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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 8, 2000
CET ENVIRONMENTAL SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
California 1-13852 33-0285964
(State or other jurisdiction (Commission file (IRS Employer
of incorporation) number) identification No.)
7032 South Revere Parkway, Englewood, Colorado 80112
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (720) 875-9115
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Item 2. Acquisition or Disposition of Assets
On March 8, 2000, the Company entered into an Asset Purchase Agreement
with Cape Environmental Management, Inc. ("CEM") to sell certain assets and
assign certain contracts and liabilities associated with its Tustin,
California operations for $2.1 million. The transaction was closed on May 8,
2000, effective as of April 30, 2000, with final consideration consisting of
approximately $1.775 million in cash, the assignment of $0.075 million of
vacation accruals and related payroll taxes, and a holdback of $0.250 million
due within 60 days subject to certain adjustments. The nature and dollar
value attributed to the assets and liabilities transferred in the sale
consisted of $0.9 million of field and office equipment, $1.05 million of
project contracts consisting of non-EPA federal and commercial contracts, a
$0.1 million non-compete covenant and $0.05 million of intangibles. The
Company's net book value of the assets and liabilities of approximately $0.7
million and approximately $0.1 million of other related closing costs resulted
in a recorded gain of $1.3 million on the date of sale. The Company will
retain approximately $1.3 million of assets related to the Tustin operations
consisting primarily of receivables recorded through the date of closing.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro forma Financial Information. The following pro forma financial
information is filed herewith:
Page
Unaudited Pro Forma Financial Statement............... F-1
Unaudited Pro Forma Balance Sheet as of December
31, 1999.............................................. F-2, F-3
Unaudited Pro Forma Statement of Operations for
the Three Months Ended March 31, 2000. ............... F-4
Unaudited Pro Forma Statement of Operations for
the Twelve Months Ended December 31, 1999............. F-5
Notes to Unaudited Pro Forma Financial Statements..... F-6
(c) Exhibits. The following exhibits are filed herewith:
Exhibit
Number Description Location
10.16 Asset Purchase Agreement by Incorporated by reference
and between the Company and to exhibit 10.16 to Company's
CAPE Environmental Management, Form 10-K for the year ended
Inc. December 31, 1999.
10.18 First Amendment to Asset Filed herewith electronically.
Purchase Agreement by and
between the Company and CAPE
Environmental Management, Inc.
10.19 Second Amendment to Asset Filed herewith electronically.
Purchase Agreement by and
between the Company and CAPE
Environmental Management, Inc.
2
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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: May 18, 2000 By:/s/ Steven H. Davis
Steven H. Davis, President, and Chief
Executive Officer
3
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CET Environmental Services, Inc.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements are derived from
the historical financial statements of CET Environmental Services, Inc., and
give pro forma effect to the sale of the Tustin, California Operations on May
8,2000 with an effective date of sale as of April 30, 2000. These pro forma
statements should be read in conjunction with those historical financial
statements and related notes.
F-1
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CET Environmental Services, Inc.
PRO FORMA BALANCE SHEET
As of March 31, 2000
ASSETS
Pro Forma
Actual Adjustments Pro Forma
----------- --------------- ------------
CURRENT ASSSETS
Cash $ 416,441 $ 1,961,423 (a) $ 2,377,864
Accounts receivable 2,838,404 - 2,838,404
Contracts in process 2,134,117 - 2,134,117
Retention receivable 889,043 - 889,043
Income tax receivable - - -
Due from related party 67,271 - 67,271
Other receivable 451,572 - 451,572
Inventories 65,379 (14,554) (b) 50,825
Prepaid expenses 444,886 (10,036) (b) 434,850
----------- ----------- ------------
Total current assets 7,307,113 1,936,833 9,243,946
----------- ----------- ------------
EQUIPMENT AND IMPROVEMENTS
Field equipment 2,973,742 (1,368,696) (b) 1,605,046
Vehicles 885,456 (237,638) (b) 647,818
Furniture and fixtures 76,164 - 76,164
Office equipment 773,644 (13,782) (b) 759,862
Leasehold improvements 49,862 - 49,862
----------- ----------- ------------
4,758,868 (1,620,116) 3,138,752
Less allowance for deprecia-
tion and amortization (2,387,177) 924,138 (b) (1,463,039)
----------- ----------- ------------
Equipment and improvements-
net 2,371,691 (695,978) 1,675,713
DEPOSITS 31,455 - 31,455
----------- ----------- ------------
$ 9,710,259 $ 1,240,855 $ 10,951,114
=========== =========== ============
F-2
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CET Environmental Services, Inc.
PRO FORMA BALANCE SHEET
As of March 31, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
Pro Forma
Actual Adjustments Pro Forma
----------- --------------- ------------
CURRENT LIABILITIES
Cash overdraft $ 36,709 $ - $ 36,709
Accounts payable 3,235,367 - 3,235,367
Accrued expenses 410,745 - 410,745
Accrued contract costs 83,396 - 83,396
Accrued payroll and benefits 291,282 (74,026) (b) 217,256
Current obligations under
capital leases 89,402 (24,614) (b) 64,788
Current portion of long-term
debt 210,534 - 210,534
Line of credit - - -
----------- ----------- ------------
Total current liabilities 4,357,435 (98,640) 4,258,795
OBLIGATIONS UNDER CAPITAL
LEASES 13,496 (5,490) (b) 8,006
LONG-TERM DEBT 116,087 - 116,087
COMMITMENTS AND CONTINGENT
LIABILITIES - - -
STOCKHOLDERS' EQUITY
Common stock 8,671,261 - 8,671,261
Paid-in capital 104,786 - 104,786
Accumulated deficit (3,552,806) 1,344,985 (c) (2,207,821)
----------- ----------- ------------
Total stockholders' equity 5,223,241 1,344,985 6,568,226
----------- ----------- ------------
$ 9,710,259 $ 1,240,855 $ 10,951,114
=========== =========== ============
F-3
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CET Environmental Services, Inc.
STATEMENT OF OPERATIONS
For the three months ended March 31, 2000
Pro Forma
Actual Adjustments (d) Pro Forma
----------- --------------- ------------
PROJECT REVENUE $ 3,453,202 $(1,139,391) $ 2,313,811
PROJECT COSTS
Direct 2,417,951 (796,866) 1,621,085
Indirect 732,333 (227,456) 504,877
----------- ----------- ------------
3,150,284 (1,024,322) 2,125,962
----------- ----------- ------------
Gross profit 302,918 (115,069) 187,849
----------- ----------- ------------
OTHER OPERATING EXPENSES
Selling, general and
administrative 1,024,591 (58,959) 965,632
----------- ----------- ------------
Operating loss (721,673) (56,110) (777,783)
----------- ----------- ------------
OTHER INCOME (EXPENSE)
Gain (loss) on sale of
equipment (46,842) - (46,842)
Interest expense, net (20,034) 920 (19,114)
Other income (expense) 4,340 (6,080) (1,740)
----------- ----------- ------------
(62,536) (5,160) (67,696)
----------- ----------- ------------
Loss before taxes on income (784,209) (61,270) (845,479)
(Benefit) taxes on income - - -
----------- ----------- ------------
NET LOSS $ (784,209) $ (61,270) $ (845,479)
=========== =========== ============
Weighted average number of
shares outstanding 6,284,288 6,284,288 6,284,288
Loss per common share $ (0.12) $ (0.01) $ (0.13)
=========== =========== ============
Loss per common share--
assuming dilution $ (0.12) $ (0.01) $ (0.13)
=========== =========== ============
F-4
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CET Environmental Services, Inc.
STATEMENT OF OPERATIONS
For the twelve months ended December 31, 1999
Pro Forma
Actual Adjustments (d) Pro Forma
----------- --------------- ------------
PROJECT REVENUE $43,189,319 $(4,240,241) $ 38,949,078
PROJECT COSTS
Direct 33,909,701 (2,433,889) 31,475,812
Indirect 6,219,975 (1,114,430) 5,105,545
----------- ----------- ------------
40,129,676 (3,548,319) 36,581,357
----------- ----------- ------------
Gross profit 3,059,643 (691,922) 2,367,721
----------- ----------- ------------
OTHER OPERATING EXPENSES
Selling, general and
administrative 4,932,824 (101,377) 4,831,447
Restructuring expense 857,469 - 857,469
----------- ----------- ------------
5,790,293 (101,377) 5,688,916
----------- ----------- ------------
Operating loss (2,730,650) (590,545) (3,321,195)
----------- ----------- ------------
OTHER INCOME (EXPENSE)
Gain (loss) on sale of
equipment (89,167) (547) (89,714)
Gain (loss) on sale of
subsidiary - - -
Interest expense, net (475,504) 5,750 (469,754)
Other income (expense) 118,564 145 118,709
----------- ----------- ------------
(446,107) 5,348 (440,759)
----------- ----------- ------------
Loss before taxes on income (3,176,757) (585,197) (3,761,954)
(Benefit) taxes on income - - -
----------- ----------- ------------
NET LOSS $(3,176,757) $ (585,197) $ (3,761,954)
=========== =========== ============
Weighted average number of
shares outstanding 6,282,346 6,282,346 6,282,346
Loss per common share $ (0.51) $ (0.09) $ (0.60)
=========== =========== ============
Loss per common share--
assuming dilution $ (0.51) $ (0.09) $ (0.60)
=========== =========== ============
F-5
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CET Environmental Services, Inc.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
On May 8, 2000 CET Environmental Services, Inc. ("CET") sold the Tustin,
California Operations ("Tustin") for the sum of $2.1 million effective as of
April 30, 2000. The consideration consisted of approximately $2.025 million
in cash including a holdback provision of $0.25 million due within 60 days
subject to certain adjustments and $0.075 million in liabilities. The
accompanying pro forma balance sheet has been presented as if the sale
occurred on March 31, 2000, for a base price of $2.1 million without regard to
potential adjustment to the holdback provision. The accompanying pro forma
statements of operations for December 31, 1999 and the three months ended
March 31, 2000 have been prepared as if the sale was consummated on December
31, 1998, thus excluding the results of Tustin's operations for both periods.
NOTE B - PRO FORMA ADJUSTMENTS
The accompanying pro forma balance sheet and statements of operations
reflect the following adjustments:
(a) To reflect the cash proceeds from the sale of Tustin.
(b) To reflect the removal of assets, liabilities, and operating
results of Tustin.
(c) To reflect the gain on sale of Tustin.
(d) To reflect the results of operations of Tustin for the entire
period.
F-6
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (the "First Amendment")
is dated effective as of the 24th day of March, 2000, and is to be and become
part of that certain Asset Purchase Agreement (the "Agreement") between Cape
Environmental Management, Inc., a Georgia corporation, as Buyer therein, and
CET Environmental Services, Inc., a California corporation, as Seller therein,
dated as of March 8, 2000, for the purchase and sale of certain Agreements and
related assets of Seller comprising its hazardous, toxic and radiological
waste remediation business.
WITNESSETH
WHEREAS, the Agreement contemplated a Closing Date not later than March
24, 2000, subject to extension by mutual agreement of the parties; and
WHEREAS, the parties desire to extend the Closing Date until no later
than May 31, 2000;
NOW THEREFORE, for and in consideration of the mutual covenants contained
herein, One and No/100ths Dollar ($1.00) in hand paid and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned hereby agree as follows:
1. All terms used herein with an initial capital letter and not otherwise
defined herein shall have the meaning ascribed thereto in the Agreement.
2. The first sentence of Section 4.3 of the Agreement is hereby deleted
in its entirety and replaced with the following:
"Subject to the conditions to Closing and the rights to terminate
this Agreement, the closing of the Asset purchase (the "Closing")
shall take place as soon as possible following the execution of
this Agreement at a mutually agreeable date and time between
May 1, 2000, and May 31, 2000, subject to extension by mutual
agreement of the parties."
3. This First Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same agreement.
Furthermore, a facsimile signature of any of the parties hereto on any
counterpart may be relied upon as an original signature.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, conditions and
obligations of the Agreement shall remain in full force and effect, and are
hereby ratified and confirmed by the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above.
BUYER: SELLER:
Cape Environmental Management, CET Environmental Services, Inc., a
Inc., a Georgia corporation California corporation
By:/s/ Fernando J. Rios By:/s/ Steven H. Davis
Name: Fernando J. Rios Name: Steven H. Davis
Title: President Title: President
SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT (the "Second
Amendment") is dated effective as of the 8th day of May, 2000, and is to be
and become part of that certain Asset Purchase Agreement (the "Agreement")
between Cape Environmental Management, Inc., a Georgia corporation, as Buyer
therein, and CET Environmental Services, Inc., a California corporation, as
Seller therein, dated as of March 8, 2000, as previously amended, for the
purchase and sale of certain Agreements and related assets of Seller
comprising its hazardous, toxic and radiological waste remediation business..
WITNESSETH
WHEREAS, the parties wish to amend the Agreement as more fully
hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual covenants contained
herein, One and No/100ths Dollar ($1.00) in hand paid and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned hereby agree as follows:
1. All terms used herein with an initial capital letter and not
otherwise defined herein shall have the meaning ascribed thereto in the
Agreement.
2. The definition of "Equipment" appearing in Section 1.20 and Exhibit A
to the Agreement are hereby amended to delete any reference to Xerox copiers
which are subject to lease agreements, such copiers not being part of the
purchased Assets. Notwithstanding the foregoing, Seller agrees to leave the
Xerox copiers located at the Tustin, California office in place, at Seller's
sole cost and expense, until June 30, 2000, and agrees that Buyer shall have
the use of such copiers at no expense until they are removed from the
premises.
3. Notwithstanding the failure of Seller to assign to Buyer all
Commercial Contracts, Buyer agrees to pay the Purchase Price allocable to such
contracts to Seller at Closing, provided that Seller subcontracts those
projects to Buyer in form and substance satisfactory to Buyer and provided
that Seller also maintains in place all its payment, performance and surety
bonds relating to projects 2306 (CH2M Hill), 2404 (Pacific Refining) and 9P04
(Hoe Creek).
4. This Second Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same agreement.
Furthermore, a facsimile signature of any of the parties hereto on any
counterpart may be relied upon as an original signature.
5. The parties agree that May 1, 2000 shall be deemed the effective date
of closing for purposes of all prorations, accounting adjustments and economic
allocations.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, conditions and
obligations of the Agreement shall remain in full force and effect, and are
hereby ratified and confirmed by the parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above.
BUYER: SELLER:
Cape Environmental Management, CET Environmental Services, Inc., a
Inc., a Georgia corporation California corporation
By:/s/ Fernando J. Rios By:/s/ Steven H. Davis
Name: Fernando J. Rios Name: Steven H. Davis
Title: President Title: President
