<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: April 30, 1999
- ----------------------------------------------------------------------------
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[ ] For the transition period from to
===========================================================================
Commission file number: 0-188
- ----------------------------------------------------------------------------
CEC Properties, Inc.
- ----------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Delaware 13-1919940
- ----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
1500 W. Balboa Blvd. Suite 201, Newport Beach, CA 92663
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(949) 673-2282
- ----------------------------------------------------------------------------
(Registrant's Telephone Number, including area code)
- ----------------------------------------------------------------------------
(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
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock, as of the latest practicable date:
15,161,011 shares of common stock as of 4/30/99
1
<PAGE>
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,
results of operations and cash flows of the Registrant for the three and six
months periods ended April 30, 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.
- --------------------------------------------------------------------------------
2
<PAGE>
<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Apr 30, 1999 Oct 31,1998
------------- -------------
Unaudited Audited
<S> <C> <C>
ASSETS
- ------
Investment $ 83,151 $ 25,000
Cash 61,431 200,400
Other 1,617,201 1,272,032
------------- -------------
TOTAL ASSETS $ 1,761,783 $ 1,497,432
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
- -----------
Notes Payable $ 43,840 $ 11,884
Due to Stockholders 251,126 89,367
Other 391,806 394,672
------------- -------------
TOTAL LIABILITIES $ 686,772 $ 495,923
------------- -------------
STOCKHOLDER'S EQUITY
- ---------------------
Preferred stock, $0.90 par value: 6,000,000 shares
Authorized; and 362,000 and 1,005,000 outstanding
Apr 30,1999 and Oct 31,1998 respectively,
(liquidation preference $ 226,250 and $ 1,005,000
respectively) $ 325,800 $ 706,232
Common Stock $ .01 Par Value, Shares Authorized:
30,000,000:15,611,011 and 13,674,198
outstanding at Apr 30, 1999 and
Oct 31, 1998, respectively $ 156,110 $ 136,742
Additional Paid In Capital $ 24,193,545 $ 23,823,752
Accumulated Deficit $(23,665,217) $(23,665,217)
Current (Loss)/Profit 64,773 $ (99,431)
------------- -------------
TOTAL STOCKHOLDER'S EQUITY 1,075,011 1,002,509
TOTAL LIABILITIES &
STOCKHOLDER'S EQUITY $ 1,761,783 $ 1,497,432
============= =============
</TABLE>
See Notes to the Consolidated Financial Statements:
3
<PAGE>
<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Apr 30
----------------------------
1999 1998
<S> <C> <C>
REVENUE
CONTINUING OPERATIONS:
REVENUE $ 766,430 $ 282,691
OPERATING EXPENSES 721,965 339,563
INTEREST 1,306 0
DEPRECIATION 8,872 0
------------- -------------
TOTAL EXPENSES $ 732,143 $ 339,563
------------- -------------
PROFIT /(LOSS) FROM CONTINUING
OPERATIONS $ 34,287 $ (56,872)
============= =============
DISCONTINUED OPERATIONS:
INCOME 0 8,039
GAIN ON SALE OF ASSETS 0 95,473
------------- -------------
0 103,512
OPERATING EXPENSE 0 0
INTEREST 0 39,383
DEPRECIATION 0 2,489
------------- -------------
0 41,872
INCOME FROM
DISCONTINUED OPERATIONS 0 61,640
------------- -------------
NET PROFIT (LOSS) $ 34,287 $ 4,768
============= =============
Net Profit (Loss) From Continuing
Operations Per Common Share 0.002 (0.0044)
============= =============
Net Income From Discontinued
Operations Per Common Share 0 0.0047
============= =============
Weighted Average Shares Outstanding 15,161,011 12,989,226
</TABLE>
4
<PAGE>
<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Six Months Ended Apr 30
----------------------------
1999 1998
<S> <C> <C>
REVENUE
CONTINUING OPERATIONS:
REVENUE $ 1,495,576 $ 631,505
OPERATING EXPENSES $ 1,411,086 753,285
INTEREST 1,009 0
DEPRECIATION 18,708 0
------------- -------------
TOTAL EXPENSES $ 1,430,803 $ 753,285
------------- -------------
(LOSS) PROFIT FROM CONTINUING
OPERATIONS $ 64,773 $ (121,780)
============= =============
DISCONTINUED OPERATIONS:
INCOME 68,889
GAIN ON SALE OF ASSETS 95,473
------------- -------------
0 164,362
OPERATING EXPENSE 0
INTEREST 52,188
DEPRECIATION 6,144
------------- -------------
0 58,332
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS 0 106,030
------------- -------------
NET (LOSS)PROFIT $ 64,773 $ (15,750)
============= =============
Net Loss From Continuing
Operations Per Common Share 0.004 (0.0094)
============= =============
Net Income From Discontinued
Operations Per Common Share 0 0.0082
============= =============
Weighted Average Shares Outstanding 15,161,011 12,989,226
</TABLE>
See Notes to the Consolidated Financial Statements
5
<PAGE>
<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended Apr 30
----------------------------
1999 1998
<S> <C> <C>
Cash Flow From Operating Activities:
Net Profit/Loss $ 64,773 $ (15,750)
Adjustment to reconcile net income
to net cash provided by operating activities
Depreciation 30,519 6,144
Gain on Sale of Assets 0 (95,473)
(Increase) Decrease in other Assets (375,688) (17,981)
Increase (Decrease) in Other Liabilities (2,866) 9,611
------------- -------------
Net Cash Used by Operations (283,262) (113,449)
Cash Flows from Investing Activities (58,151) 0
Proceeds from Sale of
Rental Property 0 844,935
------------- -------------
Net Cash Provided by Investing Activities (58,151) 844,935
------------- -------------
Cash Flows from Financing Activities
Preferred Stock(Decrease) (380,432) 0
Common Stock Increase 19,368 0
Additional Paid-In Capital Increase 369,793 0
Stockholder Loan Advance (Repayment) 161,759 (3,565)
Long-term Debt (Reduction)Increase 31,956 (766,548)
------------- -------------
Net Cash Provided (Used) in Financing Activities 202,444 (770,113)
------------- -------------
Net Increase (Decrease) in Cash (138,969) (38,627)
Cash at Beginning of Period 200,400 59,963
------------- -------------
Cash at end of Period $ 61,431 $ 21,336
============= =============
</TABLE>
See Notes to the Consolidated Financial Statements
6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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, 1999 and January 31, 1999.
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
- --------------------------------------------------------------------------------
The Company operates through two wholly owned subsidiaries and a joint
venture. 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 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, one course in Arizona and
one in New Jersey. Additionally, they have signed agreements to manage two new
courses as soon as they are completed by First Golf.
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 valued at approximately $ 570,000, to provide grass for a 27-hole golf
course in South Carolina and provide sprigs and sod throughout Georgia and
Florida. The grass will be delivered during the third and fourth quarter of
1999. Diamond Turf has received the licenses to grow two new, improved strains
of Bermuda grass from the Georgia Research Foundation. The strains are TifEagle,
a new, improved greens grass and TifSport, a fairway grass. Diamond Turf is in
the process of expanding the acreage of TifSport from 7 acres to 57 acres.
7
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THREE MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
The majority of the increase in revenues for the second quarter, from
$386,570 in 1998 to $766,430 in 1999, was generated from revenues related to
operations of the recent acquisitions of Classic Golf Management and First Golf.
The expenses were $732,144 in the second quarter of 1999, up from
$381,435 in 1998. Most of the increase was attributable to the recently acquired
operations of First Golf and the legal and accounting costs attributable to the
acquisition. Operating expenses were $728,339 in 1999 and $339,563 in 1998.
The resulting Net Income was increased from $4,768 in 1998 to $34,287
profits in 1999.
RESULTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1999 COMPARED TO SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
The primary increase in revenues for the first six months of 1999
compared to the first six months of 1998 was generated from the operations of
the recent acquisition of First Golf. The revenues in 1999 were $ 1,495,576 and
$ 631,505 in 1998, an increase of 137%.
The Company's expenses for the first six months of 1999 were $1,430,803,
up from $ 753,285 in 1998.
The resulting profit of $64,773 in 1999 was an increase from a loss of $
121,780 in 1998.
CAPITAL AND LIQUIDITY RESOURCES
- --------------------------------------------------------------------------------
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
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 and First
Golf 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.
The Company estimates that it will incur additional capital expenditures
of approximately $3,600,000 during the next fifteen months in connection with
further acquisitions and construction of golf courses. These funds will be
provided through third party lenders and other sources. None of which has yet
been obtained.
8
<PAGE>
SEASONALITY
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(a) On March 2, 1999 the Company issued 17,600 shares of its Common
Stock and on April 7, 1999 the Company issued 25,000 shares of
its Common Stock.
(b) These shares were issued to two accredited investors.
(c) The March 2, 1999 issuance was to a consultant in connection
with services rendered to the Company. The April 7, 1999
issuance was in connection with the exercise of an option for
which the Company received $10,000 ($.40 per share). There were
no commissions.
9
<PAGE>
(d) The shares sold were exempt under Section 4(2) of the Securities
Act in that they were sold to two accredited investors, each of
whom represented they were purchasing for their own account for
investment only and not with the view toward the resale or
distribution thereof.
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.
June 10, 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
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 61431
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1761783
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1761783
<CURRENT-LIABILITIES> 686772
<BONDS> 0
0
325800
<COMMON> 156110
<OTHER-SE> 593101
<TOTAL-LIABILITY-AND-EQUITY> 1761783
<SALES> 1495576
<TOTAL-REVENUES> 1495576
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1411086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1009
<INCOME-PRETAX> 64773
<INCOME-TAX> 0
<INCOME-CONTINUING> 64773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64773
<EPS-BASIC> .004
<EPS-DILUTED> .004
</TABLE>
