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U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the Fiscal Year Ended: December 31, 2004o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURIITES EXCHANGEACT OF 1934For the transition period from ___to ___Commission File No. 1-13852
 CET SERVICES, INC.  California
    
    33-0285964(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S.
Employer Identification No.)7032 South Revere Parkway, Englewood, Colorado
    
    80112(Address of Principal Executive Offices)
    
    (Zip code)
 Issuers telephone number:  (720) 875-9115Securities registered pursuant to Section 12(b) of the Act:Title of single class:
    
    Name of exchange on which registered:Common Stock
    
    American Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: None
 Check whether the Registrant (1) has 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.þ Yes o No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is
not contained in this form, and no disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. o State issuers revenues for its most recent fiscal year: $4,018,308 State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was sold, of the average bid and
asked price of such common equity, as of a specified date within the past 60 days. As of February
14, 2005, the aggregate market value of the Companys common stock held by non-affiliates was
approximately $1,706,550. State the number of shares outstanding of each of the issuers classes of common equity, as of the
latest practicable date. As of February 25, 2005, 5,554,489 shares of common stock were
outstanding. Transitional Small Business
Disclosure Format (Check one): YES o NO þ Documents incorporated by reference: The information required by Items 9, 10, 11, 12 and 14 of Part III is incorporated by reference
from the Registrants definitive proxy statement to be filed with the Commission pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this report.




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TABLE OF CONTENTS  PART IItem 1. Description of BusinessItem 2. Description of PropertyItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Common Equity and Related Stockholder MattersItem 6. Managements Discussion and Analysis or Plan of OperationsItem 7. Financial StatementsItem 8. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 8A. Controls and ProceduresItem 8B. Other InformationPART IIIItem 9, 10, 11, 12 and 14. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Certain Relationships and Related Transactions; and Principal Accountant Fees and ServiceItem 13. ExhibitsSIGNATURESIndex to ExhibitSubsidiaries of the RegistrantConsent of GHP Horwath, P.C.Consent of Grant Thornton LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to 18 U.S.C. Section 1350Certification of CFO Pursuant to 18 U.S.C. Section 1350    Table of Contents  
 PART I 
 Item 1. Description of Business. The Company Incorporated in February 1988 pursuant to the laws of the State of California, CET Services,
Inc. for more than a decade was engaged in environmental consulting, engineering, remediation, and
related construction activities. By 1998, revenues exceeded $66 million, close to 50% of which was
derived from work performed for the Environmental Protection Agency (EPA). However, in August,
1999, the EPA issued a notice of suspension, alleging that the Company engaged in intentional
misconduct with respect to billing for services under various contracts with the EPA. The Company
has denied all allegations of wrongdoing in its relations with the EPA and has cooperated in full
with the ongoing investigation. (See Item 3. Legal Proceedings and Note M-Legal to the
Consolidated Financial Statements.) An Administrative Agreement with EPA allowed the lifting of the suspension in November, 1999.
However, EPA revenues under the then-existing contract never recovered to prior levels. The EPA
exercised the third year option of the contract in January, 2000, and was empowered to issue
delivery orders for up to $42 million in value; actual EPA revenues for 2000 were $13.1 million.
The fourth and final option year was exercised in January, 2001, with an empowered value of $44
million; actual EPA revenues in 2001 were only $12.3 million. In addition, revenue generation from
other federal agencies also failed to recover to pre-1999 levels. In view of the diminished level of EPA delivery orders received and with no assurance that
delivery orders would increase even if the Company was successful in obtaining another EPA
contract, management decided to forgo bidding on a new contract. At the billing levels experienced
in the 2001-2002 period, the overhead costs necessary to perform EPA work made such efforts
marginally profitable, at best. In addition, after careful review of the potential business available and the highly
competitive bidding practices being encountered, the Company decided to not seek additional
contracts in the water/wastewater treatment and services market. While certain ongoing contracts
in this area may generate $40,000 or more per month in revenue through the first half of 2005, the
Companys main focus is property development, primarily in urban areas and preferably having an
environmental remediation requirement as an element of the project. Brownfields Remediation and Property Development Where applicable, many municipalities are actively seeking to restore property currently idled
by contamination in order to enhance the communitys tax base. Often, these municipalities are
eligible for federal aid, state funds, and other types of special financing. Also, towns and
cities adjacent to or close to major metropolitan centers are encouraging gentrification of older
neighborhoods in order to revive the commercial and social activities of the community. The
Company believes that these trends offer an opportunity for niche property development. Because of
its past experience in the environmental market place, the Company believes it can provide a
particular expertise and add value when remediation is required to bring the development to
fruition. The Company is currently engaged in a redevelopment project under an agreement with the City
of Westminster, Colorado. The project includes the purchase of certain property, the demolition of
existing structures, environmental remediation, and construction of 50 new affordable housing
units. 1




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Under the Development Agreement, the City of Westminster provided approximately $901,000
toward the $1,601,000 purchase price of the property, paid the Company approximately $185,000 for
demolition work, and is providing other assistance. The Company was required to and has sold at
least 10 of the 50 housing units at a base price of $170,000, or less, to qualified buyers; to make
certain off-site improvements along street frontages; and to provide the necessary insurance for
the project. As of December 31, 2004, the Company had capitalized costs of $2.3 million on this
project related to permits, architectural designs, land acquisition and construction costs. The Westminster development is segmented into three sites. Construction at Site I, consisting
of 23 housing units is complete and, as of December 31, 2004, 20 units had been sold. In
developing this site, the Company secured a $1.67 million construction loan in mid-2003 that was
repaid in June 2004. In late September 2004, the Company entered into an agreement with a general
contractor in the amount of approximately $2.75 million for the construction of the remaining 27
housing units at Site II and III. Shortly thereafter, the Company secured a construction loan (see
Note F  Construction Loan) in the amount of approximately $2.9 million, which the Company believes
is sufficient to complete the development. Demolition and remediation has been completed and
building activity began at these sites during the fourth quarter of 2004. Subject to weather
conditions, initial sales may be achieved late in the first quarter of 2005. Meanwhile, during
2004, the Company added to its land holdings in the Westminster area with the purchase of a
residential site for $258,000 (see Note H  Notes Payable), which is being held for future
development. In addition, 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 $471,495 (see Note H -
Notes Payable). The Company is engaged in ongoing discussions with the City of Aurora regarding a
definitive development plan and with possible lenders regarding financing for the construction of
54 housing units. However, there can be no assurance that the Company will be successful in
obtaining financing on acceptable terms. Failure to achieve such financing would have a major
adverse impact on the Companys financial position, results of operations, and liquidity. The Company believes it is subject to risks and uncertainties common to the residential
housing industry, including but not limited to (1) cyclical markets sensitive to changes in general
and local economic conditions; (2) volatility of interest rates, which affects homebuilding demand
and may affect credit availability; (3) seasonal nature of the business due to weather-related
factors; (4) significant fluctuations in the price of building materials; (5) demographic changes;
and (6) changes in consumer confidence and preferences. As described above, the Company holds real estate properties for development. This activity
is expected to be the Companys primary focus for the future. While the current and anticipated
projects for land presently held are for multi-family housing, future project development could
include commercial/industrial properties. The Company will seek to find niche property sites,
initially in the greater Denver area, that offer an opportunity to upgrade value through
demolition, remediation, and construction. The Companys administrative functions are centralized in order to control overhead costs and
permit the direct engagement of key management with local municipal authorities in project
development. Further, the Company will attempt to minimize its fixed costs by contracting
extensively with third parties, such as architects, engineers, and contractors to design and build.
The Company intends to continue using third-party realtors for home sales. 2




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The pace of the Companys activity in the property development area will be subject to a
number of variables, many of which are outside its control. These include market demand for the
structures erected on the sites, interest rates, and weather conditions, among others. In
addition, the Company has limited financial resources, and there can be no assurance that external
financing will be available on terms acceptable to the Company. Government Regulation In connection with its Brownfields remediation activity, the Company is regulated by a myriad
of federal, state, and local environmental and transportation regulatory agencies, including but
not limited to the EPA, which regulates the generation and disposal of hazardous waste; the U.S.
Department of Labor, which sets safety and training standards for workers; the U.S. Department of
Transportation, which regulates transportation of hazardous materials and hazardous waste; and
similar state and local agencies. Additionally, in the normal course of property development, the
Company is subject to local codes governing construction activity. Potential Liability and Insurance In the construction of the housing units, the Company requires the general contractor to
provide general liability and builders risk coverage. However, in providing environmental
remediation services, the Company faces substantial potential liability for environmental damage,
personal injury, property damage, economic losses, and fines and costs imposed by regulatory
agencies. The Companys potential environmental liability arises, in part, from the nature of the
hazardous substances requiring remediation at the development sites. Because there are various exclusions and retentions attendant to insurance policies, not all
liabilities that may be incurred by the Company will necessarily be covered by insurance. In
addition, certain of the policies are claims made policies that only cover claims made during the
term of the policy. If a policy terminates and retroactive coverage is not obtained, a claim
subsequently made, even a claim based on events or acts that occurred during the term of the
policy, might not be covered by the policy. The market for liability insurance has been severely constrained at times, due in part to high
losses experienced by the insurance industry from environmental impairment liability claims,
including claims associated with hazardous materials and toxic wastes. Consequently, the available
insurance coverage for enterprises such as the Company may be reduced, eliminated entirely, or
priced beyond the reach of many companies. To date, the Company has been able to obtain the
necessary insurance when required. However, there can be no assurance that the Company will be
able to maintain adequate liability insurance in the future. Bonding Requirements Commercial remediation projects, as well as federal, state, and municipal projects, often
require contractors to post both performance and payment bonds at the execution of a contract.
Performance bonds guarantee that the project will be completed, and payment bonds guarantee that
vendors will be paid for equipment and other purchases. A bond typically costs between 1% and 3%
of the project costs, and contractors without adequate bonding may be ineligible to bid or
negotiate on many projects. No payments have been made on behalf of the Company under a performance or payment bond.
However, as result of the Companys financial status, it has experienced difficulty in obtaining
bonding. 3




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Consequently, letters of credit in the aggregate of approximately $380,000 are being used in lieu
of bonds to satisfy the City of Westminster requirements for infrastructure construction coverage. Employees As of January 2005, the Company had five full-time employees, including three Company
officers. The Companys employees are not represented by a labor union or covered by a collective
bargaining agreement, and the Company believes it has good relations with its employees. The operations of the Company are substantially dependent upon its executive officers. The
Company has no employment contracts with these persons, and the loss of their services could have a
material adverse effect on the Company. The Companys further success will also depend
significantly on its ability to attract and retain additional skilled personnel, including highly
trained technical personnel, project managers, and supervisors. The Company believes it currently
has adequate qualified supervisory personnel, but there is no assurance that experienced and
qualified management level personnel will be available to the Company in the future to fill
positions as needed. 
 Item 2. Description of Property. The Company headquarters and administrative facilities are located at 7032 S. Revere Parkway,
Englewood, Colorado, in approximately 6,000 square feet of leased office space at a monthly rental
of approximately $6,325. The lease expires May 31, 2005 and the Company is currently investigating
facility leasing options. The Companys corporate and administrative functions are conducted from
these facilities. 
 Item 3. Legal Proceedings. Except as set forth below, 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 is likely to have a material adverse effect on the Companys financial
position or results of operations. From time to time legal proceedings or disputes arise in the
normal course of business. The Company monitors and reviews these matters and maintains accruals
where appropriate. Since early 1998, the Company has been the subject of an investigation by the Office of the
Inspector General (OIG) of the Environmental Protection Agency (EPA). While initially broad in
scope, the investigation is now focused on labor billing rates to the EPA beginning in the
1992-1994 period and selected subsequent years. The Company has cooperated fully in all OIG
inquiries and will continue to do so when and if required. Independent audits by the Defense
Contract Audit Agency (DCAA), subsequent to initiation of the OIG investigation, have not been
adverse nor have resulted in claims against the Company. In an effort to resolve the dispute, the
Company requested non-binding arbitration which allows for a full discussion of the issues before a
neutral party. The OIG rejected this proposal. Subsequently, during the third quarter of 2002,
the Company attempted to reach a settlement agreement in order to limit further legal costs. In
response to this initiative, OIG offered to settle the case for $8.7 million based on certain
scenarios and imputed costs generated within its offices. The Company strongly disputes and
rejects the basis upon which the scenarios were developed and denies any wrongdoing in dealings
with the EPA. 4




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Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Companys security holders during the quarter ended
December 31, 2004. 
 PART II 
 Item 5. Market for Common Equity and Related Stockholder Matters.  (a)
    Principal Market or Markets. Since July 18, 1995, the Companys Common
Stock has been listed on the American Stock Exchange (AMEX) under the symbol ENV.
The following table sets forth the high and low sale prices for the Companys Common
Stock as reported on the AMEX for the periods indicated: Quarter Ended
    
    
    High
    
    
    
    LowMarch 31, 2003
    
    
    $
    0.62
    
    
    
    $
    0.12June 30, 2003
    
    
    
    0.36
    
    
    
    
    0.17September 30, 2003
    
    
    
    0.47
    
    
    
    
    0.19December 31, 2003
    
    
    
    0.59
    
    
    
    
    0.41March 31, 2004
    
    
    
    1.20
    
    
    
    
    0.47June 30, 2004
    
    
    
    0.90
    
    
    
    
    0.45September 30, 2004
    
    
    
    0.77
    
    
    
    
    0.32December 31, 2004
    
    
    
    0.83
    
    
    
    
    0.38
  (b)
    Approximate Number of Holders of Common Stock. The number of record
holders of the Companys common stock at February 25, 2005 was 34. This does not
include approximately 740 shareholders that hold their shares in street name.(c)
    Dividends. The Board of Directors does not anticipate paying cash
dividends on the Companys Common Stock in the foreseeable future as it intends to
retain future earnings to finance the growth of the business. The payment of future
cash dividends will depend on such factors as earnings levels, anticipated capital
requirements, the operating and financial conditions of the Company, and other factors
deemed relevant by the Board of Directors. The California Corporations Code provides
that a corporation may not pay dividends if the corporation is, or as a result of the
distribution would likely be, unable to meet its liabilities as they mature.(d)
    Sales of Unregistered Securities. None 
 Item 6. Managements Discussion and Analysis or Plan of Operations. This Annual Report on Form 10-KSB 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, could, 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 5




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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. General The Companys primary focus is property development, preferably in conjunction with municipal
authorities and where remediation is a material consideration in the development activity. After
experiencing sharply declining revenues as it withdrew from its historic environmental and water
services activities, the Company achieved an increase in revenues during 2004, reflecting initial
sales of residential housing units at its first development project. Ongoing water-related
services continued to decline in 2004 and accounted for less than 16% of revenues during the year
ended December 31, 2004. The Companys headquarters and administrative offices are in Englewood,
Colorado. Business Strategy The Company believes that by working with various levels of municipal government, there is an
opportunity to build a successful business in redeveloping niche sites in urban areas, particularly
those requiring remediation, where the Company has unique experience. Virtually all of the
Companys limited resources are focused on seeking and developing such opportunities. The
remaining water-related service contracts will expire in the normal course of business. Critical Accounting Policies & Estimates The Consolidated Financial Statements and Notes to the Consolidated Financial Statements
contain information that is pertinent to managements discussion and analysis. The preparation of
financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities. The Company believes
the following critical accounting policies involve additional management judgment due to the
sensitivity of the methods, assumptions, and estimates necessary in determining the related asset
and liability amounts. The Companys valuations of real estate inventories are stated at the lower of cost or fair
value. Fair value is based on estimated sales price less cost to sell. The Companys recorded net deferred tax assets are limited by the underlying tax benefits that
it expects to ultimately realize. An adjustment to income could be required if the Company were to
determine that it could realize tax benefits in amounts greater or less than the amounts previously
recorded. Revenue Recognition  Real Estate In accordance with SFAS No. 66, revenue from the sale of real estate inventories is recognized
when a sufficient down payment has been received; financing has been arranged; title, possession
and other attributes of ownership have been transferred to the buyer; and the Company is not
obligated to perform significant additional activities after sale and delivery. Capitalized costs
are charged to direct costs upon closing. Consideration received by the Company for real estate
sales is cash. During development, all direct costs and those indirect costs related to acquisition and
development are capitalized. Costs are allocated to various units utilizing managements best
estimate. 6




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Because of the inherent uncertainties in the estimating process, it is at least
reasonably possible that the estimates used will change in the near term. Provisions for estimated
losses are recorded in the period in which such losses are determined. Changes in job performance,
job conditions and estimated profitability may result in revisions to costs and income and are
recognized in the period in which the revenues are determined; such revisions may be material. Results of Operations The following table presents, for the periods indicated, the percentage relationship which
certain items of the Companys statements of income bear to revenue and the percentage increase or
(decrease) in the dollar amount of such items: PercentageRelationship to
    
    
    Period toProject Revenue
    
    
    PeriodYear Ended
    
    
    Change2004vs.2004
    
    
    2003
    
    
    2003Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    357.5
    %Costs:Direct
    
    
    90.7
    
    
    
    67.1
    
    
    
    517.9Indirect
    
    
    0.5
    
    
    
    11.4
    
    
    
    (78.3
    )Gross profit (loss)
    
    
    8.8
    
    
    
    21.5
    
    
    
    86.9Operating expenses
    
    
    18.7
    
    
    
    58.7
    
    
    
    45.7Operating income (loss)
    
    
    (9.9
    )
    
    
    (37.2
    )
    
    
    21.9Other income (expense)
    
    
    3.0
    
    
    
    9.7
    
    
    
    42.0Income (loss) before income taxes
    
    
    (6.9
    )
    
    
    (27.5
    )
    
    
    14.8Income tax benefit
    
    
    
    
    
    
    14.6
    
    
    
    (100.0
    )Net income (loss)
    
    
    (6.9
    %)
    
    
    (12.9
    %)
    
    
    (143.4
    %)
 2004 Compared to 2003 Revenue.Revenues were $4,018,308 in 2004, up from $878,269 in 2003. The increase reflects
initial sales of residential housing units at the Companys first development project in
Westminster, Colorado. Ongoing water services activity, which accounted for virtually all revenues
in 2003, declined some 30% in 2004 and accounted for less than 16% of total revenue. Cost of Revenue.Cost of revenue for 2004 was $3,665,157, up from $689,365 in the prior year.
The sharp increase reflects the expensing of previously capitalized costs as sales of residential
housing units were closed. 7




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Operating Expenses.Selling General and Administrative costs were $751,040 in 2004, as
compared to $515,313 in 2003, which benefited from a net bad debt recovery of $303,475. Other Income (Expense).In the final quarter of 2004, the Company recorded a gain of $128,179
from the elimination of payables incurred in 2000, which combined with other items resulted in net
other income of $121,141 for the year. In the prior year, other income was $85,297 arising
primarily from a $60,000 gain on the sale of equipment and $20,000 of interest income on an income
tax refund. Net Loss.In 2004, a net loss of $276,748 was incurred. After a tax refund from prior years
of $127,393, a net loss of $113,719 was incurred in 2003. The transitional nature of the Companys
business was the primary cause of losses incurred during 2002 and 2003. Initial sales of housing
units at the Companys first development project allowed overall operations to essentially reach a
breakeven level during the second half of 2004. 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. In connection with the Westminster redevelopment project discussed in Item 1. Business, the
Company secured a $1.67 million construction loan in June 2003 to finance the building of 23
housing units at Site I. In addition, the Company established a restricted cash account in the
amount of $1.1 million to support construction at the overall project. The loan was repaid in
June, 2004. In October, 2004, the Company obtained a new construction loan in the amount of
$2,925,000 to finance the building of 27 housing units at Site II and III of the development. The
Company believes that the proceeds from the loan and internal sources are sufficient for completion
of the project. With respect to the Aurora project, the Company has completed major remediation at the site
aided by a Brownfields Cleanup Revolving Loan Fund Agreement in the amount of $471,495. The
Company continues discussions with the City of Aurora officials, various independent agencies of
the city and state, and prospective lenders to establish the financial parameters for the project.
However, there can be no assurance that the Company will be successful in obtaining financing on
acceptable terms which would jeopardize the project and adversely impact the financial position,
results of operations, and liquidity. Capital Commitments.In January, 2004, the Company entered into two Buy and Sell Real Estate
agreements, one of which involved a residential property site in Westminster, Colorado, which was
purchased for $258,000 in March, 2004. The other agreement covers a vacant 10-acre tract in
Jefferson County, Colorado. Subsequent to the close of 2004, the Company terminated the Jefferson
County agreement. Another site, also in Westminster, is under contract, with the final closing
awaiting approval of the development proposal by the governing authorities. To aid in financing
these transactions, the Company arranged for a draw note in the amount of $380,600 (see Note H 
Notes Payable), of which $161,000 was drawn in connection with the March purchase. Also, subsequent to year-end, 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 8




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50% owner. The Company has been engaged by the LLC to manage the development of a
five-acre site in Aurora, Colorado (see Note P  Subsequent Events). The Company has
contributed $35,000 of its required $465,000 contribution. The Companys remaining contribution,
expected to be funded from current operations, is to be paid prior to Arizona Avenue, LLCs
application for a construction loan to build 54 town homes on land contributed by the other 50%
owner. Also in January 2005, the Company purchased a commercial/industrial building in
Westminster, Colorado for $410,000 and financed the purchase with a $307,500 loan from a local
lender. The Company intends to incorporate this parcel into a future redevelopment project. The Company has a lease for its existing headquarters and administrative facilities that
expires in May 2005, and the Company is currently investigating facility leasing options. Monthly
rentals currently are approximately $6,300 in the aggregate. Contractual Obligations at December 31, 2004: Payments Due By PeriodContractual
    
    
    
    
    
    Less ThanObligations
    
    Total
    
    
    1 Year
    
    
    1-3 YearsConstruction Loan
    
    $
    258,509
    
    
    $
    258,509
    
    
    
    Notes Payable
    
    $
    632,495
    
    
    $
    161,000
    
    
    $
    471,495Operating Leases
    
    $
    37,950
    
    
    $
    37,950
    
    
    
    Total
    
    $
    928,954
    
    
    $
    457,459
    
    
    $
    471,495
 Off-Balance Sheet Transactions.The Company has no off-balance sheet transactions. Common Stock Dividend Policy.Since the capitalization of the Company in 1995, the Company
has not paid, and does not currently intend to pay in the foreseeable future, cash dividends on its
Common Stock. Future earnings, if any, are expected to be retained for the development of the
business of the Company. 
 Item 7. Financial Statements. See pages F-1 through F-19. 
 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure. On April 21, 2004, the Company engaged GHP Horwath, P.C. to serve as the Companys independent
accountants. Also on April 21, 2004, Grant Thornton LLP was dismissed as the Companys independent
accountants. The decision to engage GHP Horwath, P.C. was recommended by the Audit Committee and
approved by the Companys Board of Directors. The report of Grant Thornton LLP on the Companys consolidated financial statements for the
years ended December 31, 2003 and 2002 did not contain an adverse opinion or disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. During
the years ended December 31, 2003 and 2002 and the subsequent periods preceding the decision to
change independent accountants, there were no disagreements with Grant Thornton LLC on any matter
of accounting principles or practices, financial statement disclosure, or auditing scope or
procedure, or other reportable event (of the type described in Item 304 (a) (1) (B) of Regulation
S-B), which disagreement(s), 9




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if not resolved to the satisfaction of Grant Thornton LLC, would have
caused it to make reference to the subject matter of the disagreement(s) in connection with its
report. During the fiscal years ended December 31, 2003 and 2002 and the subsequent periods prior to
engaging, neither the Company nor anyone on its behalf consulted GHP Horwath, P.C. regarding either
the application of accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Companys consolidated financial
statements, and neither a written report nor oral advice was provided to the Company by GHP
Horwath, P.C. 
 Item 8A. Controls and Procedures. As of December 31, 2004, 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 concluded that the
Companys disclosure controls and procedures were effective as of December 31, 2004. There were no
changes in internal control over financial reporting that occurred during the last fiscal quarter
covered by this report that have materially affected, or are reasonably likely to affect, the
Companys internal control over financial reporting. 
 Item 8B. Other Information. None. 
 PART III 
 Item 9, 10, 11, 12 and 14. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act; Executive Compensation; Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters; Certain Relationships and
Related Transactions; and Principal Accountant Fees and Service. The information required by these Items is incorporated herein by reference to the Companys
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held June 1, 2005. 10




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Item 13. Exhibits. The following exhibits are filed herewith: ExhibitNumber
    
    Description
    
    Location3.1
    
    Amended and Restated Articles of Incorporation
    
    Incorporated by reference to
Exhibit 3.1 to the Companys Form
SB-2 Registration Statement No.
33-916023.2
    
    Bylaws
    
    Incorporated by reference to
Exhibit 3.2 to the Companys Form
SB-2 Registration Statement No.
33-916023.3
    
    Certificate of Amendment of
Articles of Incorporation
    
    Incorporated by reference to
Exhibit 3.3 to the Companys
Annual Report on Form 10-K for the
year ended December 31, 2003.10.1
    
    Incentive Stock Option Plan
    
    Incorporated by reference to
Exhibit 10.1 to the Companys
Form SB-2 Registration Statement
No. 33-9160210.2
    
    Form of Incentive Stock Option Agreement
    
    Incorporated by reference to
Exhibit 10.2 to the Companys
Form SB-2 Registration Statement
No. 33-9160210.3
    
    Stock Purchase Agreement with AquaSource
Services and Technologies, Inc.
    
    Incorporated by reference to
Exhibit 10.1 to the Companys
report on Form 8K dated December
17, 1998.10.4
    
    Administrative Agreement between United
States Environmental Protection Agency and
the Registrant
    
    Incorporated by reference to
Exhibit 10.1 to Companys Form
10-Q for the nine months ended
September 30, 1999.10.5
    
    Asset Purchase and Assignment Agreement by
and between the Company and CAPE
Environmental Management, Inc.
    
    Incorporated by reference to
Exhibit 10.16 to the Companys
Annual Report on Form 10-K for
the year ended December 31, 1999.10.6
    
    Lease Agreement by and between the Company
and Sky Harbor Associates Limited Partnership
    
    Incorporated by reference to
Exhibit 10.6 to the Companys
Annual Report on Form 10-K for
the year ended December 31, 1999.10.7
    
    Line of Credit with Compass Bank
    
    Incorporated by reference to
Exhibit 10.7 to the Companys
Annual Report on Form 10-K for
the year ended December 31, 2001.
 11




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##### Table of Contents



ExhibitNumber
    
    Description
    
    Location10.8
    
    Amendment to the Lease Agreement by and
between the Company and Sky Harbor Associates
Limited Partnership
    
    Incorporated by reference to
Exhibit 10.8 to the Companys
Annual Report on Form 10-K for the
year ended December 31, 2002.10.9
    
    Development Agreement with the City of
Westminster, CO.
    
    Incorporated by reference to
Exhibit 10.9 to the Companys
Annual Report on Form 10-K for the
year ended December 31, 2002.21
    
    Subsidiaries of the Registrant
    
    Filed herewith electronically23.1
    
    Consent of GHP Horwath, P.C.
    
    Filed herewith electronically23.2
    
    Consent of Grant Thornton LLP
    
    Filed herewith electronically31.1
    
    Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith electronically31.2
    
    Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith electronically32.1
    
    Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
    
    Filed herewith electronically32.2
    
    Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
    
    Filed herewith electronically
 
 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized. CET SERVICES, INC. Dated:  March 4, 2005
    By
    /s/ Steven H. DavisSteven H. DavisPresident and Chief Executive Officer 12




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Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company and in the capacities and on the
date indicated. Signature
    
    Capacity
    
    Date/s/ Steven H. Davis

Steven H. Davis
    
    President,
Chief Executive Officer, and
Director
    
    March 4, 2005/s/ Craig C. Barto

Craig C. Barto
    
    Director
    
    March 4, 2005/s/ John D. Hendrick

John D. Hendrick
    
    Director
    
    March 4, 2005/s/ George Pratt

George Pratt
    
    Director
    
    March 4, 2005/s/ Dale W. Bleck

Dale W. Bleck
    
    Chief Financial Officer
    
    March 4, 2005
 13




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CET SERVICES, INC. FINANCIAL STATEMENTS AND REPORTS OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRMS December 31, 2004 and 2003 F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders
CET Services, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of CET Services, Inc. and subsidiaries
as of December 31, 2004, and the related consolidated statements of operations, stockholders
equity, and cash flows for the year then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CET Services, Inc. and subsidiaries as of December 31,
2004, and the results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of America. GHP HORWATH, P.C. Denver, Colorado
February 4, 2005 F-2




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REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders
CET Services, Inc. We have audited the accompanying consolidated balance sheet of CET Services, Inc. as of
December 31, 2003, and the related consolidated statements of operations, stockholders equity and
cash flows for the year then ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial
statementsbased on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all
material respects, the financial position of CET Services, Inc. as of December 31, 2003, and the
results of their operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. /s/ GRANT THORNTON LLP Denver, Colorado
January 26, 2004 F-3




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CET Services, Inc. CONSOLIDATED BALANCE SHEET December 31,2004ASSETSCash
    
    $
    1,044,894Restricted cash
    
    
    184,664Accounts receivable
    
    
    91,613Real estate inventories
    
    
    4,150,662Prepaid expenses
    
    
    52,489Equipment and improvements  net
    
    
    10,865Deposits
    
    
    8,269TOTAL ASSETS
    
    $
    5,543,456LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    185,394Accrued expenses
    
    
    64,298Retainage payable
    
    
    28,611Accrued construction expense
    
    
    271,196Construction loan
    
    
    258,509Notes payable
    
    
    632,495TOTAL LIABILITIES
    
    
    1,440,503COMMITMENTS AND CONTINGENCIES
    
    
    STOCKHOLDERS EQUITY:Common stock (no par value)  authorized 20,000,000 shares;
5,554,489 shares issued and outstanding
    
    
    8,331,007Paid-in capital
    
    
    104,786Accumulated deficit
    
    
    (4,332,840
    )Total stockholders equity
    
    
    4,102,953TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    5,543,456
 The accompanying notes are an integral part of this statement. F-4




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CET Services, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31,2004
    
    
    2003REVENUE
    
    $
    4,018,308
    
    
    $
    878,269COST OF REVENUE:Direct
    
    
    3,643,480
    
    
    
    589,623Indirect
    
    
    21,677
    
    
    
    99,7423,665,157
    
    
    
    689,365Gross profit
    
    
    353,151
    
    
    
    188,904OPERATING EXPENSES:Selling, general and administrative expenses
    
    
    751,040
    
    
    
    818,788Bad debt recovery, net
    
    
    
    
    
    
    (303,475
    )751,040
    
    
    
    515,313Operating loss
    
    
    (397,889
    )
    
    
    (326,409
    )OTHER INCOME (EXPENSE):Gain on sale of equipment
    
    
    963
    
    
    
    59,580Interest income, net
    
    
    2,690
    
    
    
    21,817Gain on elimination of payables
    
    
    128,179
    
    
    
    Other (expense) income, net
    
    
    (10,691
    )
    
    
    3,900121,141
    
    
    
    85,297Loss before taxes on income
    
    
    (276,748
    )
    
    
    (241,112
    )Income tax benefit
    
    
    
    
    
    
    127,393NET LOSS
    
    $
    (276,748
    )
    
    $
    (113,719
    )Loss per common share
    
    $
    (0.05
    )
    
    $
    (0.02
    )Weighted average number of common shares
    
    
    5,545,090
    
    
    
    5,726,591Loss per common share  assuming dilution
    
    $
    (0.05
    )
    
    $
    (0.02
    )Weighted average number of fully diluted common shares
    
    
    5,545,090
    
    
    
    5,726,591
 The accompanying notes are
an integral part of these statements. F-5




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CET Services, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY Years ended December 31, 2004 and 2003 TotalCommon stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    stockholders'Shares
    
    
    Amount
    
    
    capital
    
    
    deficit
    
    
    equityBalance at December 31, 2002
    
    
    5,757,792
    
    
    $
    8,419,407
    
    
    $
    104,786
    
    
    $
    (3,942,373
    )
    
    $
    4,581,820Repurchase and retirement of
common stock from former
director of the Company
    
    
    (223,303
    )
    
    
    (88,400
    )
    
    
    
    
    
    
    
    
    
    
    (88,400
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113,719
    )
    
    
    (113,719
    )Balance at December 31, 2003
    
    
    5,534,489
    
    
    $
    8,331,007
    
    
    $
    104,786
    
    
    $
    (4,056,092
    )
    
    $
    4,379,701Issued shares  legal settlement
    
    
    20,000
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (276,748
    )
    
    
    (276,748
    )Balance at December 31, 2004
    
    
    5,554,489
    
    
    $
    8,331,007
    
    
    $
    104,786
    
    
    $
    (4,332,840
    )
    
    $
    4,102,953
 The accompanying notes are
an integral part of these statements. F-6




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CET Services, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31,2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (276,748
    )
    
    $
    (113,719
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation
    
    
    26,935
    
    
    
    41,779Gain on disposal of equipment
    
    
    (963
    )
    
    
    (59,580
    )Gain on elimination of payables
    
    
    (128,179
    )
    
    
    Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (2,524
    )
    
    
    173,311Decrease in contracts in process
    
    
    271,196
    
    
    
    42,295Decrease in income tax, retention
and other receivables
    
    
    
    
    
    
    50,862(Increase) decrease in prepaid expenses
    
    
    (6,794
    )
    
    
    46,747Decrease in supplies inventory and deposits
    
    
    
    
    
    
    3,252,710Increase in real estate inventories
    
    
    (1,062,922
    )
    
    
    (1,386,849
    )Decrease in accounts payable
    
    
    (5,640
    )
    
    
    (609,373
    )(Decrease) increase in retainage payable
    
    
    (19,620
    )
    
    
    48,231Increase (decrease) in accrued expenses
    
    
    30,527
    
    
    
    (45,389
    )Net cash (used in) provided by
operating activities
    
    
    (1,174,732
    )
    
    
    1,441,025CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of equipment
    
    
    (3,330
    )
    
    
    (8,157
    )Proceeds from sale of equipment
    
    
    5,721
    
    
    
    75,123Net cash provided by
investing activities
    
    
    2,391
    
    
    
    66,966CASH FLOWS FROM FINANCING ACTIVITIES:Decrease (increase) in restricted cash
    
    
    1,025,319
    
    
    
    (1,209,983
    )Proceeds from (payments on) notes payable
    
    
    632,495
    
    
    
    (300,000
    )(Payments on) proceeds from construction loan
    
    
    (491,524
    )
    
    
    750,033Payments on repurchase of common stock
    
    
    
    
    
    
    (88,400
    )Net cash provided by (used in)
financing activities
    
    
    1,166,290
    
    
    
    (848,350
    )(Decrease) increase in cash
    
    
    (6,051
    )
    
    
    659,641Cash at beginning of year
    
    
    1,050,945
    
    
    
    391,304Cash at end of year
    
    $
    1,044,894
    
    
    $
    1,050,945
 The accompanying notes are
an integral part of these statements. F-7




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CET Services, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31,2004
    
    
    2003Supplemental disclosures of cash flow information:Cash paid
during the yearInterest (including $14,306 in 2004 and $31,343 in 2003 capitalized to real estate inventories)
    $
    20,702
    
    
    $
    31,656
 The accompanying notes are
an integral part of these statements. F-8




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CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A  ORGANIZATION AND DESCRIPTION OF COMPANY  CET Services, Inc. (CET or the Company) formerly known as CET Environmental Services,
Inc., was incorporated on February 9, 1988 under the laws of the State of California. The
Company has one wholly owned subsidiary, Community Builders, Inc., a Colorado corporation.The Company has restructured its business activity and is now focused on property development
in urban areas. Initial efforts in this area involve residential housing where land
remediation tasks are required in order to achieve the desired result. Reflecting highly
competitive pricing and the consequent margin erosion coupled with limited opportunities, the
water/wastewater services business was substantially reduced in 2003. The remaining activity
in this area will be completed in the normal course of business. NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL  ConsolidationThe consolidated financial statements include the accounts of CET Services, Inc., and its
wholly- owned subsidiary. All significant inter-company transactions have been eliminated.CashFor purposes of the statement of cash flows, the Company considers all highly liquid cash
investments with an original maturity of three months or less to be cash.Equipment and ImprovementsEquipment and improvements consist primarily of office equipment, furniture and fixtures and
are recorded at cost. Depreciation is provided on a straight-line method over their estimated
useful lives, generally five years. At December 31, 2004 accumulated depreciation was
approximately $153,000.Income TaxesThe Company accounts for income taxes in accordance with the Statement of Financial Accounting
Standards (SFAS) 109, Accounting for Income Taxes, using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements carrying amount of
existing assets and liabilities and their tax bases, as well as net operating losses.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets or liabilities of a change in tax rates is
recognized in the period in which the tax change occurs. A valuation allowance is provided to
reduce the deferred tax assets to a level, that more likely than not, will be realized. F-9




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CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Estimated Fair Value InformationSFAS No. 107, Disclosure about Fair Value of Financial Instruments,requires disclosure of the
estimated fair value of an entitys financial instrument assets and liabilities, as defined,
regardless of whether recognized in the financial statements of the reporting entity. The
fair value information does not purport to represent the aggregate net fair value of the
Company.The fair values of cash accounts, accounts receivable and accounts payable approximates the
carrying amount due to the short-term maturity. The carrying value approximates fair value
for the notes payable and the construction loan, as the interest rate is a variable market
rate. The fair value of the letters of credit approximates the fees charged for their
maintenance.Use of EstimatesIn preparing financial statements in conformity with accounting principles generally accepted
in the United States of America, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those estimates.Concentrations of Credit RiskThe Companys cash balances, which are at times in excess of federally insured levels, are
maintained at a large regional bank, and are continually monitored to minimize the risk of
loss. The Company grants credit to its customers, who are varied in terms of size and
financial strength. Customer balances are continually monitored to minimize the risk of loss.The Companys residential housing segment has two primary projects, one of which contributed
substantially to revenues and cash flow in 2004. Both are expected to provide a significant
portion of the Companys revenues and cash flow in the immediate future. If any unforeseen
circumstance would interrupt the development and completion of these projects, it would have a
material adverse effect on the Companys financial position, results of operations, and
liquidity.Earnings per ShareBasic earnings (loss) per share amounts are calculated
using the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share assumes the
conversion, exercise or issuance of all potential common stock instruments, such as options or
warrants, unless the effect is to reduce a loss or increase earnings per share. During each
of the years ended December 31, 2004 and 2003, the effect of outstanding options would have
been anti-dilutive.Stock-Based CompensationSFAS No. 123, Accounting for Stock-Based Compensation,establishes financial accounting and
reporting standards for stock-based employee compensation plans. SFAS No. 123 encourages
entities to adopt a fair-value-based method of accounting for stock compensation plans.
However, SFAS No. 123 also permits entities to continue to measure compensation costs under
APB 25 with F-10




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CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  the requirement that pro forma disclosures of net income and earnings per share be included in
the notes to financial statements. The Company follows the disclosure requirements of SFAS
No. 123 by presenting pro forma results of net income and earnings per share data; however,
the Company uses the intrinsic value method as prescribed by APB 25 to account for its
stock-based employee compensation plans. Had compensation cost for these plans been
determined consistent with the fair value method prescribed by SFAS No. 123, the Companys net
loss and loss per share would have been increased to the following pro forma amounts for
options granted in 2000 and 2002 that vest over five years: December 31,
    
    
    December 31,2004
    
    
    2003Net loss available to
common stockholders:As reported
    
    $
    (276,748
    )
    
    $
    (113,719
    )Stock compensation expense
    
    
    (3,710
    )
    
    
    (6,865
    )Pro forma
    
    $
    (280,458
    )
    
    $
    (120,584
    )Basic and diluted net loss available to
common stockholders per common share:As reported
    
    $
    (.05
    )
    
    $
    (.02
    )Pro forma
    
    $
    (.05
    )
    
    $
    (.02
    )
  The fair value of each option grant is estimated on the date of grant using the Black-Scholes
options-pricing model with the following weighted-average assumptions for grants in 2003: no
expected dividends, expected volatility of 183%, risk-free interest rate of 5.0%, and expected
lives of 5 years.Unclassified balance sheetIn conjunction with the Companys restructuring of its business activity to property
development, the Company has changed its balance sheet presentation from classified to
unclassified as of December 31, 2004, in accordance with industry practices for property
developers.Recent Accounting PronouncementsIn December 2004, the Financial Accounting Standards
Board (FASB) issued SFAS No. 123 (R)
Share Based Paymentwhich addresses the accounting for share-based payment transactions. SFAS
No. 123 (R) eliminates the ability to account for share-based compensation transactions using
APB No. 25, and generally requires instead that such transactions be accounted and recognized
in the statement of income based on their fair values. SFAS
No. 123 (R) will be effective for
public companies that file as small business issuers as of the first interim period that
begins after December 15, 2005. The Company is currently evaluating the provisions of SFAS
No. 123 (R) and has not yet determined the impact that this Statement will have on its results
of operations or financial position. F-11




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CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WATER/WASTE WATER SERVICES  Accounts ReceivableCredit is extended based on evaluation of a customers financial condition and, generally,
collateral is not required. Accounts receivable are due within thirty days and are stated at
amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding
longer than the contractual payment terms are considered past due. The Company determines its
allowance by considering a number of factors, including the length of time trade accounts
receivable are past due, the Companys previous loss history, the customers current ability
to pay its obligation to the Company, and the condition of the general economy and the
industry as a whole. At December 31, 2004, no allowance for doubtful accounts was determined
to be necessary.ContractsAs noted in previous reports, the Company has essentially withdrawn from the Water/Waste Water
Services business. Service continues to be provided for two customers, the State of Colorado
and the Centennial Water District, which combined accounted for less than 15% of 2004
revenues. Basically, the services are provided under fixed price contracts where revenue is
recorded as costs are incurred as a percentage of estimated total costs. Due to uncertainties
in the estimation process, actual results could differ from estimates used. Provisions for
losses on uncompleted contracts are made in the period in which such losses are determined.
Recoveries are recorded to revenue when received.In the fourth quarter of 2004, the Company determined that payables incurred in 2000 in
connection with the Companys former environmental remediation services business had been
legally released. Accordingly, the Company recorded a non-operating gain of approximately
$128,000 on the elimination of the payables. PROPERTY DEVELOPMENT  Real Estate InventoriesReal estate inventories consist of land under development, townhomes under construction, and
finished lots. All direct costs, including land, home construction costs, interest and real
estate taxes, and indirect costs related to construction or development are capitalized during
the construction and development period. Land and improvement costs are allocated within a
project based on relative sales value. Construction of residential housing began in 2003, and
initial sales were achieved in 2004.Real estate inventories are stated at the lower of cost or fair value. Fair value is based on
estimated sales price less cost to sell. F-12




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CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Revenue RecognitionIn accordance with SFAS No. 66, revenue from the sale of real estate inventories is recognized
when a sufficient down payment has been received; financing has been arranged; title,
possession and other attributes of ownership have been transferred to the buyer; and the
Company is not obligated to perform significant additional activities after sale and delivery.
Capitalized costs are charged to direct costs upon closing. Consideration received by the
Company for real estate sales is cash. NOTE C  SIGNIFICANT CUSTOMERS  In 2003, the Company had two customers, the State of Colorado and Centennial Water District,
which contributed 65% or approximately $568,000 of the Companys revenue. However, the
Companys primary focus in 2004 is property development, and initial sales of housing units
from its first development project accounted for more than 84% of revenues in 2004. NOTE D  REAL ESTATE INVENTORIES  Real estate inventories at December 31 consist of the following: 2004Townhomes
under construction and finished lots
    
    $
    1,868,000Land under development
    
    
    2,283,000$
    4,151,000
 NOTE E  RESTRICTED CASH  Letters of credit in the amount of approximately $380,000 are being used in lieu of bonds
to satisfy the City of Westminster requirements for infrastructure construction coverage.
Cash of approximately $93,000 is being held on a restricted basis in a money market account to
support these letters of credit issued by the lender. In addition, cash of approximately
$92,000 is being held by the lender on a restricted basis and is to be used towards the
current construction costs. NOTE F  CONSTRUCTION LOAN  In October 2004, the Company secured a $2.93 million construction loan for Sites II and III of
its initial redevelopment project in the City of Westminster, Colorado. The loan is due
October 27, 2005, carries interest at prime plus three quarters of one percent (6 % at
December 31, 2004), and is secured by certain properties. As of December 31, 2004 the Company
had drawn approximately $259,000 of the $2.93 million construction loan thereby leaving a
balance of approximately $2,666,000 available for future draws. Repayment terms include 100%
of sales proceeds after normal selling and closing costs are deducted. F-13




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CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE G  CONSTRUCTION CONTRACT  In August 2004, the Company entered into a fixed-price construction contract with a local
general contractor for the construction at Sites II and III. The contract, in the amount of
$2,745,417, requires that certain funds are withheld as retainage payable. At December 31,
2004, approximately $568,000 was accrued under the contract and $2,177,000 was remaining to be
incurred on the contract. NOTE H NOTES PAYABLE  In March 2004, the Company obtained a draw note in the amount of $380,600 from Guarantee Bank,
payable in one year to finance the purchase of two parcels of property located in Westminster,
Colorado. At December 31, 2004, the Company had drawn $161,000 under the note which was used
to purchase one of the properties; the other is under contract with closing awaiting final
approval of the development plan. The note bears interest at the rate of prime plus 1% with a
minimum of 5.5% with monthly interest-only payments. The principal is due at maturity, and
the note is collateralized by a first deed of trust on the property.In June 2004, the Company signed a Brownfields Cleanup Revolving Loan Fund Agreement with the
City of Aurora, Colorado, for $471,495, to finance the remediation of a five-acre site on
which the Company intends to construct 54 residential townhomes. The Loan is for a period of
three years with interest at 2% per annum payable monthly. 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.Aggregate maturities of notes payable outstanding at December 31 are as follows: 2005
    
    $
    161,0002007
    
    $
    471,495Total notes payable
    
    $
    632,495
 NOTE I  STOCKHOLDERS EQUITY  Prior to the close of 2003, the Company completed the final step of an agreement entered into
in May, 2001 with a former Director and Executive Vice President of the Company by purchasing
223,303 common shares for $88,400, or $0.395 a share. The purchase was contingent upon the
Company realizing cash receipt of an amount due under a 2003 modified settlement agreement
with Remediation Financial, Inc. (RFI) relating to a previous environmental remediation
contract. The Company received $2,875,000 on November 2, 2003 thereby ending all potential
further litigation with RFI and its affiliated partner and extinguishing all obligations and
contingencies with related parties.In June 2004, the Company issued 20,000 shares in connection with a legal settlement. The
fair value of these shares was not material to the financial statements. F-14




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##### Table of Contents



CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J  STOCK OPTIONS  The Company has adopted an Incentive Stock Option Plan (the Plan) for key personnel. A total
of 550,000 shares of the Companys common stock are reserved for issuance pursuant to the
exercise of stock options (the Options) which may be granted to full-time employees, including
officers and directors who are also employees of the Company. The Plan is administered by the
Board of Directors. In addition to determining who will be granted Options, the Board of
Directors has the authority and discretion to determine when Options will be granted and the
number of Options to be granted. The Board of Directors may grant Options intended to qualify
for special treatment under the Internal Revenue Code of 1986, as amended (Incentive Stock
Options) and may determine when each Option becomes exercisable, the duration of the exercise
period for Options, and the form of the instruments evidencing Options granted under the Plan.
The Plan is accounted for under APB Opinion 25 and related interpretations. The Options
generally have a term of 10 years when issued and vest over one to five years.The maximum aggregate fair market value (determined as of the date of grant) of the shares as
to which the Incentive Stock Options become exercisable for the first time during any calendar
year may not exceed $100,000. The Plan provides that the purchase price per share for each
Incentive Stock Option on the date of grant may not be less than 100 percent of the fair
market value of the Companys common stock on the date of grant. However, any Option granted
under the Plan to a person owning more than 10 percent of the Companys common stock shall be
at a price of at least 110 percent of such fair market value.A summary of the status of the Plan follows: Weightedaverage exerciseShares
    
    
    price per shareOutstanding at January 1, 2003
    
    
    108,600
    
    
    $
    1.33Granted
    
    
    20,000
    
    
    
    .32Exercised
    
    
    
    
    
    
    Canceled
    
    
    (20,000
    )
    
    
    1.75Outstanding at December 31, 2003
    
    
    108,600
    
    
    $
    1.07Total exercisable at December 31, 2003
    
    
    76,600
    
    
    $
    1 37Outstanding at January 1, 2004
    
    
    108,600
    
    
    $
    1.07Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Canceled
    
    
    (5,000
    )
    
    
    .44Outstanding at December 31, 2004
    
    
    103,600
    
    
    $
    1.10Total exercisable at December 31, 2004
    
    
    101,600
    
    
    $
    1.11
  Weighted average fair value of options granted during the year ended December 31, 2003 was
$.31. The following information applies to options outstanding at December 31, 2004: F-15




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##### Table of Contents



CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Options Outstanding
    
    
    Options ExercisableWeightedaverage
    
    
    Weighted
    
    
    
    
    
    
    Weightedremaining
    
    
    average
    
    
    
    
    
    
    averageRange of
    
    Number
    
    
    contractual
    
    
    exercise
    
    
    Number
    
    
    exerciseexercise prices
    
    outstanding
    
    
    life (years)
    
    
    price
    
    
    exercisable
    
    
    price$0.20 - $0.66
    
    
    75,000
    
    
    
    4.79
    
    
    $
    0.40
    
    
    
    73,000
    
    
    $
    0.40$1.30 - $1.95
    
    
    7,500
    
    
    
    4.44
    
    
    $
    1.31
    
    
    
    7,500
    
    
    $
    1.31$3.00 - $4.50
    
    
    21,100
    
    
    
    .39
    
    
    $
    3.50
    
    
    
    21,100
    
    
    $
    3.50103,600
    
    
    
    
    
    
    
    
    
    
    
    101,600
 NOTE K  TAXES ON INCOME  A reconciliation between the expected federal income tax expense computed by applying the
Federal statutory rate to income before income taxes and the actual provision (benefit) for
taxes on income for the year ended December 31, is as follows: 2004
    
    
    2003Expected income tax benefit at
statutory rate
    
    $
    ( 92,700
    )
    
    $
    (82,000
    )Change in valuation reserve
    
    
    107,100
    
    
    
    (24,000
    )State taxes
    
    
    (11,000
    )
    
    
    (7,700
    )Other
    
    
    (3,400
    )
    
    
    (13,693
    )Change in prior year estimate
    
    
    
    
    
    
    $
    
    
    
    $
    (127,393
    )
  Deferred tax assets and liabilities consist of the following at December 31: 2004
    
    
    2003Other reserves
    
    $
    
    
    
    $
    6,500NOL carryforward
    
    
    1,920,400
    
    
    
    1,816,900Other
    
    
    6,900
    
    
    
    (3,200
    )1,927,300
    
    
    
    1,820,200Valuation reserve
    
    
    (1,927,300
    )
    
    
    (1,820,200
    )$
    
    
    
    $
    
  Realization of the deferred tax asset depends on achieving future taxable income. The
Company incurred losses in recent years and does not consider it sufficiently likely that the
Company will realize the benefit of the deferred tax asset and, accordingly, has recorded a
valuation allowance equal to the deferred tax asset. F-16




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##### Table of Contents



CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  At December 31, 2004, the Company has net operating carry forwards for regular income tax
purposes of approximately $5.0 million that expire in various amounts in years 2018 through
2024 .  In 2003, the Company filed amended tax returns for 1998 and 2000. Utilizing the
loss-carryback provisions of the tax code, the Company deemed that it was entitled to recover
$127,393 of prior tax payments. This refund was received in full in 2003. NOTE L  LEASE COMMITMENTS  The Company is obligated under an operating lease for its facility. The lease expires in May
2005. The lease also provides for payments of taxes and certain common area costs and
expenses. Total rent expense for the years ended December 31, 2004 and 2003 was $84,754 and
$82,966 respectively. NOTE M  LEGAL  Except as set forth below, 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 is likely to have a material adverse effect on the
Companys financial position or results of operations. From time to time legal proceedings or
disputes arise in the normal course of business. The Company monitors and reviews these
matters and maintains accruals where appropriate.  Since early 1998, the Company has been the subject of an investigation by the Office of the
Inspector General (OIG) of the Environmental Protection Agency (EPA). While initially broad
in scope, the investigation is now focused on labor billing-rates to the EPA beginning in the
1992-1994 period and selected subsequent years. The Company has cooperated fully in all OIG
inquiries and will continue to do so when and if required. Independent audits by the Defense
Contract Audit Agency (DCAA), subsequent to initiation of the OIG investigation, have not been
adverse nor have resulted in claims against the Company. In an effort to resolve the dispute,
the Company requested non-binding arbitration which allows for a full discussion of the issues
before a neutral party. The OIG rejected this proposal. Subsequently, during the third
quarter of 2002, the Company attempted to reach a settlement agreement in order to limit
further legal costs. In response to this initiative, OIG has offered to settle the case for
$8.7 million based on certain scenarios and imputed costs generated within its offices. The
Company strongly disputes and rejects the basis upon which the scenarios were developed and
denies any wrongdoing in dealings with the EPA. No loss provision has been made at December
31, 2004, relating to this matter, as the probable outcome is unknown. If the Company does
not prevail in its defense of this dispute, it could have a material adverse effect on the
Companys financial position, results of operations, and liquidity. F-17




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##### Table of Contents



CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE N  SEGMENT INFORMATION  CET has determined that its reportable segments are those that are based on the Companys
method of internal reporting, which disaggregates its business by product category. CETs
revenues and expenses are generated from two segments, residential housing development and
construction and water/wastewater services. Transfers and sales between reportable segments,
if any, are recorded at cost. 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). Residential
    
    
    Water/wastewaterDecember 31, 2004
    
    Housing
    
    
    Services
    
    
    Corporate
    
    
    TotalRevenue
    
    $
    3,407
    
    
    $
    611
    
    
    $
    
    
    
    $
    4,018Segment profit (loss)
    
    
    206
    
    
    
    151
    
    
    
    (634
    )
    
    
    (277
    )Interest income (expense) net
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Depreciation and amortization
    
    
    
    
    
    
    5
    
    
    
    22
    
    
    
    27Segment assets
    
    
    4,151
    
    
    
    2
    
    
    
    1,390
    
    
    
    5,543Expenditures for segment assets
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3December 31, 2003Revenue
    
    $
    
    
    
    $
    878
    
    
    $
    
    
    
    $
    878Segment profit (loss)
    
    
    
    
    
    
    19
    
    
    
    (133
    )
    
    
    (114
    )Interest income (expense) net
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    22Depreciation
    
    
    
    
    
    
    10
    
    
    
    32
    
    
    
    42Segment assets
    
    
    4,298
    
    
    
    67
    
    
    
    1,166
    
    
    
    5,531Expenditures for segment assets
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8
 NOTE O  RELATED PARTY TRANSACTIONS  The Company sells water it acquires under a water lease to the Centennial Water & Sanitation
District. John D. Hendrick, a Director of the Company, is the General Manager of the
Centennial Water & Sanitation District. The Centennial Water & Sanitation District makes
payments to an escrow agent who distributes the funds primarily to the lessor and the
remainder to the Company. During 2004 and 2003, the Company invoiced the Centennial Water &
Sanitation District $331,149 and $302,062, respectively, and recorded a profit of $15,563
and $14,205, respectively, under this arrangement. .  In March 2004, the Company sold a townhome to Steven H. Davis, Chief Executive Officer,
President and Director for $160,949 which was comparable to the price received for similar
units from outside customers. The sales price approximated the cost of the unit. In
addition, the Company agreed to lease the unit on a month-to-month basis from Mr. Davis for
$1,050 per month to serve as the model unit for the outside marketing firm. F-18




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##### Table of Contents



CET Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE P  SUBSEQUENT EVENTS  In January 2005, the Company elected to terminate an agreement to buy a vacant 10-acre tract
in Jefferson County, Colorado.  Also in January 2005, the Company entered into an operating agreement as a 50% owner of
Arizona Avenue LLC, a Colorado limited liability company. In conjunction with the operating
agreement, the Company entered into a management and development agreement with Arizona
Avenue LLC to develop a five-acre parcel in Aurora, Colorado, comprised of approximately 54
town home units. The Company has contributed $35,000 of its required $465,000 contribution.
The Companys remaining contribution, expected to be funded from current operations, is to
be paid prior to Arizona Avenue, LLCs application for a construction loan to build 54 town
homes on land contributed by the other 50% owner.  Also in January 2005, the Company purchased a commercial/industrial building in Westminster,
Colorado for $410,000 and financed the purchase with a $307,500 loan from a local lender.
The Company intends to incorporate this parcel into a future redevelopment project. F-19




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    Description
    
    Location3.1
    
    Amended and Restated Articles of Incorporation
    
    Incorporated by reference to
Exhibit 3.1 to the Companys Form
SB-2 Registration Statement No.
33-916023.2
    
    Bylaws
    
    Incorporated by reference to
Exhibit 3.2 to the Companys Form
SB-2 Registration Statement No.
33-916023.3
    
    Certificate of Amendment of
Articles of Incorporation
    
    Incorporated by reference to
Exhibit 3.3 to the Companys
Annual Report on Form 10-K for the
year ended December 31, 2003.10.1
    
    Incentive Stock Option Plan
    
    Incorporated by reference to
Exhibit 10.1 to the Companys
Form SB-2 Registration Statement
No. 33-9160210.2
    
    Form of Incentive Stock Option Agreement
    
    Incorporated by reference to
Exhibit 10.2 to the Companys
Form SB-2 Registration Statement
No. 33-9160210.3
    
    Stock Purchase Agreement with AquaSource
Services and Technologies, Inc.
    
    Incorporated by reference to
Exhibit 10.1 to the Companys
report on Form 8K dated December
17, 1998.10.4
    
    Administrative Agreement between United
States Environmental Protection Agency and
the Registrant
    
    Incorporated by reference to
Exhibit 10.1 to Companys Form
10-Q for the nine months ended
September 30, 1999.10.5
    
    Asset Purchase and Assignment Agreement by
and between the Company and CAPE
Environmental Management, Inc.
    
    Incorporated by reference to
Exhibit 10.16 to the Companys
Annual Report on Form 10-K for
the year ended December 31, 1999.10.6
    
    Lease Agreement by and between the Company
and Sky Harbor Associates Limited Partnership
    
    Incorporated by reference to
Exhibit 10.6 to the Companys
Annual Report on Form 10-K for
the year ended December 31, 1999.10.7
    
    Line of Credit with Compass Bank
    
    Incorporated by reference to
Exhibit 10.7 to the Companys
Annual Report on Form 10-K for
the year ended December 31, 2001.




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##### Table of Contents



ExhibitNumber
    
    Description
    
    Location10.8
    
    Amendment to the Lease Agreement by and
between the Company and Sky Harbor
Associates Limited Partnership
    
    Incorporated by reference to
Exhibit 10.8 to the Companys
Annual Report on Form 10-K for the
year ended December 31, 2002.

10.9
    
    Development Agreement with the City of
Westminster, CO.
    
    Incorporated by reference to
Exhibit 10.9 to the Companys
Annual Report on Form 10-K for the
year ended December 31, 2002.21
    
    Subsidiaries of the Registrant
    
    Filed herewith electronically23.1
    
    Consent of GHP Horwath, P.C.
    
    Filed herewith electronically23.2
    
    Consent of Grant Thornton LLP
    
    Filed herewith electronically31.1
    
    Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith electronically31.2
    
    Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith electronically32.1
    
    Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
    
    Filed herewith electronically32.2
    
    Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
    
    Filed herewith electronically