<PAGE> 1
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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, 2000
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)
7032 SOUTH REVERE PARKWAY, ENGLEWOOD, CO 80112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (720) 875-9115
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 10, 2000, 6,266,003 shares of common stock, no par value per share,
were outstanding.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CET ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
ASSETS (UNAUDITED) 1999
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................. $ 370,275 $ 504,583
Accounts receivable, less allowance for doubtful accounts of
$181,740 in 2000 and $359,648 in 1999 ........................ 5,103,996 6,086,086
Contracts in process, less allowance for doubtful accounts of
$104,846 in 2000 and $118,907 in 1999 ........................ 5,089,458 1,770,954
Retention receivable ............................................. 271,772 318,883
Income tax receivable ............................................ -- 90,542
Due from related party ........................................... 29,440 104,036
Other receivables ................................................ 218,647 1,612,962
Inventories ...................................................... 10,961 73,601
Prepaid expenses ................................................. 402,595 570,532
------------ ------------
Total Current Assets .................................... 11,497,144 11,132,179
------------ ------------
EQUIPMENT AND IMPROVEMENTS:
Field equipment .................................................. 1,400,965 3,059,206
Vehicles ......................................................... 812,146 890,193
Furniture & fixtures ............................................. 75,377 84,543
Office equipment ................................................. 649,677 815,278
Leasehold improvements ........................................... 49,862 49,861
------------ ------------
2,988,027 4,899,081
Less allowance for depreciation and amortization ................. (1,401,412) (2,262,736)
------------ ------------
Equipment and improvements, net ......................... 1,586,615 2,636,345
------------ ------------
OTHER ASSETS:
Deposits ......................................................... 36,680 36,656
------------ ------------
$ 13,120,439 $ 13,805,180
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
1
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CET ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) 1999
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Cash overdraft ................................................... $ -- $ 118,348
Accounts payable ................................................. 5,165,762 4,959,733
Accrued expenses ................................................. 7,294 586,612
Accrued contract costs ........................................... 232,683 364,573
Accrued payroll and benefits ..................................... 291,017 361,443
Current obligations under capital leases ......................... 116,702 119,091
Current portion of long-term debt ................................ 201,071 290,982
Line of credit ................................................... -- 818,152
------------ ------------
Total current liabilities ............................... 6,014,529 7,618,934
------------ ------------
OBLIGATIONS UNDER CAPITAL LEASES .......................................... 153,913 25,669
LONG-TERM DEBT ............................................................ -- 153,127
COMMITMENTS AND CONTINGENT LIABILITIES .................................... -- --
STOCKHOLDERS' EQUITY
Common stock (no par value) - authorized 20.0 million shares;
6,266,003 and 6,284,288 shares issued and outstanding in
2000 and 1999, respectively .................................. 8,633,429 8,671,261
Paid-in capital .................................................. 104,786 104,786
Accumulated deficit .............................................. (1,786,218) (2,768,597)
------------ ------------
Total stockholders' equity .............................. 6,951,997 6,007,450
------------ ------------
$ 13,120,439 $ 13,805,180
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
CET ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
PROJECT REVENUE ....................................................... $ 7,731,321 $ 13,938,719
PROJECT COSTS
Direct ....................................................... 6,681,252 12,426,179
Indirect ..................................................... 286,743 1,370,752
------------ ------------
6,967,995 13,796,931
------------ ------------
Gross profit ........................................ 763,326 141,788
------------ ------------
OPERATING EXPENSES
Selling ...................................................... 77,887 560,090
General and administrative ................................... 547,553 910,182
Restructuring expense ........................................ 23,806 912,880
------------ ------------
649,246 2,383,152
------------ ------------
Operating income (loss) ............................ 114,080 (2,241,364)
------------ ------------
OTHER INCOME (EXPENSE)
Gain (loss) on sale of equipment ............................. (57,433) 7,635
Gain on sale of property held for investment ................. 211,862 --
Interest expense, net ........................................ 1,343 (134,008)
Other income (expense) ....................................... (3,979) (5,984)
------------ ------------
151,793 (132,357)
------------ ------------
Income (loss) before income taxes ................... 265,873 (2,373,721)
------------ ------------
Provision for income tax (benefit) .................. 3,577 --
------------ ------------
NET INCOME (LOSS) ..................................................... $ 262,296 $ (2,373,721)
============ ============
Earnings (loss) per common share ...................................... $ .04 $ (0.38)
============ ============
Weighted average number of common shares outstanding .................. 6,266,202 6,284,288
============ ============
Earnings (loss) per common share - assuming dilution .................. $ .04 $ (0.38)
============ ============
Weighted average number of fully diluted common shares outstanding .... 6,266,202 6,284,288
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
CET ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
PROJECT REVENUE ....................................................... $ 17,866,704 $ 35,386,280
PROJECT COSTS
Direct ....................................................... 14,316,738 28,201,273
Indirect ..................................................... 1,554,941 5,184,119
------------ ------------
15,871,679 33,385,392
------------ ------------
Gross profit ........................................ 1,995,025 2,000,888
------------ ------------
OPERATING EXPENSES
Selling ...................................................... 319,823 1,272,251
General and administrative ................................... 1,860,211 2,556,060
Restructuring expense ........................................ 249,813 912,880
------------ ------------
2,429,847 4,741,191
------------ ------------
Operating income (loss) ............................ (434,822) (2,740,303)
------------ ------------
OTHER INCOME (EXPENSE)
Gain (loss) on sale of equipment ............................. (118,764) (65,175)
Gain on sale of Tustin, CA operations ........................ 1,341,449 --
Gain on sale of property held for investment ................. 211,862 --
Interest expense, net ........................................ (21,353) (380,137)
Other income (expense) ....................................... (4,731) (115,454)
------------ ------------
1,408,463 (560,766)
------------ ------------
Income (loss) before income taxes ................... 973,641 (3,301,069)
------------ ------------
Provision for income tax (benefit) .................. (8,738) --
------------ ------------
NET INCOME (LOSS) ..................................................... $ 982,379 $ (3,301,069)
============ ============
Earnings (loss) per common share ...................................... $ .16 $ (0.53)
============ ============
Weighted average number of common shares outstanding .................. 6,278,193 6,281,692
============ ============
Earnings (loss) per common share - assuming dilution .................. $ .16 $ (0.53)
============ ============
Weighted average number of fully diluted common shares outstanding .... 6,278,193 6,281,692
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
CET ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................................. $ 982,379 $(3,301,069)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ........................................ 552,290 558,002
Loss on disposal of equipment ........................................ 118,764 65,175
Restructuring charge ................................................. -- 912,880
Gain on sale of Tustin, CA operations ................................ (1,341,449) --
Gain on sale of property held for investment ......................... (211,862) --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable .................. 982,090 4,864,262
Decrease (increase) in contracts in process ................. (3,318,504) 4,822,739
Decrease (increase) in income tax, retention and other
receivables ......................................... 1,781,968 739,185
Decrease (increase) in prepaid expenses ..................... 157,220 146,193
Decrease (increase) in inventory and deposits ............... 49,646 (27,763)
Increase (decrease) in accounts payable ..................... 206,029 (5,219,634)
Increase (decrease) in accrued expenses and income taxes .... (712,868) (2,376,669)
----------- -----------
Net cash provided by (used in) operating activities ......... (754,297) 1,183,301
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment ......................................................... (19,617) (690,768)
Purchase of investment held for sale .......................................... (680,282) --
Proceeds from sales of equipment .............................................. 11,434 --
Proceeds from the sale of Tustin, CA operations, net .......................... 1,698,072 --
Proceeds from the sale investment held for sale ............................... 892,144 --
Proceeds from the sale of regions ............................................. -- 50,000
Proceeds from sale of subsidiary .............................................. -- 1,250,000
----------- -----------
Net cash provided by (used in) operating activities ......... 1,901,751 609,232
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft ................................................................ (118,348) (1,255,354)
Payments on long-term debt .................................................... (543,038) (225,842)
Payments on capital lease obligations ......................................... (138,988) (241,158)
Net (payments) proceeds on credit line loan ................................... (818,152) 2,531,125
Payment of dividends on preferred stock ....................................... -- (4,872)
Preferred stock redemption .................................................... -- (1,927,400)
Proceeds for issuance of short-term debt ...................................... 300,000 --
Proceeds from loan to related party ........................................... 36,764 20,000
----------- -----------
Net cash provided by (used in) financing activities .................. (1,281,762) (1,103,501)
----------- -----------
INCREASE (DECREASE) IN CASH ................................................... (134,308) 689,032
Cash at the beginning period .................................................. 504,583 25,192
----------- -----------
Cash at end of period ......................................................... $ 370,275 $ 714,224
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 7
CET ENVIRONMENTAL SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1. BASIS OF PRESENTATION. The accompanying unaudited consolidated
financial statements included the accounts of CET Environmental
Services, Inc. (the "Company") and its wholly owned subsidiary
Cleanwater Contracting, Inc. All intercompany transactions have been
eliminated in consolidation.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Article 10 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. The consolidated
balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date. Operating results for
the three and nine months ended September 30, 2000 are not necessarily
indicative of results that may be expected for the year ending December
31, 2000. For further information, refer to the audited financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
NOTE 2. EARNINGS PER SHARE. The Financial Accounting Standards Board
recently issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 requires the presentation of
basic earnings per share ("EPS") and, for companies with potentially
dilutive securities such as convertible debt, options and warrants,
diluted EPS.
In 2000, basic earnings per share data was computed by dividing net
income by weighted average number of common shares outstanding during
the period. Diluted earnings per share computations do not give effect
to potentially dilutive securities including stock options and warrants
as their effect would have been anti-dilutive.
In 1999, basic earnings per share data was computed by dividing net
loss by the weighted average number of common shares outstanding during
the period. Diluted earnings per share computations do not give effect
to potentially dilutive securities including stock options and warrants
as their effect would have been anti-dilutive.
NOTE 3. SALE OF TUSTIN, CA OPERATIONS. 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.
6
<PAGE> 8
CET ENVIRONMENTAL SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4. SHORT-TERM DRAW NOTES. On May 19, 2000 the Company entered into a
short-term revolving or draw note with Firstier Bank. The note provides
for a maximum draw of $350,000, an interest rate of 10% with interest
only payments beginning June 19, 2000 and continuing at monthly
intervals thereafter. A final payment of the unpaid principal balance
plus accrued interest is due and payable on August 19, 2000. On July
28, 2000, the maturity on the draw note was extended to September 19,
2000 and was repaid in full on that date.
NOTE 5. RETIREMENT OF COMMON STOCK. On July 1, 2000, a former officer and
shareholder of the Company, exchanged 18,285 shares of the Company's
common stock in settlement of a $37,832 loan from the Company. The
Company has retired these shares.
NOTE 6. RECLASSIFICATIONS. Certain amounts in the 1999 financial statements
have been reclassified to conform with the 2000 presentation.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Quarterly Report on Form 10-Q contains forward-looking statements
(as such term is defined in the private Securities Litigation Reform Act of
1995), and information relating to the Company that is based on beliefs of
management of the Company, as well as assumptions made by and information
currently available to management of the Company. When used in this Report, the
words "estimate," "forecast," "believe," "anticipate," "intend," "expect," and
similar expressions are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events based on currently available information and are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company does not undertake any obligation to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
PROJECT REVENUES. Project revenues decreased $6.2 million or 45% from
$13.9 million for the three months ended September 30, 1999 to $7.7 million for
the three months ended September 30, 2000. The decrease results from several
factors including but not limited to (i) the EPA suspension enacted in August
1999 which disrupted the normal flow of business, reducing EPA revenues by
approximately $5.8 million from $9.9 million for the three months ended
September 30, 1999 to $4.2 million for the three months September 30, 2000; (ii)
as a result of the EPA suspension, the Company implemented a restructuring plan
in the third and fourth quarter of 1999 during which the Company sold the Mobile
and Jackson regions and closed its regional offices located in New Orleans,
Houston and Richmond. Revenues from these regions approximated $1.9 million in
commercial revenues for the three months ended September 30, 1999 with no
corresponding commercial revenues for the three months ended September 30, 2000;
and (iii) commercial revenues from the Tustin, California operations were $.5
million for the three months ended September 30, 1999 with no corresponding
commercial revenues for the three months ended September 30, 2000. These revenue
decreases were partially off-set by an increase in revenues of $1.5 million and
$0.1 million for the Hercules, California and water/wastewater projects.
DIRECT COSTS. Direct costs decreased $5.7 million or 46% from $12.4
million or 89% or project revenue for the three months ended September 30, 1999
to $6.7 million or 87% of project revenues for the three months ended September
30, 2000. The decrease in total dollars is commensurate with the decrease in
project revenues for the reasons stated above. The decrease as a percentage of
revenue results primarily from the mix of project delivery orders requiring less
outside contractors thereby increasing project margins.
INDIRECT COSTS. Indirect project costs decreased $1.1 million or 79%
from $1.4 million or 10% of project revenues for the three months ended
September 30, 1999 to $0.3 million or 4% of project revenues for the three
months ended September 30, 2000. The decrease in total dollars and as a
percentage of revenues is primarily the result of the Restructuring Plan
implemented in late 1999 and the sale of the Tustin, California operations, but
is also commensurate with the overall decrease in revenues noted above.
SELLING AND GENERAL & ADMINISTRATIVE COSTS. Selling and General and
Administrative costs decreased $1.7 million or 73% from $2.4 million for the
three months ended September 30, 1999 to $0.7 million for the three months ended
September 30, 2000. The decrease in primarily the result of costs savings from
the Restructuring Plan implemented in late 1999 and the sale of the Tustin,
California operations effective April 30, 2000.
OTHER INCOME (EXPENSE). Overall, other income increased due to the gain
on the sale of property held for investment for $.2 million. Interest expense
decreased due to lower average debt balances for the three months ended
September 30, 2000 compared to the three months ended September 30, 1999.
8
<PAGE> 10
NET INCOME (LOSS). A net loss of ($2,373,721) was recorded during the
three months ended September 30, 1999 compared to the net income of $262,296 for
the three months ended September 30, 2000. As discussed above, net income
resulted primarily from the cost saving from the implementation of the
Restructuring Plan in late 1999, reduced average debt balances and the $.2
million gain on the sale of investment property.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
PROJECT REVENUE. Project revenues decreased $17.5 million or 50% from
$35.4 million for the nine months ended September 30, 1999 to $17.9 million for
the nine months ended September 30, 2000. The decrease results from several
factors including but not limited to (i) the EPA suspension enacted in August
1999 which disrupted the normal flow of business, reducing EPA revenues by
approximately $15.2 million from $23.4 million for the nine months ended
September 30, 1999 to $8.2 million for the nine months ended September 30, 2000;
(ii) as a result of the EPA suspension, the Company implemented a restructuring
plan in the third and fourth quarter of 1999 during which the Company sold the
Mobile and Jackson regions and closed its regional offices located in New
Orleans, Houston and Richmond. Revenues from these regions approximated $5.3
million in commercial revenues for the nine months ended September 30, 1999 with
no corresponding commercial revenues for the nine months ended September 30,
2000; (iii) the completion of a large commercial project in early 1999 which
contributed approximately $1.0 million with no corresponding revenues in 2000;
and (iv) the sale of the Tustin, California operations reduced commercial and
other governmental agency revenues by $1.7 million from $3.0 million for the
nine months ended September 30, 1999 to $1.3 million for the nine months ended
September 30, 2000. These revenue decreases were partially off-set by an
increase in commercial revenues of $6.0 million and $0.7 million for the
Hercules, California and various water/wastewater projects for the nine months
ended September 30, 2000.
DIRECT COSTS. Direct costs decreased $13.9 million or 49% from $28.2
million or 80% of project revenues for the nine months ended September 30, 1999
to $14.3 million or 80% or project costs for the nine months ended September 30,
2000. The decrease in total dollars is commensurate with the decrease in
projects revenues for the reasons stated above.
INDIRECT COSTS. Indirect project costs decreased $3.6 million or 70%
from $5.2 million or 15% or project revenues for the nine months ended September
30, 1999 to $1.6 million or 9% of project revenues for the nine months ended
September 30, 2000. The decrease in total dollars and as a percentage of revenue
is primarily the result of the Restructuring Plan implemented in late 1999 and
the sale of the Tustin, California operations, but is also commensurate with the
overall decrease in revenues noted above. However, these decreases were offset
by retaining certain key project managers/employees whose labor costs where not
chargeable to direct projects during the disruption of business from the EPA
suspension in the first quarter of 2000.
SELLING AND GENERAL & ADMINISTRATIVE COSTS. Selling and General and
Administrative costs decreased $2.3 million or 49% from $4.7 million for the
nine months ended September 30, 1999 to $2.4 million for the nine months ended
September 30, 2000. The decrease is primarily the result of costs savings from
the Restructuring Plan implemented in late 1999 and the sale of the Tustin,
California operations effective April 30, 2000. These decreases have been
off-set by further restructuring charges incurred on the closing of the Mobile,
Jackson, New Orleans, Houston, and Richmond offices. However, the Company does
not anticipate incurring any other material restructuring charges related to the
closure of these offices.
OTHER INCOME (EXPENSE). Overall, other income increased due to the
$1.3 million gain on the sale of the Tustin, California operations and the $.2
million gain on the sale of investment property. Interest expense decreased due
to lower average debt balances for the nine months ended September 30, 2000
compared to the nine months ended September 30, 1999.
9
<PAGE> 11
NET INCOME (LOSS). A net loss of $(3,301,069) was recorded during the
nine months ended September 30, 1999 compared to the net income of $982,379 for
the nine months ended September 30, 2000. As discussed above, net income
resulted primarily due to the cost saving from the implementation of the
Restructuring Plan in late 1999 and the $1.3 million gain on the sale of the
Tustin, California operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $2.0 million from $3.5
million as of December 31, 1999 to $5.5 million as of September 30, 2000. The
change in working capital resulted from an increase in current assets of $.4
million and a decrease in current liabilities of $1.6 million. The increase in
current assets results from an increase in combined receivables of $2.3 million
due primarily from receivables arising from the California operations. The
decrease in current liabilities results primarily from the reduction of accounts
payable, accrued expenses and current debt of $1.6 million.
The Company's cash and cash equivalents decreased by $0.1 million from
$0.5 million as of December 31, 1999 to $0.4 million as of September 30, 2000.
The decrease is due primarily to cash used by operations and financing of $.7
million and $1.3 million offset by cash provided by investing activities of $1.9
million.
During the third quarter of 2000, the Company experienced problems
collecting on receivables from Remediation Financial, Inc. ("RFI"), the parent
company for the two Brownfield projects located in Hercules and Santa Clarita,
California. The severity of the problems was of such sufficiency to cause the
Company to suspend work on the Santa Clarita, California project. Subsequently,
the Company was presented with termination notices for both the Hercules and
Santa Clarita projects from RFI, with the Santa Clarita project termination
effective October 6, 2000 and the Hercules termination being effective October
31, 2000. At September 30, 2000, the Company had outstanding receivables of
$1,812,577 for the Santa Clarita project and $2,539,980 for the Hercules
project. Management believes that the receivables are collectible from RFI
through either cash receipts or by secured liens placed on the projects. Other
than the secured liens, no legal action has been taken against RFI, as RFI has
not disputed the amounts due to the Company. The loss of these projects will
reduce projected revenues by $1.5 million for the fourth quarter of 2000.
In August 1999, the Company received a notice of suspension from the
EPA. Under the suspension, the Company was prohibited from receiving additional
government contracts; however, the suspension did allow the Company to continue
performance on existing government contracts. The suspension was subsequently
lifted by the EPA in November of 1999 and the Company became immediately
eligible to bid for, receive, and perform any federal contract without
restriction. However, the suspension had significantly disrupted the normal flow
of business, and the Company has not yet reached the level of EPA job orders
that were in the pipe-line prior to the EPA suspension. The Company cannot
predict the number of EPA job orders that will be awarded to the Company in the
future, if at all.
The Company's sources of liquidity and capital resources historically
have been net cash provided by operating activities, funds available under its
financing arrangements, proceeds from offerings of equity securities, and loans
from shareholders. In the past, these sources have been sufficient to meet its
needs and finance the Company's business. The Company can give no assurance that
the historical sources of liquidity and capital resources will be available for
future operations, and it may be required to seek alternative financing sources
not necessarily favorable to the Company.
On May 8, 2000, the Company closed on the sale of its Tustin,
California operations for $2.025 million in cash subject to certain adjustments
and the assumptions of $0.075 million in accrued vacation and payroll taxes
liabilities. The net proceeds were used for working capital requirements and
further expansion into the maintenance and construction of waste/water treatment
facilities through either direct investment or through possible industry
acquisitions. The Company's future growth will be dependent upon expansion into
the maintenance and construction of waste/water treatment facilities, optimizing
margins on its EPA and non-EPA environmental remediation projects, marketing,
and its ability to obtain financing at favorable terms.
10
<PAGE> 12
On January 27, 2000, the Company satisfied the repayment terms of its
line of credit with the National Bank of Canada, which has now released all
claims against the Company. The Company is currently exploring new financing
arrangements; however, due to the EPA Suspension in 1999 and the continued
Office of Inspector General's investigation, the Company can give no assurance
that it will be able to obtain financing at favorable terms.
While the Company will continue to seek alternative sources of
financing, management believes that the proceeds for the sale of Tustin,
California operations, coupled with its efforts to improve cash flows from
operations, should allow the Company to meet its immediate working capital
requirements. However, there can be no assurance that alternate financing
sources can be successfully negotiated which, if not obtained, could have a
material adverse effect on the Company's financial position, operating
activities, and liquidity.
11
<PAGE> 13
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.
12
<PAGE> 14
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 10, 2000 By: /s/ Steven H. Davis
-------------------------------------
Steven H. Davis, President, and Chief
Executive Officer
By: /s/ Dale W. Bleck
-------------------------------------
Dale W. Bleck, Chief Financial Officer
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule Filed herewith electronically
</TABLE>
