 31, 2003 was $8,238,000 and $7,636,000, respectively.

Net cash used in investing activities related to the acquisition of property and equipment was $281,000 for the first nine months of 2004 compared with $88,000 for the same period in 2003. We are managing our capital expenditure spending in light of the current level of sales. Should sales increase in 2004, we would anticipate increased capital spending. Additionally, capital expenditures may be incurred depending on the ultimate disposition of our Cincinnati property. Cash provided by investing activities of $1,568,000 for the first nine months of 2003 relates to cash proceeds from the sale and leaseback of our Conshohocken, Pennsylvania property. A $222,000 gain was recognized during the second quarter of 2003 from the sale of the Conshohocken property and a gain of $218,000 was deferred, which will be recognized over the ensuing three-year leaseback period. Approximately, $700,000 of the proceeds were used to reduce the revolving line of credit and the balance was used to reduce term debt.

Financing activities provided cash of $461,000 during the first nine months of 2004 compared with cash used in financing activities of $1,967,000 during the same period of 2003. Current year financing activities included net borrowings and issuance of common stock under our employee stock purchase plan, and 2003 financing activities included proceeds from issuance of subordinated debt totaling $1,200,000 to our principle shareholder. These proceeds and those from the sale of our Conshohocken property were used to pay down amounts outstanding under our credit agreement. In November 2003, we accepted an offer to sell our Cincinnati property with a contemplated closing date of May 1, 2004 subject to various contingencies. The agreement was terminated due to the purchaser failing to close in accordance with the terms of the agreement. In August 2004, the agreement was amended providing an opportunity to the potential purchaser to acquire the property until the end of November 2004 in exchange for which an escrow deposit of $100,000 was made. The escrow deposit reverted to us without any further obligation as of September 30, 2004 and was recognized in selling and administration expense as an offset to various costs incurred in connection with the proposed transaction.

Forward-Looking Statements

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and are making this cautionary statement in connection with such safe harbor legislation. This Form 10-Q, the Annual Report to Shareholders, Form 10-K or Form 8-K of the Company or any other written or oral statements made by or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “should” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this Form 10-Q are “forward-looking statements,” and are based on management’s current expectations of our near-term results, based on current information available pertaining to us.

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CECO ENVIRONMENTAL CORP.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(unaudited)

We wish to caution investors that any forward-looking statements made by or on our behalf are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to: changing economic and political conditions in the United States and in other countries, war, changes in governmental spending and budgetary policies, governmental laws and regulations surrounding various matters such as environmental remediation, contract pricing, and international trading restrictions, customer product acceptance, continued access to capital markets, and foreign currency risks.

We wish to 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. Our interest rate swap contract matured in 2002 and was not renewed.

The remaining amount of loans outstanding under the Credit Agreement bear interest at the floating rates as described in Note 9 to the consolidated statements contained in the Company’s 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Credit Risk

As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial institutions with which we conduct business. Credit risk is minimal as credit exposure is limited with any single high quality financial institution to avoid concentration. We also monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. Concentrations of credit associated with these trade receivables are considered minimal due to our geographically diverse customer base. Bad debts have not been significant. We do not normally require collateral or other security to support credit sales.

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CECO ENVIRONMENTAL CORP.

ITEM 4. CONTROLS AND PROCEDURES

Within ninety days prior to the filing of this Report, the Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, which are designed to ensure that the Company records, processes, summarizes and reports in a timely and effective manner the information required to be disclosed in the reports filed with or submitted to the Securities and Exchange Commission. Based upon this evaluation, they concluded that, as of the date of the evaluation, the Company’s disclosure controls are effective. Since the date of this evaluation, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls.

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CECO ENVIRONMENTAL CORP.

PART II -OTHER INFORMATION

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

At its Annual Meeting on October 14, 2004, the shareholders of CECO Environmental Corp. took the following actions:

ITEM 5. OTHER INFORMATION

The Board of Directors adopted on September 28, 2004 the following procedures by which security holders may recommend nominees to the Board of Directors:

The independent Directors will consider director candidates recommended by stockholders for inclusion on the slate of directors recommended to the Board. Any stockholder may submit one candidate for consideration at each stockholder meeting at which directors are to be elected. Stockholders wishing to recommend a candidate must submit the recommendation no later than one hundred and twenty (120) days before the date of the Company’s proxy statement released to stockholders in connection with the previous year’s annual meeting of stockholders, provided, that if the Company did not hold any annual meeting in the previous year, or if the date of the next annual meeting has been changed by more than thirty (30) days from the date of the previous year’s meeting, then the deadline will be a date that is a reasonable time before the Company begins to print and mail its proxy materials, but in no event less than ninety (90) days prior to such mailing.

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CECO ENVIRONMENTAL CORP.

PART II -OTHER INFORMATION (continued)

Recommendations must be sent to the following address:

CECO Environmental Corp.

3120 Forrer Street

Cincinnati, OH 45209

Attention: Secretary

At the time the stockholder submits the recommendation for a director candidate, the stockholder must provide the following:

All information about the candidate that the Company would be required to disclose in a proxy statement in accordance with Exchange Act rules.

Certification from the candidate that he or she meets the requirements to be (a) independent under the Nasdaq standards, and (b) a non-management director under the Exchange Act.

Consent of the candidate to serve on the Board, if nominated and elected.

Agreement of the candidate to complete, upon request, questionnaire(s) customary for directors of the Company.

The independent Directors will first evaluate candidates recommended by stockholders on the same basis as candidates recommended by other sources, including evaluating the candidate against the standards and qualifications set out in the Director Nomination Policy of the Company as well as any other criteria approved by the Board from time to time. The independent Directors will determine whether to interview any candidate.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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Table of Contents

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.

Date: November 15, 2004

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