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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: July 31, 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:
15,601,736 shares of common stock $.01 par value as of August 31, 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 July 31, 2000, and the results of operations and its cash flows for the three
months and nine months ended July 31, 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 July 31,2000 Oct 31, 1999
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Unaudited Audited
<S> <C> <C>
Current assets:
Cash $ 186,447 $ 137,072
Accounts receivable 209,542 328,998
Inventory 136,825 99,450
Receivable from affiliate 52,997 52,259
Notes receivable 0 27,247
Related party note receivable 79,586 79,133
Other 29,954 33,211
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Total current assets 695,351 757,370
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Property and equipment, net 178,614 216,573
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Other assets:
Goodwill, net of accumulated amortization 566,003 583,807
Investment in affiliate 112,533 88,314
Other 42,401 42,400
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Total other assets 720,937 714,521
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$ 1,594,902 $ 1,688,464
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 358,790 $ 328,771
Current portion of capital lease obligations 11,249 11,249
Notes payable 0 57,322
Notes payable to related parties 104,744 123,044
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Total current liabilities 474,783 520,386
Capital lease obligations, net of current portion 31,309 40,910
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Total liabilities 506,092 561,296
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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, $0.01 par value,
15,601,735 and 15,594,098 (including 47,400 shares committed)
shares outstanding at July 31,2000 and October 31,
1999 respectively. 156,017 155,941
Additional paid-in capital 24,862,985 24,863,060
Accumulated deficit (24,056,192) (24,017,833)
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Total stockholders' equity 1,088,810 1,127,168
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$ 1,594,902 $ 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 July 31
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2000 1999
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Revenues:
Golf course revenue $ 487,979 $ 505,307
Construction management revenue 400,600 247,327
Management fees from affiliate 61,982 0
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Total revenue 950,561 752,634
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Cost of revenues:
Cost of golf course revenue 361,536 329,429
Cost of construction management revenue 242,233 89,341
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Total cost of revenues 603,769 418,770
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Gross profit 346,792 333,864
General and administrative expenses 360,061 281,508
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Operating loss(profit) (13,269) 52,356
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Other income (expense):
Interest income 9 912
Interest expense (7,731) (5,585)
Equity in income of affiliate 34,112 50,118
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Total other income (expense) 26,390 45,445
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Income (loss) from continuing operations
before provision for income taxes 13,121 97,801
Provision for income taxes - -
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Net income (loss) $ 13,121 $ 97,801
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Net (loss) profit available to common shareholders per
common share
Basic $ 0.000 $ 0.001
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Diluted $ 0.000 $ 0.001
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Weighted average number of common shares
outstanding
Basic 15,601,735 15,551,733
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See notes to the financial statements.
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CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended July 31
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2000 1999
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Revenues:
Golf course revenue $ 998,989 $ 1,000,096
Construction management revenue 1,096,035 852,487
Management fees from affiliate 181,982 0
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Total revenue 2,277,006 1,852,583
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Cost of revenues:
Cost of golf course revenue 683,298 580,553
Cost of construction management revenue 543,893 257,306
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Total cost of revenues 1,227,191 837,859
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Gross profit 1,049,815 1,014,724
General and administrative expenses 1,080,622 897,596
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Operating (loss)profit (30,807) 117,128
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Other income (expense):
Interest income 236 912
Interest expense (11,352) (5,584)
Equity in income of affiliate 22,344 50,118
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Total other income (expense) 11,228 45,446
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Income (loss) from operations
before provision for income taxes and (19,579) 162,574
cumulative change in accounting principle
Provision for income taxes 0 0
Income (loss) Before cumulative change in
accounting principal (19,579) 0
Cumulative effect of change in accounting principle (18,781) 0
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Net income (loss) $ (38,360) $ 162,574
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Net (loss) profit available to common shareholders per
common share
Basic $ (0.00) $ 0.00
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Diluted $ (0.00) $ 0.00
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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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CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended July 31
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2000 1999
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Cash flows from operating activities
Net income (loss) $ (38,360) $ 162,574
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 48,699 59,122
Cumulative change in accounting
principal 18,781 0
Write-off of deposit 50,000 0
Equity in income of affiliates (22,344) (50,118)
Changes in operating assets and
liabilities
Accounts receivable 69,454 (210,779)
Inventory (37,375) (19,561)
Other assets (4,119) (243,315)
Accounts payable and accrued expenses 28,146 139,261
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Net cash provided by (used in) operating activities 112,882 (162,816)
Cash flows from investing activities
Cash advance to affiliates, net (1,191) 8,918
Collection of notes receivable from related
parties 27,247 400
Property and equipment purchases (4,340) (29,721)
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Net cash provided by(used in) investing activities 21,716 (20,403)
Cash flows from financing activities
Principal payments on notes payable (57,322) (12,000)
Principal payments on notes payable to related
parties (18,300) 0
Principal borrowings on notes payable to related
parties 0 13,677
Principal payments on capital lease obligations (9,601) 0
Proceeds from exercise of stock options 0 10,000
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Net cash provided by (used in) financing activities (85,223) 11,677
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Net change in cash 49,375 (171,542)
Cash at beginning of period 137,072 260,786
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Cash at end of period 186,447 89,244
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Cash paid during period for:
Interest $ 6,420 $ 3,784
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Income taxes $ 0 $ 0
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See Notes to Consolidated Financial Statements:
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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
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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 parties including stockholders and directors of the Company. In
exchange for the agreement, the Company received an approximate 14% interest in
Greentrac.com. 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 of Greentrac.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. Of the
$24,056,192 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 four 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 July of 2000, a $50,000 deposit to build a golf course in Camarillo,
California expired unexercised. As a result the company wrote off the entire
balance of this asset and recorded $50,000 of expense, which is reflected as a
general and administrative expense in the accompanying three and nine month
statements of operations.
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. Two of the courses have been completed (Union,
Oregon and Charleston, South Carolina) and are in the opening stages. The
Company will manage the three courses. Additionally, First Golf is in various
stages of discussions with respect to additional courses. However, the results
of such discussions cannot 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 near 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 facilitate the
procurement of commercial grounds keeping equipment and supplies. Greentrac.com
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.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED July 31, 2000 COMPARED TO THREE MONTHS ENDED July 31, 1999
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Golf course management revenues decreased from $505,307 to $487,979
(3%) due to the extended drought and hot weather is the South East while
revenues from golf course construction management increased from $247,327 to
400,600 (62%). The increase in construction management revenues resulted from
the commencement of new construction during the period. Equity earnings of
affiliate increased from $0 to $34,112
Expenses related to golf course management increased from $329,429 to
$361,536(10%) and expenses related to course construction management increased
from $89,341 to $242,233 (171%). The increase was attributable an increase in
personnel hired to manage the new construction.
Overall, general and administrative expenses increased from $281,508 to
$360,061 (28%) largely due to increased workload.
Net Income for the quarter was mainly reduced from a profit of $97,801
in 1999 to $13,121 in 2000.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999
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The primary reason for the increase in revenues for the first nine
months of 2000 compared to the same period of 1999 was the improved operations
by Classic Golf. The revenues in 1999 were $ 1,852,583 and $2,277,006 in 2000,
an increase of 23%. Equity in earnings of affiliate increased to 50,818 from
22,344.
The Company's expenses for the first nine months of 2000 were
$2,307,813, up from $1,735,455 in 1999 largely due to of the increase in
staffing required to construction the new golf courses undertaken by the company
and the expensing of the expired option. The resulting loss of $38,630 in 2000
was a decrease from a profit of $162,574 in 1999.
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.
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FORWARD-LOOKING STATEMENTS
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The forward-looking statements herein are based on current expectations that
involve a number of risks and uncertainties. Such forward-looking statements are
based on assumptions that the Company will have adequate financial resources to
fund the development and operation of its business, and there will be no
material adverse change in the Company's operations or business. The foregoing
assumptions are based on judgments with respect to, among other things,
information available to the Company, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in the forward-looking statements will be realized. There
are a number of other risks presented by the Company's business and operations,
which could cause the Company's financial performance to vary markedly from
prior results, or results contemplated by the forward-looking statements.
Management decisions, including budgeting, are subjective in many respects and
periodic revisions must be made to reflect actual conditions and business
developments, the impact of which may cause the Company to alter its capital
investment and other expenditures, which may also adversely affect the Company's
results of operations. In light of significant uncertainties inherent in
forward-looking information included in this quarterly Report on Form 10QSB, the
inclusion of such information should not be regarded as a representation by the
Company or any person that the Company's objectives or plans will be achieved.
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: September 20, 2000 By: /s/ Paul Balalis
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Paul Balalis
President
Date: September 20, 2000 By: /s/ Tom Quinn
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Tom Quinn
Controller
