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Index to Financial Statements

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 June 30, 2001

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 (State or Other Jurisdiction of Incorporation or Organization)	52-1529536 (I.R.S. Employer Identification No.)
111 Queen Anne Avenue North Suite 501 Seattle, Washington (Address of Principal Executive Offices)	98109 (Zip Code)
Issuer's Telephone Number, Including Area Code 206-443-6948
(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 June 30, 2001:
47,970,875

Transitional Small Business Disclosure Format (check one):
Yes / /  No /x/

Index to Financial Statements

			Page
Part I—FINANCIAL INFORMATION			1
	Item 1. Financial Statements—(Unaudited)
		Condensed Balance Sheet at June 30, 2001	1
		Condensed Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2000	2
		Condensed Statement of Stockholders' Equity for the Six Months Ended June 30, 2001	3
		Condensed Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000	4
		Notes to Financial Statements	5
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		11
Part II—OTHER INFORMATION			14
	Item 1. Legal Proceedings		14
	Item 6. Exhibits Index		14

[THIS SPACE INTENTIONALLY LEFT BLANK]

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PART I. Financial Information

Item 1. Financial Statements

CECS CORP.

(A development stage company)

CONDENSED BALANCE SHEET

June 30, 2001

(Unaudited)

				June 30, 2001
ASSETS
Current assets:
	Cash			$	2,087
	Marketable securities				395
	Prepaid rent				3,232
			Total current assets		5,714
Other assets:
	Furniture fixtures and equipment —
	Less accumulated depreciation of $5,043				22,183
	Notes receivable				70,000
			Total assets	$	97,897
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	23,891
	Accrued expenses				71,684
	Accrued professional fees				68,295
	Notes payable—current				310,000
			Total current liabilities		473,870
Commitments and contingencies
Stockholders' Equity:
	Preferred stock, par value $0.01 per share:
		Authorized 50,000,000 shares 11.416 issued and outstanding			0.12
	Common stock, par value $0.01 per share:
		Authorized 200,000,000 shares: 47,970,875 issued and outstanding			479,709
	Additional paid-in-capital				22,079,371
	Accumulated deficit				(22,931,640	)
	Accumulated other comprehensive income				(3,413	)
			Total stockholder's equity (deficit)		(375,973	)
			Total liabilities and stockholder's equity (deficit)	$	97,897

See accompanying notes to financial statements.

1

CECS CORP.

(A development stage company)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

			For the Three Months Ended June 30,						For the Six Months Ended June 30,
			2001			2000			2001			2000
Operating costs and expenses:
	General and administrative expenses		$	39,959		$	17,274		$	60,565		$	43,985
	Professional and consulting expenses			23,354			31,379			87,583			79,313
		Total operating costs and expenses		63,313			48,653			148,148			123,298
Other income (expense):				(8,314	)		638			(17,603	)		(39,775	)
Income (loss) from operations				(71,627	)		(48,015	)		(165,751	)		(163,073	)
Non-operating gain (loss):
	Loss on sale of investments			0			0			(140,820	)		0
	Other investment and note receivable losses			(177,000	)		0			(177,000	)		0
	Gain on sale of contract rights			0			203,075			0			203,075
		Total non-operating gain (loss)		(177,000	)		203,075			(317,820	)		203,075
Net income				(248,627	)		155,060			(483,571	)		40,002
Other comprehensive income (loss)				(1,005	)		0			(3,413	)		0
Net comprehensive income (loss)			$	(249,632	)	$	155,060		$	(486,984	)	$	40,002
Net income (loss) per share of common stock:
	Basic income (loss) per share:		$	(0.01	)	$	0.00		$	(0.01	)	$	0.00
	Diluted income (loss) per share		$	(0.01	)	$	0.00		$	(0.01	)	$	0.00

See accompanying notes to financial statements.

2

CECS CORP.

(A development stage company)

CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY

For the Six Months Ended
June 30, 2001

(Unaudited)

	Preferred					Common
									Additional Paid-In Capital			Accumulated Deficit			Compre- hensive Income
	Shares		Amount			Shares	Amount											Total
Balance at December 31, 2000	17.741		$	0.18		47,717,875	$	477,179	$	22,081,901		$	(22,448,069	)	$	57,763		$	168,774
Issuance of common stock on conversion of preferred stock	(6.325	)		(0.06	)	253,000		2,530		(2,530	)								0
Net income (loss) for the six months ended June 30, 2001													(483,571	)					(483,571	)
Accumulated other comprehensive income																(61,176	)		(61,176	)
Balance at June 30, 2001	11.416		$	0.12		47,970,875	$	479,709	$	22,079,371		$	(22,931,640	)	$	(3,413	)	$	(375,973	)

See accompanying notes to financial statements.

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CECS CORP.

(A development stage company)

CONDENSED STATEMENT OF CASH FLOWS

(Unaudited)

			For the Six Months Ended
			2001			2000
Cash flows from operating activities:
Net Income (loss)			$	(165,751	)	$	(163,073	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation and amortization			2,522			0
	Realized loss on sale of investments			140,820			0
	Change in operating assets and liabilities:
		(Increase) decrease in cash due from brokers		39,242			0
		Increase (decrease) in accounts payable and accrued liabilities		(46,934	)		(21,136	)
Total adjustments				135,650			(21,136	)
Net cash provided by (used in) operating activities				(30,101	)		(184,209	)
Cash flows from investing activities:
	Additions to furniture and fixtures			(2,013	)		0
	Acquisition of non-marketable investments and rights						(630,700	)
	Issuance of notes receivable			(72,000	)		0
	Loss on other investments			(177,000	)		0
	Other investing activities			0			(178,879	)
Net Cash provided by (used in) investing activities				(251,013	)		(809,579	)
Cash flows from financing activities:
	Proceeds from the sale of marketable securities and investments			243,955			203,075
	Proceeds from notes payable			0			320,000
	Payments of notes payable			(30,000	)		0
	Proceeds from issuance preferred stock, net			0			523,000
	Other financing activities			45,280			0
Net cash provided from financing activities				259,235			1,046,075
Net increase (decrease) in cash				(21,879	)		52,287
Cash at the beginning of the period				23,966			19,494
Cash at the end of the period			$	2,087		$	71,781
Supplemental disclosure of cash flow information:
	Cash paid during the period for interest		$	0		$	167
	Non-cash exchange of notes payable for preferred stock		$	0		$	245,000

See accompanying notes to financial statements.

4

CECS CORP.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

Quarters ended June 30, 2001 and 2000

Note 1—Nature of Operations

Business Activities

    The Company was incorporated under the laws of the State of Maryland on July 11, 1985, as "PPV Enterprises, Inc." On August 18, 1987, the Company changed its name to "DataVend, Inc." and reincorporated under the laws of the State of Delaware. On March 14, 1990, the Company changed its name to Choices Entertainment Corporation. On June 16, 1997, the Company sold substantially all of its assets and business to West Coast Entertainment Corporation. 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.

Note 2—Summary of Significant Accounting Policies

Equity Securities

    The Company accounts for investment in accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities," which classifies investments as trading securities, available for sale securities, and held to maturity securities. SFAS No. 115 requires unrealized holding gains and losses for available-for-sale securities to be excluded from earnings and reported as a net amount in a separate component of shareholders' equity until realized.

    Non-marketable securities are carried at cost, unless the Company believes and has reason to believe that the securities should be valued at some lower basis due to impairment or realization.

Comprehensive Income

    The Company accounts for other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. SFAS No. 130 requires that the Company (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Company's other comprehensive income is composed of unrealized holding gains during the year and reclassification adjustments for realized gains are included in net income or loss.

Use of Estimates

    The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Reclassification and Restatement

    In order to facilitate the comparison of financial information, certain amounts reported in prior year comparative totals have been reclassified to conform with the current year presentation.

Development Stage Enterprise

    The Company is considered as a dormant enterprise that was reactivated to undertake development stage activities. Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprise", requires the disclosure of cumulative amounts of results of operations and cash flows from the inception of each development stage. The cumulative amounts from January 16, 2000 to December 31, 2000 are substantially the same as the results of operations and cash flows for the year ended December 31, 2000.

Note 3—Liquidity

    The Company's financial statements included herein have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit of $22,931,640 as of June 30, 2001 and net loss of approximately $483,571 and $151,060 for the quarters ended June 30, 2001 and 2000 respectively.

    As of June 30, 2001, the Company has approximately $2,000 in cash. The Company's viability for the foreseeable future is dependent upon its ability to find business opportunities and raise needed capital. The Company's ability to raise 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. The Company's business plan is focused, in the near term, on acquiring assets and building operating companies. The Company is involved in discussions with several companies about acquiring either the target company or certain assets of the target company. None of the referenced discussions are sufficiently far advanced to warrant specific disclosure about the target property or company. In each case, additional capital is required to realize the value of the intellectual property or franchise value of the target company to be acquired. Management intends, among other things, to raise capital privately prior to the end of September 2001. The Company is negotiating with several capital providers but as yet no commitment to provide capital has been secured. If the Company is unable to raise needed capital, then it is likely that current management will not implement the current business plan.

Note 4—Marketable Equity Securities

    The Company's investments in marketable equity securities are classified as available-for-sale. The cost and approximate fair value of marketable equity securities available-for-sale are summarized as follows at June 30, 2001:

	Cost		Unrealized Loss		Fair Value
Publicly traded securities	$	3,808	$	3,413	$	395

    Gross unrealized holding losses were $3,413 gross proceeds from the sale of securities was $243,955, with an average cost of $384,755 and gross realized losses of $140,820, using the average cost method.

Note 5—Notes Receivable

    We have provided capital on a loan basis to Speaklink, Inc. (Speaklink), a privately held company based in Seattle, Washington. The Company is the holder of two Speaklink promissory notes each in the amount of $35,000. The first note, dated October 19, 2000, matured December 19, 2000 and the second note, dated October 27, 2000, matured December 27, 2000, in each case with accrued interest. The notes contain all of the standard terms and conditions of commercially reasonable promissory notes written or made in the

6

ordinary course of business. The Company has demanded repayment of the notes and is in discussion with Speaklink as to repayment, conversion of the notes to equity or other satisfaction of the notes.

    Additionally the Company provided capital on a loan basis to FastVoice, Inc. (FastVoice), a privately held company based in Seattle, Washington. The Company is the holder of a FastVoice promissory note in the amount of $72,000, dated January 20, 2001 with interest at 12% per annum. The note contains all of the standard terms and conditions of a commercially reasonable promissory note written or made in the ordinary course of business. The Company has demanded repayment of the note however it appears that FastVoice will not have assets sufficient to permit repayment of the amount on the note plus interest. Accordingly, we have written down the value of the asset as represented in the financial statements to $0.00. We continue to have discussions with FastVoice as to repayment, conversion of the notes to equity or other satisfaction of the notes.

Note 6—Notes Payable

    As of June 30, 2001, the Company has notes payable outstanding in the amount of $310,000. The Company's 12% unsecured promissory notes in the principal amount of $310,000 matured in December 2000. No written notice of default or demand for repayment has been received by the Company.

Note 7—Disclosure of Information About Capital Structure

    The Financial Accounting Standards Board issued in February 1997, SFAS No. 129 "Disclosure of Information about Capital Structure". SFAS 129 requires disclosure of descriptive information about securities, e.g. rights and privileges of the various securities outstanding, the number of shares issued upon conversion, exercise, or satisfaction, or required conditions and liquidation preferences of preferred stock (Convertible Preferred Shares).

    At the Company's Annual Meeting of Stockholders held in May 2000, the Company's stockholders approved an increase of the capital stock of the Company to 200,000,000 shares of common stock and 50,000,000 shares of preferred stock.

    The Company's common stock is currently traded in the over-the-counter market on the OTC-Bulletin Board. On June 30, 2001 the last sale price was $.01 as reported by the OTC-Bulletin Board.

    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.

Rights and Privileges

    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 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, in pari passu.

7

    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 (as more fully described above) 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.

Note 8—Stock Options

Stock Option and Appreciation Rights Plan

    The Company has an unallocated reserve of 1,694,000 shares of its common stock for grant under its 1987 Stock Option and Appreciation Rights Plan (the "1987 Plan"). Pursuant to the 1987 Plan, the Company may grant either incentive stock options, intended to comply with the requirements of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options, as well as stock appreciation rights.

    All matters relating to the 1987 Plan are administered by a committee selected by the Company's Board of Directors, including selection of participants, allotment of shares, determination of price and other conditions of purchase. The exercise price of incentive stock options granted under the 1987 Plan may not be less than the fair market value of the common stock on the date of grant and the term of the option may not exceed ten years from the date of grant. In the case of incentive options granted to individuals who own more than 10% of the outstanding common stock of the Company, the exercise price may not be less than 110% of the fair market value of the common stock on the date of the 1987 Plan grant and the term of the option may not exceed five years from the date of grant. All options and stock appreciation rights granted under the

    1987 Plan are non-transferable other than by will or by the laws of descent and distribution.

    The following table sets forth information with respect to incentive stock options under the Plan for the six months ended June 30, 2001:

Expiration Date	Number of Holders	Shares of Common Stock Subject to Option	Exercise Price per Share
November 29, 2001	1	1,500,000	$	0.75

Non-qualified management incentive options

    On January 31, 1991, the Board of Directors approved the grant of 4,750,000 1991 Management Options to four executive officers of the Company. One officer has subsequently retired and two other officers have left the Company. One ex-officer exercised his options in full, one ex-officer exercised 540,000 options leaving 510,000 options outstanding, and 1,000,000 options held by the second officer who has left the

8

Company remains outstanding. All of the 1991 Management Options were issued at an exercise price of $.4325 per share, which represented the bid price for the Company's common stock on the date of the grant of such options. The 1991 Management Options vested fully as of August 2, 1991, and expire January 31, 2001.

    On February 9, 1994, the Board of Directors approved the grant of 915,000 1994 Management Options to three officers and one director of the Company at an exercise price of $.23 per share, which represented the bid price for the Company's common stock on the date of grant of such options. The 1994 Management Options vested fully as of April 7, 1994, and expire on January 31, 2001.

    Registration statements under the 1933 Act have been filed by the Company with respect to the 8,425,001 shares underlying the 1987 Stock Option and Appreciation Rights Plan (the "1987 Plan"), the outstanding Long-Term Management Incentive Options, the 1991 Management Options, and the 1994 Management Options, and an option held by a director. Of these options, 3,591,501 have either been cancelled, exercised or have expired and 1,694,000 options remained unissued under the 1987 SOP.

    Generally, such registration permits the immediate sale of the 3,139,500 vested shares upon exercise, subject to the volume limitations imposed by Rule 144.

    Holders of these options are afforded certain anti-dilution and piggyback rights under the 1933 Act with respect to the shares of common stock issuable upon exercise of said options.

    On February 13, 1997, the Board of Directors of the Company authorized the grant of non-qualified stock options to purchase 450,000 shares of the Company's common stock at $.05 per share, the fair market value of the common stock on that date, to three directors of the Company. The options became fully vested after six months from the date of grant.

Note 9—Net Income (Loss) Per Share of Common Stock

    Basic and diluted loss per share for the quarters ended June 30, 2001 and 2000, was computed by dividing the net loss by the weighted average number of common shares outstanding during the periods. No consideration was given to the conversion of preferred stock since the result of that calculation would be antidilutive. The approximate number of shares used in the computation of loss per share amounts is as follows:

Quarter ended June 30,		Number of Shares used in Calculation
2001
	Basic and Diluted	48,223,324
2000
	Basic and Diluted	29,315,235

Note 10—Income Taxes

    The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured by applying enacted tax rates for the taxable years in which those differences are expected to reverse. Recognition of deferred tax assets is subject to a valuation allowance if it is more likely than not that not all of a deferred tax asset will be realized.

    As of June 30, 2001 the Company had approximately $20,000,000 of net operating loss carry-forwards for tax purposes which may be available to offset future federal income, if any, through 2021. The amount ultimately available, if any in future years, is subject to certain limitations.

9

    Should the Company operate profitably in future years, it may be subject to current tax expense in certain states for which no net operating loss carry-forwards are available.

Note 11—Commitments

    The Company leases its office facilities in Washington under a non-cancelable operating lease that expires December 30, 2001. The rent is $4,292 per month through December 30, 2001. Before June 2000, the Company's President provided the Company's executive office rent-free. The rent expenses for the quarters ended June 30, 2001 and 2000 were $13,650 and $4,112 respectively. See Note 14—Subsequent Events.

Note 12—Pending Litigation

    The Company is a defendant to the lawsuit Dion Signs & Services, Inc. vs. Choices Entertainment Corporation, Civil Action No. 91-6871. The case is now pending in the Providence County Superior Court, Providence, Rhode Island. Dion Signs & Services, Inc. alleges that it is owed approximately $33,000 plus interest, costs and reasonable attorney's fees, totaling in the aggregate approximately $95,000, for the failure by Choices Entertainment Corporation to pay for signage that was erected at various locations pursuant to a contract. See Note 14—Subsequent Events.

Note 13—Payments to Related Parties

    During the quarter and six months ended June 30, 2001 payments to Tracy M. Shier, President and CEO totaled $25,500 and to Thomas Renna, Vice President, totaled $14,900.

Note 14—Subsequent Events

    The Dion Signs & Services vs. Choices lawsuit discussed in Note 12 was settled in May 2001. The Company agreed to pay $22,000 to Dion Signs & Services, Inc. over the next six months in semi-monthly installments of $6,000 except for the first installment, which is for $5,000. No provision for loss was made at June 30, 2001 for this subsequent event. The Company was unable to make its first installment under the settlement agreement and accordingly the liquidated amount of the judgment is $30,000 plus interest.

    The Company entered into a termination arrangement with its sub-landlord to vacate corporate office facilities in Seattle, Washington. According to the arrangement, the sub-landlord applied all amounts of last months rent and security deposit to payment of the monthly lease amounts through the date of termination on July 31, 2001. The reason for the termination was that the sub-landlord needed the space for its own expansion plans.

10

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 June 30, 2001, 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. We are acquiring, investing in, and incubating companies engaged in Internet, computing and other technologies in various stages of development. 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 to CECS CORP.

Financial Condition, Liquidity and Capital Resources

    As of June 30, 2001, the Company had a net working capital deficit of approximately $468,000. As of June 30, 2001, the Company had approximate cash balances of $2,000 (unaudited).

    The primary source of funds for the quarter ended June 30, 2001 was the sale of marketable securities sold in the first quarter. The Company had no revenues.

    From September 2000 to March 2001, the Company engaged in a selling program of its

    We anticipate that the Company will not generate any significant revenues until we accomplish our business objective of merging or acquiring revenue-producing assets from a nonaffiliated entity. 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.

    We estimate that at the time of filing this report, outstanding liabilities of the Company are approximately $473,870.

Capital Expenditures

    The Company's capital expenditures were $1,481 during the quarter and $2,013 for six months ended June 30, 2001.

Material Changes in Results of Operations

June 30, 2001 compared to June 30, 2000:

    Net Loss:

    For the quarter ended June 30, 2001, the Company had a net loss of $248,627 compared to net income of $155,060 for the quarter ended June 30, 2000. For the six-months ended June 30, 2001, the

11

Company had a net loss of $483,571 compared to net income of $40,002 for the six-months ended June 30, 2000. The significant changes between the periods are discussed below:

    General and administrative expenses for the quarter were higher by $22,685 in the 2001 quarter compared to 2000, generally because there was over $14,000 in rent expense in 2001 and none in 2000 because the president of the Company provided office space for no rent. This was offset by travel expense and offering expenses of approximately $20,000 incurred in the quarter ending June 30, 2000 compared to none in the first quarter of 2001.

    Professional and consulting expenses were approximately $100,000 greater in the quarter ending 2000 than 2001. During the first quarter of 2000, the Company was involved in fund raising and a private offering of Series C preferred stock, the results of which are explained further below. Two Company officers were paid approximately $116,000 during this 2000 period compared to $14,000 charged to income in the 2001 period. Additionally there was $20,000 paid to a former officer in the 2000-quarter and none in 2001. The 2000 quarter expenses were offset by a release to income of professional expenses accrued at December 31, 1999 which were determined not payable subsequently.

    In the second quarter 2001, the Company discontinued its efforts to acquire Tridium Research (Tridium) because the market size did not warrant the asking price of the principals. Because Tridium is not operating and does not have prospects for other financing, the Company wrote off its investment in non-marketable securities by charging $75,000 to "Other investment and note receivable losses" in the Condensed Statement of Operations. The Company is investigating its legal rights and remedies against Tridium and its principals.

    In the second quarter 2001, the Company discontinued its efforts to acquire FastVoice Inc. (FastVoice) because the market size did not warrant the asking price of the principals. Because FastVoice is not operating and does not have prospects for other financing, the Company wrote off its note receivable by charging $72,000 to "Other investment and note receivable losses" in the Condensed Statement of Operations. The Company is investigating its legal rights and remedies against FastVoice and its principals.

    In the second quarter 2001, a judgment against the Company was awarded to Dion Sign, Inc. The Company recorded this as a liability and charged the expense to Non-operating gain (loss) in the Condensed Statements of Operations. See Legal Proceedings.

    For the forgoing three occurrences there were no comparable events or transactions in the second quarter 2000

    In the first quarter 2001 there was a Non-operating loss on the sale of investments totaling $140,820 while there was none in the 2000 quarter. In the first quarter 2000 the Company completed a 506 C preferred stock offering as a first step in recapitalizing since the shareholders approval to be reinvented as a technology company. This offering exchanged $245,000 of debt for preferred stock and raised $523,000 of cash. This amount was used generally to acquire approximately $467,000 of non-marketable securities and rights. Certain of these rights were sold and the rest exercised for marketable securities in the year ended December 31, 2000. After conversion the Company entered a selling program to realize a gain on this investment and realized a gain of $364,652 in the year ended December 31, 2000. The Company has sold generally all of its remaining holding in the quarter ended June 30, 2001 receiving proceeds of $243,955 which was $140,820 below average cost.

    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

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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 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.

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Part II—OTHER INFORMATION

Item 1. Legal Proceedings

    The Company is a defendant to the lawsuit Dion Signs & Services, Inc. vs. Choices Entertainment Corporation, Civil Action No. 91-6871. The case was brought in the Providence County Superior Court, Providence, Rhode Island. Dion Signs & Services, Inc. alleges that it is owed approximately $33,000 plus interest, costs and reasonable attorney's fees for the failure by Choices Entertainment Corporation to pay for signage that was erected at various locations pursuant to a contract. The case has been settled and will require the Company to pay $22,000 to Dion Signs & Services, Inc. over the next six months in semi-monthly installments of $6,000 except for the first installment which is in the amount of $5,000. The Company was unable to make the first installment pursuant to the settlement agreement and accordingly the agreed judgment in this lawsuit is liquidated at $30,000 with interest accruing from the date of the agreement.

Item 6. Exhibits

INDEX TO EXHIBITS

Exhibit No.	Description of Exhibit
3(a)	Certificate of Incorporation, as amended(1)
	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)
(b)	Consulting Agreement between Registrant and Ronald W. Martignoni(6)
(c)	Severance Benefits Agreement, as amended, between Registrant and Lorraine E. Cannon(7)
(f)	Form of 1994 Management Option Agreement(7)
(e)	Non-Employee Director Stock Option Agreement between
(f)	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)

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(f)		Subscription Agreement re: Tridium Research, Inc. dated March 1, 2000(14)
(g)	(1)	Promissory Note—Speaklink Inc. dated October 19, 2000(14)
(g)	(2)	Promissory Note—Speaklink Inc. dated October 27, 2000(14)
(h)	(1)	Fastvoice Term Sheet—Third Party dated October 31, 2000(14)
(h)	(2)	Promissory Note—Fastvoice.com dated January 11, 2001(14)
21		Subsidiaries of Registrant(14)

(1)

Filed as an Exhibit to Registrant's Registration Statement on Form S-8 File No. 33-87016) and incorporated herein by reference.

(2)

Filed as an Exhibit to Registrant's 1996 Annual Report on Form 10-KSB, and incorporated herein by reference.

(3)

Filed as an Exhibit to Registrant's 1992 Annual Report on Form 10-K and incorporated herein by reference.

(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) and incorporated herein by reference.

(5)

Filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration Statement (File No.: 33-32396), and incorporated herein by reference.

(6)

Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended September 30, 1997, and incorporated herein by reference.

(7)

Filed as an Exhibit to Registrant's 1993 Annual Report on Form 10-K, and incorporated herein by reference.

(8)

Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended March 31, 1996, and incorporated herein by reference.

(9)

Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended March 31, 1997, and incorporated herein by reference.

(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, all of which Exhibits are incorporated herein by reference.

(11)

Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended June 30, 1999, and incorporated herein by reference.

(12)

Filed as an Exhibit to Registrant's Current Report on Form 8-K dated August 30, 1999 and incorporated herein by reference.

(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 for the year ended December 31, 2000.

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SIGNATURES

    In accordance with the requirements of the Exchange Act, the registrant caused this report on Form 10QSB for the period ended June 30, 2001 to be signed on its behalf by the undersigned, thereunto duly authorized.

	CECS CORP. (Registrant)
August 17, 2001	By:	/s/ TRACY M. SHIER Tracy M. Shier, Director, President and Chief Executive Officer

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