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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 31, 1997
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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 (IRS Employer
of Incorporation or Organization) Identification Number)
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)
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
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(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 X No
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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
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(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
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
CEC Properties, Inc. (CEC) is in the business of acquiring, building and
managing golf courses. In 1997 CEC:
1.) Acquired Classic Golf Management of Marietta, Georgia. On October
31, 1997, Registrant acquired all of the outstanding shares of
Classic Golf Management, Inc., a Georgia corporation, principally
owned by Milton Abell, an unrelated party. The acquired entity
manages two golf courses in Georgia. Registrant paid $103,250
cash down and delivered 29,500 shares of its common stock.
Additionally, subject to certain conditions, Registrant agreed to
pay an additional $14,750 and deliver an additional 14,750 shares
of its common stock on the 13th and 25th anniversary months. The
number of shares and cash to be delivered is subject to reduction
depending on future revenues. Similarly, Registrant has agreed to
provide additional cash to make up any differential between the
public price of Registrant's common stock and $3.00 per share at
the 24th anniversary month.
Concurrently, on October 31, 1997, Registrant acquired certain
assets of Classic Golf Shops, Inc., an entity owned by Milton
Abell. Classic Golf Shops is a golf apparel and accessory shop
located adjacent to the Classic managed courses. Registrant also
acquired certain assets owned by Mr. Abell individually as
follows: equipment and a trade name of "Golf 101" for a golf
teaching method and equipment and a trade name of "Hydroturf" for
a golf greens maintenance program. They were acquired in exchange
for $71,750 cash and 20,500 shares of Registrant's common stock
delivered at the closing, with $10,250 cash and 10,250 shares of
common stock to be delivered on the 13th and 25th anniversary
months. The same contingency and guaranty applies to the future
delivery in this transaction as applied in the Classic
transaction referenced herein above.
Funds necessary for the transactions came from Registrant's
general working capital except that $59,000 of such funds was
loaned to Registrant by its president, Paul Balalis, repayable in
one year plus 10% interest.
Additionally, Milton Abell, class "A" golf professional, teaching
pro and respected agronomist, entered into a five year employment
contract pursuant to which he agreed to continue to manage the
acquired entities.
Paul Balalis, president of Registrant personally guaranteed the
herein above referenced future cash payments to Mr. Milton Abell.
The aggregate purchase price payable by CEC for the Shares (the
"Purchase Price") was One Hundred Thirty-Two Thousand Seven
Hundred Fifty Dollars ($132,750) cash and Fifty-Nine Thousand
(59,000) shares of CEC's common stock. The Purchase Price shall
be paid by the CEC to Milton Abell as follows:
CEC paid One Hundred Three Thousand Two Hundred Fifty
Dollars ($103,250) in cash and delivered Twenty-Nine
Thousand Five Hundred (29,500) shares of CEC common stock
at the Closing Date. CEC will pay Fourteen Thousand Seven
Hundred and Fifty Dollars ($14,750) and deliver an
additional Fourteen Thousand Seven Hundred and Fifty
Thousand (14,750) shares of its common stock on the
thirteenth (13th) and twenty-five (25) anniversary months
of the Closing Date, subject to certain conditions as
hereinafter set forth.
At the twenty-four month anniversary date of the Closing
Date if the average bid and asked price of the CEC common
stock as traded in the public market, in which such stock
trades shall for ten (10) days preceding the twenty-four
(24th) month anniversary date of the Closing Date (the
"Average Price"), be less than three dollars ($3.00) per
share then CEC shall within forty-five (45) days pay to
Milton Abell the difference between the Average Price and
$3.00 per share in cash.
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Notwithstanding the foregoing, in the event the annual
"Net Revenues" received by CLASSIC in each of the two (2)
fiscal years subsequent to the Closing Date commencing
with the fiscal year ending October 31, 1998 shall not at
least equal Two Hundred Forty-Four Thousand Dollars
($244,000) then and in that event the shares of CEC Common
Stock delivered or to be delivered to Milton Abell
hereunder shall be reduced by a percentage determined.*
(Note to the Exhibits in the 8-K filed October 31,1997.)
Paul Balalis shall provide his personal guaranty of the cash
payments due pursuant to this Agreement. * INFORMATION WAS FILED
AS EXHIBIT 2A AND 2B IN FORM 8-K, AS AMENDED, DATED NOVEMBER 23,
1997.
2.) Acquired the assets WorldWise Marketing and Graphics (WorldWise),
a small advertising company. WorldWise is a full service
advertising and marketing company that was purchased for 60,000
shares of restricted 144 stock, with an incentive of an
additional 40,000 shares if the net revenues are $300,000 for the
first year. They are currently servicing small companies with
needs for graphic art, printing, websites and quick turn around
time. WorldWise uses selected high quality subcontractors to
produce the required work and keep the employees at a minimum.
CEC plans to use WorldWise in the promotion of its subsidiaries
and to become more involved in the golf entertainment industry.
3.) Has entered into a 40-year lease and option with the County of
Ventura, California for an 18-hole golf course. There is
currently a lawsuit being argued in Superior court of Ventura
County, concerning the viability of the project as presented by a
Conservation advocacy group.
4.) Has an agreement to purchase 216 acres for the construction of an
18-hole golf course and RV park from the City of Barstow. The
Development Agreement and the Implementation Agreement will be
signed, in the 2nd quarter, by partners Joe Madden and CEC, with
the Redevelopment Agency. CEC is pursuing a Joint Venture with RV
Park developers to build the RV Park. CEC does not have any plans
to develop the RV Park itself.
Classic Golf Management will be used to operate and manage all golf properties.
It owns Classic Golf Shops that provides the expertise and skills required
running a professional and profitable golf retail store. Classic will also:
engage in a golf teaching business using the assets and trade name of "Golf 101"
acquired; and engage in a golf greens maintenance business using the assets and
trade name of "Hydroturf" acquired. CEC continues to look for other
opportunities in the Golf Industry including Reservations, GPS and Point of
Sale. The diversification of owning and managing different aspects of the Golf
Industry allows the cross utilization of the expertise in the appropriate CEC
companies. CEC will continue to treat this business as an entertainment business
and will pursue complimentary opportunities to fill out the product line that is
being offered to its customers. The current projects under negotiation help
round out this approach.
CONSOLIDATED OPERATIONS
The attached financial statements are reported on a consolidated basis with CEC
Properties, Inc. and wholly owned subsidiaries CEC Corp, Classic Golf Management
and WorldWise Marketing and Graphics. STATE OF THE ECONOMY - CEC FOCUS The golf
industry continues to flourish and grow at a rate of more than one new golf
course every day. New emphasis is being placed on women, youth and minorities as
the new players in the game. This strategy is well placed and the response has
been encouraging. Golf play continues to grow and the resulting revenues grow as
well.
EMPLOYEES
As of October 31, 1997, CEC employed 2 full time and 6 part time employees. In
addition, Classic Golf Management leases 65 employees.
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EXECUTIVE OFFICERS
The following are presently officers of CEC. 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.
Name Office and Age Year First Elected or
Appointed to Office
Paul L. Balalis President and CEO, 59 1995
Don Norbury Vice President and 1995
Chief Financial Officer, 62
Tom Quinn Vice President, Operations, 56 1997
Milton Abell President, Classic Golf, 46 1997
Marie Hines President, WorldWise, 33 1997
ITEM 2: DESCRIPTION OF PROPERTIES
1.) At October 31, 1997, CEC owned two properties held for investment: two
multi-tenant properties, valued at $800,000 and will be sold in 1998.
2.) A development agreement has been awarded to CEC and partner, Joe
Madden, by the City of Barstow, Ca. Redevelopment Agency, to build an
18 hole golf course and a 400 space RV park on 216 acres that is to be
deeded to CEC. Construction will begin in spring of 1998.
3.) An option agreement, for a 40-year lease with options, has been awarded
to CEC and partners by the County of Ventura, Ca. to build and 18-hole
golf course. Construction will begin in summer of 1998.
4.) Classic Golf Management has been awarded a 50-year lease agreement to
build and operate a golf course in Cherokee County, Georgia. Classic
Golf extended an agreement with DeKalb County, Georgia for three years,
to continue to manage The City Club in Marietta, Georgia.
ITEM 3: LEGAL PROCEEDINGS
The Environmental Defense Center and the California Native Plant Society filed
suit in Superior Court, on October 17, 1997 against the County of Ventura; Board
of Supervisors of the County, CEC Golf and Camarillo Amphitheater Managing
Partners, the developer of the adjacent amphitheater. The case number is CIV
176507 and the court date is June 2, 1998. The Court has been petitioned to
maintain the property is its natural state and to deny the project for technical
reasons occurring during the filing and processing of the permits, studies and
reports. The Company does not see any merit in the proceedings and believes it
will be granted permission to proceed with the project.
There are no other legal proceedings pending.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
a.) The common stock CEC is approved for trade on the Electronic
Bulletin Board with a market symbol of CECI.
b.) At October 31, 1997 the Company had 12,676,698 shares of common stock
outstanding with 30,000,000 authorized. Par value of the stock is $.01.
c.) At October 31, 1997 the total number of shareholders was approximately
4,500.
d.) CEC has never paid a dividend on 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.
e.) On October 30, 1997 CEC issued 155,000 stock options, at $.40 per share,
to key personnel excluding the Chairman and the Chief Financial Officer.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Fiscal year ended
October 31,1997 1996
Continuing Operations $ 60,255 $ 50,792
Discontinued Operations $ 74,137 $ 82,792
Gain on Sale $ 14,193 $ 0
Net Income $ ( 94,724) $ (72,684)
Net Income per share outstanding $ (0.007) $ (0.006)
Total Assets $ 1,214,609 $ 1,114,388
Long Term Liabilities $ 839,171 $ 1,042,896
Shareholder's Equity $ (87,717) $ (47,993)
GENERAL
CEC was substantially reorganized in 1995. CEC 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, at
$50,000 per year plus a performance bonus of two percent (2%) of revenues.
Additionally, CEC owns the pro shop operations, and the teaching operations, and
(B) At Sugar Creek in DeKalb County, Georgia, CEC pays a fee to the county which
is substantially all of the green fees which is similar to a triple net lease.
CEC receives substantially all of the revenue from the carts, pro shop, driving
range and lessons and pays substantially all expenses associated with those
operations. CEC also has a contract for the maintenance of the Heritage Hills
driving range, which pays CEC approximately $2,000 per month. CEC is focusing
its efforts on bidding and obtaining new management contracts and acquisition of
management companies.
CEC 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 (see "Item 9") personally guaranteed a loan to Blue T for a third
party that was defaulted by Blue T. CEC had loaned Blue T funds for an option to
develop the Camarillo golf course. When Blue T could not repay the loan, CEC
acquired the option for Camarillo, together with a former Blue T employee, who
owns 20% of the option and who is entitled to 20% of the net profits of the golf
course.
CEC 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
CEC'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 CEC, 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, CEC acquired Classic Golf Management and purchased the assets
of Classic Golf Shops. Prior to October 1997 CEC's primary income was from
rental properties. Management decided to sell its two remaining investment
properties in order to focus on its golf operations. As such, the revenues and
expense from investment operations are disclosed as income from discontinued
operations in the income statement ended October 31, 1997. Both properties were
sold during CEC's second fiscal quarter.
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CAPITAL AND LIQUIDITY
Historically CEC has been undercapitalized. CEC has financed itself from the
cash flow of operations, the sales of one of its properties and loans from the
principal stockholder. CEC anticipates, based on current plans and assumptions
relating to its operations, that the proceeds of a private placement that
concluded in May 1998, together with cash generated from CEC's existing
operations, should be sufficient to meet CEC's contemplated cash requirements
for its current business operations for at least 18 months after raising of
additional capital via a private placement. There can be no assurance, however,
that CEC will not require additional cash during or afer such 18-month period
for its current operations. 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. CEC estimates that it will incur additional
capital expenditures of approximately $4,600,000 during the twelve months
following the consummation of the contemplated private placement in connection
with the acquisition and construction of golf courses. $600,000 will be funded
from the private placement and $4,000,000 is to be provided by construction
loans from third party lenders to the extent it can be obtained on a reasonable
basis.
RESULTS OF OPERATIONS - YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR
ENDED OCTOBER 31, 1996
CEC has losses in 1996 of $72,684 and $94,724 in 1997. The equivalent net loss
per common share was $.006 in 1996 and $.007 in 1997. The loss from continuing
operations in 1996 was $ 19,492 and 86,734 in 1997. The loss from discontinued
operations in 1996 was $ 53,192 and in 1997 was $ 7,990. The net loss per share
from continuing operations in 1996 was $ .002 and in 1997 it was a loss of .006.
The net loss per share from discontinued operations in 1996 was $ .004 and it
was $ .001 in 1997. CEC's revenue increased by 7.8% from $133,191 in 1996 to
$148,585 in 1997, primarily due to the sale of one piece of commercial
residential property. The expenses increased by 19.6% from $202,801 in 1996 to
$242,509 in 1997. Those results accounted for an increase in the net loss from
$72,684 to $94,724. The largest increase in expense was in General and
Administrative of 217% to $146,189 from $67,210. The majority of this increase
resulted from an expense of $ 71,078 for consulting fees to an independent
financial consultant.
SEASONALITY
The golf industry is seasonal in nature because of weather. This is the reason
CEC 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
Certain information in this Form 10-KSB may contain "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including any
projections of earnings, revenues or other financial items, any statements of
the plans and objectives of management for future operations, any statements
concerning proposed new products or services, any statements regarding future
economic conditions or performance and any statement of assumptions underlying
any of the foregoing. In some cases, forward-looking statements can be
identified by the use of terminology such as "may," "will," "expects," "plans,"
"anticipates," "estimates," "potential" or "continue," or the negative thereof
or their comparable terminology. Although CEC believes that the expectations
reflected in its forward-looking statements are reasonable, it can give no
assurance that such expectations or any of its forward-looking statements will
prove to be correct, and actual results could differ materially from those
projected or assumed in CEC's forward-looking statements. Forward-looking
statements are subject to inherent risks and uncertainties, some of which are
summarized in this section.
ITEM 7: FINANCIAL STATEMENTS
Information required by this item is included under item 13: Exhibits, Financial
Statements Schedules and Reports on Form 8-k and incorporated herein by
reference.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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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: - Paul L. Balalis, age 59. Chairman,
President and CEO of CEC Properties, Inc. - Charles E. Packard, age 54 - Frank
Barbaro, age 54 - Frederick Meyer, age 58. The term of office for Directors is
one year. Mr. Meyer has served since 1997 and the rest have served since 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 Board
of Directors of numerous companies and various civic organizations, including
Newport Harbor National Bank, Orange County Lung Association and Chairman of the
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 at 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 a MBA from the University of
Toledo. He is a member of the Orange County Metropolitan Boar 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.
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 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.
FREDERICK MEYER
Mr. Meyer is the President and CEO of Southern California Healthcare Systems. He
serves on the Board of Directors of Healthcare Association of Southern
California, California Healthcare Association, Blue Cross of California,
PrimeHealth of Southern California and has served on the board of MetLife of
California. Mr. Meyer has been very active in the community serving on the Board
of Directors of the Northern California Presbyterian Homes and the Arcadia
Tournament of Roses. Mr. Meyer received his BA and MBA from San Jose State
University.
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 backers of
10% of the Company's outstanding securities. During the applicable period of the
Company's fiscal year ended October 31, 1997 the Company was advised that all
required filings were made.
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ITEM 10: EXECUTIVE COMPENSATION
The following information is furnished on an accrual basis as to compensation
paid by the company during the fiscal year ended October 31, 1997 for the
company's President and to each of the Company's executive officers receiving at
least $100,000 in the last fiscal year end.
Name and Position Year Salary Bonus All other Compensation
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Paul L. Balalis 1997 - - -
President
ITEM 11:
As of January 31, 1998 the common stock of CEC is as recorded is beneficially
owned 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:
Beneficial Owners Amount and Nature % of Class
Of Beneficial Ownership (1)
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
Frederick Meyer 10,000 s/s <1%
(1) Subject to applicable community property statues 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.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Footnote 5 - Notes to the Consolidated Financial Statements
<PAGE>
PART IV
ITEM 13: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(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
(2) Reports on Form 8-K
A current report on Form 8-K, dated October 31, 1997, containing
information under Item 5 as to the acquisition of three
properties by Registrant's wholly owned subsidiary was filed.
(3) Exhibits Required to be Filed by Item 601 of Regulation S-B
The registration has three wholly owned subsidiaries:
CEC Properties, Corp., a Nevada Corporation
Classic Golf Management, a Georgia Corporation
WorldWise Marketing & Graphics, a California Corporation
SUBSEQUENT EVENTS:
In November, 1997, the Company adopted a plan to sell its two remaining
multi-tenant rental properties, which will free management to concentrate on its
primary focus, the golf industry
CEC has entered into a service contract with PJM Trading Company of New Jersey,
to provide CEC with financial, management and consulting expertise for a period
of five years. For this service, CEC will transfer 625,000 shares of common
stock to PJM in two equal installments, The first portion will be delivered upon
the execution of the agreement and the second installment will be paid after CEC
receives at least $1 million dollars in equity through PJM's efforts. This
equity infusion will be in the form of preferred stock.
CEC is anticipating the completion of a private placement of convertible
preferred shares valued at one to two million dollars, to be completed by April
1, 1998. A warrant will be available for every $2.00 invested and will have a
strike price in excess of $3.00 per share. The exact price to be determined.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 11, 1998, included in and made part of the Form 10-KSB filing of
CEC Properties, Inc. for the year ended October 31, 1997.
/s/ Starr and Walters
STARR AND WALTERS
ACCOUNTANCY CORPORATION
Santa Ana, California
February 11, 1998
<PAGE>
CEC PROPERTIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
October 31, 1997 and 1996
<PAGE>
CEC PROPERTIES, INC.
AND SUBSIDIARIES
Table of Contents
REPORT OF INDEPENDENT ACCOUNTANTS............................................1
FINANCIAL STATEMENTS:
Balance Sheets............................................................2
Statements of Income......................................................4
Statements of Stockholders' Equity........................................5
Statements of Cash Flows..................................................6
NOTES TO FINANCIAL STATEMENTS................................................7
<PAGE>
STARR & WALTERS 1450 N. Tustin Avenue, Suite 223
Santa Ana, California 92705
ACCOUNTANCY CORPORATION
(714) 834-0454 (213) 629-1173 FAX: (714) 834-0407
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
CEC Properties, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of CEC Properties,
Inc. and Subsidiaries as of October 31, 1997 and 1996, 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 Subsidiaries as of October 31, 1997 and 1996, 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
February 11, 1998
CERTIFIED PUBLIC ACCOUNTANTS
-------------
Member
American Institute of CPA's
Private Companies Section
Ca. Society of CPA's
1
<PAGE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1997 and 1996
ASSETS
1997 1996
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Current Assets:
Cash $ 59,963 $ 2,318
Prepaid expense 21,375 -
Inventory (Note 1) 105,363 -
Note receivable (Note 2) 12,500 19,500
Other 4,808 2,969
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Total Current Assets 204,009 24,787
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Property and Equipment (Note 3):
Investment properties 835,808 1,110,359
Machinery and equipment 116,831 2,871
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952,639 1,113,230
Accumulated depreciation (36,018) (26,004)
------------- -------------
Net Property and Equipment 916,621 1,087,226
Other Assets:
Goodwill, net (Note 1) 93,064 -
Other, net 915 2,375
------------- -------------
Total Other Assets 93,979 2,375
------------- -------------
$ 1,214,609 $ 1,114,388
============= ==============
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1997 and 1996
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Current Liabilities:
Current portion long-term debt (Note 4) $ 20,051 $ 4,230
Accounts payable and accrued expenses 163,729 29,480
Loans from stockholders (Note 6) 279,375 85,775
------------- -------------
Total Current Liabilities 463,155 119,485
Notes payable, net of current portion (Note 4) 839,171 1,042,896
------------- -------------
Total Liabilities 1,302,326 1,162,381
------------- -------------
Stockholders' Equity:
Common stock, $.01 par value; 30,000,000 shares
authorized, 12,676,698 and 12,566,698 shares
issued and outstanding in 1997 and 1996 126,767 125,667
Additional paid-in capital 23,351,302 23,297,402
Accumulated deficit (23,565,786) (23,471,062)
------------- -------------
Total Stockholders' Equity (87,717) (47,993)
------------- -------------
$ 1,214,609 $ 1,114,388
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31, 1997 and 1996
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Revenue $ 0 $ 0
Expenses:
General and administrative 146,189 67,210
------------- -------------
Total Expenses 146,189 67,210
------------- -------------
Operating Loss (146,189) (67,210)
------------- -------------
Other Income:
Interest income 600 2,317
Other income 1,480 -
Gain on sale of investments 58,175 48,475
------------- -------------
Total Other Income 60,255 50,792
------------- -------------
Loss from Continuing Operations before
Provision for Income Taxes (85,934) (16,418)
Provision for income taxes (Note 5) 800 3,074
------------- -------------
Loss from Continuing Operations (86,734) (19,492)
Discontinued Operations: (Note 10)
Loss from discontinued operations
(less applicable income taxes of $0) (22,183) (53,192)
Gain on disposal of asset in discontinued operations
(less applicable income taxes of $0) 14,193 -
------------- -------------
Loss from Discontinued Operations (7,990) (53,192)
------------- -------------
Net Loss $ (94,724) $ (72,684)
============= =============
Net Loss Per Common Share - Continuing Operations $ (0.01) $ (0.00)
============= =============
Net Loss Per Common Share - Discontinued Operations $ (0.00) $ (0.00)
============= =============
Weighted average shares outstanding 12,576,698 12,566,698
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended October 31, 1997 and 1996
<CAPTION>
Common Stock
-------------------------
Additional
Number Paid-In Accumulated
of shares Amount Capital Deficit
------------ ---------- ------------- --------------
<S> <C> <C> <C> <C>
Balance, October 31, 1995 12,566,698 $ 125,667 $ 23,297,402 (23,398,378)
Net Loss - - - (72,684)
------------ ---------- ------------- --------------
Balance, October 31, 1996 12,566,698 $ 125,667 $ 23,297,402 $ (23,471,062)
Purchase of Classic Golf Management, Inc. 29,500 295 14,455 -
Purchase of assets of Classic Golf Shops, Hydro
Turf and Golf 101 20,500 205 10,045 -
Purchase of assets of Worldwise Marketing and Graphics 60,000 600 29,400 -
Net Loss - - - (94,724)
------------ ---------- ------------- --------------
Balance, October 31, 1997 12,676,698 $ 126,767 $ 23,351,302 $ (23,565,786)
============ ========== ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 1997 and 1996
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (94,724) $ (72,684)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 17,532 21,520
Gain on sale of property - discontinued operations (14,193) -
Gain on sale of investments (58,175) (48,475)
Increase (decrease) (net of effects of acquisitions -
see Note 9) in:
Other assets 2,054 (3,804)
Accounts payable and accrued expenses 73,879 16,061
------------- -------------
Net cash used by operations (73,627) (87,382)
------------- -------------
Cash flows from investing activities:
Collection of note receivable 7,000 -
Proceeds from sale of property - discontinued operations 3,000 -
Proceeds from sale of investments 61,864 50,000
Acquisition of Classic Golf Management, Inc.,
(net of cash) (57,015) -
Asset acquisition of Classic Golf Shops,
Hydroturf and Golf 101 (71,750) -
Property and equipment purchases (1,760) (49,222)
------------- -------------
Net cash provided (used) by investing activities (58,661) 778
------------- -------------
Cash flows from financing activities:
New borrowings on notes payable - 7,871
Principal payments on notes payable (3,667) (4,143)
Loans from shareholder, net 193,600 48,175
------------- -------------
Net cash provided by financing activities 189,933 51,903
------------- -------------
Net increase (decrease) in cash 57,645 (34,701)
Cash at beginning of year 2,318 37,019
------------- -------------
Cash at end of year $ 59,963 $ 2,318
============= =============
Supplemental cash flow information:
Cash paid for interest $ 64,127 $ 79,046
Cash paid for income taxes 6,356 689
See Note 8 - schedule of noncash investing and financing activities.
The accompanying notes are an integral part of these financial statements.
</TABLE>
6
<PAGE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENT
October 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
ORGANIZATION
- ------------
Prior to 1995, CEC Properties, Inc., a Delaware corporation, 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 is in the business of acquiring, developing and managing golf
courses. During the year ended October 31, 1997, the Company acquired two
wholly-owned subsidiaries: Classic Golf Management, Inc. which owns a golf shop,
a turf management method, and a golf learning method; and Worldwise Marketing
and Graphics, Inc., an advertising company.
CONSOLIDATION
- -------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, CEC Properties, Corp., a Nevada
corporation, Classic Golf Management, Inc., a Georgia Corporation and Worldwise
Marketing and Graphics, Inc., a California corporation. All significant
intercompany transactions and balances have been eliminated in consolidation.
BASIS OF ACCOUNTING
- -------------------
The Company reports on the accrual basis of accounting whereby revenues are
recognized when earned and expenses recorded when incurred.
RECLASSIFICATIONS
- -----------------
Certain prior-year amounts have been reclassified to conform with the current
year presentation.
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.
See accompanying accountants' report.
7
<PAGE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS
- --------------------
The Company considers all highly liquid investments with maturity of three
months or less to be cash equivalents for the purpose of determining cash flows.
INVENTORY
- ---------
Inventory consists of golf related equipment and apparel and is carried at the
lower of cost (first-in, first-out) or market value.
DEPRECIATION
- ------------
Property and equipment are stated at cost and are depreciated on a straight-line
basis over the estimated useful lives of the assets. Improvements are
capitalized, and repairs and maintenance are charged to property operations as
incurred.
AMORTIZATION
- ------------
Goodwill, related to the September 1, 1997 and October 31, 1997 acquisitions by
the Company, is amortizable on a straight-line basis.
COMPENSATED ABSENCES
- --------------------
The Company does not accrue compensated absences as management considers the
amounts to be immaterial.
NOTE 2 - NOTE RECEIVABLE:
- -------------------------
The note receivable dated October 1, 1995, original amount $16,500, bears
interest at 9.0%. Interest is payable monthly with the unpaid principal due in
full on October 1, 2000.
See accompanying accountants' report.
8
<PAGE>
CEC PROPERTIES, AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 3 - PROPERTY AND EQUIPMENT:
- --------------------------------
Investment properties are residential rental properties, and consist of land,
buildings and improvements. Machinery and Equipment includes office equipment,
golf related equipment and automobiles. Cost and accumulated depreciation is as
follows:
1997 1996
------------- -------------
Buildings and Improvements $ 425,457 $ 576,008
Land 364,000 488,000
Acquisition Costs 46,351 46,351
Machinery and Equipment 116,831 2,871
------------- -------------
952,639 1,113,230
Accumulated Depreciation (36,018) (26,004)
------------- -------------
Net Property and Equipment $ 916,621 $ 1,087,226
============= =============
Depreciation expense for the years ended October 31, 1997 and 1996 was $17,958
and $21,520 respectively.
Acquisition costs are related to an option agreement for a 40-year lease with
options awarded to the Company and partners by the County of Ventura, California
to build an 18-hole golf course. Construction is expected to begin in 1998. See
Note 11.
A development agreement has been awarded to the Company and partners by the City
of Barstow, California to built an 18-hole golf course and a 400 space RV park
on 216 acres that is to be deeded to the Company. Construction is expected to
begin in 1998.
NOTE 4 - NOTES PAYABLE:
- -----------------------
<TABLE>
A summary of the notes payable at October 31, 1997 and 1996 follows:
<CAPTION>
1997 1996
------------------------------
<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. $ 404,887 $ 407,708
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. 322,660 323,505
See accompanying accountants' report.
</TABLE>
9
<PAGE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
<TABLE>
NOTE 4 - NOTES PAYABLE (CONTINUED):
- ---
<CAPTION>
1997 1996
------------------------------
<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. The property was sold in
March, 1997. - 276,913
Two bank notes payable, secured by automobiles. The
notes were assumed through the Company's acquisitions
during the year. Monthly payments of $475.48 and
$372.23, principal and interest, due March and July, 2000. 25,895 -
Capital lease obligation for computer equipment; payable
in 48 monthly installments of $362.73 beginning
November, 1997. 16,780 -
Non-interest bearing amount payable to seller of acquired
company and acquired assets; payable in two installments
on the 13th and 25th month after acquisition. (See Note 9) 50,000 -
------------------------------
859,222 1,047,126
Less: Current portion 20,051 4,230
-------------- -------------
Long-term Portion of Trust Deeds Payable $ 839,171 $ 1,042,896
============== =============
</TABLE>
The scheduled annual principal maturities of notes payable are as follows:
Year Ended
October 31
----------
1998 $ 20,051
1999 66,905
2000 58,038
2001 10,404
2002 6,882
Thereafter 696,942
--------------
$ 859,222
==============
See accompanying accountants' report.
10
<PAGE>
CEC PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
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:
1997 1996
---------- ----------
California franchise tax 800 1,220
Delaware income tax - 1,854
---------- ----------
$ 800 $ 3,074
========== ==========
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
During the year ended October 31, 1997, the Company's largest shareholders, Paul
L. Balalis and the Balalis Corporation advanced funds to the Company totalling
$118,600. These advances were converted to notes payable on October 31, 1997.
Interest accrues at rates from 8.0% to 10.0% until the notes are repaid. Total
amounts owed to these shareholders are $204,375 and $85,775 at October 31, 1997
and 1996 respectively.
Certain other related parties advanced funds to the Company at September 30 and
October 28, 1997 in the total amount of $75,000. The notes bear interest at 10%.
$50,000 of these notes are due with accrued interest on March 31, 1998. The
remaining $25,000 are due with accrued interest on April 30, 1998.
NOTE 7 - STOCKHOLDER'S EQUITY:
- ------------------------------
On October 30, 1997, the Company issued 155,000 stock options at $0.40 per share
to key personnel, excluding the Chairman and Chief Financial Officer.
NOTE 8 - CASH FLOWS:
- --------------------
A summary of the Company's non-cash investing and financing activities are as
follows:
In October 1997, the Company entered into a capital lease obligation for
computer equipment in the amount of $11,890. The asset is included in
machinery and equipment and the related liability is included in notes
payable.
In connection with the September 1, 1997 and October 31, 1997
acquisitions referenced in Note 9, the Company issued notes payable and
common stock as part of the purchase price of the acquisitions.
See accompanying accountants' report.
11
<PAGE>
CEC PROPERTIES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 9 - BUSINESS ACQUISITIONS:
- -------------------------------
CLASSIC GOLF MANAGEMENT, INC.
- -----------------------------
On October 31, 1997, the Company acquired 100% of the common stock of Classic
Golf Management, Inc. The acquisition was recorded as a purchase and
accordingly, the purchase price was allocated to the assets acquired and the
liabilities assumed based on their estimated fair value at the purchase date.
The Company paid cash (net of cash acquired) of $57,015, issued a note payable
in the amount of $29,500 and issued 29,500 shares of its common stock to the
seller. The purchase contract contains certain revenue guarantees by the seller,
whereby the Company will issue additional common stock to the seller of 14,750
shares on each the 13th month and 25th month anniversary date of the
transaction. Conversely, if there is a revenue shortfall, the seller may be
obligated to return shares issuable or issued. In addition, the purchase
contract contains certain share price levels at 24th month anniversary date of
the transaction. If the share price does not meet the specified price level, the
Company will pay the seller the difference in cash. The price level is
personally guaranteed by the Company's largest shareholder. On November 1, 1997,
the Company entered into a five-year employment agreement with the seller,
whereby the seller will oversee the operations of this subsidiary corporation.
As the acquisition was completed on the last day of the Company's fiscal year,
no results of operations of the acquired company are included in the
accompanying statements of income.
CLASSIC GOLF SHOPS, HYDROTURF AND GOLF 101
- ------------------------------------------
In conjunction with the above stock purchase, the Company's wholly owned
subsidiary Classic Golf Management, Inc. purchased certain assets of Classic
Golf Shops, and assets and business names "Hydroturf" and "Golf 101." The
acquisition was recorded as a purchase and accordingly, the purchase price was
allocated to the assets acquired based on their estimated fair value at the
purchase date. No liabilities were assumed. The Company paid cash of $71,750,
issued a note payable in the amount of $20,500 and issued 20,500 shares of its
common stock to the seller. The purchase contract contains certain revenue
guarantees by the seller, whereby the Company will issue additional common stock
to the seller of 10,250 shares on each the 13th month and 25th month anniversary
date of the transaction. Conversely, if there is a revenue shortfall, the seller
may be obligated to return shares issuable or issued. In addition, the purchase
contract contains certain share price levels at 24th month anniversary date of
the transaction. If the share price does not meet the specified price level, the
Company will pay the seller the difference in cash. The price level is
personally guaranteed by the Company's largest shareholder.
As the acquisition was completed on the last day of the Company's fiscal year,
no results of operations of the acquired company are included in the
accompanying statements of income.
See accompanying accountants' report
12
<PAGE>
CEC PROPERTIES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 9 - BUSINESS ACQUISITIONS (CONTINUED):
- -------------------------------------------
WORLDWISE MARKETING AND GRAPHICS
- --------------------------------
On or about September 1, 1997, the Company formed a wholly-subsidiary Worldwise
Marketing and Graphics, Inc., which acquired the assets from two individuals
doing business as Worldwise Marketing and Graphics. The acquisition was recorded
as a purchase and accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair value at the
purchase date. The Company issued 60,000 shares of its common stock to the
seller. The purchase contract contains certain revenue guarantees by the seller,
whereby the Company will issue additional common stock to the sellers of 20,000
shares on each the 13th month and 25th month anniversary date of the
transaction. Conversely, if there is a revenue shortfall, the sellers may be
obligated to return shares issuable or issued. In connection with the asset
purchase, the Company entered into two-year employment contracts with each of
the two individual owners. As an incentive to these individuals, the employment
contracts contain a provision allowing them to purchase options of the Company's
common stock if certain income levels are exceeded.
Results of operations of the subsidiary have been included in the accompanying
statement of income from the date of acquisition forward.
The following unaudited pro forma information has been prepared assuming Classic
Golf Management, Inc., and the assets of Classic Golf Shops, Hydroturf, Golf 101
and Worldwise Marketing and Graphics had been acquired at the beginning of the
earliest period presented. The pro forma consolidated results are presented for
information purposes only and are not necessarily indicative of what would have
occurred if the acquisition had been made as of that date. In addition, pro
forma information does not purport to be indicative of the results that will be
obtained in the future.
Year Ended
October 31,
(unaudited)
------------------------------
1997 1996
------------- -------------
Net Sales $ 1,385,980 $ 1,091,888
============= =============
Net Loss $ (83,365) $ (38,127)
============= =============
Loss per share $ (0.01) $ (0.00)
============= =============
See accompanying accountants' report.
13
<PAGE>
CEC PROPERTIES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 10 - SUBSEQUENT EVENTS:
- ----------------------------
Discontinued Operations
- -----------------------
During November, 1998, the Company adopted a plan to sell its two remaining
rental properties and free management to concentrate on the Company's primary
focus, the golf industry. As a result, rental operations have been shown in the
accompanying financial statement as a discontinued operation. Revenue and
expense from discontinued operations during 1997 and 1996 are as follows:
1997 1996
----------- -----------
Rental Income $ 74,137 $ 82,399
Expenses:
Interest 71,532 81,096
Property operations 6,830 32,975
Depreciation 17,958 21,520
----------- -----------
96,320 135,591
----------- -----------
Net Loss $ (22,183) $ (53,192)
=========== ===========
The remaining assets and liabilities of the discontinued operations at October
31, 1997 are as follows:
Assets:
Residential rental property, 34th Street, net of depreciation $406,646
Residential rental property, 33rd Street, net of depreciation 348,960
Liabilities:
First trust deed payable, 34th Street $408,887
Property taxes payable, 34th Street 7,458
First trust deed payable, 33rd Street 322,660
Second trust deed payable, 33rd Street 39,000
Property taxes payable, 33rd Street 3,870
The liabilities will be paid in full upon the sale of the properties. Management
expects both properties to be sold at a gain.
14
<PAGE>
CEC PROPERTIES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 10 - SUBSEQUENT EVENTS (CONTINUED):
- ----------------------------------------
Other
- -----
The Company has entered into a financial services and consulting agreement with
a vendor who has in the past provided advice and counsel in the areas of
finance, investment banking corporate restructuring and review of business
plans. In consideration for services previously rendered and for future
services, the Company has authorized the issuance of 312,500 shares of its
common stock to the consulting firm. The agreement provides for the issuance of
an additional 312,500 shares of the Company's common stock if certain financing
arrangements are secured by the consulting firm on behalf of the Company.
On November 5, 1997, the Company issued a $50,000 note payable to an individual,
monthly interest payments at 15%; principal and unpaid interest due in full on
November 10, 1998. The note is collateralized by real properties owned and the
majority shareholder has pledged 259,934 of his shares of the Company's common
stock as security.
NOTE 11 - CONTINGENCIES:
- ------------------------
The Environmental Defense Center and the California Native Plan Society filed
suit in Superior Court on October 17, 1997 against the County of Ventura; Board
of Supervisors of the County, CEC Golf and Camarillo Amphitheater Managing
Partners the developer of the adjacent amphitheater. The case number is CIV
176507 and the court date is June 2, 1998. The Court has been petitioned to
maintain the property is its natural state and to deny the project for technical
reasons occurring during the filing and processing of the permits, studies and
reports. The Company does not see any merit in the proceedings and believes it
will be granted permission to proceed with the project.
See accompanying accountants' report.
15
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
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.
Dated: October 2, 1998 By: /s/ Don Norbury
-----------------------------
Don Norbury, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 59963
<SECURITIES> 0
<RECEIVABLES> 12500
<ALLOWANCES> 0
<INVENTORY> 105363
<CURRENT-ASSETS> 204009
<PP&E> 952639
<DEPRECIATION> 36018
<TOTAL-ASSETS> 1214609
<CURRENT-LIABILITIES> 463155
<BONDS> 0
0
0
<COMMON> 126767
<OTHER-SE> (214484)
<TOTAL-LIABILITY-AND-EQUITY> 1214609
<SALES> 74137
<TOTAL-REVENUES> 148585
<CGS> 0
<TOTAL-COSTS> 242509
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71532
<INCOME-PRETAX> (93924)
<INCOME-TAX> 800
<INCOME-CONTINUING> (94724)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94724)
<EPS-PRIMARY> (0.007)
<EPS-DILUTED> (0.007)
</TABLE>
