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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, 2000
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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 small business issuer 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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(Issuer's Telephone Number)
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(Former name, former address and former
fiscal year, if changed since last report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
15,601,735 shares of common stock $.01 par value as of June 15, 2000
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CEC PROPERTIES,INC.
Part I - Financial Information
The condensed consolidated financial statements included herein have been
prepared by the Issuer 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 Issuer 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 Issuer's
Annual Report on Form 10-KSB for the fiscal year ended October 31, 1999 as filed
with the SEC. (File number 0-188)
In the opinion of the Issuer, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of the Issuer as
of April 30, 2000, and the results of it's operations and changes in cash flows
of the Issuer for the three months and six months ended April 30, 2000 and 1999,
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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<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS Apr 30,2000 Oct 31, 1999
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Unaudited Audited
<S> <C> <C>
Current assets:
Cash $ 106,378 $ 137,072
Accounts receivable 339,503 328,998
Inventory 89,815 99,450
Receivable from affiliate 0 52,259
Notes receivable 4,767 27,247
Related party note receivable 79,311 79,133
Other 0 33,211
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Total current assets 619,774 757,370
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Property and equipment, net 190,616 216,573
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Other assets:
Goodwill, net of accumulated amortization 567,232 583,807
Investment in affiliate 78,421 88,314
Other 68,709 42,400
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Total other assets 714,362 714,521
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$ 1,524,752 $ 1,688,464
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 293,821 $ 328,771
Current portion of capital lease obligations 11,249 11,249
Notes payable 2,323 57,322
Notes payable to related parties 104,745 123,044
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Total current liabilities 412,138 520,386
Capital lease obligations, net of current portion 36,929 40,910
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Total liabilities 449,067 561,296
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Commitments and contingencies
Stockholders' equity:
Series A 5% preferred stock, 2,000,000 shares authorized,
$0.90 par value, 140,000 shares outstanding (liquidation
preference of $140,000) 126,000 126,000
Common stock, 30,000,000 shares authorized, $0.01 par
value, 15,601,735 shares outstanding (including 47,400
shares committed) 155,941 155,941
Additional paid-in capital 24,863,060 24,863,060
Accumulated deficit (24,069,316) (24,017,833)
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Total stockholders' equity 1,075,685 1,127,168
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$ 1,524,752 $ 1,688,464
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</TABLE>
See notes to consolidated financial statements:
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CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Apr 30
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2000 1999
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Revenues:
Golf course revenue $ 494,940 $ 495,740
Construction management revenue 270,900 270,390
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Total revenue 765,840 766,130
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Cost of revenues:
Cost of golf course revenue 301,372 302,396
Cost of construction management revenue 133,533 49,024
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Total cost of revenues 434,905 351,420
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Gross profit 330,935 414,710
General and administrative expenses 342,940 376,918
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Operating loss(profit) (12,005) 37,792
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Other income (expense):
Equity in income (loss) of affiliate(@50%) (8,783) (2,199)
Interest income 116 256
Interest expense (1,604) (1,562)
Change in accounting (18,781) 0
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Total other income (expense) (29,052) (3,505)
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Income (loss) from continuing operations
before provision for income taxes (41,057) 34,287
Provision for income taxes -
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Net income (loss) $ (41,057) $ 34,287
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Net (loss) profit available to common shareholders per
common share
Basic $ (0.002) $ 0.002
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Diluted $ (0.002) $ 0.002
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Weighted average number of common shares
outstanding
Basic 15,601,735 14,503,730
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See notes to the financial statements.
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CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended Apr 30
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2000 1999
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Revenues:
Golf course revenue $ 924,423 $ 858,973
Construction management revenue 695,435 636,304
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Total revenue 1,619,858 1,495,277
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Cost of revenues:
Cost of golf course revenue 600,861 602,472
Cost of construction management revenue 301,361 167,472
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Total cost of revenues 902,522 769,944
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Gross profit 717,336 725,333
General and administrative expenses 734,875 657,335
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Operating loss(profit) (17,539) 67,999
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Other income (expense):
Equity in income (loss) of affiliate (11,768) (2,199)
Interest income 228 1,657
Interest expense (3,624) (2,683)
Change in accounting (18,781) 0
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Total other income (expense) (33,945) (3,225)
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Income (loss) from continuing operations
before provision for income taxes (51,483) 64,773
Provision for income taxes - -
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Net income (loss) $ (51,483) $ 64,773
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Net (loss) profit available to common shareholders per
common share
Basic $ (0.003) $ 0.004
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Diluted $ (0.003) $ 0.004
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Weighted average number of common shares
outstanding
Basic 15,601,735 15,161,011
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See notes to the financial statements
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<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended Apr 30
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2000 1999
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<S> <C> <C>
Net cash provided by operating
activities 28,401 (15,319)
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Net cash (used in) investing activities (4,118) (124,946)
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Net cash provided by (used in)financing
activities (54,977) 1,296
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Net decrease in cash (30,694) (138,969)
Cash at beginning of period 137,072 200,400
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Cash at end of period $ 106,378 $ 61,431
</TABLE>
See Notes to Consolidated Financial Statements:
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<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note -(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.
Note - (2) Sales Agreement
Effective December 1999, the Company entered into an agreement to arrange annual
sales of $10,000,000 for Greentrac.com, Inc., a company organized and financed
by certain stockholders and directors of the Company. In exchange for the
agreement, the Company received an approximate 14% interest in Greentrac.com.,
Inc. Greentrac was formed to establish an Internet-based business to business
market place for the procurement of grounds keeping equipment and supplies. Due
to the affiliated nature ofGreentrac.com it is not considered an arms-length
transaction. Accordingly, management has determined the estimated fair market
value of the shares received by the company to be $1,875. The Company has
included this amount in investments in affiliate at January 31, 2000.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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BACKGROUND. The Company was substantially reorganized in 1995. In
November 1997, the Company adopted a plan to dispose of its remaining rental
properties and concentrate on the Company's primary focus, the golf industry. In
fiscal 1998, the remaining rental properties were sold. Of the $24,028,257 of
accumulated deficit set forth in the Company's Consolidated Balance Sheet,
$23,565,786 relates to activities prior to November 1, 1998. The Company manages
and maintains golf courses and golf driving ranges through its wholly owned
subsidiary, Classic Golf Management. It currently is operating under two golf
management contracts where the Company owns the pro shop, and the teaching
center, or pays a fee to a municipality landlord in a transaction, which is
similar to a triple net lease. The Company generally receives substantially all
of the revenue from the carts, pro shop, driving range and lessons and pays
substantially all expenses associated with those operations. The Company is
focusing on bidding and obtaining new management contracts and acquisition of
management companies.
In October 1997, the Company acquired Classic Golf Management and
purchased the assets of Classic Golf Shops. Prior to October 1997 the Company's
primary income was from rental properties. The Company divested itself of all of
those properties in order to focus on its golf operations. As such, the revenues
and expense from investment properties are disclosed as income from discontinued
operations in the income statement ended October 31, 1998. Both properties were
sold during the Company's second fiscal quarter of 1998.
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In October 1998, the Company acquired the assets of First Golf
Corporation, a company primarily engaged in the management of construction of
golf courses. In this regard First Golf had existing contracts for construction
management on three courses. The Company will manage the three courses, which
are presently scheduled to open in 2000. Additionally, First Golf is in various
stages of discussions with respect to additional courses. However, the results
of such discussions can not be predicted at this time and there is no guarantee
that any of such discussions will result in a contractual management
arrangement.
The Company presently retains the rights to the Hickory Stick golf
course to be built in Atlanta, Georgia. First Golf will be supervising the
construction and the awarding of any contracts.
In 1999, the Company became a 50% owner of Diamond Turf LLC, a company
located in Cordele, Georgia engaged in the growing and sale of grass for golf
course greens and fairways.
In December 1999, the Company entered into an agreement with
Greentrac.com. Paul Balalis, certain officers and stockholders of the Company
and founders of Medibuy.com founded Greentrac.com. Greentrac.com is a business
to business internet-based company intended to engage in the procurement of
commercial grounds keeping equipment and supplies. Greentrac. obtained initial
financing of $4,000,000 ($10.00 per share) and is currently seeking an
additional $8 million at $30.00 per share. There is no assurance such additional
financing will be obtained. Greentrac began business on February 14, 2000. The
Company received 187,500 shares of Greentrac.com (approximately 14 % of the
outstanding shares) for agreeing to arrange for orders through Greentrac.com
valued at $10,000,000 per year for three years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
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Golf course management revenues decreased from $495,740 to $494,940
(0%) while revenues from golf course construction management increased from
$270,390 to 270,900 (0%). The small decrease resulted from the seasonal slowdown
and the delay in the starting of new construction.
Expenses related to golf course management decreased from $302,396 to
$301,372(1%) and expenses related to course construction management increased
from $49,024 to $133,533 (172%). The increase was attributable an increase in
personnel hired to cover the new construction.
Overall, general and administrative expenses decreased from $376,918 to
$342,940 (9%) largely due to a reduction in the accounting fees and close
attention to the expenses.
Net Income was reduced from a profit of $34,287 in 1999 to a loss of
$41,057 in 2000.
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 2000 COMPARED TO SIX MONTHS ENDED APRIL 30, 1999
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The primary increase in revenues for the first six months of 2000
compared to the first six months of 1999 was generated thru improved first
quarter operations by First Golf. The revenues in 1999 were $ 1,495,277 and
$1,619,858 in 2000, an increase of 9%.
The Company's expenses for the first six months of 2000 were
$1,671,341, up from $1,430,503 in 1999 because of the increase in staffing
required to build the new golf courses.
The resulting loss of $51,483 in 2000 was a decrease from a profit of $ 64,773
in 1999.
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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 properties
and loans from the principal stockholder. In May 1998, the Company raised
approximately $706,000 after commissions and expenses in connection with its
private placement of convertible preferred stock. The Company anticipates, based
on current plans and assumptions relating to its operations, that the cash
generated from its operations, should be sufficient to meet the Company's
contemplated cash requirements for its current business operations 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 for its current operations.
The Company estimates that any need for additional capital it may
experience during the next 12 months will be obtained through third party
lending arrangements. However, no such arrangements have yet been completed and
there can be no assurance that they will be completed or will be available on
terms acceptable to the Company.
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.
INFLATION. To date, inflation has not had a material effect on the
Company's operations.
<PAGE>
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 of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in the forward-looking statements will be realized. There
are a number of other risks presented by the Company's business and operations,
which could cause the Company's financial performance to vary markedly from
prior results, or results contemplated by the forward-looking statements.
Management decisions, including budgeting, are subjective in many respects and
periodic revisions must be made to reflect actual conditions and business
developments, the impact of which may cause the Company to alter its capital
investment and other expenditures, which may also adversely affect the Company's
results of operations. In light of significant uncertainties inherent in
forward-looking information included in this quarterly Report on Form 10QSB, the
inclusion of such information should not be regarded as a representation by the
Company or any person that the Company's objectives or plans will be achieved.
Part II - Other Information
Inapplicable
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CEC Properties, Inc.
Date: June 16, 2000 By: /S/ Paul Balalis
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Paul Balalis
President
Date: June 16, 2000 By: /S/ Don Norbury
--------------------------------
Don Norbury
Chief Financial Officer
