<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended: January 31, 1998
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OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[ ] For the transition period from to
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Commission file number: 0-188
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CEC Properties, Inc.
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(exact name of registrant as specified in its charter)
Delaware 13-1919940
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(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
1500 W. Balboa Blvd. Suite 201, Newport Beach, CA 92663
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(Address of principal executive offices) (Zip Code)
(714) 673-2282
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(Registrant's Telephone Number, including area code)
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(Former name, former address and former
fiscal year, if changed since last report)
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 X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
12,676,724 shares of common stock as of 1/31/98
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CEC PROPERTIES
(A DELAWARE CORPORATION)
Part I - Financial Information
The condensed consolidated financial statements included herein have been
prepared by the Registrant without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations. However, the Registrant believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these consolidated financial statements be read in conjunction
with the financial statements and the notes thereto included in the Registrant's
latest Annual Report on Form 10-KSB.
In the opinion of the Registrant, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position of the
Registrant as of January 31,1998, and the results of its operations and changes
in its cash flows for the three months ended January 31, 1998 and 1997, have
been made. The results of operations for such interim periods are not
necessarily indicative of the results to be expected for the entire year.
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<PAGE>
<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Jan 31, 1998 Oct 31,1997
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Unaudited Audited
<S> <C> <C>
ASSETS
Investment - Real Estate (net) $ 798,302 $ 801,957
Cash in the Bank 31,768 59,963
Other 352,940 322,689
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TOTAL ASSETS $ 1,183,010 $ 1,214,609
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LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Trust Deeds Payable $ 766,548 $ 766,548
Due to Stockholders 269,375 279,375
Other 255,324 256,403
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TOTAL LIABILITIES $ 1,291,247 $ 1,302,326
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STOCKHOLDER'S DEFICIT
Common Stock $.01 Par Value, Shares Authorized;
12,676,724 and 12,676,698 outstanding
at Jan 31, 1998 and Oct 31, 1997,
respectively $ 126,767 $ 126,767
Additional Paid In Capital $ 23,351,302 $ 23,351,302
Accumulated Deficit $(23,565,788) $(23,471,062)
Current Loss (20,518) $ (94,724)
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TOTAL STOCKHOLDER'S DEFICIT (108,237) (87,717)
TOTAL LIABILITIES &
STOCKHOLDER'S DEFICIT $ 1,183,010 $ 1,214,609
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</TABLE>
See Notes to the Consolidated Financial Statements:
<PAGE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Jan. 31
--------------------------
1998 1997
REVENUE
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CONTINUING OPERATIONS:
REVENUE $ 348,814 $ 17,736
OPERATING EXPENSES 413,722 17,758
INTEREST 0 19,956
DEPRECIATION 0 5,380
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TOTAL EXPENSES $ 413,722 $ 43,094
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LOSS FROM CONTINUING
OPERATIONS $ (64,908) $ (25,357)
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DISCONTINUED OPERATIONS:
INCOME 60,850 0
EXPENSE
INTEREST 12,805 0
DEPRECIATION 3,655 0
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16,460 0
INCOME FROM
DISCONTINUED OPERATIONS 44,390 0
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NET LOSS $ (20,518) $ (25,357)
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Net Loss From Continuing
Operations Per Common Share (0.005) (0.002)
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Net Income From Discontinued
Operations Per Common Share 0.0035 0
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Weighted Average Shares Outstanding 12,676,724 12,676,698
See Notes to the Consolidated Financial Statements
<PAGE>
<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended Jan. 31
--------------------------
1998 1997
<S> <C> <C>
Cash Flow From Operating Activities:
Net Loss $(20,518) $(25,357)
Adjustment to reconcile net income
to net cash provided by operating activities
Depreciation 3,655 5,380
Increase from other Assets (251) 3,356
Decrease in Other Liabilities (1,081) (9,384)
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Net Cash Used by Operations (18,195) (648)
Cash Flows from Investing Activities 0 0
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Cash Flows from Financing Activities
Stockholder Loan Advance (Repayment) (10,000) 27,200
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Net Cash Provided (Used) in Financing Activities (10,000) 27,200
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Net Increase (Decrease) in Cash (28,195) 1,195
Cash at Beginning of Period 59,963 2,318
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Cash at end of Period $ 31,768 $ 3,513
========= =========
</TABLE>
See Notes to Consolidated Financial Statements:
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<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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(1) Summary of Significant Accounting Policies
The financial statements are reported on a consolidated basis with the Company's
wholly owned subsidiary CEC Properties, Corp and Classic Golf Management. All
material intercompany transactions have been eliminated.
The Company reports on the accrual basis of accounting whereby revenues are
recognized when earned and expenses are recorded when incurred.
All adjustments made to the financial statements are of a normal recurring
nature necessary to present fairly the financial condition of the Company.
(2) Investment Properties
The Company adopted a plan to sell its two remaining rental properties in order
to focus on its golf management operations. As such, the revenues and expense
from rental operations are disclosed as discontinued operations in the income
statement ended January 31, 1998. Both properties were sold during the Company's
second fiscal quarter.
<PAGE>
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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The Company was substantially reorganized in 1995. The Company
manages, constructs and maintains golf courses and golf driving ranges through
its wholly owned subsidiary, Classic Golf Management. It currently has two
management contracts: (A) an operating contract for the City Club golf course in
Marietta, Georgia, which pays the Company $50,000 per year plus a performance
bonus of two percent (2%) of revenues. Additionally, the Company owns the pro
shop, and the teaching center, and (B) At Sugar Creek in DeKalb County, Georgia,
the Company pays a fee to the county which is a percentage of the green fees
which is similar to a triple net lease. The Company is responsible for the snack
bar, carts, driving range, tennis and employees, with the Company retaining the
revenues from those operations. The Company's employees are obtained from a
third party who, effectively, leases the Company its employees. The Company also
has a contract for the maintenance of the Heritage Hills driving range, which
pays the Company approximately $2,000 per month. The Company is focusing its
efforts on bidding and obtaining new management contracts and acquisition of
management companies.
The Company entered into negotiations in 1996 to purchase Blue T, a
golf course construction and management company. In early 1997 the negotiations
were terminated. Paul Balalis, the chief executive officer and principal
stockholder of the Company personally guaranteed a loan to Blue T for a third
party that went into default. The Company had loaned Blue T funds for an option
to develop the Camarillo golf course. When Blue Tee could not repay the loan,
the Company acquired the option for Camarillo, together with a former Blue T
employee, who owns 20% of the option.
The Company presently retains 80% of the rights to Camarillo Creek in
Ventura County, California and 100% to the Hickory Stick golf course to be built
in Atlanta, Georgia. The Camarillo Creek course was designed by Charles Howard,
a golf course designer from Austin, Texas. As stipulated in his agreement Mr.
Howard did the complete design of the grading, irrigation and finishing and will
oversee the awarding of the construction contract. Milton Abell, president of
the Company's subsidiary, Classic Golf Management, designed the Hickory Stick
Project and will be supervising the construction and the awarding of any
contract. The Environmental Impact Report and Specific Plan for Camarillo Creek
was approved by the Ventura County Board of Supervisors in October, 1997. An
environmental group's litigation against the Company, Ventura County and CAMP (a
partnership which intends to build a 16,000-seat amphitheater adjacent to the
golf course) has delayed this project. The result of this suit will determine
when the Army Corps of Engineers issues the final wetlands permit, which will
allow construction to proceed.
In October, 1997 the Company completed its acquisition of Classic Golf
Management and purchased the assets of Classic Golf Shops. Prior to November
1997 the Company's primary income was from rental properties. The Company
divested itself of all of those properties by April 1, 1998 in order to focus on
its golf management business.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1997
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The majority of the increase in revenues for the first quarter from
$21,000 in 1997 to $409,664 in 1998, was generated from revenues related to the
acquisition of Classic Golf Management. The unusual severity of the weather in
the Atlanta, Georgia area impacted and reduced the expected revenues from
Classic Golf Management.
The expenses were $430,182 in the first quarter of 1998, up from
$43,094 in 1997. Most of the increase was attributable to the recently acquired
operations of Classic Golf Management. Operating expenses were $25,000 in 1997
and $299,000 in 1998. General and administrative expenses of $12,000 in 1997
were 66% of revenue and 27% of total expenses and in 1998 expenses of $129,000
were 31% of revenue and 30% of total expense.
The resulting loss was reduced from ($25,357) in 1997 to ($20,518) in
1998.
CAPITAL AND LIQUIDITY RESOURCES
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Historically the Company has been undercapitalized. The Company has
financed itself from the cash flow of operations, the sales of one of its
properties and loans from the principal stockholder. The Company anticipates,
based on current plans and assumptions relating to its operations, that the
proceeds of the privately raised capital, together with the Company's existing
business and cash generated from operations, should be sufficient to satisfy the
Company's contemplated cash requirements for at least 18 months. There can be no
assurance, however, that the Company will not require additional cash during or
after such 18-month period.
An anticipated positive cash flow from Classic Golf Management of
approximately $200,000 in 1998 should eliminate the need to further borrow from
the principal stockholder. The long-term debt of $767,000 incurred from the two
rental properties was eliminated by their sale in the second fiscal quarter of
1998.
The Company estimates that it will incur additional capital
expenditures of approximately $9,500,000 during the next fifteen months in
connection with the acquisition and construction of golf courses. $8,000,000 is
to be provided by construction loans from third party lenders, of which none
have yet been obtained. In connection with the raising of this needed capital
the Company entered into a financial consulting agreement with Equisource, Inc.
formerly known as PJM Trading Company to provide financial, management and
consulting services to the Company for a period of five years. Pursuant to that
agreement the Company will issue 625,000 shares of its common stock as payment
for the services to be rendered.
<PAGE>
SEASONALITY
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The golf industry is seasonal in nature because of weather. This is the reason
the Company has thus far concentrated on those parts of the country that do not
experience a severe winter. The continuation of play through the winter months
allows for continuity in financial performance. Unfortunately, the "el nino"
storms produced unusual weather conditions in 1997 and 1998 in the Atlanta,
Georgia area which resulted in estimated lost revenue of approximately $70,000.
FORWARD-LOOKING STATEMENTS
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The forward-looking statements herein are based on current expectations that
involve a number of risks and uncertainties. Such forward-looking statements are
based on assumptions that the Company will have adequate financial resources to
fund the development and operation of its business, and there will be no
material adverse change in the Company's operations or business. The foregoing
assumptions are based on judgments with respect to, among other things,
information available to the Company, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in the forward-looking statements will be realized. There
are a number of other risks presented by the Company's business and operations
which could cause the Company's financial performance to vary markedly from
prior results or results contemplated by the forward-looking statements.
Management decisions, including budgeting, are subjective in many respects and
periodic revisions must be made to reflect actual conditions and business
developments, the impact of which may cause the Company to alter its capital
investment and other expenditures, which may also adversely affect the Company's
results of operations. In light of significant uncertainties inherent in
forward-looking information included in this quarterly Report on Form 10QSB, the
inclusion of such information should not be regarded as a representation by the
Company or any person that the Company's objectives or plans will be achieved.
<PAGE>
SIGNATURES
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Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereto
duly authorized.
CEC Properties, Inc.
By: /s/ Paul Balalis
--------------------
Paul Balalis
President
By: /s/ Don Norbury
--------------------
Don Norbury
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 31,768
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,183,010
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,183,010
<CURRENT-LIABILITIES> 1,291,247
<BONDS> 0
0
0
<COMMON> 126,767
<OTHER-SE> (235,004)
<TOTAL-LIABILITY-AND-EQUITY> 1,183,010
<SALES> 348,814
<TOTAL-REVENUES> 348,814
<CGS> 413,722
<TOTAL-COSTS> 413,722
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (64,908)
<INCOME-TAX> 0
<INCOME-CONTINUING> (64,908)
<DISCONTINUED> 44,390
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,518)
<EPS-PRIMARY> (0.005)
<EPS-DILUTED> (0.004)
</TABLE>
