-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LBQNbGxhUseDCF8hryGuDeI9iyG/qgiYieFPb64cbPe/NpdTUbZXZBYuaLHGx9Ut iw5Z95k437edXisPzDYscw== 0000822935-02-000013.txt : 20020607 0000822935-02-000013.hdr.sgml : 20020607 20020604080231 ACCESSION NUMBER: 0000822935-02-000013 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020604 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CECS CORP CENTRAL INDEX KEY: 0000822935 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-VIDEO TAPE RENTAL [7841] IRS NUMBER: 521529536 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17001 FILM NUMBER: 02669443 BUSINESS ADDRESS: STREET 1: 121 VINE STREET STREET 2: #1903 CITY: SEATTLE STATE: WA ZIP: 98121 BUSINESS PHONE: 2064436948 MAIL ADDRESS: STREET 1: 111 QUEEN ANNE AVENUE SUITE 501 CITY: SEATTLE STATE: WA ZIP: 89109 FORMER COMPANY: FORMER CONFORMED NAME: DATAVEND INC DATE OF NAME CHANGE: 19900401 FORMER COMPANY: FORMER CONFORMED NAME: CHOICES ENTERTAINMENT CORP DATE OF NAME CHANGE: 19920703 10QSB 1 form10qsb_11295.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) /X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 or / / Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from ________ to ________ Commission file number 000-17001 CECS CORP. ----------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Delaware 52-1529536 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 391 Cosgrove Avenue NW Bainbridge Island, Washington 98110 (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number, Including Area Code 206-842-6948 ---------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if changed since last report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / State the number of shares outstanding of the issuer's Common Stock, as of March 31, 2002: 47,970,875 Transitional Small Business Disclosure Format (check one): Yes / / No /X/ ================================================================================ INDEX TO FINANCIAL STATEMENTS Page ---- PART I--FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets .................................................... 1 Statements of Operations (unaudited) .............................. 2 Statements of Comprehensive Loss (unaudited) ...................... 3 Statement of Stockholders' Deficiency (unaudited) ................. 4 Statements of Cash Flows (unaudited) .............................. 5 Notes to Financial Statements ..................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................. 14 PART II--OTHER INFORMATION Item 6. Exhibits Index .................................................... 16 i PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CECS CORP. (A Development Stage Company) BALANCE SHEETS
MARCH 31, DECEMBER 31, 2002 2001 ------------ ------------ (Unaudited) ASSETS PROPERTY AND EQUIPMENT, net of accumulated depreciation of $8,826 and $7,565 respectively $ 18,400 $ 19,661 ------------ ------------ TOTAL ASSETS $ 18,400 $ 19,661 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIENCY CURRENT LIABILITIES Accounts payable and accrued expenses $ 104,990 $ 93,023 Lawsuit settlement payable 30,000 30,000 Due to related parties 40,000 40,000 Notes payable 310,000 310,000 ------------ ------------ TOTAL LIABILITIES 484,990 473,023 ------------ ------------ COMMITMENTS AND CONTINGENCIES -- -- SHAREHOLDERS' (DEFICIENCY) Preferred stock, par value $0.01 per share, convertible to common stock, authorized 50,000,000 shares, 11.416 and 17.741 shares issued and outstanding, respectively 0.12 0.12 Common stock, par value $0.01 per share, authorized 200,000,000 shares, 47,970,875 shares issued and outstanding 479,709 479,709 Additional paid-in capital 22,079,371 22,079,371 Accumulated deficit (22,386,912) (22,386,912) Deficit accumulated during the development stage (638,758) (625,530) ------------ ------------ TOTAL SHAREHOLDERS' DEFICIENCY (466,590) (453,362) ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 18,400 $ 19,661 ============ ============
The accompanying notes are an integral part of these financial statements. -1- CECS CORP. (A Development Stage Company) STATEMENTS OF OPERATIONS (UNAUDITED)
CUMULATIVE FROM INCEPTION (JANUARY 16, THREE MONTHS ENDED MARCH 31, 2000) TO --------------------------- MARCH 31, 2002 2001 2002 ---------- ---------- ---------- REVENUE $ -- $ -- $ -- ---------- ---------- ---------- OPERATING EXPENSES General and administrative expenses -- 19,345 289,344 Professional and consulting fees -- 64,229 235,249 Depreciation expense 1,261 1,261 8,826 ---------- ---------- ---------- TOTAL OPERATING EXPENSES (1,261) 84,835 533,419 ---------- ---------- ---------- LOSS FROM OPERATIONS (1,261) (84,835) (533,419) ---------- ---------- ---------- OTHER INCOME (EXPENSES) Impairment expense -- -- (75,000) Bad debt expense - notes receivable -- -- (142,000) Gain on sale of certain contract rights -- -- 203,095 Interest expense (11,967) (9,289) (78,427) Lawsuit settlement -- -- (30,000) Loss on sale of marketable securities -- (140,820) 16,993 ---------- ---------- ---------- TOTAL OTHER INCOME (EXPENSE) (11,967) (150,109) (105,339) ---------- ---------- ---------- NET LOSS $ (13,228) $ (234,944) $ (638,758) ========== ========== ========== NET LOSS PER SHARE OF COMMON STOCK BASIC/DILUTED LOSS PER SHARE: $ (0.00) $ (0.00) ========== ==========
The accompanying notes are an integral part of these financial statements. -2- CECS CORP. (A Development Stage Company) STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
CUMULATIVE FROM INCEPTION (JANUARY 16, THREE MONTHS ENDED MARCH 31, 2000) TO --------------------------- MARCH 31, 2002 2001 2002 ---------- ---------- ---------- COMPREHENSIVE LOSS Net loss $ (13,228) $ (234,944) $ (638,758) Unrealized loss on investment -- (2,408) -- ---------- ---------- ---------- COMPREHENSIVE LOSS $ (13,228) $ (237,352) $ (638,758) ========== ========== ==========
The accompanying notes are an integral part of these financial statements. -3- CECS CORP. (A Development Stage Company) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
DEFICIT ACCUMULATED ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE OTHER -------------------- -------------------- PAID-IN ACCUMULATED DEVELOPMENT COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STAGE INCOME TOTAL ---------- -------- ---------- -------- ----------- ------------ --------- --------- --------- Balance at December 31, 2000 $ 17.741 0.18 47,717,875 $477,179 $22,081,901 $(22,386,912) (61,157) $ 57,763 $ 168,774 Issuance of common stock in exchange on conversion of preferred stock (6.325) (0.060) 253,000 $ 2,530 (2,530) -- -- -- -- Net loss for the year ended December 31, 2001 -- -- -- -- -- -- (564,373) -- (564,373) Other comprehensive loss -- -- -- -- -- -- -- (57,763) (57,763) Balance at December 31, 2001 11.416 $ 0.12 47,970,875 $479,709 $22,079,371 $(22,386,912) $(625,530) $ -- $(453,362) Net loss (unaudited) -- -- -- -- -- -- (13,228) -- (13,228) Balance at March 31, 2002 (unaudited) 11.416 $ 0.12 47,970,875 $479,709 $22,079,371 $(22,386,912) (638,758) $ -- $(466,590)
The accompanying notes are an integral part of these financial statements. -4- CECS CORP. (A Development Stage Company) STATEMENTS OF CASH FLOWS (UNAUDITED)
CUMULATIVE FROM JANUARY 16, 2000 THREE MONTH ENDED MARCH 31, (INCEPTION) TO -------------------------- MARCH 31, 2002 2001 2002 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (13,228) $ (234,944) $ (638,758) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,261 1,261 8,826 Issuance of stock in exchange for services -- -- 10,000 Realized loss (gain) on sale of marketable securities -- 140,820 (220,088) Impairment expense -- -- 75,000 Bad debt expense - notes receivable -- -- 142,000 Change in assets and liabilities: -- -- Decrease in due from brokers -- 39,242 -- Decrease in prepaid rent -- -- 619 Increase/(decrease) in accounts payable and accrued expenses 11,967 (59,089) (163,271) Increase in lawsuit payable -- -- 30,000 Decrease in due to related parties -- -- (190,000) ---------- ---------- ---------- NET CASH USED IN OPERATING ACTIVITIES -- (112,710) (945,672) ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of marketable securities -- 243,955 948,104 Acquisition of furniture and fixtures -- (533) (27,226) Acquisition of non-marketable securities -- -- (75,000) Acquisition of marketable securities and rights -- -- (605,700) Issuance of notes receivable -- (72,000) (142,000) ---------- ---------- ---------- NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES -- 171,422 98,178 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable -- -- 686,500 Repayment of notes payable -- (10,000) (381,500) Proceeds from issuance of preferred stock -- -- 523,000 ---------- ---------- ---------- NET CASH (USED) IN PROVIDED BY FINANCING ACTIVITIES -- (10,000) 828,000 ---------- ---------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS -- 48,712 (19,494) CASH AND CASH EQUIVALENTS - beginning -- 23,966 19,494 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS - ending $ -- $ 72,678 $ -- ========== ========== ==========
The accompanying notes are an integral part of these financial statements. -5- CECS CORP. (A Development Stage Company) STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
CUMULATIVE FROM JANUARY 16, 2000 THREE MONTH ENDED MARCH 31, (INCEPTION) TO -------------------------- MARCH 31, 2002 2001 2002 ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD: Interest $ -- $ -- $ 27,188 ========== ========== ========== Tax $ -- $ -- $ -- ========== ========== ==========
The accompanying notes are an integral part of these financial statements. -6- CECS CORP. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Nature of Operations ---------------------------------------------- The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included For further information, refer to the financial statements and footnotes included in Form 10-KSB for the year ended December 31, 2001. CECS Corp. (the "Company") was incorporated under the laws of the State of Maryland on July 11, 1985, as PPV Enterprises, Inc. ("PPV"). On August 18, 1987, the Company changed its name to DataVend, Inc. ("Datavend") and reincorporated under the laws of the State of Delaware. On March 14, 1990, the Company changed its name to Choices Entertainment Corporation ("Choices"). On June 16, 1997, the Company sold substantially all of its assets and business to West Coast Entertainment Corporation ("Westcoast"). On August 30, 1999, the Company entered into an agreement the effect of which would have been to change the Company to a hotel properties holding and operating company. On January 16, 2000, the Company's Board of Directors adopted a plan to change the business of the Company to that of a technology holding company and terminated the plan to become a hotel company effective as of December 30, 1999. On May 26, 2000, the Company's shareholders approved the change of the name of the corporation to CECS CORP. Use of Estimates ---------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents ------------------------- The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk ---------------------------- The Company places its cash in what it believes to be credit-worthy financial institutions. However, cash balances may have exceeded FDIC insured levels at various times during the year. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. -7- CECS CORP. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment ---------------------- Property and equipment are recorded at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of the various classes of assets. Maintenance and repairs are charged to expense as incurred. Income Taxes ------------ Income taxes are provided for based on the asset and liability method of accounting pursuant to Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the reported amount of assets and liabilities and their tax basis. Fair Value of Financial Instruments ----------------------------------- The carrying value of the Company's financial instruments as of March 31, 2002, which include accounts payable and accrued expenses, and notes payable approximate their values due to their short maturities. Loss Per Share -------------- SFAS No. 128, "Earnings Per Share" requires presentation of basic loss per share ("Basic LPS") and diluted loss per share ("Diluted LPS"). The computation of basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of outstanding common shares during the period. Diluted LPS gives effect to all dilutive potential common shares outstanding and all shares held in treasury during the period. The computation of diluted LPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on losses. The shares used in the computation of loss per share were as follows: MARCH 31, ------------------------ 2002 2001 ---------- ---------- Basic and diluted 47,970,875 47,942,764 ========== ========== -8- CECS CORP. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Comprehensive Income -------------------- SFAS No. 130, "Reporting Comprehensive Income", establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of March 31, 2001, the Company had items that represent comprehensive income; therefore, has included a schedule of comprehensive income in the financial statements. Segment Disclosure ------------------ SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" changes the way public companies report information about segments. SFAS No. 131, which is based on the selected segment information, requires quarterly and entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one operating segment and does not report entity-wide disclosures. Recent Accounting Pronouncements -------------------------------- On June 29, 2001, Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", was approved by the Financial Accounting Standards Board ("FASB"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Goodwill and certain intangible assets will remain on the balance sheet and not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. The Company implemented SFAS No. 141 on January 1, 2002. On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets", was approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. The Company implemented SFAS No. 142 on January 1, 2002. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligation." SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, and will require companies to record a liability for asset retirement obligations in the period in which they are incurred, which typically could be upon completion or shortly thereafter. The FASB decided to limit the scope to legal obligation and the liability will be recorded at fair value. The effect of adoption of this standard on Company's results of operations and financial positions is being evaluated. -9- CECS CORP. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements (continued) -------------------------------------------- In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. It provides a single accounting model for long-lived assets to be disposed of and replaces SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The Company implemented SFAS No. 144 on January 1, 2002. Reclassification and Restatement -------------------------------- In order to facilitate the comparison of financial information, certain amounts in prior year comparative totals have been reclassified to conform with the current year presentation. NOTE 2 GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has no established source of revenue. As of March 31, 2002, the Company has an accumulated deficit of $23,025,670 and net losses approximately of $13,000 and $235,000 for the three months ended March 31, 2002 and 2001, respectively. As of March 31, 2002, the Company has no cash in the bank. The Company's viability for the foreseeable future is dependent upon its ability to find business opportunities and raise needed capital. The Company's viability in raising needed capital is seriously in question. In the event the Company is not successful in securing needed capital in the near term, as to which no assurance can be given, the Company does not believe that its viability as an ongoing business is assured. This matter raises substantial doubt about the Company's ability to continue as a going concern. These financial statement do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. Management is exploring merging or acquiring a company with viable operations. -10- CECS CORP. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2002 NOTE 3 PROPERTY AND EQUIPMENT Property and equipment at cost, consisted of the following: MARCH 31, DECEMBER 31, 2002 2001 -------- -------- Computer Equipment $ 3,102 $ 3,102 Furniture and Fixture 17,171 17,171 Office Equipment 6,953 6,953 -------- -------- 27,226 27,226 Less: Accumulated Depreciation (8,826) (7,565) -------- -------- Property and Equipment, net $ 18,400 $ 19,661 ======== ======== For the three months ended March 31, 2002 and 2001, depreciation expense was $1,261. NOTE 4 LAWSUIT SETTLEMENT PAYABLE The Company was a defendant to lawsuit from Dion Signs & Services ("Dion") vs. Choices Entertainment Corporation ("Choices"), Civil Action No. 91-6871. Dion alleged that it was owed approximately $33,000 plus interest, costs and reasonable attorney fees for the failure by Choices to pay for signage that was erected at various locations pursuant to a contract. The lawsuit was settled during May 2001, whereby the judgment totaling $30,000 was brought against the Company. As of March 31, 2002, no payments were made on this obligation. NOTE 5 RELATED PARTY TRANSACTIONS As of March 31, 2002 and December 31, 2001, the Company had payable to related party totaling $40,000 for the consulting services. NOTE 6 NOTES PAYABLE As of March 31, 2002 and December 31, 2001, the Company had notes payable outstanding totaling $310,000. The notes are evidenced in writing and are held by 5 individuals who are stockholders in the Company. The notes bear interest at 12% per annum with interest and principal due between October through December of 2000. The Company incurred interest expense of approximately $9,300 and $9,200 for the three months ended March 31, 2002 and 2001, respectively. As of March 31, 2002, the notes were still outstanding and in default. -11- CECS CORP. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2002 NOTE 7 STOCKHOLDERS' DEFICIENCY Convertible Preferred Shares ---------------------------- The aggregate number of shares of convertible preferred stock that the Company has authority to issue is 50,000,000 shares at a par value of $0.01. The Company, as of March 31, 2002 and December 31, 2002, had issued 11.416 shares of its redeemable convertible preferred stock, respectively. The Convertible Preferred Shares are the Company's only authorized and outstanding series or class of preferred shares. The Convertible Preferred Shares have no liquidation preference. Upon liquidation, dissolution or winding up of the Company, the holders of Convertible Preferred Shares will receive an amount equal to the amount, if any, received by holders of the Common Stock. Dividends on the Convertible Preferred Shares are non-cumulative and will only be paid when, as and if declared by the Board of Directors of the Company, in its sole discretion, in an amount per share equal to the amount of the dividend declared on the Common Stock, if any. Convertible Preferred Shares are convertible, in whole or in part, at any time, at the option of the holder, into Common Stock at a ratio of 40,000 shares of the Company's Common Stock for each Convertible Preferred Share. Holders of the Convertible Preferred Shares are not entitled to any distributions unless declared by the Board of Directors as described above. The holders of Convertible Preferred Shares have voting rights equivalent to the rights of holders of the Common Stock. Each Convertible Preferred Share bears 40,000 votes on any matter brought before the stockholders such as the election of Directors and are entitled to notice of annual or special stockholder meetings. The Board of Directors of the Company is not prohibited from adopting and submitting to the Company's voting stockholders any proposed amendment to the Certificate of Incorporation of the Company or a Certificate of Designation which would create a class of preferred shares ranking senior to the Convertible Preferred Shares as to dividends and liquidation preference. Convertible Preferred Shares are not redeemable by the Company. During the year ending December 31, 2001, 6.325 convertible preferred shares were converted into 253,000 shares of the Company's common stock. Common Stock ------------ The aggregate number of shares of common stock that the Company has authority to issue is 200,000,000 shares at a par value of $0.01. As of March 31, 2002 and December 31, 2001, 47,970,875 shares were issues and outstanding, respectively. The Company's common stock is currently traded in the over-the-counter market on the OTC-Bulletin Board. -12- CECS CORP. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2002 NOTE 7 STOCKHOLDERS' DEFICIENCY (Continued) Common stock (continued) ------------------------ The holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefore at such times and in such amounts as the board may from time to time determine. The shares of Common Stock are neither redeemable nor convertible, and the holders thereof have no preemptive or subscription rights to purchase any securities of the Company. Upon liquidation, dissolution or winding up of the company, the holders of Common Stock are entitled to receive the assets of the company which are legally available for distribution, after payment of all debts, other liabilities and any liquidation preference of any outstanding preferred stock. Each outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of stockholders. There is no cumulative voting and no preemptive right. The Company has not declared or paid any dividends on its preferred or common stock. The Board of Directors does not contemplate the payment of dividends in the foreseeable future. NOTE 8 COMMITMENTS AND CONTINGENCIES For the three month ended March 31, 2001, the Company leased office facilities in Seattle, Washington under a non-cancelable operating lease that expires December 31, 2001. The rent expense was $14,159 for the three months ended March 31, 2001. NOTE 9 SUBSEQUENT EVENTS On May 2, 2002, the Company issued 5,000,000 shares of its common stock for $5,000. -13- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors that have affected the Company's financial condition, changes in financial condition and results of operations. It also includes a discussion of the Company's liquidity and capital resources at March 31, 2002, and later dated information, where practicable. This discussion should be read together with the Company's Financial Statements and the Notes thereto. OVERVIEW The Board of Directors (the "Board") of Choices Entertainment Corporation (the "Company" or "We") adopted a proposal on January 17, 2000 to change the business of the Company to that of a technology holding company. Since then we acquired, invested in, and incubated companies engaged in Internet, computing and other technologies in various stages of development: all of which have been written-off or sold. On May 26, 2000 at the Annual Meeting, our stockholders' adopted a resolution proposed by the board of directors of the Company changing the name of the Company from Choices Entertainment Corporation to CECS CORP. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2002, the Company had a net working capital deficit of approximately $485,000 and approximate cash balances of zero (unaudited). The Company had no revenues for this period. We anticipate that the Company will not generate any significant revenues until we accomplish our business objective of merging or acquiring revenue producing assets. We presently have no liquid financial resources to offer an acquisition candidate and must rely upon an exchange of our stock to complete a merger or acquisition. The Company's viability for the foreseeable future is and will continue to be dependent upon its ability to find other business opportunities and to secure needed capital. No assurance can be given that the Company will be successful in that regard. In the event the Company is not successful, it is unlikely that there would be any amounts available for distribution to the Company's stockholders. MATERIAL CHANGES IN RESULTS OF OPERATIONS MARCH 31, 2002 COMPARED TO MARCH 31, 2001: Net Loss: The Company had a net loss of $13,228 and $234,944 for the quarters ended March 31, 2002 and 2001, respectively. The substantial reduction in net loss is attributable to a reduction in scope of operations to include only seeking a merger candidate. This Quarterly Report on Form 10-QSB contains forward looking information with respect to, among other things, plans future events or future performance of the Company, the occurrence of which involve certain risks and uncertainties that could cause actual results or future events to differ materially from those expressed in any forward looking statements. These risks and uncertainties include, but are not limited to, the ability to identify and conclude alternative business opportunities, and those risks and uncertainties detailed in the Company's filings with the Securities and Exchange Commission. Where any forward-looking statement includes a statement of the assumption or bases believed to be reasonable and are made in good faith, assumed facts or bases almost always vary from actual result, and the differences between assumed facts or bases and actual results can be material, depending upon the -14- circumstances. Where, in any forward looking statement, the Company expresses and expectation or belief as to plans or future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. The words "believe", "expect" and "anticipate" and similar expressions identify forward-looking statements. -15- PART II--OTHER INFORMATION ITEM 6. EXHIBITS INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION OF EXHIBIT * - ------- -------------------------------------------------------------------- 3(a) Certificate of Incorporation, as amended(1) (b) Certificate of Designations of Series C Preferred Stock, as amended(2) (c) Amended and Restated By-Laws,(13) 4 Form of certificate evidencing shares of Common Stock(14) 10(a) Stock Option and Appreciation Rights Plan of 1987 (4) (b) Form of Long-Term Management Incentive Stock Option Agreement(5) (c) Form of 1991 Management Option Agreement(5) (d) Consulting Agreement between Registrant and Ronald W. Martignoni(6) (e) Severance Benefits Agreement, as amended, between Registrant and Lorraine E. Cannon(7) (f) Form of 1994 Management Option Agreement(7) (g) Non-Employee Director Stock Option Agreement between Registrant and Fred E. Portner(8) (h) Non-Employee Director Stock Option Agreement between Registrant and Fred E. Portner(9) (i) Non-Employee Director Stock Option Agreement between Registrant and James D. Sink(9) (j) Asset Purchase Agreement, dated December 16, 1996, as amended, between West Coast Entertainment Corporation and Registrant(10) 10.99(a) Consulting Agreement between Registrant and Thomas Renna(11) (b) Letter of Intent to Acquire Republic Hotel Investors, Inc.(12) (c) Termination Contract with Republic Hotel Investors, Inc.(13) (d) Sublease Agreement between Northwest Strategies, Inc. and CECS, Inc. [sic.] dated May 25, 2000 (14) (e) Private Placement Subscription Agreement dated January 12, 2000 re: Photochannel Networks Inc. (14) (f) Subscription Agreement re: Tridium Research, Inc. dated March 1, 2000 (14) (g)(1) Promissory Note--Speaklink Inc. dated October 19, 2000 (14) (h)(1) Fastvoice Term Sheet--Third Party dated October 31, 2000 (14) 16.01 Letter of Withdrawal by Miller and Co. LLP (auditors) (15) 16.01(b) Letter of Acquiesence in Form 8K dated September 28, 2001 (16) 21 Subsidiaries of Registrant (14) - ------------ (1) Filed as an exhibit to Registrant's Registration Statement on Form S-8 File No. 33-87016). -16- (2) Filed as an exhibit to Registrant's 1996 Annual Report on Form 10-KSB. (3) Filed as an exhibit to Registrant's 1992 Annual Report on Form 10-K. (4) Filed as an exhibit to Registrant's Registration Statement on Form S-1, inclusive of Post-Effective Amendment No. 1 thereto (File No.: 33-198983). (5) Filed as an exhibit to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration Statement (File No.: 33-32396). (6) Filed as an exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended September 30, 1997. (7) Filed as an exhibit to Registrant's 1993 Annual Report on Form 10-K. (8) Filed as an exhibit to Registrant's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996. (9) Filed as an exhibit to Registrant's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997. (10) Filed as an exhibit to Registrant's definitive Proxy Statement, dated February 11, 1997, with regard to a Special Meeting of Stockholders held on March 12, 1997, as further amended by Second and Third Amendments thereto filed as exhibits to Registrant's Forms 8-K, dated April 28, 1997, and May 29, 1997. (11) Filed as an exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended June 30, 1999. (12) Filed as an exhibit to Registrant's Current Report on Form 8-K dated August 30, 1999. (13) Filed as an exhibit to Registrant's Annual Report on Form 10-KSB, for the year ended December 31, 1999. (14) Filed as an exhibit to Registrant's Annual Report on Form 10-KSB or the amendment thereto for the year ended December 31, 2000. (15) Filed as an exhibit to Registrant's Current Report on Form 8-K dated September 28, 2001. (16) Filed as an exhibit to Registrant's Current Report on Form 8-K/A dated October 2, 2001 - -------------------------------------------------------------------------------- * All exhibits listed above are herby incorporated by reference to this report to the fullest extent permitted by the rules and regulations of the Securities and Exchange Commission, and by other applicable law. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report on Form 10QSB for the period ended March 31, 2002 to be signed on its behalf by the undersigned, thereunto duly authorized. CECS CORP. (Registrant) June 3, 2002 By: /s/ TRACY M. SHIER ------------------------ Tracy M. Shier, DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER -17- -----END PRIVACY-ENHANCED MESSAGE-----