<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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: July 31, 1999
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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)
(949) 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:
15,551,733 shares of common stock as of 07/31/99
1
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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 such 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 July 31, 1999, and the results of its operations and changes in
its cash flows for the three and nine months periods ended July 31, 1999 and
1998 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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2
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<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
July 31, 1999 Oct 31,1998
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Unaudited Audited
ASSETS
- ------
<S> <C> <C>
Investment $ 142,519 $ 25,000
Cash 89,244 200,400
Other 1,579,181 1,272,032
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TOTAL ASSETS $ 1,810,944 $ 1,497,432
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
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Notes Payable $ 13,912 $ 11,884
Due to Stockholders 103,044 89,367
Other 509,285 394,672
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TOTAL LIABILITIES $ 626,241 $ 495,923
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STOCKHOLDER'S EQUITY
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Preferred stock, $0.90 par value: 6,000,000 shares
Authorized; and 160,000 and 1,005,000 outstanding
July 31,1999 and Oct 31,1998 respectively,
(liquidation preference $ 90,000 and $ 1,005,000
respectively) $ 144,000 $ 706,232
Common Stock $ .01 Par Value, Shares Authorized:
30,000,000:15,551,733 and 13,674,198
outstanding at July 31, 1999 and
Oct 31, 1998, respectively $ 155,517 $ 136,742
Additional Paid In Capital $ 24,375,938 $ 23,823,752
Accumulated Deficit $(23,665,217) $(23,565,786)
Current (Loss)/Profit 174,465 $ (99,431)
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TOTAL STOCKHOLDER'S EQUITY 1,184,703 1,001,509
TOTAL LIABILITIES &
STOCKHOLDER'S EQUITY $ 1,810,944 $ 1,497,432
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</TABLE>
See Notes to the Consolidated Financial Statements:
3
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<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended July 31
-----------------------------
1999 1998
REVENUE
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<S> <C> <C>
CONTINUING OPERATIONS:
REVENUE $ 1,080,872 $ 333,000
OPERATING EXPENSES 962,496 385,000
INTEREST 102 0
DEPRECIATION 8,582 5
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TOTAL EXPENSES $ 971,180 $ 390,000
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PROFIT /(LOSS) FROM CONTINUING
OPERATIONS $ 109,692 $ (57,000)
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DISCONTINUED OPERATIONS:
INCOME 0 0
GAIN ON SALE OF ASSETS 0 (2)
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0 (2)
OPERATING EXPENSE 0 0
INTEREST 0 0
DEPRECIATION 0 0
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0 0
INCOME FROM
DISCONTINUED OPERATIONS 0 0
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NET PROFIT (LOSS) $ 109,692 $ (57,000)
============= =============
Net Profit (Loss) From Continuing
Operations Per Common Share 0.01 (0.01)
============= =============
Net Income From Discontinued
Operations Per Common Share 0.00 0.00
============= =============
Weighted Average Shares Outstanding 15,551,733 12,989,226
</TABLE>
4
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<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Nine Months Ended July 31
-------------------------------
1999 1998
REVENUE
- -------
<S> <C> <C>
CONTINUING OPERATIONS:
REVENUE $ 2,576,447 $ 965,000
OPERATING EXPENSES $ 2,373,535 1,059,000
INTEREST 1,447 0
DEPRECIATION 27,000 5
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TOTAL EXPENSES $ 2,401,982 $ 1,064,000
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(LOSS) PROFIT FROM CONTINUING
OPERATIONS $ 174,465 $ (99,000)
============== =============
DISCONTINUED OPERATIONS:
INCOME 69,000
GAIN ON SALE OF ASSETS 94,000
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0 163,000
OPERATING EXPENSE 66,000
INTEREST 67,000
DEPRECIATION 6,000
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0 139,000
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS 0 26,000
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NET (LOSS)PROFIT $ 174,465 $ (75,000)
============== =============
Net Loss From Continuing
Operations Per Common Share 0.01 (0.01)
============== =============
Net Income From Discontinued
Operations Per Common Share 0.00 0.00
============== =============
Weighted Average Shares Outstanding 15,551,733 12,989,226
See Notes to the Consolidated Financial Statements
5
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CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended July 31
------------------------------
1999 1998
<S> <C> <C>
Cash Flow From Operating Activities:
Net Profit/Loss $ 174,465 $ (90,007)
Adjustment to reconcile net income
to net cash provided by operating activities
Depreciation 27,000 11,356
Gain on Sale of Assets 0 26,237
(Increase) Decrease in other Assets (334,149) 74,043
Increase (Decrease) in Other Liabilities (2,028) (149,727)
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Net Cash Used by Operations (305,121) (128,098)
Cash Flows from Investing Activities (117,519) 0
Proceeds from Sale of
Rental Property 0 504,073
New Capital Stock 0 958,116
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Net Cash Provided by Investing Activities (117,519) 1,462,189
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Cash Flows from Financing Activities
Preferred Stock(Decrease) (562,232) 0
Common Stock Increase 18,775 0
Additional Paid-In Capital Increase 552,186 0
Stockholder Loan Advance (Repayment) 13,677 (88,000)
Long-term Debt (Reduction)Increase 114,613 (887,789)
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Net Cash Provided (Used) in Financing Activities 137,019 (975,789)
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Net Increase (Decrease) in Cash (111,156) 358,306
Cash at Beginning of Period 200,400 59,963
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Cash at end of Period $ 89,244 $ 418,269
============= =============
</TABLE>
See Notes to the Consolidated Financial Statements
6
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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 subsidiaries CEC Properties Corp, Classic Golf Management and First
Golf. All material inter-company 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) Discontinued Operations
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 for the quarters ended April 30, 1998 and January 31, 1998. Both
properties were sold during the Company's second fiscal quarter in 1998.
Revenues and expenses in 1999 are from continuing operations.
For comparability, the presentation of the prior year periods has been changed
to conform with the presentation in the current year.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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The Company operates through two wholly owned subsidiaries and a
limited liability company interest. All of its' business is focused on golf and
golf related areas.
First Golf, located in Tempe, Arizona provides program and construction
management, design review and financing to municipalities and private entities
that want to develop golf courses and golf communities. Currently First Golf is
managing the construction of a 27 hole course in South Carolina, an 18 hole
course in Oregon, 36 holes in New Mexico and the revamp of three holes in
Scottsdale, Arizona.
Classic Golf Management Inc. is located in Marietta, Georgia and
provides facility management, consulting, turf management and teaching services
for three golf courses in the Atlanta, Georgia area and one in New Jersey.
Additionally, they have signed agreements to manage 2 new courses as soon as
they are completed by First Golf, which is expected in the 2nd and 3rd quarters
of 2000 respectively.
Classic Golf Management acquired a 50% ownership interest in Diamond
Turf, LLC, a turf farm located in Cordele, GA. Diamond Turf has been awarded
contracts in excess of $600,000, including $ 570,000 to provide grass for a
27-hole golf course in South Carolina. The grass will be delivered to golf
courses in South Carolina, Georgia and Florida during the third and fourth
quarters of 1999. Diamond Turf has licenses from the Georgia Research Foundation
to grow two new, improved strains of Bermuda grass. The strains are TifEagle, a
new, improved greens grass and TifSport, a fairway grass. Diamond Turf is in the
process of expanding its acreage devoted to TifSport from 7 acres to 60 acres.
7
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
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The majority of the increase in revenues for the third quarter, from
$330,000 in 1998 to $1,080,872 in 1999, was generated from revenues related to
operations of the recent acquisitions of Classic Golf Management and First Golf
and the income from Diamond Turf.
The expenses were $971,180 in the third quarter of 1999, up from
$390,000 in 1998, largely due to the increased activities of the company's
operations.
Operating expenses were $962,496 in 1999 and $385,000 in 1998, largely
due to the increased activities of the company's operations.
The resulting Net Income increased from a loss of ($57,000) in 1998 to
a $109,692 profit in 1999 due to the improved results from the company's above
noted operations.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 31, 1999 COMPARED TO NINE MONTHS ENDED JULY 31, 1998
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The increase in revenues for the first nine months of 1999 as compared
to the first nine months of 1998 was generated from the operations of First
Golf, the good weather enjoyed by golf courses managed by Classic Golf
Management and the initial revenues received from the Diamond Turf interest. The
revenues in 1999 were $ 2,576,447 and $ 956,000 in 1998, an increase of 169 %.
The Company's expenses for the first nine months of 1999 were
$2,401,982, up from $ 1,064,000 in 1998. The increase was due to the increased
activities of the company's operations.
The resulting profit of $174,465 in 1999 was an increase from a loss of
$ (75,000) 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 its real estate
properties and loans from the principal stockholder. The Company anticipates,
based on current plans and assumptions relating to its operations, that the
Company's existing business and cash generated from operations should be
sufficient to satisfy the Company's contemplated cash requirements for at least
12 months. There can be no assurance, however, that the Company will not require
additional cash during or after such 12-month period.
An anticipated positive cash flow from Classic Golf Management, First
Golf and Diamond Turf should eliminate the need to further borrow from the
principal stockholder. The previous long-term debt of $767,000 incurred from the
two rental properties was eliminated by their sale in the second fiscal quarter
of 1998.
8
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The Company estimates that it will incur additional capital
expenditures of approximately $3,600,000 during the next twelve months in
connection with further acquisitions and construction of golf courses. The
company intends to seek these funds through third party, associates and lenders,
which have not yet been obtained.
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.
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 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.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On July 8, 1999, an action entitled Pudding Ridge Limited Partnership
v. First Golf Corporation, W. Samuel Gunderson, CEC Properties, Inc., John Inman
and Charles Bradley was filed in the General Court of Justice, Superior Court
Division of the State of North Carolina, County of Davie. The case was
subsequently transferred to the United states District court for the Middle
District of North Carolina, Salisbury Division and bears case number 1:99 CV
00660. The complaint against the Company (the First Golf Corporation defendant
is not, to the best of the Company's knowledge, the Company's subsidiary, but a
separate company from which the Company acquired certain assets which were
placed by the Company into a new entity of the same name but incorporated in
another jurisdiction) alleges that the Company's payment for the acquisition of
assets from First Golf should have been used to discharge alleged debts owed to
the plaintiff by the seller, that the Company induced First Golf to continue in
its beach of a lease with the plaintiff and that the Company breached a covenant
of good faith and fair dealing it owed to the plaintiff. Damages sought are
unspecified. The company has only recently been served with the action however,
the Company believes the claims against it are without merit and intends to
vigorously defend the action.
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.
September 14, 1999
CEC Properties, Inc.
By:
/S/ Paul Balalis
------------------------
Paul Balalis
President
By:
/S/ Don Norbury
------------------------
Don Norbury
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
this is the legend
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Oct-31-1999
<PERIOD-START> Nov-01-1998
<PERIOD-END> Jul-31-1999
<CASH> 89
<SECURITIES> 0
<RECEIVABLES> 422
<ALLOWANCES> 0
<INVENTORY> 129
<CURRENT-ASSETS> 880
<PP&E> 238
<DEPRECIATION> (45)
<TOTAL-ASSETS> 1811
<CURRENT-LIABILITIES> 607
<BONDS> 0
0
144
<COMMON> 156
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1811
<SALES> 2576
<TOTAL-REVENUES> 2576
<CGS> 0
<TOTAL-COSTS> 1331
<OTHER-EXPENSES> 1063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 176
<INCOME-TAX> 2
<INCOME-CONTINUING> 174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
