U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 2008
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 Services, Inc.
(Exact name of small business issuer as specified in its charter)
California 33-0285964
(State or other jurisdiction IRS Employer Identification No.)
12503 E Euclid Dr #30, Centennial, CO 80111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (720) 875-9115
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ].
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
As of May 14, 2008, 5,606,989 shares of common stock, no par value per share,
were outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CET SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
2008 December 31,
(unaudited) 2007
----------- ------------
ASSETS
Cash $ 55,856 $ 229,179
Accounts receivable 63,045 83,428
Real estate inventories 3,420,070 3,269,230
Prepaid expenses and other receivables 11,897 17,392
Deposits 88,114 88,114
Investment in LLC 318,963 297,110
----------- -----------
TOTAL ASSETS $ 3,957,945 $ 3,984,453
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 115,224 $ 84,709
Accrued expenses 2,519 83,427
Accrued construction expense 88,691 235,591
Retainage payable 15,431 65,895
Construction loan 1,261,333 937,810
Notes payable 471,495 471,495
----------- -----------
TOTAL LIABILITIES 1,954,693 1,878,927
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock (no par value) - authorized
20,000,000 shares; 5,574,489 shares
issued and outstanding 8,331,007 8,331,007
Paid-in capital 107,785 107,785
Accumulated deficit (6,435,540) (6,333,266)
----------- -----------
Total stockholders' equity 2,003,252 2,105,526
----------- -----------
$ 3,957,945 $ 3,984,453
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
CET SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
-------------------------
March 31, March 31,
2008 2007
---------- ----------
REVENUE $ 99,025 $ 571,937
COST OF REVENUE 94,762 561,069
---------- ----------
Gross profit 4,263 10,868
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 104,169 193,426
---------- ----------
Operating loss (99,906) (182,558)
---------- ----------
OTHER INCOME (EXPENSE):
Interest (expense) income (1,568) 4,053
Other (expense) income (800) 525
---------- ----------
(2,368) 4,578
---------- ----------
NET LOSS $ (102,274) $ (177,980)
========== ==========
Net loss per common share - basic and diluted $ (0.02) $ (0.03)
========== ==========
Weighted average number of common shares
outstanding 5,574,489 5,554,489
========== ==========
The accompanying notes are an integral part of these financial statements.
3
CET SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
-------------------------
March 31, March 31,
2008 2007
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (102,274) $ (177,980)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 320
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 20,383 (19,238)
Decrease (increase) in prepaid expenses
and other receivables 5,495 (5,911)
(Increase) decrease in real estate
inventories (150,840) 383,074
Increase in accounts payable 30,515 49,831
Decrease in retainage payable (50,464) -
Decrease in accrued construction expense (146,900) -
Decrease in accrued expenses (80,908) (23,519)
---------- ----------
Net cash (used in) provided by operating
activities (474,993) 206,577
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in LLC (21,853) (14,575)
---------- ----------
Net cash used in investing activities (21,853) (14,575)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) construction loan 323,523 -
Payments on notes payable - (161,000)
---------- ----------
Net cash provided by (used in)
financing activities 323,523 (161,000)
---------- ----------
NET (DECREASE) INCREASE IN CASH (173,323) 31,002
CASH AT BEGINNING OF PERIOD 229,179 396,362
---------- ----------
CASH AT END OF PERIOD $ 55,856 $ 427,364
========== ==========
The accompanying notes are an integral part of these financial statements.
4
CET SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
Note 1. Basis of Presentation and Proposed Merger. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial statements and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America 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, 2007 has been derived from the
audited consolidated financial statements at that date. Operating results
for the three months ended March 31, 2008 are not necessarily indicative of
results that may be expected for the year ending December 31, 2008. For
further information, refer to the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2007.
In the Company's Annual Report on Form 10-KSB for the year ended December 31,
2007, the Report of the Independent Registered Public Accounting Firm
includes an explanatory paragraph that describes substantial doubt about the
Company's ability to continue as a going concern. The Company's financial
statements for the three months ended March 31, 2008 have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.
The Company reported a net loss of $102,274 and has notes payable of $471,495
due in June 2010, and has a construction loan of $1,420,000 of which
$1,261,333 had been drawn at March 31, 2008, due in July 2008.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not contain any adjustments
relating to the recoverability and classification of assets or the amounts
and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
In July 2007, the Company secured the $1.42 million construction loan for the
construction of a retail/office building on Site IV of its initial
redevelopment project in the City of Westminster, Colorado. The Company has a
contract to sell the building and anticipates the closing to occur near the
end of May 2008 at which time the construction loan will be paid.
On May 8, 2008, CET Services, Inc. (the "Company" or "CET") entered into an
Agreement and Plan of Merger by and among the Company, BioMedical Technology
Solutions, Inc., a Colorado corporation ("BMTS") and CET Acquisition Corp., a
subsidiary of CET to be formed as a Colorado corporation ("CETAC") (the
"Merger Agreement").
5
Under the terms of the Merger Agreement, CETAC will merge into BMTS, BMTS
will become a wholly-owned subsidiary of CET, and the shareholders of BMTS
will receive shares of CET common stock in exchange for their BMTS shares
("Merger"). The Merger Agreement further provides that CET will issue to the
shareholders of BMTS a total of approximately 78,994,826 shares of CET common
stock and will assume all of BMTS's outstanding options, warrants and
convertible debt, which convertible securities will become exercisable for
CET common stock. The exact number of shares to be issued in exchange for the
BMTS shares will be adjusted at closing so that the total number of CET
shares issued to the BMTS shareholders will represent, when issued, 94% of
the total issued and outstanding shares of CET on a fully diluted basis. The
Merger, when consummated, will result in a change in control of CET.
Subject to certain conditions, the Merger Agreement also provides for certain
ancillary transactions,("Ancillary Transactions") including (i) that CET will
change its jurisdiction of incorporation from California to Colorado and
change its name to "BioMedical Technology Solutions, Inc.", (ii) that CET
will increased its authorized capital to consist of 100,000,000 shares of
common stock and 10,000,000 shares of preferred stock, (iii) that CET will
undertake a reverse split of its outstanding securities at a future date and
on a basis determined by the Board of Directors, and (iv) that CET adopt an
Equity Incentive Plan. In addition, the directors and officers of the
combined company will be designated by BMTS, and the companies anticipate
that these individuals will consist of the officers and directors of BMTS
immediately before the Merger. The closing of the transaction contemplated by
the Merger Agreement is subject to the satisfaction of customary conditions,
including approval of the Merger and Ancillary Transactions by the
stockholders of CET, the approval of the Merger by the stockholders of BMTS.
The transaction is expected to close by June 30, 2008.
Prior to the Effective Date of the Merger all ownership of Community
Builders, Inc., CET's wholly owned subsidiary, shall be transferred and
assigned by CET to Steve Davis, the Company's CEO and Principal Accounting
Officer, or his designee, so as to divest CET of all right, title and
interest in Community Builders. This proposed transaction will essentially
result in the assignment of real estate inventories with a carrying value of
$675,000 at March 31, 2008 to Mr. Davis or his designee in exchange for cash
of $510,000.
BioMedical Technology Solutions, Inc. is a privately held corporation,
located in Englewood, Colorado, which sells and leases devices that convert
infectious biomedical waste into non-biohazardous material using the patented
Demolizer[R] technology which it owns. BMTS's products provide safe,
environmentally sound, biomedical waste treatment solutions for medical,
dental and veterinary offices, nursing homes, assisted living facilities, and
other health care facilities
Note 2. Earnings Per Share. The Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("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.
6
In 2008 and 2007, basic loss per share data was computed by dividing net loss
by the weighted average number of common shares outstanding during the
period. For the three months ended March 31 2008 and 2007 diluted loss per
share is equivalent to basic loss per share since the computation does not
give effect to potentially dilutive securities including stock options and
warrants, as their effect would have been anti-dilutive.
Note 3. Stock-Based Compensation. The Company applies the provisions of,
and accounts for stock-based compensation in accordance with the Financial
Accounting Standards Board's ("FASB") Statement of Financial Accounting
Standards No. 123-revised 2004 ("SFAS 123R"), "Share-Based Payment". Under
the fair value recognition provisions of this statement, stock-based
compensation cost is measured at the grant date based on the fair value of
the award and is recognized as expense on a straight-line basis over the
requisite service period, which is the vesting period.
Through March 1, 2005, the Company had an incentive stock option plan ("the
Plan") which is more fully described in the Company's form 10-KSB for the
year-ended December 31, 2006. The Plan terminated on March 1, 2005, and no
additional options may be granted under the Plan.
At March 31, 2008, the Company had outstanding options to purchase 52,500
shares of common stock at $.20 to $1.31 per share at December 31, 2007. All
options are exercisable at March 31, 2008. The intrinsic value of all of the
Company's options at March 31, 2008 is not significant.
Note 4. Segment Information and Concentrations. The Company operates in
two business segments - water/wastewater services, and residential housing
development and construction. All of the Company's operations and customers
are located in Colorado. A summary of the Company's business segments is
shown below (in thousands).
Three months ended: Residential Water/wastewater
March 31, 2008 Housing Services Corporate Total
- ------------------- ----------- ---------------- --------- ------
Revenues $ - $ 99 $ - $ 99
Net income (loss) $ - $ 4 $(106) $ (102)
Segment assets $3,824 $ - $ 134 $3,958
Three months ended: Residential Water/wastewater
March 31, 2007 Housing Services Corporate Total
- ------------------- ----------- ---------------- --------- ------
Revenues $ 469 $103 $ - $ 572
Net income (loss) $ 6 $ 5 $(189) $ (178)
Segment assets $ 4,093 $ - $ 537 $4,630
As of and for the three months ended March 31, 2008 and 2007, one customer
accounted for 100% of total accounts receivable and wastewater revenues.
7
Note 5. Real Estate Inventories.
Real estate inventories consist of the following (in thousands):
March 31, 2008 December 31, 2007
-------------- -----------------
Retail/office building $1,753 $1,619
Apartment building 425 417
Land - Westminster 251 253
Land - Aurora 991 980
------ ------
$3,420 $3,269
====== ======
Note 6. Investment. In January 2005 the Company entered into an operating
agreement with a newly-formed entity, Arizona Avenue, LLC, a Colorado limited
liability corporation in which the Company is a 50% owner. The Company
accounts for this investment using the equity method of accounting. The
Company has been engaged by the LLC to manage the development of a five-acre
site in Aurora, Colorado. There were no management fees in connection
therewith during the three months ended March 31, 2008. As of March 31 2008,
the Company has invested approximately $319,000 to develop this project.
Profits and losses, which are generally to be allocated 50% to the Company
and 50% to the other owner, were not material for the three months ended
March 31, 2008. This property is currently listed for sale with a local real
estate broker.
Note 7. Deposits. At March 31, 2008, deposits include $85,000 deposited with
the City of Westminster in lieu of a private improvement bond. The $85,000 is
expected to be refunded when the Company completes the construction of an
office building in Westminster, Colorado.
Note 8. Construction Loan. In July 2007, the Company secured a $1.42 million
construction loan from a bank to construct an 11,200 sq. ft. office building
in Westminster, Colorado. The loan is for a term of one year bearing interest
at prime plus 0.75% (6.0% at March 31, 2008). As of March 31, 2008, the
Company has $1,261,333 outstanding on this loan.
Note 9. Notes Payable. In June 2004, the Company signed a Brownfields Cleanup
Revolving Loan Fund Agreement with the City of Aurora, Colorado, for
approximately $471,000, to finance the remediation of a five-acre site on
which the Company has approval to construct 54 residential townhomes. The
loan is for a period of three years with interest at 2% per annum payable
monthly. In June 2007, the Company signed a First Amendment to the
Brownfields Cleanup Revolving Loan Fund Agreement which extends the loan for
an additional three year period. The principal is to be repaid at 1/54th of
the outstanding balance within 30 days of each residential unit sale, and the
loan is collateralized by a deed of trust on the property. This property is
listed for sale with a local real estate broker.
8
Note 10. Commitments and Contingencies. The Company is not a party to any
material legal proceedings, which are pending before any court,
administrative agency, or other tribunal. Further, the Company is not aware
of any material litigation, which is threatened against it in any court,
administrative agency, or other tribunal. Management believes the outcome on
any pending litigation that would have a material adverse effect on the
Company's financial position or results of operations is remote.
Note 11. Recent Accounting Pronouncements. The Company has evaluated all
recent accounting pronouncements and believes such pronouncements do not have
a material effect on the Company's financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Quarterly Report on Form 10-QSB 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," "project," "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.
On May 8, 2008, the Company entered into an Agreement and Plan of Merger
by and among the Company, BioMedical Technology Solutions, Inc., a Colorado
corporation ("BMTS") and CET Acquisition Corp., a subsidiary of CET to be
formed as a Colorado corporation ("CETAC") (the "Merger Agreement"). Prior to
the Effective Date of the Merger, CET shall form and organize a new
subsidiary, CET Sub, and all ownership of Community Builders, Inc. shall be
transferred and assigned by CET to Steve Davis, or his designee, so as to
divest CET of all right, title and interest in Community Builders. Upon
completion of the merger, the Company expects to wind-down its real estate
operations. Additional information is available on the Company's Form 8-K
filing on May 14, 2008.
Results of Operations
Quarter Ended March 31, 2008 Compared to the Quarter Ended March 31,
2007
Revenue. Revenues for the first quarter of 2008 were $99,025, down from
the $571,937 reported for the year-earlier period. Water services activity
accounted for 100% of the revenue in the first quarter 2008. In the first
quarter of the prior year, the sale of housing units accounted for 82% of
revenues and water services accounted for 18% of revenues.
9
Cost of Revenue. Cost of revenue for the March 2008 period was $94,762,
down from the $561,069 recorded in the first quarter of 2007, reflecting the
decrease in residential housing sales
Selling, General & Administrative Costs. Selling, General and
Administrative costs were $104,169, down from the year-earlier comparable of
$193,426, largely as a result of a decrease in salaries and legal and
accounting fees associated with the proposed reverse merger that was
terminated on July 9, 2007.
Other Income (Expense). Other expense of $2,368 was recorded in the
first quarter of 2008 as compared to other income of $4,578 in the respective
period of 2007.
Net Loss. For the first quarter of 2008, a net loss of $102,274 or
$0.02 a share was recorded compared to a net loss of $177,980, or $0.03 a
share, in the first quarter of 2007. The decrease in net loss was mainly
attributable to the decrease in selling, general and administrative costs.
Liquidity and Capital Resources
The Company's sources of liquidity and capital resources historically
have been net cash provided by operating activities, funds available under
its financing arrangements, and proceeds from offerings of equity securities.
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 development and acquisitions, and it may be required to seek
alternative financing sources not necessarily favorable to the Company.
The Company owns a five-acre residential site in Aurora, Colorado, "the
Aurora project", and during 2004, completed a major remediation at the site,
aided by a Brownfields Cleanup Revolving Loan Fund Agreement with City of
Aurora in the amount of approximately $471,000 (see Note 9 - Notes Payable).
The Company currently has this property listed for sale with a local real
estate broker.
In November 2004, the Company executed a development agreement with the
City of Westminster under which the City would provide approximately $410,000
and other assistance to the Company for the development of a retail/office
building of approximately 11,000 square feet as well as twelve townhomes. The
Company acquired the property necessary for this project in May 2005. The
Company has obtained a construction loan (see Note 8 - Construction Loan) to
finance the construction of an office building. The Company has a contract to
sell the building. The Company has deposited $85,000 with the City of
Westminster in lieu of a private improvement bond for this project (see Note
7 - Deposits).
10
Also, in January 2005, the Company entered into an operating agreement
with a newly-formed entity, Arizona Avenue, LLC, a Colorado limited liability
corporation in which the Company is a 50% owner. The Company has been
engaged by the LLC to manage the development of a five-acre site in Aurora,
Colorado. There were no management fees in connection therewith during the
period. Through March 31, 2008, the Company has invested approximately
$319,000 to develop this project. The Company currently has this property
listed for sale with a local real estate broker.
The Company's financial statements have been prepared assuming that we
will continue in business as a going-concern. As discussed in our financial
statements and in this section, during the three months ended March 31, 2008
we incurred a net loss of $102,274 and we had notes payable of $471,495 due
in June 2010 and we have a construction loan of $1,420,000 of which
$1,261,333 had been drawn at March 31, 2008, due in July 2008. The report of
our Independent Registered Public Accounting Firm on the Company's financial
statements as of and for the year ended December 31, 2007 includes a "going
concern" explanatory paragraph which means that the accounting firm expressed
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with respect to these matters are described in this
section and in our financial statements, and this material does not include
any adjustments that might result from the outcome of this uncertainty.
Contractual Obligations
Payments Due By Period
---------------------------------------
Contractual Less Than
Obligations Total 1 Year 1-3 Years
----------- ---------- ---------- ---------
Operating Leases $ 16,582 $ 16,582 $ -
Construction Loan 1,261,333 1,261,333 -
Notes Payable 471,495 - 471,495
---------- ---------- --------
Total $1,749,410 $1,277,915 $471,495
========== ========== ========
ITEM 3. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of March 31, 2008, under the supervision and with the participation
of the Company's Chief Executive Officer and the Chief Financial Officer,
management has evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer have concluded that
the Company's disclosure controls and procedures were effective as March 31,
2008.
11
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting that
occurred during the period covered by this report that have materially
affected, or are reasonably likely to affect, the Company's internal control
over financial reporting.
On April 16, 2008 the Company and Dale Bleck, Chief Financial Officer of
the Company, mutually agreed to the termination of Mr. Bleck's services as
Chief Financial Officer of the Company. Effective April 16, 2008, Steven H.
Davis, the Company's President and CEO, assumed all the responsibilities of
the Principal Financial Officer of the Company. As a result, the controls
have changed as Mr. Bleck no longer serves as Chief Financial Officer.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings which are
pending before any court, administrative agency, or other tribunal. Further,
the Company is not aware of any material litigation which is threatened
against it in any court, administrative agency, or other tribunal.
Management believes that no pending litigation in which the Company is named
as a defendant will have a material adverse effect on the Company's financial
position or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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
The following exhibits are filed herewith:
Exhibit 31 Certification of Chief Executive and Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 Certification of Chief Executive and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350
12
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 SERVICES, INC.
Dated: May 14, 2008 By:/s/ Steven H. Davis
Steven H. Davis, President and
Principal Financial and Accounting
Officer
13