<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 JUNE 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 Identification No.)
incorporation or organization)
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 August 10, 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>
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,370 $ 343,878
Cash in Trust Account . . . . . . . . . . . . . . . . . . . . . . . . . . 2,524,960 -
Accounts receivable, less allowance for doubtful accounts of
$638,638 in 1998 and $642,097 in 1997 . . . . . . . . . . . . . . . . . . 13,197,582 10,042,516
Contracts in process. . . . . . . . . . . . . . . . . . . . . . . . . . . 11,288,207 13,344,219
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . 494,186 1,358,640
------------ ------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . 27,643,305 25,089,253
EQUIPMENT AND IMPROVEMENTS, NET. . . . . . . . . . . . . . . . . . . . . . . . . 3,490,132 3,806,364
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065,126 987,194
------------ ------------
$ 33,198,563 $ 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>
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Note payable-line of credit . . . . . . . . . . . . . . . . . . . . . . . $ 7,996,568 $ -
Other notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 755,450 -
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,846,202 8,974,502
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,822,748 3,054,740
Shareholders' notes payable . . . . . . . . . . . . . . . . . . . . . . . 1,196,800 671,800
Current portion of long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,147,859 941,151
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . 21,765,627 13,642,193
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS . . . . . . . . . . . . . . . . . . 3,975,557 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
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571,524 567,953
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . . (1,363,734) (94,825)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 7,457,379 8,708,717
------------ ------------
$ 33,198,563 $ 29,882,811
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended June 30,
---------------------------
1998 1997
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
PROJECT REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,004,961 $ 12,593,652
PROJECT COSTS
Direct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,741,891 9,671,912
Indirect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,789,494 1,808,926
------------ ------------
15,531,385 11,480,838
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 473,576 1,112,814
OTHER OPERATING EXPENSES
Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538,132 540,121
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . 287,100 579,153
------------ ------------
825,232 1,119,274
------------ ------------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . (351,656) (6,460)
OTHER INCOME (EXPENSE), NET. . . . . . . . . . . . . . . . . . . . . . . . . . . (251,422) (68,906)
------------ ------------
Income (loss) before income taxes. . . . . . . . . . . . . . . . . (603,078) (75,366)
Provision (credit) for income taxes. . . . . . . . . . . . . . . . 628 (114,564)
------------ ------------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (603,706) $ 39,198
------------ ------------
------------ ------------
Weighted average number of shares outstanding. . . . . . . . . . . . . . . . . . 5,809,485 5,798,585
------------ ------------
------------ ------------
Net income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . $ (0.10) $ 0.01
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
Six Months Ended June 30,
---------------------------
1998 1997
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
PROJECT REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,460,219 $ 20,111,396
PROJECT COSTS
Direct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,780,942 15,304,707
Indirect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,561,401 3,796,435
------------ ------------
26,342,343 19,101,142
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,117,876 1,010,254
OTHER OPERATING EXPENSES
Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984,783 1,090,525
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . 960,034 1,243,889
------------ ------------
1,944,817 2,334,414
------------ ------------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . (826,941) (1,324,160)
OTHER INCOME (EXPENSE), NET. . . . . . . . . . . . . . . . . . . . . . . . . . . (437,505) (211,896)
------------ ------------
Income (loss) before income taxes. . . . . . . . . . . . . . . . . (1,264,446) (1,536,056)
Provision (credit) for income taxes. . . . . . . . . . . . . . . . 4,463 (114,564)
------------ ------------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,268,909) $ (1,421,492)
------------ ------------
------------ ------------
Weighted average number of shares outstanding. . . . . . . . . . . . . . . . . . 5,809,219 5,770,144
------------ ------------
------------ ------------
Net income (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . $ (0.22) $ (0.25)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
Six Months Ended June 30,
------------------------------------------
1998 1997
(unaudited) (unaudited)
--------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)............................................................ $ (1,268,909) $ (1,421,492)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization........................................... 752,454 670,867
Provision for bad debts................................................. (3,459) 122,098
Employee stock option plan.............................................. - -
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable......................... (3,073,515) (929,233)
Decrease (Increase) in contracts in process........................ 2,056,013 274,515
Decrease (Increase) in income taxes receivable..................... - 426,410
Decrease (Increase) in prepaid expenses and other assets........... (3,414) 428,483
(Decrease) Increase in accounts payable and
accrued expenses.................................................. (1,360,292) (3,376,081)
--------------- ------------
Net cash provided by (used in) operating activities................ (2,901,122) (3,804,433)
--------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment........................................................ (436,223) (101,730)
Purchase of subsidiary....................................................... (476,455) -
--------------- ------------
Net cash provided by (used in) operating activities................ (912,678) (101,730)
--------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated and long-term debt.................... 2,970,687 (25,264)
Payments on long-term debt and capital lease obligations..................... (127,430) (107,532)
Proceeds from issuance of subordinated and short term debt................... 937,603 -
Payments on short term debt and capital lease obligations.................... (288,116) -
Proceeds from exercise of Employee Stock Options............................. 17,571 9,800
Proceeds from Private Placement Equity Offering ............................. - 2,041,874
Proceeds from National Bank of Canada line of credit, net of payments........ 1,797,937 4,975,651
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.......................................... - (545,000)
--------------- ------------
Net cash provided by (used in) financing activities..................... 6,133,252 2,148,879
--------------- ------------
INCREASE (DECREASE) IN CASH.................................................. 2,319,452 (1,757,284)
Cash at the beginning period................................................. 343,878 1,887,001
--------------- ------------
Cash at end of period........................................................ $ 2,663,330 $ 129,717
--------------- ------------
--------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CET ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 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 six months ended June 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 June 30, 1998, the
balance owed on the new line of credit was $7,996,568 and on the
equipment loan was $850,000.
Because the Company incurred a loss in the second 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 approximately $1,890,000, of which $950,000 is to be
delivered within 10 days after effectiveness of a registration of the
underlying common shares via a Form S-3 filing. 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1998 COMPARED TO QUARTER ENDED JUNE 30, 1997
Project revenue for the quarter ended June 30, 1998 was $16,004,961, an
increase of 27.1% from $12,593,652 for the second 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.
- 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 second quarter of 1998, 40.2% of total project revenue or $6,430,946
was derived from one client, the U.S. Environmental Protection Agency.
During the second quarter of 1997, the revenue from this client was
$6,362,369 or 50.5% of total project revenue.
A comparison of the second quarter of 1998 to the second quarter of 1997
showed that gross profit decreased from $1,112,814 to $473,576. The gross
profit margin decreased from 8.8% to 3.0% of revenue. This was due primarily
to cost overruns incurred on one project in the State of Washington. The net
effect of this project on the results for the second quarter of 1998 was a
negative margin of $729,419 or 4.6% of revenue. Direct project costs
increased as a percentage of revenue to 85.9% from 76.8% for second quarter
1998 and 1997 respectively. Indirect project costs decreased slightly to
$1,789,494 from $1,808,926. However, indirect costs as a percentage of
revenue decreased significantly to 11.2% from 14.4%. This decrease was
primarily the result of the Company's efforts to control indirect costs as
revenues increase.
Selling expenses for the second quarter of 1998 were comparable to 1997 at
$538,132 and $540,121 respectively. However, selling expense decreased to
3.4% of revenue from 4.3% for the second quarter of 1998 and 1997
respectively. This was due to a more focused sales effort and the
implementation of a sales commission program.
General and administrative expenses for the second quarter of 1998 decreased
by $292,053 or 50.4% when compared to the second quarter of 1997. General
and administrative expenses as a percentage of project revenue were 1.8% for
1998 as compared to 4.6% for 1997. This decrease was primarily due to
decreases in insurance costs and fringe benefits.
Other income (expense)-net, consists primarily of interest expense which
increased $182,516 in the second quarter of 1998 compared to the second
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 second quarter of 1998 of
$603,706, as compared with net profit of $39,198 for the second quarter of
1997. This decline in operating results was due primarily to the impact of
the cost overruns on the project described above.
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Project revenue for the six months ended June 30, 1998 was $27,460,219, an
increase of 36.5% or $7,348,823 from $20,111,396 for the first six 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 six months of 1998, 40.1% of total project revenue or
$11,016,754 was derived from one client, the U.S. Environmental Protection
Agency. During the first six months of 1997, the revenue from this client
was $9,152,979 or 45.5% of total project revenue.
A comparison of the first six months of 1998 to the first six months of 1997
showed that gross profit increased from $1,101,025 to $1,117,876. The gross
profit margin decreased from 5.0% to 4.1% of revenue. Direct project costs
increased as a percentage of revenue to 83.0% from 76.1% for first six months
1998 and 1997 respectively. This was due in part to the cost overruns on the
project in Washington. Indirect project costs decreased slightly to
$3,561,401 from $3,796,435. Indirect costs as a percentage of revenue
decreased significantly to 13.0% from 18.9%. This decrease was primarily the
result of the Company's efforts to control indirect costs as revenues
increase.
Selling expenses for the first six months of 1998 decreased by $105,742 or
9.7% when compared to the first six months of 1997 due to a more focused
sales effort and the implementation of a sales commission program. Selling
expense was 3.6% and 5.4% of project revenue for the first six months of 1998
and 1997 respectively.
General and administrative expenses for the first six months of 1998
decreased by $283,855 or 22.8% when compared to the first six months of 1997.
General and administrative expenses as a percentage of project revenue were
3.5% for the first six months of 1998 as compared to 6.2% for the first six
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 $225,609 in the first six months of 1998 compared to the first six
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 six months of 1998 of
$1,268,909, as compared with net loss of $1,421,492 for the first six months
of 1997. The loss in 1998 was attributable to reduced project margins,
particularly on the Washington project. In comparison to 1997, this was
offset by higher revenues and reduced overhead.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $5,569,382 from $11,447,060 at December 31, 1997
to $5,877,678 at June 30, 1998. Current assets increased by $2,554,052
during the first six months of 1998 primarily due to a increase in accounts
receivable-net of $3,155,066, offset by a decrease caused by the
reclassification of the Letter of Credit at National Bank of Canada to short
term from long term and a decrease in contracts in process of $1,231,992. In
addition, prepaid expenses and other current assets decreased by $864,454
primarily due to amortization of the prepaid insurance and the
reclassification of goodwill from short term to other assets.
The increase in current liabilities of $8,123,434 during the first six months
of 1998 resulted primarily from a shift of the Letter of Credit from long
term to short term.
Equipment and improvements-net showed a decrease of $316,232 during the first
six months of 1998 which was comprised mainly of depreciation.
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 June 30, 1998, the
balance owed on the new line of credit was $7,996,568 and on the equipment
loan was $850,000.
Based on the loss incurred for the quarter ended June 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 carry an interest rate of 10% per annum.
In July 1998, the Company sold 2,000 shares of its 4% Convertible Preferred
Stock for which it will receive approximately $1,890,000 in net proceeds.
During July 1998, the Company received $940,000 of this amount, and the
remaining $950,000 is expected to be received by August 24, 1998.
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>
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
At the annual shareholders meeting held on June 2, 1998, the following
matters were voted affirmatively:
a) Election of the following directors to serve until the next annual
shareholders meeting:
<TABLE>
--------------------------------------------
NOMINEE FOR WITHHELD
--------------------------------------------
<S> <C> <C>
Craig C. Barto 3,971,926 13,946
--------------------------------------------
Douglas W. Cotton 3,930,726 55,146
--------------------------------------------
Steven H. Davis 3,940,986 44,886
--------------------------------------------
Robert S. Taylor 3,237,672 44,646
--------------------------------------------
Rick C. Townsend 3,946,326 39,546
--------------------------------------------
</TABLE>
b) Confirmation of Grant Thornton LLP as the Company's outside auditors
for fiscal year 1998.
<TABLE>
--------------------------------------------
FOR AGAINST ABSTENTIONS
--------------------------------------------
<S> <C> <C>
3,924,781 57,741 3,350
--------------------------------------------
</TABLE>
c) Approval to amend the Articles of Incorporation of the Company to
authorize the issuance of up to 5,000,000 shares of no par value
preferred stock and to allow the Board of Directors to determine the
designations, preferences, limitations and relative rights of any such
preferred stock issued.
<TABLE>
------------------------------------------------
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
<S> <C> <C> <C>
------------------------------------------------
3,644,428 108,320 8,150 1,406,613
------------------------------------------------
</TABLE>
<PAGE>
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 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.
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: August 12, 1998 By: /S/ STEVEN H. DAVIS
-----------------------------------------
Steven H. Davis, President
Dated: August 12, 1998 By: /S/ RICK C. TOWNSEND
-----------------------------------------
Rick C. Townsend, Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,663,330
<SECURITIES> 0
<RECEIVABLES> 13,836,220
<ALLOWANCES> (638,638)
<INVENTORY> 11,288,207
<CURRENT-ASSETS> 27,643,305
<PP&E> 8,163,718
<DEPRECIATION> (4,673,585)
<TOTAL-ASSETS> 33,198,563
<CURRENT-LIABILITIES> 21,765,627
<BONDS> 5,878,866
0
0
<COMMON> 8,249,589
<OTHER-SE> (792,210)
<TOTAL-LIABILITY-AND-EQUITY> 33,198,563
<SALES> 27,460,219
<TOTAL-REVENUES> 27,460,219
<CGS> 0
<TOTAL-COSTS> 26,342,343
<OTHER-EXPENSES> 1,944,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420,804
<INCOME-PRETAX> (1,264,446)
<INCOME-TAX> 4,463
<INCOME-CONTINUING> (1,268,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,268,909
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
