<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: January 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:
15,594,098 shares of common stock $.01 par value as of 3/10/00
<PAGE>
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 January 31, 2000, and the results of it's operations and changes in cash
flows of the Issuer for the three months ended January 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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<PAGE>
<TABLE>
CEC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS Jan 31, 2000 Oct 31, 1999
----------------------------------
Unaudited Audited
<S> <C> <C>
Current assets:
Cash $ 131,089 $ 137,072
Accounts receivable 221,808 328,998
Inventory 89,633 99,450
Receivable from affiliate 76,838 52,259
Notes receivable 16,600 27,247
Related party note receivable 77,397 79,133
Other 35,683 33,211
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Total current assets 649,048 757,370
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Property and equipment, net 204,716 216,573
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Other assets:
Goodwill, net of accumulated amortization of $82,191 and $80,938 582,554 583,807
respectively
Investment in affiliate 87,203 88,314
Other 42,400 42,400
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Total other assets 712,157 714,521
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$ 1,565,921 $ 1,688,464
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 282,526 $ 328,771
Current portion of capital lease obligations 11,249 11,249
Notes payable 74,554 57,322
Notes payable to related parties 61,700 123,044
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Total current liabilities 430,029 520,386
Capital lease obligations, net of current portion 19,148 40,910
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Total liabilities 449,177 561,296
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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, $0.01 par
value, 15,594,098 shares outstanding (including 47,400
shares committed) 155,941 155,941
Additional paid-in capital 24,863,060 24,863,060
Accumulated deficit (24,028,257) (24,017,833)
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Total stockholders' equity 1,116,744 1,127,168
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$ 1,565,921 $ 1,688,464
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</TABLE>
See notes to consolidated financial statements:
<PAGE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Jan 31
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2000 1999
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Revenues:
Golf course revenue $ 427,607 $ 363,232
Construction management revenue 424,538 365,914
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Total revenue 852,145 729,146
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Cost of revenues:
Cost of golf course revenue 376,610 303,822
Cost of construction management revenue 164,294 118,941
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Total cost of revenues 540,904 422,763
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Gross profit 311,241 306,383
General and administrative expenses 316,773 276,176
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Operating loss(profit) (5,532) 30,207
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Other income (expense):
Equity in income (loss) of affiliate (2,986) -
Interest income 112 1401
Interest expense (2,018) (1104)
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Total other income (expense) (4,892) 297
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Income (loss) from continuing operations
before provision for income taxes (10,424) 30,504
Provision for income taxes - 17
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Net income (loss) $ (10,424) $ 30,487
============= =============
Net (loss) profit available to common shareholders per
common share
Basic $ (0.00) $ 0.002
============= =============
Diluted $ (0.00) $ 0.002
============= =============
Weighted average number of common shares
outstanding
Basic 15,594,098 14,503,730
============= =============
Diluted 15,594,098 14,600,730
============= =============
See notes to the financial statements.
<PAGE>
CEC PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended Jan 31
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2000 1999
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Cash flows from operating activities:
Net income (loss) $ (10,424) $ 30,487
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 15,353 15,742
Equity in income (loss) of affiliates 2,986 -
Changes in operating assets and liabilities
(net of effects of asset acquisitions):
Accounts receivable-net 107,190 (27,919)
Inventory 9,817 8,216
Receivable from affiliates (24,579) -
Surety Bond - (25,000)
Other assets (2,472) 37,671
Accounts payable and accrued expenses (46,245) 64,425
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Net cash provided by operating
activities 51,626 103,622
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Cash flows from investing activities:
Collection of notes receivable 12,383 -
Issuance of notes receivable - (150,000)
Investment in affiliate (1,875) (23,850)
Asset acquisition of First Golf Corp. - (23,876)
Property and equipment purchases (2,243) (18,876)
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Net cash provided by (used in) investing
activities 8,265 (216,602)
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Cash flows from financing activities:
Principal payments on capital lease obligations (21,762) -
Principal payment on purchase of preferred stock - (11,891)
Principal borrowing on notes payable 17,232 20,187
Principal payments-stockholder loan (61,344) (7,000)
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Net cash provided by (used in)financing
activities (65,874) 1,296
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Net decrease in cash (5,983) (111,684)
Cash at beginning of period 137,072 260,786
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Cash at end of period $ 131,089 $ 149,102
See Notes to Consolidated Financial Statements:
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<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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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 $30,000,000 for Greentrac.com, Inc., a company organized
by certain stockholders and directors of the Company. In exchange, the Company
received approximately 14% interest in Greentrac.com., Inc. which was formed to
establish an Internet-based business to business market place for the
procurement of ground keeping equipment and supplies. Due to Greentrac.com being
an affiliate and this not being considered arms-length transaction, management
has determined the estimated fair market value of the shares received 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.
<PAGE>
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 and certain officers, 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 187,000 shares of Greentrac.com (approximately 14 % of the
outstanding shares) for agreeing to arrange for orders through Greentrac.com
valued at $30,000,000 per year for four years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999
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Golf course management revenues increased from $363,232 to $427,607
(18%) while revenues from golf course construction management increased from
$365,914 to 424,538 (16%). The increase resulted from an increase in the number
of courses being constructed and the beginning of a sales effort in behalf of
managed courses.
Expenses related to golf course management increased from $303,822 to
$367,610 (21%) and expenses related to course construction management increased
from $118,941 to $164,294 (38%). The increases were attributable to the increase
in business and the costs related to that increase.
Overall, general and administrative expenses increased from $276,176 to
$316,773 (15%) largely due to audit expense fees incurred in the first quarter
of 2000.
Net Income was reduced from a profit of $30,487 in 1999 to a loss of
$10,424 in 2000. A 134% reduction.
<PAGE>
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.
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.
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.
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
<PAGE>
SIGNATURES
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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: March 18,2000 By: /S/ Paul Balalis
----------------------------
Paul Balalis
President
Date: March 18, 2000 By: /S/ Don Norbury
----------------------------
Don Norbury
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 131,089
<SECURITIES> 0
<RECEIVABLES> 221,808
<ALLOWANCES> 0
<INVENTORY> 89,633
<CURRENT-ASSETS> 649,048
<PP&E> 204,716
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,565,921
<CURRENT-LIABILITIES> 430,029
<BONDS> 0
0
126,000
<COMMON> 155,941
<OTHER-SE> 834,803
<TOTAL-LIABILITY-AND-EQUITY> 1,565,921
<SALES> 852,145
<TOTAL-REVENUES> 852,145
<CGS> 540,904
<TOTAL-COSTS> 857,677
<OTHER-EXPENSES> 2,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,018
<INCOME-PRETAX> (10,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,424)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,424)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
