<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 31, 1996
----------------
Commission file number: 0-188
-------
CEC Properties, Inc.
- -----------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Delaware 13-1919940
- -----------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
1500 W. Balboa Blvd. Suite 201, Newport Beach, CA 92663
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 673-2282
- -----------------------------------------------------------------------------
(Registrant's Telephone Number, including area code)
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(s) of the Act:
Common Stock, $.01 par value
- -----------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of regulation S-K is not contained herein, and will not 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.
State issuer's revenues for its most recent fiscal year $133,191.
No existing market
- -----------------------------------------------------------------------------
(Aggregate Market Value of voting stock held by
non-affiliates of the registrant)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of January 31, 1997 there
were 12, 566,698 shares of Common Stock, $.01 par value per share, outstanding.
Documents incorporated by Reference: None
Transitional Small Business Disclosure Format: Yes No X
----- -----
<PAGE> 2
CEC PROPERTIES, INC.
INDEX TO FORM 10-KSB
OCTOBER 31, 1996
Part I
Item 1 - Business
Item 2 - Properties
Item 3 - Legal Proceedings
Item 4 - Submission of matters to a vote of security holders (stockholders)
Part II
Item 5 - Market for the registrant's common stock and related security holder
matters
Item 6 - Selected financial data
Item 7 - Management's discussion and analysis of financial condition and
results of operations
Item 8 - Financial statements and supplementary data
Item 9 - Changes in and disagreements with accountants on accounting and
financial disclosure
Part III
Item 10 - Directors and executive officers of the registrant
Item 11 - Executive compensation
Item 12 - Security ownership of certain beneficial owners and management
Item 13 - Certain relationships and related transactions
Part IV
Item 14 - Exhibits, financial statement schedules and reports on Form 8-K
Signatures
2
<PAGE> 3
PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
CEC Properties, Inc. (CEC) is in the business of acquiring, building and
managing golf courses. In 1996 CEC and partners purchased from Blue T Golf the
following:
(1) The right to enter into a 40 year lease and option with the
County of Ventura, California for an 18 hole golf course
(2) The right to enter into a definitive agreement to purchase 216
acres for the construction of an 18 hole golf course and RV park
from the City of Barstow, California.
CEC is reviewing the possibility of a joint venture with a major finance source
to form a holding company to acquire golf course properties. The company will
be the managing company for all the golf courses. CEC plans on forming a REIT
once 15 or more courses have been acquired. CEC's growth strategy is to
diversify into retail operations, golf driving ranges and other related
entities.
The diversification of owning and managing different aspects of the Golf
Industry allows the cross utilization of the expertise in the appropriate
companies of CEC. This will increase the profitability of each endeavor.
CEC will continue to treat this business as an entertainment business and will
pursue complimentary opportunities to fill out the product line that is offered
to its customers. Management is currently in negotiations on several projects
to expand this product line.
CONSOLIDATED OPERATIONS
The attached financial statements are reported on a consolidated basis with CEC
Properties, Inc. and CEC Properties Corp., a wholly owned subsidiary and a
Nevada corporation.
STATE OF THE ECONOMY - CEC FOCUS
The golf industry is one of this country's oldest entertainment industries.
Golf has been played for centuries overseas and has shown a rapid growth in
recent years in this country. Because of increased awareness of exercise and
outdoor activity golf has flourished in recent years.
According to the National Golf Foundation, there could be one golf course per
day built in this country for the next 5 years and still not keep up with the
demand. Current new course construction is roughly that or somewhat less. Golf
play has increased roughly 10% a year since 1990 and is expected to continue at
this rate until the year 2000. There are presently over 15,000 golf courses in
this country.
EMPLOYEES
At October 31, 1996 CEC employed five part-time employees.
EXECUTIVE OFFICERS
The following officers are presently officers of CEC and their terms expire at
the annual meeting of The Board of Directors. No person other than the
directors of the Company, acting solely in that capacity, is responsible for
the naming of an officer.
Year First Elected or
Name Office and Age Appointed to Office
- ---- -------------- ---------------------
Paul L. Balalis President and CEO, 58 1995
Don Norbury Vice President and 1995
Chief Financial Officer, 61
3
<PAGE> 4
ITEM 2: DESCRIPTION OF PROPERTIES
(1) At October 31, 1996 CEC owned three properties held for investment: One
residential property and two multi-tenant properties, valued at
$900,000.00.
(2) A development agreement has been awarded to CEC and partners by the City of
Barstow, CA to build an 18 hole golf course and a 700 space RV and mobile
home park on 216 acres that is to be deeded to CEC. Construction will
begin in late summer 1997.
(3) A lease agreement for 40 years with options has been awarded to CEC and
partners by the County of Ventura, CA to build an 18 hole golf course.
Construction will begin in late summer 1997.
ITEM 3: LEGAL PROCEEDINGS
At October 31, 1996 CEC was not involved in any legal proceedings which would
have a material effect on the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
(a) The common stock of CEC has been approved for trade on the NASDAQ
Electronic Bulletin Board with a market symbol of CECI. CEC is unaware
of any active market for the Company's shares.
(b) At October 31, 1996 the Company had 12,566,698 shares of common stock
outstanding with 30,000,000 authorized. Par value of the stock is $0.01.
(c) At October 31, 1996 the total number of shareholders was approximately
4,500.
(d) CEC has never paid a dividend or common stock and the Company's Board of
Directors has no present plans to pay cash dividends on its common
stock in the foreseeable future. Any future payment of cash dividends on
the common stock will depend on CEC's earnings, capital requirements,
financial condition and other factors deemed relevant by the Board of
Directors.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Fiscal year ended
October 31, 1996 1995
------------------ ----------
Operating Revenues $ 133,191 $ 99,092
Net Income $ (72,684) $ 24,691
Net Income per common share outstanding $ (0.006) $ .002
Total Assets $(1,112,013) $1,119,108
Long Term Liabilities $ 1,047,126 $1,043,398
Shareholder's Equity $ (47,993) $ 24,691
GENERAL OVERVIEW
CEC Properties, Inc. (CEC) is in the business of locating, building or buying
properties that fit into the Sports Entertainment field. CEC searches for
undervalued, mismanaged or underutilized properties that, for whatever reason,
are in financial difficulty. CEC's turnaround management techniques and
expertise in marketing can quickly take advantage of the opportunity. CEC
currently has letters of intent accepted by Northshore Country Club, Corpus
Christi, Texas, Terradyne Resort and Country Club in Wichita, Kansas and
Newport Country Club in Houston, Texas. A development agreement has been
awarded to CEC and partners from the City of Barstow, California for the
construction of a golf course and a 40 year lease with options has been signed
with the County of Ventura for the construction of a golf course and associated
development.
4
<PAGE> 5
CAPITAL AND LIQUIDITY
CEC's audited financial statements for the period ended October 31, 1996.
Management's intention to strengthen the capital position of the Company
through the acquisition of golf course properties at prices which are
discounted enough to insure a positive cash flow and positive equity.
RESULTS OF OPERATIONS
For the period ended October 31, 1996, CEC is reporting a net loss from
consolidated operations of $(72,684) on total revenues of $133,191. These
revenues are the results of either gains on sales of properties acquired during
fiscal 1995 or from the operations of properties acquired during that period.
CEC's balance sheet at October 31, 1996 reports $1,047,126 in Trust Deeds and
Notes Payable. These are debts which were assumed by the Company in the
acquisition of investment properties. Interest expense incurred on these debts
amounted to $81,096 for the same period and a Provision for Income Taxes of
$3,074 was also charged to expense.
At October 31, 1996 CEC has a number of prospective properties in negotiation
for purchase which management believes could be consummated during the first
half of fiscal 1997.
ITEM 7: FINANCIAL STATEMENTS
Information required by this item is included under Item 13: Exhibits,
Financial Statement Schedules and Reports on Form 8-K and is incorporated
herein by reference.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16A OF THE EXCHANGE ACT
The following are Directors of the Company:
o Paul L. Balalis, age 58. Chairman, President and CEO of CEC
Properties, Inc.
o Charles E. Packard, age 53
o Frank Barbaro, age 53
The term of office for Directors is one year. All of the above Directors have
held their offices since fiscal 1995.
PAUL L. BALALIS
Founder of CEC Corporation and is CEO and owner of Balalis Corporation, a real
estate construction and management company. Mr. Balalis has served on the
Boards of numerous other companies and various civic organizations, including
the Newport Harbor National Bank, Orange County Lung Association and Chairman
of Newport Beach Planning Commission. He brings a considerable amount of
expertise in real estate construction, management and sales. He holds an MBA
from Emory University and completed his undergraduate work from Georgia Tech.
CHARLES E. PACKARD
He is currently Executive vice President and Chief Financial Officer of Arnel
and Affiliates. Along with his duties he has overview responsibility for Arnel
Management Company, Arnel's property management company. He is a member of the
Board of Directors of Kaiser Resources, Inc., a Southern California based
company with financial interest in water distribution, real estate and solid
waste landfill sites. Mr. Packard holds a BBA and an MBA from the University
of Toledo. He is a Board member for the Orange County Metropolitan Board of
the YMCA; member of the Advisory Board, Chapman University School of Business
and Economics; Trustee, The Argyros Foundation, and a member of the President's
Advisory Council, Mater Dei High School.
5
<PAGE> 6
FRANK BARBARO
An attorney at law and a senior partner with the law firm of Horton, Barbaro
and Reilly. Mr. Barbaro graduated Cum Laude from the University of Southern
California and received the Legion Lex Scholarship to attend USC Law School.
Mr. Barbaro is presently the CEO of the Committee to Preserve a Responsible
Judiciary, which represents all sixty-four seated Superior Court Judges in
Orange County. In addition, he served as Chairman of the Orange County
Democratic Party.
INFORMATION REGARDING LATE FILING PURSUANT TO SECTION 16
Section 16 of the Securities and Exchange Act of 1934 requires timely filing of
notice of transaction in the Company's securities by officers, directors, and
holders of 10% of the Company's outstanding securities. During the applicable
period of the Company's fiscal year ended October 31, 1996 the Company was
advised that all required filings were made.
ITEM 10: EXECUTIVE COMPENSATION
The following information is furnished on an accrual basis as to compensation
paid by the company during the two fiscal years ended October 31, 1996 for the
company's President and to each of the Company's executive officers receiving
at least $100,000.00 in the latest fiscal year end.
Name and Position Year Salary Bonus All Other Compensation
- --------------------------------------------------------------------------------
Paul L. Balalis 1996 $6,000 - -
President
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1997 the common stock of CEC is owned beneficially and of
record by the following principal shareholders known by the Company to own at
least 5% of the common stock outstanding as well as the directors and officers:
Amount and Nature
Beneficial Owners of Beneficial Ownership(1) % of Class
- ---------------------------------- -------------------------- ----------
Paul Balalis 7,028,452 s/s (2) 55.93
1500 W. Balboa, Newport Beach, CA
Don Norbury 310,000 s/s 2.47
1500 W. Balboa, Newport Beach, CA
Frank Barbaro 25,000 s/s <1%
31285 Camel Point, Laguna Beach, CA
Charles Packard 150,000 s/s 1.2
24 Charlotte, Irvine, CA
- --------------------------
(1) Subject to applicable community property statutes and except as otherwise
hereinafter set forth, all persons shown have sole voting and investment
power over all shares listed.
(2) 2,200,000 of such shares are owned by the Balalis Corporation.
6
<PAGE> 7
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Footnote 5 - Notes to the Consolidated Financial Statements
PART IV
ITEM 13: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A (1) Financial Statements
The following financial statements are filed as a part of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
A (2) Reports on Form 8-K
A current report on Form 8-K, dated March 27, 1997, containing
information under Item 5 as to the acquisition of three properties by
Registrant's wholly-owned subsidiary was filed.
A (3) Exhibits Required to be Filed by Item 601 of Regulation S-B
The registration has one wholly-owned subsidiary:
CEC Properties, Corp., a Nevada Corporation
7
<PAGE> 8
CEC PROPERTIES, INC.
AND SUBSIDIARY
FINANCIAL STATEMENTS
October 31, 1996 and 1995
<PAGE> 9
CEC PROPERTIES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . F-1
FINANCIAL STATEMENTS:
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Stockholders' Equity . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . F-6
NOTES TO FINANCIAL STATEMENT . . . . . . . . . . . . . . . . . . . . F-7
<PAGE> 10
[LETTERHEAD OF STARR & WALTERS]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
CEC Properties, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of CEC Properties,
Inc. and Subsidiary as of October 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CEC Properties,
Inc. and Subsidiary as of October 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ STARR AND WALTERS
- --------------------------
STARR AND WALTERS
ACCOUNTANCY CORPORATION
Santa Ana, California
March 11, 1997
F-1
<PAGE> 11
CEC PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31, 1996 and 1995
ASSETS
1996 1995
----------- ----------
Current Assets:
Cash $ 2,318 $ 37,019
Note receivable (Note 2) 19,500 19,500
Other 2,969 3,065
---------- ----------
Total Current Assets 24,787 59,584
---------- ----------
Property and Equipment (Note 3):
Investment properties 1,110,359 1,064,008
Office equipment 2,871 -
----------- ----------
1,113,230 1,064,008
Accumulated depreciation (26,004) (4,484)
---------- ----------
Net Property and Equipment 1,087,226 1,059,524
Other Assets 2,375 -
---------- ----------
$1,114,388 $1,119,108
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 12
CEC PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Current portion long-term debt (Note 4) $ 4,230 $ 8,373
Accounts payable and accrued expenses 29,480 13,419
Loans from stockholder (Note 6) 85,775 37,600
------------ ------------
Total Current Liabilities 119,485 59,392
Trust deeds payable, net of current portion (Note 4) 1,042,896 1,035,025
------------ ------------
Total Liabilities 1,162,381 1,094,417
------------ ------------
Stockholders' Equity:
Common stock, $.01 par value; 30,000,000 shares
authorized, 12,566,698 shares issued and
outstanding in 1996 and 1995 125,667 125,667
Additional paid-in capital 23,297,402 23,297,402
Accumulated deficit (23,471,062) (23,398,378)
------------ ------------
Total Stockholders' Equity (47,993) 24,691
------------ ------------
$ 1,114,388 $ 1,119,108
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 13
CEC PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue:
Rental income $ 82,399 $ 13,320
Gain on sale of properties - 85,267
Other income 50,792 505
---------- ----------
Total Revenue 133,191 99,092
---------- ----------
Expenses:
Interest 81,096 19,269
Property operations 32,975 9,504
Depreciation 21,520 4,484
General and administrative 67,210 33,844
---------- ----------
Total Expenses 202,801 67,101
---------- ----------
Income (loss) before provision for income taxes (69,610) 31,991
Provision for income taxes (Note 5) 3,074 7,300
---------- ----------
Net Income (Loss) $ (72,684) $ 24,691
========== ==========
Net Income (Loss) Per Common Share $ (0.006) $ 0.002
========== ==========
Weighted average shares outstanding 12,566,698 12,566,698
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 14
CEC PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ ----------------------- Additional
Number Number Paid-In Accumulated
of shares Amount of Shares Amount Capital Deficit
---------- ----------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1994 4,146,715 $ 3,732,053 4,273,268 $ 42,732 $19,648,284 $(23,423,069)
Conversion of preferred shares
to common shares on November 1,
1994 on 1:2 ratio (4,146,715) (3,732,053) 8,293,430 82,935 3,649,118 -
Net Income - - - - - 24,691
---------- ----------- ---------- -------- ----------- ------------
Balance, October 31, 1995 0 0 12,566,698 125,667 23,297,402 (23,398,378)
Net Loss - - - - - (72,684)
---------- ----------- ---------- -------- ----------- ------------
Balance, October 31, 1996 0 $ 0 12,566,698 $125,667 $23,297,402 $(23,471,062)
========== =========== ========== ======== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 15
CEC PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (72,684) $ 24,691
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 21,520 4,484
Gain on sale of properties - (85,267)
Increase in other assets (2,279) (22,565)
Increase in accounts payable and accrued expenses 16,061 13,419
------------ ------------
Net cash used by operations (37,382) (65,238)
------------ ------------
Cash flows from investing activities:
Acquisition of investment properties (46,351) (10,312)
Equipment purchases (2,871) -
Proceeds from sale of properties - 511,165
------------ ------------
Net cash provided (used) by investing activities (49,222) 500,853
------------ ------------
Cash flows from financing activities:
New borrowings on notes payable 7,871 -
Principal payments on notes payable (4,143) (406,196)
Loans from shareholder, net 48,175 7,600
------------ ------------
Net cash provided (used) by financing activities 51,903 (398,596)
------------ ------------
Net increase (decrease) in cash (34,701) 37,019
Cash at beginning of year 37,019 0
------------ ------------
Cash at end of year $ 2,318 $ 37,019
============ ============
Supplemental cash flow information:
Cash paid for interest $ 79,046 $ 18,069
Cash paid for income taxes 689 1,165
Schedule of noncash investing and financing activities:
Acquisition of investment properties None $ 1,489,906
Less: cash portion (closing costs) (10,312)
------------
Investment properties acquired by assumption of debt $ 1,479,594
============
Exchange of preferred stock for common stock $ 3,732,053
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 16
CEC PROPERTIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENT
October 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Prior to 1995, CEC Properties, Inc., formerly known as Ben-Wa International,
Inc., ("Ben-Wa") had been inactive for several years. On November 1, 1994,
Ben-Wa's largest shareholder and only preferred shareholder converted all
outstanding preferred shares into common shares at a 1 for 2 ratio and on May
1, 1995 sold his controlling interest to Paul Balalis and the Balalis
Corporation. The new controlling shareholders changed Ben-Wa's name to CEC
Properties, Inc. (the Company).
The Company specializes in acquisition and management of undervalued or
distressed properties. A typical acquisition consists of identifying an
undervalued property that the Company believes will produce net operating
income with optimal financing and management. The Company enters into a
purchase contract, contingent upon new financing, then upon acquisition,
implements new property management.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, CEC Properties, Corp. All significant
intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
INVESTMENT PROPERTIES
Investment properties are stated at cost. Buildings and improvements are
depreciated on a straight-line basis over the estimated useful lives of the
assets of 27.5 years. Improvements are capitalized, and repairs and
maintenance are charged to property operations as incurred.
COMPENSATED ABSENCES
The Company does not accrue compensated absences as management considers the
amounts to be immaterial.
See accompanying accountants' report.
F-7
<PAGE> 17
CEC PROPERTIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 2 - NOTE RECEIVABLE:
Notes receivable include a short-term advance of $3000 and a note for $16,500
dated October 1, 1995. The short-term advance was repaid in January 1997. The
note is a five-year note bearing interest at 9.0%, interest payable monthly.
Principal in the amount of $4,000 was repaid in January 1997.
NOTE 3 - PROPERTY AND EQUIPMENT:
Investment properties consist of land, buildings and improvements. Cost and
accumulated depreciation is as follows:
1996 1995
---------- ----------
Buildings and Improvements $ 576,008 $ 576,008
Land 488,000 488,000
Acquisition Costs (Note 7) 46,351 -
Office Equipment 2,871 -
---------- ----------
1,113,230 1,064,008
Accumulated Depreciation (26,004) (4,484)
---------- ----------
Net Property and Equipment $1,087,226 $1,059,524
========== ==========
NOTE 4 - TRUST DEEDS PAYABLE:
A summary of the trust deeds payable at October 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
First trust deed secured by 209 34th Street, Newport Beach;
interest at 7.54 percent, payable in monthly installments of
$2,620 through June 2021. $407,708 $410,909
First trust deed secured by 208 33rd Street, Newport Beach;
interest at 7.33 percent, payable in monthly installments of
$1,875 through December 2024. 323,505 321,492
</TABLE>
See accompanying accountants' report.
F-8
<PAGE> 18
CEC PROPERTIES, AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 4 - TRUST DEEDS PAYABLE (CONTINUED):
<TABLE>
<S> <C> <C>
Second trust deed secured by 208 33rd Street, Newport Beach;
interest at 10 percent, payable interest only, due December 12,
1999. $ 39,000 $ 39,000
First trust deed secured by 6373 Del Paso, San Diego; interest
at 8.03 percent, payable in monthly installments of $2,019
through December 2024. 276,913 271,997
----------- -----------
1,047,126 1,043,398
Less: Current portion 4,230 8,373
----------- -----------
Long-term Portion of Trust Deeds Payable $ 1,042,896 $ 1,035,025
=========== ===========
</TABLE>
The scheduled annual principal maturities of notes payable are as follows:
Year Ended
October 31
------------
1997 $ 4,230
1998 4,546
1999 4,885
2000 44,250
2001 5,641
Thereafter 983,574
-----------
$ 1,047,126
===========
NOTE 5 - INCOME TAXES
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial and tax reporting bases of its assets and
liabilities. Deferred tax assets are reduced by a valuation allowance when
deemed appropriate. The effects of future changes in tax laws or rates are not
anticipated. Measurement is computed using applicable current tax rates. The
Company has no material temporary differences. The tax provisions are as
follows:
1996 1995
------ ------
Federal income tax $ - $4,300
California franchise tax 1,220 3,000
Delaware income tax 1,854 -
------ ------
$3,074 $7,300
====== ======
See accompanying accountants' report.
F-9
<PAGE> 19
CEC PROPERTIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 6 - RELATED PARTY TRANSACTIONS
During the year ended October 31, 1996, The Balalis Corporation and Paul
Balalis advanced funds to the Company in the amounts of $52,920 and $2,855
respectively. These unpaid advances were converted to notes payable on October
31, 1996. Interest accrues at 8.0% until the notes are repaid.
During the year ended October 31, 1995, the Company's largest shareholders,
Paul L. Balalis and the Balalis Corporation, contributed two real estate
properties and 199,610 shares of the Company's common stock to CEC Properties
Corp., the wholly-owned subsidiary. The real estate and the shares were
transferred at the shareholders' respective bases of $650,202 and $.015 per
share, respectively. The Balalis Corporation's net book value in the two
properties transferred was $15,000 each, which approximated their fair value at
the time of transfer.
The Balalis Corporation received a promissory note of $30,000 with interest at
8% due April 30, 1997 for the properties. The shares were used, along with
other consideration, to acquire three additional real estate properties and to
compensate a consultant for services rendered. These shares are restricted and
typically subject to a two year holding period.
The shares were transferred in the acquisition of the following properties:
107 24th Street, Newport Beach, CA 72,610
389 Ralcam, Costa Mesa, CA 25,000
6373 Del Paso, San Diego, CA 45,000
208 33rd Street, Newport Beach, CA 32,000
-------
174,610
=======
The remaining 25,000 shares were awarded to a constituent for services
rendered.
The Company leases its office facility from an affiliate under a month-to-month
operating lease. Rent expense totaled $4,300 for 1995.
NOTE 7 - SUBSEQUENT EVENTS:
In December, 1996, the city of Barstow, California awarded the Company a
development agreement to build a 18-hole golf course and a 700 space RV and
mobile home park on 216 acres of land to be deeded to the Company in exchange
for 1000 shares of the Company's common stock, tendered to the Barstow Harvey
House Foundation, a California 501(c)(3) non-profit corporation. Construction
is expected to begin mid-1997.
In February 1997, the real property at 6373 Del Paso, San Diego, California was
sold for an approximate gain of $20,000.
See accompanying accountants' report.
F-10
<PAGE> 20
CEC PROPERTIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 7 - SUBSEQUENT EVENTS (CONTINUED):
The Company is negotiating to acquire a 40 year lease and concession agreement
with the County of Ventura, California to develop and operate an 18-hole golf
course and related support facilities. Amounts expended represent funds paid
to the County of Ventura directly or to Blue T Golf, a former partner in these
negotiations, in acquiring the option to acquire said lease and concession
agreement.
See accompanying accountants' report.
F-11
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized:
CEC Properties, Inc.
by: /s/ PAUL L. BALALIS 4/25/97
-------------------------- ----------------
Paul L. Balalis Date
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
by: /s/ PAUL L. BALALIS 4/25/97
-------------------------- ----------------
Paul L. Balalis Date
President
by: /s/ CHARLES B. PACKARD 4/25/97
-------------------------- ----------------
Charles B. Packard Date
Director
by: /s/ DON NORBURY 4/25/97
-------------------------- ----------------
Don Norbury Date
Vice President and
Chief Financial Officer
