<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1998
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 registrant as specified in its charter)
CALIFORNIA 33-0285964
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7670 SOUTH VAUGHN COURT, ENGLEWOOD, COLORADO 80112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 708-1360
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 12, 1998, 5,809,485 shares of common stock, no par value per
share, were outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED)
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................ $ 215,374 $ 343,878
Cash in Trust Account............................... 4,623,823 -
Accounts receivable, less allowance for doubtful
accounts of $638,638 in 1998 and $642,097 in 1997... 14,237,629 10,042,516
Contracts in process................................ 8,734,814 13,344,219
Prepaid expenses and other current assets........... 1,131,193 1,358,640
------------ ------------
Total Current Assets........................... 28,942,833 25,089,253
EQUIPMENT AND IMPROVEMENTS, NET.......................... 4,015,547 3,806,364
OTHER ASSETS............................................. 2,467,524 987,194
------------ ------------
$ 35,425,904 $ 29,882,811
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Note payable-line of credit....................... $ 6,967,087 $ --
Other notes payable............................... 4,067,411 --
Accounts payable.................................. 10,728,635 8,974,502
Accrued expenses.................................. 1,985,111 3,054,740
Shareholders' notes payable....................... 671,800 671,800
Current portion of long-term debt and capital
lease obligations................................. 403,039 941,151
------------ ------------
Total current liabilities.................... 24,823,083 13,642,193
DEFERRED INCOME TAXES.................................. -- --
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS........... 3,859,536 7,531,901
COMMITMENTS AND CONTINGENT LIABILITIES................. -- --
STOCKHOLDERS' EQUITY
Common stock (no par value) - authorized
20,000,000 shares; issued and outstanding
5,809,485 and 5,805,485 shares in 1998 and
1997, respectively................................ 8,249,589 8,235,589
4% convertible preferred stock ($1,000 stated
value) - authorized 2,000 shares, issued and
outstanding 2,000 and 0 shares in 1998 and 1997,
respectively...................................... 1,890,000 --
Paid-in capital................................... 563,858 567,953
Retained earnings (deficit)....................... (3,960,162) (94,825)
------------ ------------
Total stockholders' equity................... 6,743,285 8,708,717
------------ ------------
$35,425,904 $29,882,811
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
PROJECT REVENUE........................................ $17,125,007 $14,777,195
PROJECT COSTS
Direct............................................ 16,364,374 11,366,959
Indirect.......................................... 1,970,922 1,687,247
------------- -------------
18,335,296 13,054,206
Gross profit (loss).......................... (1,210,289) 1,722,989
OTHER OPERATING EXPENSES
Selling........................................... 452,401 387,612
General and administrative........................ 584,737 570,881
------------- -------------
1,037,138 958,493
------------- -------------
Operating income (loss)...................... (2,247,427) 764,496
OTHER INCOME (EXPENSE), NET............................ (356,133) (191,643)
------------- -------------
Income (loss) before income taxes............ (2,603,560) 572,853
Provision (credit) for income taxes.......... -- 1,017
------------- -------------
NET INCOME (LOSS)...................................... $(2,603,560) $ 571,836
------------- -------------
------------- -------------
Weighted average number of shares outstanding.......... 5,809,485 5,798,585
------------- -------------
------------- -------------
Net income (loss) per common share..................... $ (.45) $ 0.10
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1998 1997
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
PROJECT REVENUE....................................... $44,585,226 $34,888,591
PROJECT COSTS
Direct........................................... 39,138,183 26,651,504
Indirect......................................... 5,532,324 5,506,222
------------- -------------
44,670,507 32,157,726
Gross profit (loss)......................... (85,281) 2,730,865
OTHER OPERATING EXPENSES
Selling.......................................... 1,437,184 1,476,286
General and administrative....................... 1,544,770 1,814,243
------------- -------------
2,981,954 3,290,529
------------- -------------
Operating income (loss).................... (3,067,235) (559,664)
OTHER INCOME (EXPENSE), NET........................... (798,102) (403,539)
------------- -------------
Income (loss) before income taxes........... (3,865,337) (963,203)
Provision (credit) for income taxes......... -- (113,547)
------------- -------------
NET INCOME (LOSS)..................................... $(3,865,337) $ (849,656)
------------- -------------
------------- -------------
Weighted average number of shares outstanding......... 5,809,307 5,779,624
------------- -------------
------------- -------------
Net income (loss) per common share.................... $ (.67) $ (0.15)
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
(unaudited) (unaudited)
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)..................................................... $(3,865,337) $ (849,656)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 1,148,600 1,120,720
Provision for bad debts.......................................... (3,459) (13,087)
Employee stock option plan....................................... -- --
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable.................. (4,191,654) (1,683,916)
Decrease (Increase) in contracts in process................. 4,609,405 (2,315,468)
Decrease (Increase) in income taxes receivable.............. -- 1,220,120
Decrease (Increase) in prepaid expenses and other assets.... 38,945 (497,863)
(Decrease) Increase in accounts payable and
accrued expenses........................................... (1,232,180) (26,272)
------------- ------------
Net cash provided by (used in) operating activities......... (3,495,680) (3,045,422)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment................................................. (1,250,780) (350,573)
Purchase of subsidiary................................................ (690,998) (174,878)
------------- ------------
Net cash provided by (used in) operating activities......... (1,941,778) (525,451)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated and long-term debt............. 7,114,578 1,038,312
Payments on long-term debt and capital lease obligations.............. (394,528) (878,801)
Proceeds from exercise of Employee Stock Options...................... 17,571 9,800
Proceeds from Private Placement Equity Offering....................... 1,890,000 2,041,875
Proceeds from National Bank of Canada line of credit, net
of payments......................................................... 780,156 4,594,078
Principal payments (net borrowings) on Union Bank line of credit...... -- (4,200,650)
Proceeds from loans from shareholders................................. 825,000 --
Payments on loans from shareholders................................... (300,000) (545,000)
------------- ------------
Net cash provided by (used in) financing activities.............. 9,932,777 2,059,614
------------- ------------
INCREASE (DECREASE) IN CASH........................................... 4,495,319 (1,511,259)
Cash at the beginning period.......................................... 343,878 1,887,001
------------- ------------
Cash at end of period................................................. $ 4,839,197 $ 375,742
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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-Q and
Rule 10-01 of Regulation S-X. 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,
1998 are not necessarily indicative of results that may be expected for
the year ending December 31, 1998.
NOTE 2. Certain amounts have been reclassified between categories on the 1997
Statement of Operations for consistent treatment with 1998. This did
not result in any adjustment to net income or loss.
NOTE 3. Through May 30, 1997, the Company maintained a $6,000,000 line of
credit with Union Bank of California, N.A. During the first quarter of
1997, the Company was in breach of certain loan covenants relating to
the line of credit and two other equipment loans from the Bank under
which, as of March 31, 1997, the Company had borrowed an aggregate of
approximately $3,289,678. The Company was not in default with respect
to any loan payments due to the Bank. The breached covenants related
to the ratio of the Company's liabilities to its tangible net worth,
the maintenance of a minimum net worth, and the maintenance of
profitable operations.
On May 30, 1997 the Company entered into a financing agreement with
the National Bank of Canada. This agreement is comprised of a line of
credit of $9,000,000 based upon a percentage (80%) of qualifying
receivables, and an equipment term loan of $1,000,000. The $9,000,000
line provides that up to $1,000,000 can be used for capital
expenditures. Interest is payable monthly at the Bank's Reference Rate
plus .25%. This rate may be adjusted up or down an additional .25%
depending upon the Company's profitability. Upon execution of the new
loan agreement, proceeds of $3,108,390 were used to pay off all
outstanding indebtedness to Union Bank. As of September 30, 1998, the
balance owed on the new line of credit was $6,967,087 and on the
equipment loan was $800,000.
Because the Company incurred a loss in the third quarter of 1998, it is
in breach of loan covenants requiring the Company to breakeven and to
maintain a certain ratio between operating income and interest expense
in each quarter. The Company is not in default on any loan payments
due to the Bank. Management believes it will be able to resolve any
related issues with the Bank.
NOTE 4. On March 2, 1998, the Company's wholly-owned subsidiary, Water Quality
Management Corporation (WQM), entered into a Service Agreement with the
Town of Keystone, South Dakota to design, build and operate for 20
years a municipal wastewater treatment plant. In conjunction with this
Agreement, on March 27, 1998, Keystone issued economic development
revenue bonds totaling $2,710,000. The proceeds of this bond issue
were loaned by Keystone to WQM for construction of the facility. This
loan will be repaid from payments made by Keystone to WQM for
wastewater treatment services provided under the Service Agreement.
NOTE 5: On July 24, 1998 the Company completed a Private Placement of 2,000
shares of 4% Convertible Preferred Stock. Net proceeds of the
transaction were $1,890,000. The filing was declared effective on
August 13, 1998.
<PAGE>
The preferred shares may be converted after 120 days into common shares
of the Company at a 15% discount to the price of the Company's shares
at the time of conversion with a maximum conversion price of $3.35.
The preferred shares provide that the Company has the option to convert
the preferred shares into cash rather than common shares and the
preferred shares are redeemable by the Company under certain
circumstances. The investors will also be issued an aggregate of
35,000 3-year warrants to purchase common shares of the Company at a
price of $3.00 per share.
NOTE 6: On August 1, 1998, the Company's wholly-owned subsidiary, Water Quality
Management Corporation (WQM), entered into various agreements with the
Town of Cactus, Texas to design, build and operate a municipal
wastewater treatment plant. In addition, WQM is providing interim
financing in the amount of $3,250,000 to the City of Cactus for initial
engineering and construction and the purchase of required land.
Funding for the interim financing was provided through a corporate bond
issued by WQM and secured by a corporate guarantee from Monfort, Inc.,
one of the major industrial users in the community. The interim
financing will be replaced by long-term financing established by the
City of Cactus before August 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
Project revenue for the quarter ended September 30, 1998 was $17,125,007, an
increase of 15.9% from $14,777,195 for the third quarter of 1997. This
increase was due to a variety of factors:
- Increased activity under the five year EPA ERRS West contract awarded
in December, 1996, with an estimated value of $292 million.
- Start-up of the EPA ERRS Region X contract awarded in September, 1997,
with an estimated five year value of $42 million.
- Continued activity on two delivery orders totaling $11 million issued
in mid-1997 under a Preplaced Remedial Action Contract (PRAC) with the
U. S. Army Corps of Engineers.
- Increased revenues in water and wastewater treatment operations due to
the acquisition of Water Quality Management Corporation (August, 1997)
and H2O Construction and Maintenance, Inc. (January 1998).
In the third quarter of 1998, 51.2% of total project revenue or $8,760,061
was derived from one client, the U.S. Environmental Protection Agency.
During the third quarter of 1997, the revenue from this client was $7,095,742
or 48.0% of total project revenue.
A comparison of the third quarter of 1998 to the third quarter of 1997 showed
that gross profit decreased from a gain of $1,722,989 to a loss of
$1,210,289. The gross profit margin decreased from 11.7% to (7.1)% of
revenue. This was due primarily to cost overruns incurred on one project in
the State of Kansas. The net effect of this project on the results for the
third quarter of 1998 was a negative margin of $928,079 or 5.4% of revenue.
Direct project costs increased as a percentage of revenue to 95.6% from 76.9%
for third quarter 1998 and 1997 respectively. Indirect project costs
increased to $1,970,922 or 11.5% of revenue from $1,687,247 or 11.4% of
revenue.
Selling expenses for the third quarter of 1998 increased as compared to 1997
from $387,612 to $452,401. However, selling expense remained steady as a
percent of revenue at 2.6%. This was due to a more focused sales effort and
the implementation of a sales commission program.
General and administrative expenses for the third quarter of 1998 increased
slightly from $570,881to $584,737. General and administrative expenses as a
percentage of project revenue were 3.4% for 1998 as compared to 3.9% for
1997.
Other income (expense)-net, consists primarily of interest expense which
increased $164,490 in the third quarter of 1998 compared to the third quarter
of 1997. The increase is due primarily to higher balances on the Company's
line of credit.
The Company experienced a net loss for the third quarter of 1998 of
$2,603,560, as compared with net profit of $571,836 for the third quarter of
1997. This decline in operating results was due primarily to the impact of
the cost overruns described above.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Project revenue for the nine months ended September 30, 1998 was $44,585,226,
an increase of 27.8% or $9,696,635 from $34,888,591 for the first nine months
of 1997. This increase was due to a variety of factors:
- Increased activity under the five year EPA ERRS West contract awarded
in December, 1996, with an estimated value of $292 million.
- Start-up of the EPA ERRS Region X contract awarded in September, 1997,
with an estimated five year value of $42 million.
- Continued activity on two delivery orders totaling $11 million issued
in mid-1997 under a Preplaced Remedial Action Contract (PRAC) with the
U. S. Army Corps of Engineers.
- Continued activity on a $7 million wastewater treatment plant begun in
mid-1997 for a large industrial client.
- Increased revenues in water and wastewater treatment operations due to
the acquisition of Water Quality Management Corporation (August, 1997)
and H2O Construction and Maintenance, Inc. (January 1998).
In the first nine months of 1998, 44.4% of total project revenue or
$19,784,144 was derived from one client, the U.S. Environmental Protection
Agency. During the first nine months of 1997, the revenue from this client
was $16,248,721 or 46.6% of total project revenue.
A comparison of the first nine months of 1998 to the first nine months of
1997 showed that gross profit decreased from a profit of $2,730,865 to a loss
of $85,281. The gross profit margin decreased from 7.8% to (.2)% of revenue.
Direct project costs increased as a percentage of revenue to 87.8% from 76.4%
for first nine months 1998 and 1997 respectively. This was due in part to
the cost overruns on the projects in Washington and Kansas. Indirect project
costs increased slightly to $5,532,324 from $5,506,222. Indirect costs as a
percentage of revenue decreased significantly to 12.4% from 15.8%. This
decrease was primarily the result of the Company's efforts to control
indirect costs as revenues increase.
Selling expenses for the first nine months of 1998 decreased by $39,102 or
2.7% of revenue when compared to the first nine months of 1997 due to a more
focused sales effort and the implementation of a sales commission program.
Selling expense was 3.2% and 4.2% of project revenue for the first nine
months of 1998 and 1997 respectively.
General and administrative expenses for the first nine months of 1998
decreased by $269,473 or 14.9% of revenue when compared to the first nine
months of 1997. General and administrative expenses as a percentage of
project revenue were 3.5% for the first nine months of 1998 as compared to
5.2% for the first nine months of 1997. This decrease was primarily due to
decreases in insurance costs, fringe benefits and elimination of redundancies
and other costs associated with relocating the corporate office.
Other income (expense)-net, consists primarily of interest expense which
increased $394,563 in the first nine months of 1998 compared to the first
nine months of 1997. The increase is due primarily to higher balances on the
Company's line of credit.
The Company experienced a net loss for the first nine months of 1998 of
$3,865,337, as compared with net loss of $849,656 for the first nine months
of 1997. The loss in 1998 was attributable to reduced project margins,
particularly on projects in Washington and Kansas. In comparison to 1997,
this was offset by higher revenues and reduced overhead.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $7,327,310 from $11,447,060 at December 31, 1997
to $4,119,750 at September 30, 1998. Current assets increased by $3,853,580
during the first nine months of 1998 primarily due to a increase in accounts
receivable-net of $4,195,113, an increase in cash in trust accounts of
$4,623,823, offset by a decrease in contracts in process of $4,609,504.
The increase in current liabilities of $11,180,890 during the first nine
months of 1998 resulted primarily from a shift of the Letter of Credit from
long term to short term and an increase in other notes payable of $4,067,411.
Through May, 1997, the Company maintained a $6,000,000 line of credit with
Union Bank of California, N.A. As of March 31, 1997, the Company had
borrowed an aggregate of approximately $3,289,678 under the line of credit
and two other equipment loans from the Bank. At that time it was also in
breach of certain covenants related to the ratio of the Company's liabilities
to its tangible net worth, the maintenance of a minimum net worth, and the
maintenance of profitable operations. The Company was not in default with
respect to any loan payments due to the Bank.
On May 30, 1997 the Company entered into a new financing agreement with
National Bank of Canada. This agreement is comprised of a line of credit of
$9,000,000 based upon a percentage (80%) of qualifying receivables, and an
equipment term loan of $1,000,000. The $9,000,000 line provides that up to
$1,000,000 can be used for capital expenditures. Interest is payable monthly
at the Bank's Reference Rate plus .25%. This rate may be adjusted up or down
an additional .25% depending upon the Company's profitability. Upon
execution of the new loan agreement, proceeds of $3,108,390 were used to pay
off all outstanding indebtedness to Union Bank. As of September 30, 1998,
the balance owed on the new line of credit was $6,967,087 and on the
equipment loan was $800,000.
Based on the loss incurred for the quarter ended September 30, 1998, the
Company is in breach of loan covenants requiring the Company to breakeven and
to maintain a certain ratio between operating income and interest expense in
each quarter. The Company is not in default on any payment provisions of the
loan agreement. Management believes it will be able to resolve any related
issues with the Bank.
On March 6, 1998, the Company borrowed $500,000 and on June 25, 1998 the
Company borrowed $325,000 from shareholders under short term promissory
notes. These notes have been paid in full as of September 30, 1998.
In July 1998, the Company sold 2,000 shares of its 4% Convertible Preferred
Stock for which it received $1,890,000 in net proceeds.
Management believes that funds provided from the preferred stock offering,
operations and the short term line of credit will be sufficient to fund the
Company's immediate needs for working capital. 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.
<PAGE>
YEAR 2000 COMPLIANCE
The Company has determined that its current accounting system is not Year
2000 compliant and is evaluating alternatives at the current time. Prior to
year-end 1998, the Company expects to make a final decision as to hardware
and software purchases with an implementation schedule and commitments from
the suppliers that we will be fully operational by June 30, 1999. The
estimated cost for this conversion is $400,000 to $500,000.
The Company may also be vulnerable to the failure of other companies to be
Year 2000 compliant. The Company has just recently commenced its assessment
of whether third parties with whom the Company has material relationships are
Year 2000 compliant. The Company is evaluating its vendors and suppliers to
determine if there would be a material effect on the Company's business if
they do not timely become Year 2000 compliant. The same analysis is being
made for significant customers. Of particular concern is the daily tracking
system provided by the EPA that is crucial to the Company's billing effort
for the EPA contract. The Company intends to initiate formal communications
with all of its significant vendors and customers with respect to such
persons' Year 2000 compliance programs and status in the fourth quarter of
1998. The Company has not yet initiated formal contingency planning
processes to mitigate the risk to the Company if any vendors or customers are
not prepared for the Year 2000, but the Company intends to complete this
process by June 30, 1999.
Although the Company expects its internal systems to be Year 2000 compliant,
the failure of any of its significant vendors or customers to correct a
material Year 2000 problem could result in an interruption in certain normal
business activities and operations. Again, the EPA tracking and billing
effort is of particular concern. Due to the general uncertainly inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year
2000 readiness of third parties which the Company relies on, the Company is
unable to determine at this time whether the consequences of Year 2000
failures will have a material adverse impact on the Company's results of
operations, but the Company believes that with the implementation of its new
computer system and completion of its assessment of its vendors and
customers, the possibility of significant interruptions of normal operations
should be reduced.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In July 1998, the Company issued an aggregate of 2,000 shares of its 4%
Convertible Preferred Stock to three accredited investors for $2,000,000 in
cash. In connection with this sale, the Company paid a commission of $100,000
to Trinity Capital Advisors, Inc., and agreed to issue 2,000 shares of its
Common Stock to Trinity Capital Advisors, Inc. as additional compensation. In
connection with these sales, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended (the "Act") and Rule 506 of Regulation D
under the Act. The shares of 4% Convertible Preferred Stock were offered for
investment purposes, and the transfer of the securities was restricted by the
Company. The Company filed a Form D with the Securities and Exchange
Commission with respect to this offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On March 2, 1998, the Company's wholly-owned subsidiary, Water Quality
Management Corporation (WQM), entered into a Service Agreement with the Town
of Keystone, South Dakota to design, build and operate for 20 years a
municipal wastewater treatment plant. In conjunction with this Agreement, on
March 27, 1998, Keystone issued economic development revenue bonds totaling
$2,710,000. The proceeds of this bond issue were loaned by
<PAGE>
Keystone to WQM for construction of the facility. This loan will be repaid
from payments made by Keystone to WQM for wastewater treatment services
provided under the Service Agreement.
Rick C. Townsend, Executive Vice President, Chief Financial Officer and
Secretary, resigned as an officer of CET Environmental Services, Inc. and as
a director effective August 18, 1998. A replacement for the Corporate
officer positions and the vacancy on the Board of Directors has not yet been
selected.
On August 1, 1998, the Company's wholly-owned subsidiary, Water Quality
Management Corporation (WQM),entered into various agreements with the Town of
Cactus, Texas to design, build and operate a municipal wastewater treatment
plant. In addition, WQM is providing interim financing in the amount of
$3,250,000 to the City of Cactus for initial engineering and construction and
the purchase of required land. Funding for the interim financing was
provided through a corporate bond issued by WQM and secured by a corporate
guarantee from Monfort, Inc., one of the major industrial users in the
community. The interim financing will be replaced by long-term financing
established by the City of Cactus before August 1999.
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.
<PAGE>
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 13, 1998 By: /s/ STEVEN H. DAVIS
-------------------------------
Steven H. Davis, President
(Chief Executive and Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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0
1,890,000
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