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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
( x ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
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 Number 1-13852
CET ENVIRONMENTAL SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0285964
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14761 Bentley Circle, Tustin, CA 92780
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (714) 505-1800
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of November 14, 1996, 5,066,537 shares of common stock, no par value per
share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED) (UNAUDITED)
------------- ------------
CURRENT ASSETS:
Cash....................................... $ 270,542 $ 476,655
Accounts receivable, less allowance for
doubtful accounts of $433,369 in 1996
and $135,404 in 1995..................... 8,383,598 13,356,823
Contracts in process....................... 7,107,077 6,213,490
Prepaid expenses and other current assets.. 1,621,864 1,198,241
----------- -----------
Total Current Assets................... 17,383,081 21,245,209
EQUIPMENT AND IMPROVEMENTS, NET............ 4,833,183 3,983,902
OTHER ASSETS............................... 525,505 478,740
----------- -----------
$22,741,769 $25,707,851
=========== ===========
The accompanying notes are an integral part of these statements.
1
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CET ENVIRONMENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED) (UNAUDITED)
------------- ------------
CURRENT LIABILITIES
Note payable--line of credit............. $ 4,200,650 $ 2,424,836
Other notes payable...................... 671,800 682,425
Accounts payable......................... 5,371,549 7,857,824
Accrued expenses......................... 2,086,991 2,103,015
Current portion of long-term debt and
capital lease obligations.............. 666,345 535,751
----------- -----------
Total current liabilities............ 12,997,335 13,603,851
DEFERRED INCOME TAXES...................... 37,282 37,282
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS.............................. 1,545,378 1,356,650
COMMITMENTS AND CONTINGENT LIABILITIES..... -- --
STOCKHOLDERS' EQUITY
Common stock (no par value)--authorized
20,000,000 shares; issued and
outstanding 5,066,537 shares in 1996
and 1995............................... 6,165,977 6,165,977
Paid-in capital.......................... 550,442 535,175
Retained earnings........................ 1,445,355 4,008,916
----------- -----------
Total stockholders' equity........... 8,161,774 10,710,068
----------- -----------
$22,741,769 $25,707,851
=========== ===========
The accompanying notes are an integral part of these statements.
2
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CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
(UNAUDITED) (UNAUDITED)
------------- ------------
PROJECT REVENUE............................ $12,994,919 $12,781,360
PROJECT COSTS
Direct................................... 11,470,294 9,421,620
Indirect................................. 2,322,852 1,460,689
----------- -----------
13,793,146 10,882,309
----------- -----------
Gross profit........................... (798,227) 1,899,051
----------- -----------
OTHER OPERATING EXPENSES (INCOME)
Selling.................................. 918,412 561,061
General and administrative............... 994,761 540,383
Amortization of excess of acquired net
assets in excess of cost............... -- (92,028)
----------- -----------
1,913,173 1,009,416
----------- -----------
Operating (loss) income.............. (2,711,400) 889,635
----------- -----------
OTHER INCOME (EXPENSE), NET................ (276,251) (84,703)
(Loss) income before income taxes.......... (2,987,651) 804,932
(Credit) provision for income taxes........ (163,600) 286,000
----------- -----------
NET (LOSS) INCOME.......................... $(2,824,051) $ 518,932
=========== ===========
Weighted average number of shares
outstanding.............................. 5,079,572 4,754,192
=========== ===========
Net loss per common share.................. $ (0.56) $ 0.11
=========== ===========
The accompanying notes are an integral part of these statements.
3
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CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
(UNAUDITED) (UNAUDITED)
------------- ------------
PROJECT REVENUE............................ $40,008,620 $29,166,551
PROJECT COSTS
Direct................................... 30,942,660 21,026,579
Indirect................................. 5,990,177 3,515,090
----------- -----------
36,932,837 24,541,669
----------- -----------
Gross profit........................... 3,075,783 4,624,882
----------- -----------
OTHER OPERATING EXPENSES (INCOME)
Selling.................................. 2,659,333 1,337,189
General and administrative............... 2,391,704 1,288,155
Amortization of excess of acquired net
assets in excess of cost............... -- (276,084)
----------- -----------
5,051,037 2,349,260
----------- -----------
Operating (loss) income.............. (1,975,254) 2,275,622
----------- -----------
OTHER INCOME (EXPENSE), NET................ (578,307) (204,193)
(Loss) income before income taxes.......... (2,553,561) 2,071,429
Provision for income taxes................. 10,000 486,000
----------- -----------
NET (LOSS) INCOME.......................... $(2,563,561) $ 1,585,429
=========== ===========
Weighted average number of shares
outstanding.............................. 5,078,715 4,071,876
=========== ===========
Net (loss) income per common share......... $ (0.50)
===========
PRO FORMA INFORMATION (NOTE 4)
Historical income before taxes on income... $ 2,071,429
Pro forma income taxes..................... 718,574
-----------
Pro forma net income....................... $ 1,352,855
===========
Pro forma net income per common share...... $ 0.33
===========
The accompanying notes are an integral part of these statements.
4
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CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
(UNAUDITED) (UNAUDITED)
------------- ------------
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................ $(2,563,561) $ 1,585,429
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization........ 924,748 376,887
Amortization of acquired net assets
in excess of cost.................. -- (276,085)
Provision for bad debts.............. 298,200 94,895
Employee stock option plan........... 15,267 --
Loss on sale of equipment............ 9,422 --
Changes in operating assets and
liabilities:
Decrease (Increase) in accounts
receivable..................... 4,675,025 (2,698,735)
Increase in contracts in process. (893,587) (6,133,133)
Increase in prepaid expenses and
other assets................... (491,518) (534,304)
(Decrease) Increase in accounts
payable and accrued expenses... (2,502,299) 4,392,486
----------- -----------
Net cash used in operating
activities................. (528,303) (3,192,560)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.................... (1,143,527) (2,355,959)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
and long-term debt..................... 124,940 1,189,996
Payments on long-term debt and capital
lease obligations...................... (424,412) (398,699)
Proceeds from issuance of notes to
shareholders........................... -- 357,865
Repayment of notes to shareholders....... -- (357,865)
Borrowings from related party trust fund. -- 900,000
Payments on related party trust fund
notes.................................. -- (750,000)
Proceeds from credit line loan, net of
payments............................... 1,775,814 (540,712)
Proceeds from loans from shareholders.... 200,000 --
Payments on loans from shareholders...... (210,625) --
Proceeds from issuance of stock.......... -- 5,802,246
Distributions paid....................... -- (927,102)
----------- -----------
Net cash provided by
financing activities....... 1,465,717 5,275,729
----------- -----------
DECREASE IN CASH........................... (206,113) (272,790)
Cash at the beginning of period............ 476,655 431,955
----------- -----------
Cash at end of period...................... $ 270,542 $ 159,165
=========== ===========
Supplemental disclosures to cash flow
information:
Cash paid during the period
Interest................................. $ 485,984 $ 212,510
=========== ===========
Income taxes............................. $ 1,245,345 $ 270,900
=========== ===========
Capital lease and equipment financing
obligations incurred..................... $ 618,794 $ 502,178
=========== ===========
The accompanying notes are an integral part of these statements.
5
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CET ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1. The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
condensed interim financial statements and with the instructions to
Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for
the nine months ended September 30, 1996 are not necessarily
indicative of results that may be expected for the year ending
December 31, 1996.
NOTE 2. The Company maintains a $6,000,000 line of credit with Union Bank of
California, N.A. which replaced the previous banking relationship
with Comerica Bank. As a result of the Company's financial
performance during the quarter ended September 30, 1996, the Company
is in violation of certain covenants of its note payable line of
credit agreement with Union Bank of California, N.A. Management is
currently working with the bank to resolve this issue.
NOTE 3. On July 20, 1995, the Company completed its initial public offering
of 1,380,000 shares of common stock at $5.00 per share. The net
proceeds to the Company after sales commissions and other
offering-related costs was approximately $5.8 million.
NOTE 4. The Pro Forma Statements of Income for the nine-month period ended
September 30, 1995 reflect the Company's operations as if it were a
"C" Corporation during these periods. The Company converted from
an "S" Corporation to a "C" Corporation on June 15, 1995.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FINANCIAL CONDITION
Current assets decreased by $3,862,128 during the first nine months of 1996
primarily due to a decrease in accounts receivable of $4,973,225.
Collections of receivables, which were built up during the fourth quarter of
1995, were largely responsible for the decrease. This decrease in accounts
receivable was offset by an increase in contracts in process of $893,587,
which resulted from increasing volumes of business. During the quarter ended
September 30, 1996, the Company made an addition of approximately $219,000 to
the allowance for doubtful accounts as a result of an analysis of the
accounts receivable balances, especially those in the over 90 days' past due
category. In addition, prepaid expenses and other current assets increased
by $423,623 primarily due to the prepayment of corporate insurance premiums
for policy terms which began July 1, 1996, net of the amortization of the
prepaid insurance for policies which had terms running through June 30, 1996.
Equipment and improvements, net showed an increase of $849,281 during the
first nine months of 1996 due to the acquisition of both field equipment and
vehicles to support the increased levels of activity in the Company.
The decrease in current liabilities of $606,516 during the first nine months
of 1996 resulted primarily from a decrease in accounts payable of $2,486,275
which was offset by an increase in the note payable line of credit of
$1,775,814. The proceeds from the note payable line of credit were used to
finance current operations and equipment acquisitions. The Company
experienced build ups of large volumes of work during the fourth quarter of
1995 which resulted in the large balances of accounts receivable and payable
at year end 1995.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995
Project revenue for the quarter ended September 30, 1996 was $12,994,919, an
increase of 1.7% or $213,559 from $12,781,360 for the third quarter of 1995,
due to the growth of the commercial business in all but four office
locations. The four offices added in the Gulf Coast during the second
quarter of 1995 contributed $2,913,023 or 22.8% of total project revenue to
the third quarter of 1995. In contrast, these same four offices comprised
only $1,567,400 or 12.1% of total project revenue for the third quarter of
1996. The composition of revenue also changed when comparing the third
quarter of 1995 to the third quarter of 1996. In the third quarter of 1995,
29.1% of total project revenue or $3,722,441 was derived from one contract
with the U.S. Environmental Protection Agency. During the third quarter of
1996, the revenue from this contract was $2,485,267 or 19.1% of total project
revenue. Revenue for the quarter ended September 30, 1996 was also
negatively impacted by unusually large adjustments of approximately $1 million
to recognize losses or reduced margins on several projects.
7
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A comparison of the third quarter of 1995 to the third quarter of 1996 showed
the gross profit decreased 142.0% and the gross profit margin decreased from
14.9% to (6.1)%. Commercial business has typically yielded higher gross
profit margins than government contracts; however, the Company has been
experiencing a tightening of these margins due to competitive pressures and
to projects performing below expectations due to cost overruns and the
inability to obtain meaningful change orders to cover these overruns. The
Company's goal is to achieve an equal distribution of revenues from
government contracts and commercial contracts which should produce both a
better continuity of revenues and increased margin after direct costs. The
decrease in the gross profit margin resulted from increased direct and
indirect project costs, and from the nonrecurring revenue adjustments noted
above.
The increase in direct project costs of 21.7% or $2,048,674 greatly out paced
the 1.7% increase in project revenue. In addition, direct project costs as a
percent of revenue increased to 88.3% for the third quarter of 1996 from
73.7% for the third quarter of 1995. This increase was due primarily to
a higher proportion of lower margin work and to the impact of the revenue
adjustments discussed above.
Indirect project costs for the third quarter of 1996 increased $862,163 or
59.0% over those of the third quarter of 1995. The increase in indirect
project costs was primarily the result of increased payroll and related
costs, building rent, and depreciation and amortization which increased 79%,
222% and 76%, respectively. The increased payroll and related costs for the
third quarter of 1996 resulted from increased Company-wide staffing levels
needed to meet the growth in project activity and from a full quarter of
activity for the offices opened during the second quarter of 1996 (Kansas
City, Birmingham, and Tucson). Building rents increased not only due to the
opening of offices in Jackson, Mississippi (May 1995), Kansas City, Missouri
(April 1996), Birmingham, Alabama (May 1996), and Tucson, Arizona (June
1996), but also due to the escalation, etc. terms of various existing office
leases. Increased depreciation and amortization resulted from increases in
capital assets acquired during both 1995 and 1996.
In response to these operating results, the Company, during September 1996,
implemented plans to close down four regional offices: St. Louis, Missouri;
Kansas City, Missouri; Birmingham, Alabama (opened during 1996); and Jackson,
Mississippi. Although the premises in St. Louis and Birmingham have been
vacated, the existing lease obligations are still in effect. The operating
results for the third quarter of 1996 therefore include a charge of
approximately $240,000 for the present value of these lease obligations. The
Jackson facility continues to be used as a project office only and the Kansas
City office had been subject to a lease which expired September 30, 1996.
Selling expenses for the third quarter of 1996 increased by $357,351 or 63.7%
when compared to the third quarter of 1995 due to additional sales
professionals resulting from management's continued commitment to a formal
sales/bid and proposal staff. Selling expense was 7.1% of project revenue
for the third quarter of 1996 and was 4.4% of project revenue for the third
quarter of 1995.
General and administrative expenses for the third quarter of 1996 increased
by $454,378 or 84.1% when compared to the third quarter of 1995 primarily due
to increases in insurance costs, accounting
8
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and auditing expenses, data processing software/maintenance costs and the
provision for bad debts. General and administrative expenses as a percentage
of project revenue almost doubled to 7.7% for the third quarter of 1996 as
compared to 4.2% for the third quarter of 1995. This increased percentage was
due largely to management's decision to increase the allowance for bad debts
to a higher percentage of open accounts receivable. This increase in the
allowance from 3% of total accounts receivable at September 30, 1995 to 5% of
total accounts receivable at September 30, 1996 was based on having a higher
proportion of commercial versus government receivables.
Other income (expense), net consists primarily of interest expense and other
income and expense items. Interest expense for the third quarter of 1996
increased $70,586 or 79.1% when compared to the third quarter of 1995. The
increase is due primarily to borrowings from the Company's line of credit and
equipment loans and leases of equipment and vehicles. Other expenses
includes a charge for the accrual of approximately $102,000 for fines and
penalties for the delinquent filing and payment of the sales tax returns for
one state. The Company has paid the fines, but has asked for them to be
waived due to mitigating circumstances; however, there can be no assurance
that this amount will be recoverable.
The Company experienced a net loss for the third quarter of 1996 of
$2,824,051, as compared with net income of $518,932 for the third quarter of
1995. This decrease in operating results is explained in the preceding
paragraphs by the nonrecurring revenue adjustments, reduced gross profit
margin and the increases in selling expenses, general and administrative
expenses, and other expenses.
In addition to the closing of certain offices discussed above, the Company
has taken additional cost cutting measures to reduce overhead and eliminate
unproductive operations, including a reduction of staff, from the peak during
the quarter, by approximately 19%. These actions are projected to
significantly reduce overhead, but are not expected to have any material
impact on the Company's ability to perform current projects or obtain new
work.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Project revenue for the nine months ended September 30, 1996 was $40,008,620,
an increase of 37.2% or $10,842,069 from $29,166,551 for the nine months
ended September 30, 1995, due to the growth of the commercial business in all
but one office location. The four offices added in the Gulf Coast during the
second quarter of 1995 contributed $3,283,004 or 11.3% of total project
revenue to the nine months ended September 30, 1995. In contrast, these same
four offices comprised $7,979,395 or 19.9% of total project revenue for the
nine months ended September 30, 1996. The composition of revenue also
changed when comparing the nine months ended September 30, 1995 to the nine
months ended September 30, 1996. During the first nine months of 1995, 33.4%
of total project revenue or $9,727,134 was derived from one contract with the
U.S. Environmental Protection Agency whereas during the first nine months of
1996, the revenue from this contract was $7,184,488 or 18.0% of total project
revenue.
A comparison of the nine months ended September 30, 1995 to the nine months
ended September 30, 1996 showed the gross profit decreased 33.5 % or
$1,549,099 and the gross profit margin decreased from 15.9% to 7.7%.
Commercial business has typically yielded higher gross profit margins than
government contracts; however, the Company has been experiencing a tightening
of these margins due to competitive pressures and to projects performing
below expectations due to cost
9
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overruns and the inability to obtain meaningful change orders to cover these
overruns. The Company's goal is to achieve an equal distribution of revenues
from government contracts and commercial contracts which should produce both
a better continuity of revenues and increased margin after direct costs. The
decrease in the gross profit margin resulted from increased direct and
indirect project costs, and from the nonrecurring revenue adjustments noted
above.
The increase in direct project costs of 47.2% or $9,916,081 exceeded the
37.2% increase in project revenue. In addition, direct project costs as a
percent of revenue increased to 77.3% for the first nine months of 1996 from
72.1% for the first nine months of 1995. The increase was due primarily to a
higher proportion of lower margin work.
Indirect project costs for the first nine months of 1996 increased $2,475,087
or 70.4% over those of the first nine months of 1995. The increase in
indirect project costs was primarily the result of increased payroll and
related costs, building rent, and depreciation and amortization which have
increased 77%, 128%, 142%, respectively. The increased payroll and related
costs for the nine months ended September 30, 1996 included a full period of
activity for the Gulf Coast offices, which were opened during the second
quarter of 1995, activity for the offices opened during the second quarter of
1996 (Kansas City, Birmingham, and Tucson), and also resulted from increased
Company-wide staffing levels needed to meet the growth in project activity.
Building rents increased not only due to the opening of offices in Jackson,
Mississippi (May 1995), Kansas City, Missouri (April 1996), Birmingham,
Alabama (May 1996), and Tucson, Arizona (June 1996), but also due to the
escalation, etc. provisions of various existing office leases. Increased
depreciation and amortization resulted from increases in capital assets
acquired during both the 1995 and 1996 periods. The various equipment and
improvements acquired during the nine months ended September 30, 1995 were
fully on the depreciation rolls during the nine months ended September 30,
1996.
In response to these operating results, the Company implemented specific
plans to close down four regional offices, as previously discussed.
Selling expenses for the nine months ended September 30, 1996 increased by
$1,322,144 or 98.9% when compared to the nine months ended September 30, 1995
due to additional sales professionals resulting from management's continued
commitment to a formal sales/bid and proposal staff. Selling expense was
6.6% of project revenue for the nine months ended September 30, 1996 and was
4.6% of project revenue for the nine months ended September 30, 1995.
General and administrative expenses for the first nine months of 1996
increased by $1,103,549 or 85.7% when compared to the first nine months of
1995 primarily due to increases in insurance costs, legal expenses,
accounting and auditing expenses, data processing software/maintenance costs,
and the provision for bad debts. General and administrative expenses as a
percentage of project revenue
10
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increased to 6.0% for the nine months ended September 30, 1996 as compared to
4.4% for the nine months ended September 30, 1995. This increased percentage
was due largely to management's decision to increase the allowance for bad debts
to a higher percentage of open accounts receivable. This increase in the
allowance from 3% of total accounts receivable at September 30, 1995 to 5% of
total accounts receivable at September 30, 1996 was based on having a higher
proportion of commercial versus government receivables.
Other income (expense), net consists primarily of interest expense and other
income and expense items. Interest expense for the nine months ended
September 30, 1996 increased $249,382 or 117.4% when compared to the nine
months ended September 30, 1995. The increase is due primarily to borrowings
from the Company's line of credit and equipment loans and leases of equipment
and vehicles. Other expenses includes a charge for the accrual of
approximately $102,000 for fines and penalties for the delinquent filing and
payment of the sales tax returns for one state. The Company has paid the
fines, but has asked for them to be waived due to mitigating circumstances;
however, there can be no assurance that this amount will be recoverable.
The Company experienced a net loss for the nine months ended September 30,
1996 of $2,563,561, as compared with net income of $1,585,429 for the first
nine months of 1995. This decrease in operating results is explained in the
preceding paragraphs by the nonrecurring revenue adjustments, reduced gross
profit margin and the increases in selling expenses, general and
administrative expenses, and other expenses. In addition, the nine months
ended September 30, 1996 did not include amortization of acquired net assets
in excess of cost as the costs had become fully amortized by the end of
November 1995. The first nine months of 1995 included $276,084 of
amortization which resulted in decreased expenses for the period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had working capital of $4,385,746 which
was a decrease from working capital of $7,641,358 as of December 31, 1995.
The current ratio was 1.3 to 1 at September 30, 1996 as compared with 1.6 to
1 at December 31, 1995.
A total amount of $210,625 of the remaining balance of $682,425 of the
subordinated notes payable outstanding at December 31, 1995 was paid off at
the March 1, 1996 maturity date. The remaining $471,800 was rolled over into
new notes due in one year with interest payable monthly at 10 percent.
In March 1996, the Company established a $6,000,000 revolving line of credit
with Union Bank of California, N.A. which replaced the previous banking
relationship with Comerica Bank. The new line of credit, which has an
expiration date of May 1, 1997, provides more favorable accounts receivable
flexibility and, coupled with the increased borrowing capacity, is sufficient
to satisfy the Company's immediate working capital requirements. As of
September 30, 1996, the Company had outstanding borrowings of $4,200,650
under this line of credit. As a result of the Company's financial
performance during the quarter ended September 30, 1996, the Company is in
violation of certain covenants of its note payable line of credit agreement
with Union Bank of California, N.A.
11
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Management is currently working with the bank to resolve this issue. The
Company also has a commitment from the bank under which it may borrow up to
$800,000 for the purchase of equipment. As of September 30, 1996, only
$124,940 had been advanced under this commitment.
On August 13, 1996, the Company filed a registration statement on Form S-8 to
register 550,000 shares of the Company's common stock, which have been
reserved for issuance pursuant to the Company's Incentive Stock Option Plan.
Such shares had been "restricted securities" as defined in Rule 144 under the
Securities Act of 1933.
Management believes that funds provided from operations and the short term
line of credit will be sufficient to fund the Company's immediate needs for
working capital; however, management is considering obtaining up to $2
million in subordinated debt in late 1996 or early 1997 to fund the
additional working capital necessary to mobilize expected new projects.
Management anticipates that capital expenditures in the foreseeable future
will be minimal and funded from working capital or the Company's equipment
line, and any leases will be short term.
12
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule Filed herewith electronically
(b) Reports on Form 8-K
None.
13
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CET ENVIRONMENTAL SERVICES, INC.
Dated: November 14, 1996 By: /S/ STEVEN H. DAVIS
-------------------------------------
Steven H. Davis,
President
Dated: November 14, 1996 By: /S/ RICK C. TOWNSEND
-------------------------------------
Rick C. Townsend,
Chief Financial Officer
14
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF OPERATIONS FOUND ON PAGES 1
THROUGH 4 OF THE COMPANY'S FORM 10-QSB FOR THE YEAR TO DATE, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 270,542
<SECURITIES> 0
<RECEIVABLES> 8,816,967
<ALLOWANCES> 433,369
<INVENTORY> 0
<CURRENT-ASSETS> 17,383,081
<PP&E> 4,833,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,741,769
<CURRENT-LIABILITIES> 12,997,335
<BONDS> 0
0
0
<COMMON> 6,165,977
<OTHER-SE> 1,995,797
<TOTAL-LIABILITY-AND-EQUITY> 22,741,769
<SALES> 40,008,620
<TOTAL-REVENUES> 40,008,620
<CGS> 36,932,837
<TOTAL-COSTS> 36,932,837
<OTHER-EXPENSES> 5,051,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,553,561)
<INCOME-TAX> 10,000
<INCOME-CONTINUING> (2,563,561)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,563,561)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> 0
</TABLE>
