U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For year ended December 31, 1996 Commission File No. 0-25022
CERX ENTERTANMENT CORPORATION
(Exact name of registrant as
specified in its charter)
NEVADA 72-1148906
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
90 Madison Street, Suite 707
Denver, Colorado 80206 (303) 355-3350
(Address of Principal's Executive Offices) (Registrant's Telephone No.
incl. area code)
Securities registered pursuant to
Section 12(b) of the Act: NONE
Securities registered pursuant to
Section 12(g) of the Act: Common stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
Indicate by check mark if no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB.
Yes X No
The registrant's revenues for its most recent year were nil.
The aggregate market value of the 1,772,985 shares of common stock of
the registrant held by non-affiliates on December 31, 1996 was not determinable.
At February 28, 1997, a total of 4,952,838 shares of common stock were
outstanding.
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TABLE OF CONTENTS
PART I
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Item 1. Description of Business .................................................................................. 2
Item 2. Description of Property .................................................................................. 16
Item 3. Legal Proceedings ........................................................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders ...................................................... 16
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................................ 16
Item 6. Management's Discussion and Analysis or Plan of Operation................................................. 16
Item 7. Financial Statements ..................................................................................... 19
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............................................... 19
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act .................................... 19
Item 10. Executive Compensation ................................................................................... 20
Item 11. Security Ownership of Certain Beneficial Owners and Management ........................................... 21
Item 12. Certain Relationships and Related Transactions ........................................................... 22
PART IV
Item 13. Exhibits and Reports on Form 8-K ......................................................................... 23
Index to Financial Statements .......................................................... 25
Financial Statements ................................................................. F-1
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PART I
Item 1. DESCRIPTION OF BUSINESS.
The Company
Cerx Entertainment Corporation ("Cerx" or the "Company") was incorporated
in the State of Nevada on April 4, 1989, under the name Chelsea Atwater, Inc. On
March 19, 1997, the Company changed its name to Cerx Entertainment Corporation.
Until the third quarter of 1996, when it unsuccessfully attempted to acquire a
foreign casino management company for stock and cash, Cerx had extremely limited
operations. Cerx's efforts at this time are concentrated upon raising capital to
execute its business plan to become the premier operator of entertainment
networks on the Internet, including networks for kids, news, sports, gaming and
general entertainment.
Cerx's principal executive offices are located at 90 Madison Street, Suite
707, Denver, Colorado 80206. Its telephone number there is (303) 355-3350, and
its facsimile number is (303) 355-3063.
Forward-Looking Information
This report contains certain forward-looking statements and information
relating to Cerx that are based on the beliefs of Cerx's management as well as
assumptions made by and information currently available to Cerx's management.
When used in this registration statement, the words "anticipate", "believe",
"estimate", "expect", "intend", "plan", and similar expressions, as they relate
to Cerx or Cerx's management, are intended to identify forward-looking
statements. Such statements reflect management's current view of Cerx with
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respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. Cerx's realization of its business aims could be materially and
adversely affected by any technical or other problems in, or difficulties with,
such planned offerings and technologies, third party technologies which render
Cerx's technologies obsolete, the unavailability of required third party
technology licenses on commercially reasonable terms, the loss of key research
and development personnel, the inability or failure to recruit and retain
qualified research and development personnel, or the adoption of technology
standards which are different from technologies around which Cerx's business
ultimately is built. Cerx does not intend to update these forward-looking
statements.
GENERAL BACKGROUND
Glossary of Technical Terms
The following terms used in this report have the meanings below:
BANDWIDTH - the capacity of a network or data connection for the
transmission of data, images and sound over a line, measured in bits per second.
The higher the capacity, the higher the bandwidth, and the faster the
information moves through the line. Bandwidth is the major concern on the
Internet as more audio and video are transmitted and take up more bandwidth,
slowing transmissions.
BROWSER - a software application that lets users download World Wide Web
pages and view them on their computers and lets users navigate among Web pages
by clicking links.
BYTE - Equal to 7 or 8 bits, a byte stores a single character of data such
as the letter A.
CHAT - Live communication over the Internet or an online service. As one
person transmits text it appears almost instantly on the screens of other
participants in the "chat" room. Chat rooms are available on the online services
or through the Internet Relay Chat Service.
COMPRESSION - A process of using special software to compress data so that
it takes up less space on storage media and can be transmitted faster between
computers.
DECOMPRESSION - The process of restoring compressed data to its original
form using software that recognizes the format of the compressed file.
DOWNLOAD - To retrieve an application or file from another computer
through a network connection or modem.
E-MAIL (electronic mail) - Text messages sent through a network to a
specified individual or group. E-mail messages can carry attached files so that
one can, for example, send word processing files or graphics between computers.
ENCRYPTION - Encoding a file to prevent anyone except the intended
recipient from accessing the contents, readable only with the encryption key to
the code.
FIREWALL - Software or hardware that limits certain kinds of access to a
computer from a network or other outside source for security reasons, to protect
information from or to prevent manipulation by a hacker.
HACKER - Computer jargon for a highly sophisticated computer user capable
of electronically breaking into other computer systems to do damage, steal
secrets or manipulate computer processes or results.
HOME PAGE - The name for the main page in a Web site where users can find
hyperlinks to other Web pages in the same Web site.
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HTML (Hypertext Markup Language) - A language used to create electronic
documents, especially pages on the World Wide Web, that contain connections
called hyperlinks.
HYPERLINK - An icon, graphic or word in a file that, when clicked on with
the mouse, automatically opens another file for viewing. World Wide Web sites
often include hyperlinks that display related Web pages when selected by the
user.
INTERNET - A global network linking millions of computers. The World Wide
Web and E-mail are the most popular applications on the Internet. The Internet
actually is a network of networks. The World Wide Web is a portion of the
Internet.
INTERNET TERMINAL - a portable computer-based device, such as the Zenith
Web-TV, specifically designed to access the Internet or the World Wide Web but
lacking many capabilities of personal computers. Also referred to as a Web
Terminal, Net Computer, Internet PC, Internet Appliance, Browser Box, Internet
Box and by similar names. A number of companies such as Zenith and Phillips have
brought out Internet Terminals priced at a few hundred dollars.
ISDN (Integrated Services Digital Network) - ISDN lines are special
high-speed lines obtained from a telephone company that transfer data 128
kilobytes per second, much faster than standard phone lines. They are more
expensive than standard phone lines and mostly available only in areas with a
large business base.
ISP (Internet Service Provider) - An organization that lets users dial
into its computers to connect to its Internet link for a fee. There are local
ISP's with local-access telephone numbers and national ISP's with local-access
numbers around the country. ISP's are unlike online services in that they
typically do not provide any content, just access to the Internet.
JAVA - A programming language designed by Sun Microsystems to write
programs that can be downloaded from the Internet to any computer with a Java
interpreter and immediately run. Using small Java applications (called applets),
World Wide Web pages can include functions such as animation and calculators.
KILOBYTE (Kb) - Equal to 1,024 bytes, or space enough to store 1,000
characters of information.
MEGABYTE (Mb) - A common measurement of computer storage (hard drives,
memory, etc.) capacity equalling approximately one million bytes. Also called a
"meg".
MODEM - Acronym for modulator/demodulator. The device that lets a computer
transmit and receive information over telephone lines by converting digital data
from computers into analog data that can be transmitted over phone lines. The
opposite process takes place on the receiving end. Modems are the primary way
most computer users connect to outside networks such as the Internet.
NETWORK - A set of conjoined computers that can share storage devices,
peripherals and applications. Networks may be connected by cables, telephone
lines or satellites. Networks can be part of a small-office system or a global
network of other networks.
OLD MEDIA - long established media, principally radio, television and
newspapers and other print media.
ONLINE - A state in which a computer is interacting with an online service
or the Internet. For example, users go online to check their E-mail. ONLINE
SERVICE means a commercial service (ex: America Online, Compuserve and Prodigy)
that provides access to such online features as electronic mail, news services
and the World Wide Web for a monthly fee.
PLUG-IN - Plug-ins are special software utilities that can be downloaded
from the Internet. Certain Web sites contain graphics, video music and sounds
that can only be properly heard or viewed real-time when the necessary plug-ins
are installed on the user's computer. Plug-in examples include Shockwave,
QuickTime and RealAudio.
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ROUTER - A software program or a computer that forwards a data packet
towards its final destination; a data packet may travel through several routers
before finishing its journey.
URL (Universal Resource Locator) - The address of a Web site. An example
of a URL for a Web site is http://www.cerx.net.
WEB SITE - a site on the World Wide Web with its own unique address (URL)
consisting of a series of interconnected Web pages. A Web page can contain text,
graphics, sound, and moving, changing images, and can have hyperlinks back to
other Web pages in the site, other Web sites or other Internet sites.
WORLD WIDE WEB (or WEB) - A vast, global system of electronic documents
(Web sites) accessible on the Internet that can feature text, graphics, video
and audio data, consisting of many millions of Web pages. The Web is
characterized by its use of hyperlinks.
The Internet and the World Wide Web
The Internet is a global collection (network) of computer networks,
linking millions of public and private computers around the world. Historically,
the Internet was used by academic institutions and government agencies to
exchange information and send and receive electronic mail. A number of factors,
including the proliferation of communication- enabled personal computers, the
availability of intuitive, graphical software and wide accessibility to an
increasingly robust network infrastructure, have allowed widespread access to
the Internet at a rapidly declining cost and have facilitated the emergence of
the World Wide Web ("Web"), a client-server system of hyper-linked, multimedia
databases. The Web and electronic mail are by the far the two most popular uses
of the Internet.
In 1992, the World Wide Web was released and became available to the
public as part of the Internet, although it was not until 1993 that the first
Web "browser" - software that allows a user to easily and quickly navigate the
Web using simple Web addresses - became available. The Web enables non-technical
users to easily access information on the Internet and enables individuals or
organizations to offer textual, graphical and other information directly to
end-users.
Historically, the Internet has been accessible only through personal
computers. Recently, several companies have released television set-top Internet
terminals such as the "Web TV" designed for attachment to television sets for
the purpose of allowing access to the Internet without the need for a more
expensive personal computer. Using these access boxes, the television screen,
with its high resolution, becomes the monitor. Although these products do not
permit the full range of functions provided by personal computers, they do
permit many of the features of the Internet to be viewed on television sets.
While no assurance can be given, these new set-top products are expected to
greatly increase the number of people who access the Internet. The potential is
especially great in places such as Europe, where factors such as high computer
prices and the difficulty and expense of arranging Internet access, make it more
difficult to achieve Internet access than in the United States. Cerx believes
that the advent of set-top Internet terminals will further facilitate the rapid
growth of the Internet, although their ultimate importance in Internet commerce
cannot yet be predicted.
In recent years the Web has experienced an astonishing increase in the
number of individual users. International Data Corporation ("IDC") has estimated
that the number of Internet users worldwide will reach approximately 200 million
by the end of 1999, from approximately 56 million at the end of 1995; and an
October 1996 CommerceNet/Nielsen Internet Demographics Survey indicated that
approximately 50.6 million people in the U.S. and Canada (one out of four
persons age 16 or older) had used the Web during the three month period prior to
the survey. New media guru Nicholas Negroponte, founder and director of
Massachusetts Institute of Technology's Media Lab and a cofounder of Wired
Magazine, says in his 1996 book BEING DIGITAL that the number of Internet users
in 2000 will approximate 1 billion.
Negroponte also states in the book that the Internet is growing at 10% per
month.
The rapidly increasing number of Web users and ubiquitous access to the
Web, both in the United States and internationally, have resulted in the
emergence of the Web as a new mass communications medium. The minimal cost
required to publish content on the Web, relative to traditional publishing
methods, has resulted in an explosion of Web-based content, including online
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magazines, news feeds and games, as well as a wealth of product, educational,
entertainment and political information. But for all its reach and power, the
Web lacks any internal organization or governing authority, thus with the
Internet's growth has come a certain amount of chaos. For example, WIRED
MAGAZINE's March 1997 issue reports there are 150 million World Wide Web pages
and predicts that by year 2000 there will be 1 billion Web pages. Web sites
which are not sponsored by huge companies or which do not somehow become popular
through word-of-mouth are for the most part simply lost in the clutter.
Emphasizing this fact, the same WIRED MAGAZINE article also reports that 50% of
Web users don't really "surf" the Internet but visit the same Web sites over and
over. For this reason, Cerx believes that one of the most profitable niches in
Internet commerce will be to organize and present entertainment offerings for
people, just as television networks have done for half a century.
The emergence of the Web also has created major opportunities for
companies to advertise and promote their products and services in a targeted,
interactive and multimedia environment.
The World Wide Web Digital Economy
GENERALLY. The term "digital economy" encompasses the use of the World
Wide Web for marketing, advertising and selling goods and services. The ability
to use the Web for marketing and advertising results from the power to
communicate information through the Internet to a large number of individuals,
businesses and other entities. The ability to use the Web to consummate sales
and other commercial transactions results from the power to conduct secure
two-way communication over the Internet, from merchant to buyer and from buyer
to merchant.
The largest companies on the planet are eyeing the digital economy, which
now approximates $1 billion annually, according to some published estimates. The
following table of statistics and projections predicts a rate of growth for the
digital economy from 1996 to 2000 well in excess of 1000%.
Selected Internet statistics and projections (in millions)
1995 1996 1997 2000
---- ---- ---- ----
Internet advertising revenues $ 80 $343 $1,100 $ 5,000
Sales of goods and services
on the Internet $450 $800 $1,500 $10,000
Sources: e-land, Jupiter Communications, Forrester Research
Importantly, the digital economy is estimated to be $15 billion by year
2000, and this projection does not include Internet gambling, which published
reports have estimated at $10 to $20 billion by year 2000. Such projections,
even if substantially realized, in no way assure that Cerx or any other
Web-based business will be successful or profitable or obtain any significant
share of the Web market targeted. It also bears noting that no two Internet
analysts agree on future projections or even on current Internet statistics,
which vary tremendously.
The cost of marketing goods and services on the Web is significantly lower
than traditional methods of marketing, such as catalog sales, direct mail or
television advertising. On the other hand, Web marketing and advertising remain
largely unperfected arts that generally are not yet as effective as some
traditional forms of marketing and advertising. Marketing and advertising on the
Web, however, may be especially advantageous for smaller companies because of
the ease and relatively low cost of entry.
ADVERTISING. Advertisers have identified the Web as a means for mass
communication of their messages, similar in many respects to the use of
advertising in traditional media such as television and radio broadcasting and
print publishing. As the foregoing table indicates, published reports have
projected advertising revenues on the Internet to reach $5 billion by year 2000.
Yet impressive as this number is, it would represent approximately only 1% of
projected advertising expenditures in traditional print, television and radio
broadcast media by the end of the decade, according to published industry
estimates.
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Advertisers also have recognized that Web-based advertising may be more
effective in a number of respects than traditional media advertising. Because
the Web involves "point-to-point" communication between a server and client that
is requested by the user, rather than broad indiscriminate distribution of
messages, the Web offers the potential for advertisers to present messages to
specific, self-selected audiences, and to enable users to interact with
advertising information presented in Web pages. This characteristic of the Web
also permits advertisers to measure more precisely the number of impressions, or
times that an advertisement appears in page views downloaded by users, through
verification by an independent third party auditor such as Nielsen I/PRO
(Internet Profiles Corporation). Advertisers can also measure the effectiveness
of advertising in generating "click-through," or user requests for additional
information made by click on the advertiser's banner linking the user to the
advertiser's Web site.
Cerx believes that increases in transmission bandwidth through higher
speed Internet connections, and wider adoption of advanced content delivery
technologies for the Web, such as Java, VRML and other multimedia enabling
technologies, will increase the functionality of advertising, and will make the
Web an even more attractive advertising medium. Cerx also believes that
technological developments may result in greater ability to provide information
and analysis about the effectiveness of Web advertising, the demographic
profiles of users, as well as the capability for advertisers to frequently
modify and more closely tailor their messages. This should result in more
targeted, higher impact advertising opportunities, and greater integration of
Web-based advertising into the range of marketing options available to
advertisers.
BUSINESS OF THE COMPANY
Planned Cerx Entertainment Networks
Cerx plans upon receipt of adequate funding to begin design and
construction of interactive entertainment and information networks on the World
Wide Web, as described below.
CERX WORLD INTERACTIVE NETWORK ("CWIN"). CWIN is intended to be the crown
jewel of Cerx entertainment networks, providing a dynamic, high-performance
platform for entertainment offerings, interactive games and other interactive
diversions. Cerx is not aware of any similar planned or existing entertainment
network on the Web, although there are several Web sites that feature
entertainment which overlaps with entertainment offerings planned by Cerx. The
existing Web sites of which Cerx is aware are not directly competitive with the
entertainment offerings planned by Cerx and are operated in a different manner,
as primarily advertising-based sites.
CERX SPORTS NETWORK (CSpN). Cerx believes that sports and sports-related
entertainment is one of the fastest growing industries in the world and that,
even in the face of all of the free offerings on the Web, users will pay for
sports and sports-related entertainment. A sports oriented network featuring
virtual sporting events where users will be able to participate at different
levels - amateur, professional, manager or spectator. Eventually, the CSpN
network will feature fantasy (rotisserie) sports leagues, where users can select
and manage their own "dream" teams. Cerx also plans to enable members to engage
in virtual interaction with historical sports figures. CSpN will feature a
sports ticker allowing users to keep track of scores, injuries, trades, updates
and upcoming events and general sports news. Cerx anticipates offering a broad
spectrum of sports-related entertainment on CSpN. There are already sports
networks on the Web, such as ESPNet, operated by cable sports network ESPN,
which are similar to the CSpN network planned by Cerx, and which are also
subscription-based on monthly or longer payment schedules. Because such Web
sites may be operated by companies like ESPN with vastly greater resources and
experience than Cerx will possess, Cerx anticipates that such other sports Web
sites will pose serious competitive threats to the planned CSpN network.
CERX KIDS NETWORK (Ckids). Cerx believes that there is huge market for
compelling, interactive entertainment offerings for children. The Cerx Kids
Network network is planned to consist of games, fantasy offerings, chat rooms
and e-mail, news for kids, educational games and diversions, and much more. Cerx
Kids Network will aim to entertain children and expand their minds with engaging
interactive experiences. As is the case with sports, there are numerous Web
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sites targeted to children, including educational games and other types of
interactive games. Cerx expects to encounter significant competition from other
Web sites, some of which may be offer features as comprehensive or even more
comprehensive than those planned by Cerx. Competitive Web sites may be operated
by companies with vastly greater resources and experience than Cerx will
possess. Programming entertainment for children poses the additional problem
that children rarely have a free hand to subscribe to paid entertainment venues
and must have parental approval, thus one significant competitive factor will be
Cerx's ability to reach parents and convince them to subscribe to the Cerx Kids
Network.
CERX XTENDED NEWS NETWORK (CXNN). Cerx believes that the world is
inundated with news that for the most part is designed for the convenience of
the news propagators and does not serve user needs. Cerx plans to offer news on
CXNN in a three-tiered arrangement. The first tier will be short highlights of
the day's news, arranged logically and cross-referenced in a manner easy to
navigate for user. The second tier will feature more in-depth articles for users
wishing to pursue highlighted news items. The third tier will be an archive of
news items allowing interested users to pursue topics of interest (ex: landmines
in Bosnia) through an archive, or database, of existing news. CXNN is planned to
include general news and financial news, as well as news on specific topics of
interest to the larger population. CXNN will probably be the last of the
networks implemented by Cerx, due to the costs of generating or buying news text
and the cost of acquiring rights to databases of archived news material. While
Cerx believes it will be able to license news material, there is no assurance it
will be successful, and its failure to obtain the required news from news
organizations would make CXNN uneconomical and not feasible.
CERX GAMING NETWORK (CGN). CGN plans to offer traditional casino games
(blackjack, baccarat, chemin de fer, poker, slot machines, roulette and perhaps
craps) and custom games. Cerx believes that traditional casino-style games such
as slot machines will not attract young gamblers, and that it will be necessary
to offer to young persons games that are more similar to the types of
interactive games to which they are accustomed and with which they have grown
up. All CGN games will be fully interactive, easy and fast to play, featuring
hot colors, gorgeous graphics and appropriate casino or other action sounds. CGN
may also will offer a virtual sportsbook for sportsbettors, featuring betting on
professional and amateur sports, horse and car racing, and other sports. Credit
will not be extended, and each gambler will be required to post a deposit and
play against the deposit until exhausted, when the deposit must be refreshed.
Cerx intends to realize revenues from gambling operations and from interest
earned upon from deposits posted by gamblers. As is the case with other planned
Cerx networks, CGN may host third party gaming offerings on a revenue-splitting
basis. Gamblers will post deposits by cash advance against credit cards, by cash
payments or other means, including various Internet services which facilitate
cash handling and payments, such as Cybercash.
Although many firms have announced an interest in operating virtual
casinos on the Web, the ballyhooed "goldrush" to set up Web casinos has not
materialized for many reasons, principally including legal and regulatory
issues, the inability to operate virtual casinos from sites located in the
United States, the availability and cost of Internet bandwidth, and development
and programming costs. See "Gaming-Related Regulation" below. Only a very few
virtual Web casinos now exist, and none operate on the scale planned by Cerx.
Because the many Web casino sites predicted have not come to be, and because no
major gaming companies have yet entered the Web casino business, Cerx management
believes that it is possible for a single company to obtain a significant share
of the Internet gaming market, providing the gambling Web sites offered are fun
and compelling. It is currently anticipated that persons present in the United
States will not be allowed to gamble for money on CGN, but Cerx may offer Web
sites on which persons in the United States will be allowed to gamble for money
on games considered to be games of skill, not games of chance. Cerx does not
intend to conduct gambling for money or other value in the United States or
available to persons in the United States unless satisfied that it is lawful to
do so.
Planned Network Operation
WIRED MAGAZINE reported in its March 1997 issue that there currently are
150 million Web pages on the Internet, a number estimated to grow by year 2000
to 1 billion Web pages. Cerx believes that this very clutter and overload makes
the Web ripe for organization of game software, entertainment offerings, news
and other information, and other goods and services on the Web into coherent
networks that are roughly analogous to existing television networks and
therefore familiar to users. Cerx management believes that the "Web public" will
respond positively to and pay for access to and use of entertainment and
information networks on the Web that feature content-rich and diverse offerings
organized for the benefit of Web users, not of vendors and operators.
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Cerx management believes that the Web is a fundamentally different medium
from its "old media" predecessors, meaning principally radio, television and
print media. The Web is interactive and operates in a rich, multimedia
environment. Cerx management anticipates that successful operators in the
digital economy will succeed by observing the following guidelines and by
focusing on empowering Web site users and facilitating meaningful communication
between users. Cerx is designing its networks to incorporate the features and
strategies below.
1. Offerings on the Web must be coherently grouped into content-rich
"virtual communities" organized around a uniting theme or specific focus, such
as sports, games, news or the like. This organization is necessary to draw
members with shared interests and needs.
2. The Web site must feature a broad range of content (which will include
vendor information and, eventually, advertisements) appealing not only to the
interests and needs served by the Web site but also to related interests.
3. Similarly, the Web site should feature a broad range of vendor
offerings, not just one dominant vendor, in order to foster competition and
allow members to make informed, cost-effective buying decisions.
3. Operators must base the Web business in the first years upon paid
subscriptions or memberships and, in addition, paid usage of services and
entertainment on a fixed or time basis, not upon paid advertising.
4. The Web site operator must concentrate on building a subscriber base as
large and as fast as possible in order to reach a size where operation of the
Web site becomes economically practical.
5. The Web site operator must also build large and powerful sites offering
the most desirable, diverse and compelling content possible, since depth and
breadth of content will (together with real interactivity) be the key factor in
drawing and retaining subscribers.
6. The Web site's content must be integrated with meaningful interactive
communication between subscribers by several means, such as "chat" rooms and
bulletin boards, since live interaction is the one feature of the Internet that
old media cannot match. This interactivity must feature environments for the
propagation of content such as product or game reviews, experiences with
vendors, product ratings, and the like supplied by subscribers.
7. The successful Web site must feature information that is reliable and
of high quality, either free or available on a cost-effective basis, not
"shovelware," which is material original propagated in "old media" that is
merely shoveled into a Web site with no attempt to exploit the unique properties
and digital capabilities of the Web.
8. The nature of digital communities - such as Cerx's planned networks -
must be user oriented and empower Web users. Management believes that the "old
media" concept of vendors and information propagators determining what is
available to the public will not work on the Web. Old media, which are still
vastly popular, already work this way. There simply is no need for a Web that
works in old media fashion, and the Web for all its unique characteristics will
not in the near future match the key properties of old media. For this reason,
successful Web operators will cater to the needs and wants of the public, not
vendors. In a membership and subscription-based environment, advertisers will
not be in a position to dictate content or operation of Web sites.
9. Operation of the Web site and delivery of text, graphics and video must
be as fast and high-quality as possible, using plug-in, compression and other
technologies where possible, since speed and bandwidth are the major limiting
factors in Web usage and product delivery.
10. Web sites must be graphically exciting and the sounds and graphics
frequently reworked, in order to maintain user interest and excitement level.
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The Cerx networks as planned will feature hot, exciting graphics and
sophisticated design, and will be designed primarily for ease and speed of use.
Cerx management believes that an important key to the success of its business
plan is to make its programming easy to use, fast, transparent and intuitive.
Interactive offerings which are slow, cumbersome, or hard to learn will be at a
tremendous disadvantage in the highly competitive Web market.
Management anticipates that Cerx will in some cases develop in-house its
own entertainment products but in most cases will acquire or license games and
programming from independent developers. Cerx believes its networks will provide
software and entertainment developers a link to customers worldwide through
sophisticated Cerx network services. Cerx has access to a huge, growing body of
game, sports, entertainment and other software that already exists. Cerx
anticipates providing the technical expertise, technology platform and global
audience for these offerings on its own, sharing revenues with developers.
Each Cerx network will include marketing of services, games and other
entertainment offerings, clothing and many other types of merchandise. Marketing
will include promotions and giveaways, links between Cerx networks and links to
other Web sites, and other forms of marketing. Cerx management believes that it
can arrange to have its CWIN, Ckids, CXNN and CSPN networks added as "bookmarks"
on the Netscape and Microsoft Explorer browsers. Each network will feature
bulletin boards and "chat" rooms, so that network members with similar interests
never have to leave the network to talk with other interested members on a
real-time basis.
Anticipated Revenue Sources
Management anticipates that a Cerx priority will be to form strategic
alliances with both other content providers and Internet infrastructure
developers in order to establish a "brand" identity and presence on the World
Wide Web. As Cerx establishes this identity and presence through marketing,
high-quality entertainment, a competitive rate structure and aggressive product
acquisition-licensing strategy, management believes that it will have a unique
opportunity to become a significant force in the digital economy.
Through its entertainment networks, Cerx anticipates earning revenues from
many sources, including fees from its network and game subscribers, royalties
and transactional fees from hosted programs, advertising revenues, interest on
deposits, development fees, income from gaming operations, and splitting of
revenues from merchandise and service sales.
Cerx intends to build its network business on a paid subscription basis,
whereby subscriber-members will pay a small monthly fee in order to belong to
one or more of the Cerx networks. As a Cerx network member, subscribers
generally will have full and free access to resources offered on or through the
network. Members will be charged, however, for additional services ordered, such
as playing certain games, participating in certain activities, downloading
certain information or news from archives, and other services. Such charges must
be reasonable, since Cerx believes that the high costs of subscribing to
numerous Web sites (news, encyclopedias, financial news, etc.), each of which
run from $4.95 to $19.95 per month per subscription, are prohibitive. Cerx
believes that it can add value for members by making specific information
desired by subscribers available on a very inexpensive basis, such as a small
charge for downloading a magazine article. The Cerx Gaming Network will be
operated on a separate basis, and persons gambling on CGN for money will be
required to post deposits and to gamble against those deposits.
If Cerx is successful at building a base of subscribers on its
entertainment networks, management anticipates that it will eventually be able
to sell advertising of various types on its networks and derive additional
income from advertising. However, management has determined to concentrate in
the first few years on building a base of paying subscribers and game players
instead of relying on advertising sales, as do many companies on the Web. Cerx
management believes that current advertising-based Internet business models are
not practical due to the general lack of effectiveness of Web advertising at
this time and is not aware of any known to have made money consistently or on a
significant scale.
Cerx plans for its networks to be content-driven and its operations to
concentrate on revenue growth. Management believes that the quality of Cerx's
entertainment offerings will be the primary lure for subscribers and game
players. Management also believes that too many Internet-based companies have
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assumed that raw Internet growth will inevitably lead to profits in the future
(despite significant losses currently). Cerx, on the other hand, will
concentrate on generating revenues and focus on achieving profitability as soon
as possible. However, it must be remembered that the digital economy is a
largely unexplored territory and is a rapidly evolving marketplace,
characterized by constantly changing and advancing technology. For these and
many other reasons, there can be no assurance that Cerx's business plan will be
successful.
Marketing and Distribution
Cerx anticipates using a variety of marketing programs designed to
stimulate demand for its networks and seek strategic partners and software
developers. Some of the key marketing strategies planned for the Cerx networks
may include some or all of those described below. Because Cerx's business is in
the development stage, and because Internet marketing is in its infancy, there
can be no assurance that any of these strategies will work as intended.
MARKETING ON THE INTERNET. Cerx plans various forms of electronic
advertising and electronic promotions on the Internet. Cerx intends to market by
use of multiple sites on the Web and postings in newsgroups on the Usenet which
are hyper-linked back to the Cerx networks. Cerx intends to seek inclusion of
the networks as "bookmarks" on the Netscape Navigator and Microsoft Internet
Explorer browsers so that they are easily accessible to Web surfers unfamiliar
with the Cerx networks. Cerx may also use direct E-mail to potential network
members and to software developers and vendors and other vendors who are
potential clients or partners. Cerx believes that Internet sales and marketing
will be particularly well suited to address the large base of Internet users.
TARGET MARKETING. Cerx plans to focus direct marketing efforts to
demographically selected user lists. Cerx may also use outbound telemarketing,
direct response advertising, trade shows and seminar programs. The goal of these
efforts will be to identify potential members of Cerx networks and developers
seeking a Web platform for commercial launch of software products and to create
awareness of Cerx networks and product offerings.
MARKETING TO PC USERS. Cerx will attempt to have brochures highlighting
its networks and services included with new personal computers sold. Cerx may
also offer free trial memberships with new personal computer purchases and may
market to existing personal computer users through magazines and other venues.
PACKAGE MEMBERSHIP SALES. Cerx intends in the first year or first and
second years to market its network services directly to larger businesses,
offering package membership deals for their employees on a trial or longer-term
basis. Cerx may also market institutional memberships to companies, schools and
institutions on a bulk-fee basis.
OTHER MEDIA ADVERTISING. Cerx anticipates doing some advertising on
television and in newspapers and magazines. Due to the high cost of display
advertising, this advertising will be mostly targeted to software developers and
similar potential partners and clients.
BUNDLING SALES. Cerx will market to businesses inclusion of its network
memberships (on a trial or fixed-term basis) with product sales as an added
incentive to potential purchasers.
Infrastructure, Operations and Technology
Cerx plans to make its entertainment networks (except CGN) available to
users through a set of network servers housed in Denver, Colorado, operating
with server software optimized by Cerx to provide an efficient and responsive
user experience. Cerx will purchase access initially to one or more T-1 Internet
connections on a 24 hour a day, seven days a week basis. Bandwidth will be
increased as user access requires, up to one or more T-3 connections. Cerx
gambling operations on the Cerx Gaming Network will be operated through a set of
network servers housed in a developed European country. Cerx may, if user demand
requires and sufficient cash is available, eventually establish similar access
points with duplicate servers in the Eastern United States, Asia and Europe in
order to optimize access speeds for Cerx's users, and to provide redundancy in
Cerx's system. Any disruption in the Internet access provided by Cerx's chosen
Internet service provider (ISP) or any failure of the ISP to handle higher
volumes of queries could have a materially adverse effect on Cerx's business,
results of operations and financial condition.
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A key element of Cerx's strategy will be to generate a high volume of use
of its entertainment and media products. Accordingly, the performance of Cerx's
products and media properties will be critical to Cerx's reputation, its ability
to attract advertisers to Cerx's Web sites and to achieve market acceptance of
these products. Any system failure that causes interruption or an increase in
response time of Cerx's products could result in less traffic to Cerx's networks
and, if sustained or repeated, could reduce the attractiveness of Cerx's
networks to advertisers and licensees. An increase in the volume of use of Cerx
networks could strain the capacity of the software or hardware deployed by Cerx,
which could lead to slower response time or system failures, and adversely
affect the number of users and thus revenues. In addition, as the number of Web
pages and users increase, there can be no assurance that Cerx's products and
infrastructure will be able to scale accordingly. Cerx will also be heavily
dependent, especially in the first few years of operation, upon Web browsers and
Internet online service providers for access to its networks.
Trademarks and Proprietary Rights
Cerx is obtaining trademarks for its network names and logos, and believes
that its trademarks, trade dress, trade secrets and similar intellectual
property will be significant in building a brand identity for its networks. Cerx
will rely upon trademark and copyright law, trade secret protection and
confidentiality or license agreements with its employees, customers, partners
and others to protect its proprietary rights. The Company is pursuing the
registration of its trademarks in the United States and will also pursue them
(based upon anticipated use) internationally, and will apply for the
registration of certain trademarks, including its network logos and names.
Security Concerns
Currently, one of the largest barriers to a potential customer's
willingness to conduct commerce over the Internet is the perceived ability of
unauthorized persons ("hackers") to access and use personal information about
the user, such as credit card account numbers, social security number and bank
account information. Concerns about the security of the Internet include
concerns over the authenticity of the user, verification and certification
methods of who these users are, and privacy protection for access to private
information transmitted over the Internet.
Cerx's planned entertainment products, licensed technology that may be
incorporated in such products and third-party products offered by Cerx, may be
vulnerable to break-ins and similar disruptive problems caused by Internet
hackers. Further, weaknesses in the environment in which Cerx products may be
used may compromise the security of confidential electronic information
exchanges across the Web. Any such flaws in the Web or the end-user environment,
or weaknesses or vulnerabilities in Cerx's products or third-party products,
would jeopardize the security of confidential information sent over the Web,
such as credit card numbers and e-mail, and might enable hackers to dismantle
the special security techniques meant to protect such transactions.
Any such computer break-ins or other disruptions could result in
significant liability to Cerx and deter potential customers, which could be
expected to have a materially adverse effect on Cerx's planned businesses.
Moreover, the security and privacy concerns of potential customers, as well as
concerns related to computer viruses, may inhibit the growth of the World Wide
Web market generally, and Cerx's customer base and revenues in particular. Cerx
currently does not have and does not plan to obtain product liability insurance
to protect against risks associated with hacker break-ins or disruptions.
Government Regulation
Cerx is not currently subject to direct government regulation, other than
pursuant to securities laws and the related regulations applicable to most
public companies, and laws and regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable to access to
or commerce on the Internet. However, due to the increasing popularity and use
of the Internet, it is likely that a number of laws and regulations may be
adopted at the local, state, national or international levels with respect to
the Internet, covering issues such as user privacy and expression, pricing of
products and services, taxation, advertising, intellectual property rights,
information security or the convergence of traditional communication services
with Internet communications.
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For example, the Telecommunications Reform Act of 1996 (the
constitutionality of which is currently under challenge) was recently enacted
and imposes criminal penalties (via the Communications Decency Act or "CDA") on
anyone who distributes obscene, lascivious or indecent communications over the
Internet. Moreover, the adoption of any such laws or regulations may decrease
the growth of the Internet, which could in turn decrease the demand for Cerx's
entertainment offerings or increase Cerx's cost of doing business or in some
other manner have a material adverse effect on Cerx's business, operating
results or financial condition. In addition, the applicability to the Internet
of existing laws governing issues such as property ownership, copyrights and
other intellectual property issues, taxation, libel and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Changes to
such laws intended to address these issues, including some recently proposed
changes, could create uncertainty in the marketplace which could reduce demand
for Cerx's offerings, could increase Cerx's cost of doing business as a result
of costs of litigation or increased product development costs, or could in some
other manner have a material adverse effect on Cerx's business, operating
results or financial condition.
Cerx may develop, license or otherwise use software utilizing encryption
technology, which would be deemed to be a "munition" subject to U.S. export
controls pertaining to munitions. There can be no assurance that such export
controls, either in their current form or as may be subsequently revised, will
not limit Cerx's ability to distribute certain encrypted products outside of the
United States or electronically. While Cerx will take precautions against
unlawful exportation, such exportation may occur from time to time. In addition,
federal or state legislation or regulation may further limit levels of
encryption or authentication technology, and foreign governments could enact
import laws or regulations that may restrict the type of encryption software
that is permitted for distribution in their countries. In any such event, Cerx
may encounter difficulties competing overseas with competitors that are subject
to less restrictive controls.
Gaming-Related Regulation
Operating online casinos and other gambling businesses over the Internet,
as Cerx proposes to do with the Cerex Gaming Network, is subject to numerous
potential legal problems and conflicts. It is well settled that, subject to
certain limits, every state and every foreign jurisdiction can regulate gambling
conducted within its borders. What is not well settled in the context of
gambling conducted over the Internet is just exactly where the "gambling" takes
place, since it takes place in "cyberspace" and not in a physical location.
While the U.S. Justice Department has indicated informally that it will not
pursue persons placing bets over the Internet or take action against purveyors
of Internet gambling, this stance could change based on a number of factors,
such as a change in leadership or agency direction. Moreover, the Attorneys
General of several states (e.g., Minnesota and Florida) have opined that it is a
violation of their laws for an Internet gaming operator to offer gambling over
the Internet to citizens of their respective states. The extent to which the
"Commerce Clause" of the United States Constitution permits states to regulate
electronic Internet transactions crossing their borders is unclear. On the other
hand, regulation of gambling within the states has, except for Indian gaming,
traditionally been left solely to state regulation. Thus the reach of state
authorities regarding Internet gambling is at this time unknown and completely
untested.
Due to the potential for criminal prosecution initiated by the United
States government or the authorities of various states against purveyors of
Internet gaming, Cerx has decided that it will not knowingly allow gambling on
the Cerx Gaming Network by persons it can identify as being present in the
United States. Cerx will not allow gambling on the Cerx Gaming Network by
persons in the United States unless and until it should become satisfied that it
is lawful to do so. However, the United States contains only four percent of the
world's population (though of course a much larger percentage currently of
connected computers and regular Web users), and there are huge gaming markets in
Europe, South America and the Pacific Rim. Cerx believes that there are
economically significant gaming markets available to be exploited and that the
profit potential is equally huge. Should other countries outlaw Internet gaming,
Cerx may restrict access to its Internet gaming offerings by persons in those
countries as well. Should enough countries take this position, which Cerx does
not believe will happen, Internet gambling probably would not be economically
feasible.
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Employees
Cerx currently has no employees other than its officers and no full-time
employees. Once, and assuming, funding is obtained, Cerx expects to add
approximately fifteen full-time employees in 1997, including persons
knowledgable in gambling, Internet programming and development, software
programming and development, network and telephone systems, engineers, marketing
and sales persons, acquisition staff to negotiate agreements with independent
programmers, and support staff. Cerx will use consultants and non-employee
experts on an as-needed basis. Cerx's future success will be substantially
dependent on its ability to attract and retain highly qualified technical and
managerial personnel and the performance of such persons. Competition for such
personnel is intense and there can be no assurance that Cerx will be able to
attract and retain qualified technical and managerial personnel.
Competition
The World Wide Web is so large and diverse, and growing so fast, that
there probably is no one business strategy that will permit any company, however
large, to dominate the digital economy. Cerx management believes that, as with
all large and diverse economies, numerous business strategies will work in the
digital economy and indeed are necessary to its ultimate success. The market for
Web products and services is highly competitive and competition is expected to
continue to increase significantly. In addition, Cerx expects the market for
Web-based advertising and commercial Web- based entertainment, to the extent
they develop, to be intensely competitive. There are no substantial barriers to
entry, and Cerx expects that competition will continue to intensify. Although
Cerx believes that the diverse segments of the Web market will provide
opportunities for more than one provider of products and services similar to
those anticipated by Cerx, it is possible that one or a small group of
entertainment providers may come to dominate Web entertainment.
Many of Cerx's potential competitors are expected to have significantly
greater financial, technical and marketing resources than Cerx. It is also
possible that competitors will forge alliances with large companies, such as
America Online or Microsoft, important in Web commerce. Greater competition
resulting from such relationships probably would have a materially adverse
effect on Cerx's business, results of operations and financial condition. Cerx
may also be affected by if competitors are able to obtain licenses of popular,
established products, games and technology, if Cerx is not. There can be no
assurance that Cerx's competitors will not develop Web products and services
superior to those offered by Cerx or that achieve greater market acceptance than
Cerx's offerings.
Cerx will also compete with online services and other Web site operators,
as well as traditional offline media such as television, radio and print, for a
share of advertisers' total advertising budgets. There can be no assurance that
Cerx will be able to compete successfully against its future competitors or that
competition will not have a materially adverse effect on Cerx's business,
results of operations and financial condition.
Cerx believes that the principal competitive factors in the Web market for
paid entertainment and games will be brand recognition, breadth of product
features, ease of use and responsiveness (meaning principally speed),
comprehensiveness, independence, product quality, pricing and customer service
and support. Competition among providers of paid Web entertainment and games
could result in significant price competition and reductions in advertising and
transactional revenues. Competition will also come from "free" entertainment
sites that do not charge for entry or play by users but which rely on
advertising revenues.
Developing Market; New Entrants; Uncertain Acceptance of Cerx's Products; Price
Erosion; Uncertain Adoption of the Internet as a Medium of Commerce and
Commmunications
The market for Cerx's anticipated entertainment offerings is relatively
new, is rapidly evolving and is characterized by an increasing number of market
entrants who have introduced or developed entertainment products and services
for commerce over the Web. As is typical in the case of a new and rapidly
evolving industry, demand and market acceptance for recently introduced products
and services are subject to a high level of uncertainty. The industry is
relatively young and has a limited number of proven products. Moreover, critical
issues concerning the use of the World Wide Web (including security,
reliability, cost, ease of deployment and administration and quality of service)
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remain unresolved and may impact the growth of Web use. There can be no
assurance that commerce and communication over the Web will become widespread.
In addition, there can be no assurance that individual PC users in business or
at home will adopt or, if adopted, continue to use the Internet for online
commerce or communication.
Because the market for entertainment products and services is relatively
new and evolving, it is difficult to predict the future growth rate, if any, and
size of this market or the degree to which online users will respond to
commercial (non- free) entertainment offerings. There can be no assurance that
the market for Cerx's anticipated products and services will develop or that the
Web will be widely adopted for commerce and communication. If a market for
Cerx's anticipated products fails to continue to develop, develops more slowly
than expected or becomes saturated with competitors, or if Cerx's products and
services do not achieve market acceptance, Cerx's business, operating results
and financial condition will be materially adversely affected.
New Product Development and Technological Change
Management believes that the markets for Cerx's planned networks and
entertainment offerings are characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions. Operation of
the Web and the digital economy are subject to many technological uncertainties,
such as: whether digital televisions under development will be computer capable,
thus allowing the Web to migrate from the computer monitor to the television
screen; whether ISDN lines or faster lines will become widely available at
reasonable cost; whether data compression technologies are developed that will
increase effective transmission speeds (and thus increase bandwidth); whether
cable television operators will install equipment to allow Web interconnectivity
and interactivity over extremely fast cable lines; and many other uncertainties.
Cerx's future success will depend in large part on its ability to design
and develop, or to acquire or license, and to support entertainment software
products and enhancements on a timely and cost-effective basis that meet
changing customer needs and respond to technological developments and emerging
industry standards. There can be no assurance that Cerx will successfully
develop or acquire and bring new products to market in a timely and
cost-effective manner, or that products or technologies developed by others will
not render Cerx's products or technologies obsolete or noncompetitive. Cerx's
proprietary or acquired products will be designed around certain technological
standards. Widespread adoption of a different standard not supported by Cerx
products could have a materially adverse effect on Cerx's business, operating
results or financial condition.
Limited Operating History; Development Stage Company; Planned Operations Not Yet
Commenced; Funding Required for Operations Not Assured; Impossible to Predict
Results
Cerx has an extremely limited operating history, and its prospects are
subject to the risks, expenses, and difficulties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. To address these risks, Cerx must, among other things, respond to
competitive developments, attract, retain, and motivate qualified personnel,
implement and successfully execute its business strategy, develop or acquire and
market entertainment properties, implement sophisticated technologies, and
commercialize products and services incorporating such technologies.
There can be no assurance that Cerx will be successful in addressing such risks.
The extremely limited operating history of Cerx, the fact that it is in
the development stage, and the fact that it is yet to raise the necessary funds
to execute its business plan makes the prediction of future results of
operations difficult or impossible. As a result of Cerx's extremely limited
operating history, Cerx does not have historical financial data for any
significant period of time on which to base planned operating expenses. Cerx's
operating results may fluctuate significantly in the future as a result of a
variety of factors, many of which are outside its control. At this time Cerx has
not signed any agreements with potential advertisers, has not erected any of its
planned networks, has no agreements signed with software developers or put any
infrastructure in place for the generation of revenues, none of which can occur
unless and until Cerx is properly funded, of which there can be no assurance.
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Item 2. DESCRIPTION OF PROPERTY.
Cerx neither owns nor leases any real estate or other properties. Cerx's
offices currently are located at 90 Madison Street, Denver, Colorado 80206, and
are provided at no charge by its President. This arrangement will continue until
Cerx determines to relocate its offices, which is not anticipated to occur until
it is adequately funded, and the current arrangement is entirely adequate for
Cerx's needs at this time. Once properly funded, Cerx intends to lease offices
in the Denver metropolitan area for future operations.
Item 3. LEGAL PROCEEDINGS.
Cerx is not involved in any threatened or pending legal proceeding.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted by management to a vote of Cerx security holders
during the year ended December 31, 1996. However, on December 28, 1996, four
shareholders of Cerx, holding in the aggregate more than a majority of the
issued and outstanding shares entitled to vote, took action by written consent
in lieu of a meeting, as permitted by the Nevada General Corporation Law. By
means of that written consent, the shareholders approved (i) a change of the
Company's name to Cerex Entertainment Corporation, (ii) a reduction in the
number of authorized common shares from 250,000,000 to 50,000,000, (iii) an
increase in the number of authorized preferred shares from 5,000,000 to
15,000,000, and (iv) certain amendments to the Company's articles of
incorporation.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information
Commencing in the fourth quarter of the year ended December 31, 1995,
Cerx's common shares were quoted "name only" (meaning no price quotation shown)
by a single market maker on the OTC Electronic Bulletin Board maintained by the
National Association of Securities Dealers, Inc. Prior to that quarter, the
common shares were not quoted in any medium. To Cerx's knowledge, no market
transactions have taken place in the common shares since initial name-only
quotation, and there currently is no market for the common shares. Due to Cerx's
change of name, the common shares are quoted on the OTC Electronic Bulletin
Board under symbol CERX.
Holders
Cerx had approximately 200 shareholders of record as of February 28, 1997.
Dividends
Cerx does not expect to pay a cash dividend upon its capital stock in the
near future. Payment of dividends in the future will depend on Cerx's earnings
(if any) and its cash requirements at that time.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Liquidity and Capital Resources
Cerx has funded its operations to date exclusively through cash loans and
cash advances provided by shareholders. Cerx did not realize any cash from
equity financing activities in 1996 and has no line of credit or similar credit
facility available to it. However, Cerx currently pays no salaries or rent, has
little in the way of general or administrative overhead expenses, and has no
material capital commitments and will have none unless and until it is able to
raise the equity capital to become operational. Assets and cash available to
Cerx from its management and current shareholders are not sufficient for Cerx to
carry out its business plan described in this report.
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As of December 31, 1996, Cerx had accumulated a deficit (net loss) of
$267,502, and had $2,309 in cash but no other significant assets. Cerx was
indebted to its principal shareholder and President, John D. Brasher Jr., at
December 31, 1996, for cash loans, expenses advanced and legal fees. At year
end, Cerx owed Mr. Brasher an aggregate of $83,022 in principal and $473 in
interest for cash loans and $908 for Cerx expenses advanced. In addition, at
year end Cerx owed Mr. Brasher's law firm, Brasher & Company, $15,256 for Cerx
expenses advanced. Cerx has no long-term liabilities.
The most promising source of capital available to Cerx is through an
offering of its securities for cash. Cerx is taking steps to initiate the
raising of capital through the sale of its preferred stock and hopes to raise
not less than $5 million in the second and third quarters of 1997. The offering
is anticipated to be made outside the United States of America in reliance upon
Regulation S under the Securities Act of 1933, as amended. Subsequent to year
end, Cerx received from the firm designated to act as distributor of the
preferred shares approximately $75,000 as an advance against this anticipated
offering to assist Cerx in ramping up to conduct the offering. Should the
offering be successful, the advance, which Cerx is treating as a loan, will
either be repaid or converted to Cerx preferred stock on the same terms as the
preferred stock offering, as the distributor elects. Cerx has not yet executed a
formal agreement with the distributor. No agreement obligates the distributor to
sell any shares of preferred stock, and there can be no assurance that such sums
can be raised. Cerx's failure to raise such funds would mean its inability to
launch the business plan described in this report.
If such capital is not raised, Cerx will pursue a different business plan
and probably will seek an existing business to acquire for the benefit of its
shareholders. In such event, Cerx believes that existing cash and cash advances
available from shareholders will be sufficient to cover its expenses for the
remainder of calendar 1997.
Results of Operations - 1995
During the year ended December 31, 1995, Cerx had no revenues and incurred
a net loss of $12,773. Expenses in 1995 related primarily to miscellaneous
operating costs and professional fees. Operating costs primarily related to
filing of reports with the Securities and Exchange Commission and investigating
business opportunities. Cerx paid no salaries or rent during 1995 and incurred
only insignificant administrative or overhead costs.
Results of Operations - 1996
During the year ended December 31, 1996, Cerx incurred a net loss of
$233,902, and revenues were nil. Expenses in 1996 related primarily to
miscellaneous operating costs, professional fees, and losses incurred in the
third and fourth quarters associated with Cerx's attempt to consummate the
purchase of a company engaged in casino gaming operations in St. Vincent and the
Grenadines. In January 1996, the Company issued 123,260 shares of its common
stock (after giving effect to a 5-for-1 forward stock split) to its principal
shareholder and President, John D. Brasher Jr., in reimbursement of expenses
advanced by him on Cerx's behalf in 1995. Cerx paid no salaries or rent during
1996 and incurred $79,002 of other $79,002 administrative costs. Cerx incurred
$136,860 in legal fees and $15,256 in company expenses advanced by Brasher &
Company, a law firm owned by Cerx's President, Mr. Brasher. In December 1996,
Cerx issued 1,839,593 shares of common stock to Mr. Brasher in payment of
$147,167 in legal fees and expenses owed to Brasher & Company.
Cerx on July 12, 1996, entered into an Asset Purchase Agreement ("PLC
Purchase Agreement") with Casino Casino PLC, a company organized in the Island
of Nevis (British West Indies) under Section 4(6) of the Nevis Business
Corporation Ordinance 1984, as amended ("Casino PLC"). Pursuant to the Purchase
Agreement, Casino PLC assigned to Cerx certain rights which Casino PLC held
under an Option to Purchase and that certain Management Agreement, both dated
June 26, 1996, between Casino PLC and E.V.A. LIMITED, a limited liability
company organized in St. Vincent and the Grenadines (British West Indies) under
the provisions of the Companies Act, Chapter 219 ("EVA"). The PLC Purchase
Agreement called for the issuance and delivery to the shareholders of Casino PLC
an aggregate of 1,195,035 shares of Cerx common stock, $.001 par value per share
(the "PLC Shares"), and options (the "PLC Options") to purchase an aggregate of
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4,500,000 shares of Cerx common stock (the "PLC Option Shares"), all such
amounts giving effect to the 5:1 forward split of Cerx common stock effective in
July 1996. Cerx and Casino PLC executed an Assignment and Reservation of Rights
which purported to assign to Cerx all Casino PLC rights, except for Casino PLC's
reservation of a revenue interest. The PLC Shares were issued and delivered to
Casino PLC, but the PLC Options never were issued or delivered. Cerx reported in
a report on Form 8-K dated July 12, 1996, that it had consummated the PLC
Purchase Agreement, but Cerx believes for several reasons that such agreement in
fact never was consummated. Certain deliveries required of Casino PLC were not
made, and the PLC Options never were issued or delivered by Cerx, among other
things. Cerx cancelled the PLC Purchase Agreement and all related transactions
and cancelled all of the PLC Shares on its stock transfer books for breaches of
that agreement by Casino PLC. This acquisition was not consummated and
management has treated all related expenses as having been incurred in
connection with its attempt to complete the acquisition of Casino PLC.
Cerx executed an Exchange Agreement, later amended, among Cerx, E.V.A.
Limited, a St. Vincent and the Grenadines company ("EVA"), and the shareholders
or members of EVA, pursuant to which Cerx agreed among other things and subject
to certain terms and conditions to purchase all of the issued and outstanding
common shares of EVA. In exchange, the agreement called for Cerx to pay and
issue to the EVA shareholders an aggregate of $200,000 in cash represented by
promissory notes, 500,000 shares of Cerx common stock, and warrants for the
purchase of an additional 500,000 shares of Cerx common stock at a price of
$2.75 per share, all subject to adjustment. In the course of attempting to
consummate the purchase, Cerx incurred significant expense, including paying
past due bills and taxes of E.V.A. Limited, before determining in late December
1996 to discontinue any attempt to complete the purchase and to write off
related expenses. Cerx terminated the Exchange Agreement due to numerous
breaches thereof by EVA and the EVA shareholders and breaches and failures of
representations and warranties contained in the agreement, and due to the
termination by the casino owner of the casino lease under which EVA claimed to
operate the casino and the owner's re-entry, which ended any purported casino
operations by EVA. This acquisition was not consummated and management has
treated all related expenses as having been incurred in connection with its
attempt to complete the acquisition of EVA.
In connection with its attempts to acquire Casino PLC and EVA, the Company
charged an aggregate of $154,427 in cash advances, legal fees and travel costs
to operations for the year ended December 31, 1996.
Plan of Operation
Cerx's plan of operation for the next twelve months will be determined by
its success or lack of success in raising capital. Assuming that Cerx achieves
the requisite funding levels, it will take the following steps over the next
twelve months:
1. Begin hiring of necessary personnel, including executives, key employees
and support staff.
2. Purchase or lease high-speed servers, software and software development
tools, limited production studio tools, routers and other equipment on an
as-needed basis necessary to establish and begin operation of the planned Cerx
World Wide Web networks.
3. Commence development of two entertainment networks, CWIN and CGN.
Management currently intends to put its initial emphasis on constructing the
Cerx Gaming Network and putting it into commercial operation, since cash flow
from gambling activities is expected on this network upon completion and
commercial launch. Cerx believes that it can make advantageous arrangements for
the purchase, licensing or hosting of advanced Web gambling software and will
have access to professional development teams intimately familiar with the
software. Development of programming for the CWIN network is expected to occur
more or less simultaneously, with Cerx also purchasing, licensing or hosting
software and products developed by independent companies.
4. Market Cerx network platform services to independent producers of
software and media and attempt to purchase, license or obtain hosting agreements
with the producers.
5. Market Cerx networks to subscribers in order to build a large base of
paying membership as fast as possible.
18
<PAGE>
Item 7. FINANCIAL STATEMENTS.
See index to financial statements at page 25. The financial statements
begin following that index. No supplementary financial data is required.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On April 7, 1997, Cerx engaged Stephen M. Siedow, P.C., as its independent
accountant, replacing Johnson, Holscher & Company, P.C., who were dismissed as
Cerx's auditors effective the same date. Stephen M. Siedow, P.C. has reported on
Cerx's financial statements for the year ended December 31, 1996. Such report
was qualified as to uncertainty based upon doubts concerning Cerx's ability to
continue as a going concern unless Cerx obtains future profitable operations or
additional financing. There were no disagreements on any matters of accounting
principle or practices, financial statement disclosures, or auditing scope or
procedure in connection with Stephen M. Siedow, P.C.'s audit of Cerx's financial
statements for such year which, if not resolved to their satisfaction, would
have caused such firm to make reference in their audit report on the subject
matter of the disagreement.
Johnson, Holscher & Company, P.C. reported on Cerx's balance sheets for
the years ended December 31, 1995 and 1994 and reported on Cerx's statements of
operations and cash flow for the years ended December 31, 1995, 1994 and 1993.
Such reports did not contain either an adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements on any matters of accounting
principle or practices, financial statement disclosures, or auditing scope or
procedure in connection with such firm's audits of Cerx's financial statements
for such years which, if not resolved to the auditors' satisfaction, would have
caused them to make reference in their audit reports on the subject matter of
the disagreement.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors are elected for one-year terms or until the next annual meeting
of shareholders and until their successors are duly elected and qualified.
Officers continue in office at the pleasure of the Board of Directors. The
following table sets forth the name, age, position held and tenure of each
director and executive officer:
Name Age Position Held and Tenure
John D. Brasher Jr. 45 President, Chief Executive Officer, Director,
Chairman of the Board, Secretary, since April 4, 1989
Johnny D. Brasher 70 Senior Vice-President, Director since April 10, 1989
Johnny D. Brasher is the father of John D. Brasher Jr. Otherwise there are
no family relationships among the officers and directors. There is no
arrangement or understanding between the Company (or any of its directors or
officers) and any other person pursuant to which such person was or is to be
selected as a director or officer. The directors and officers are expected to
devote their time to the Company's affairs on an "as needed" basis, but are not
required to make any specific portion of their time available to the Company.
Biographical Information
JOHN D. BRASHER JR. Mr. Brasher is an attorney engaged since February 1988
in the practice of law in Denver, Colorado, as proprietor of Brasher & Company
and concentrates in the fields of corporate and securities law. From February
1987 to February 1988 he practiced law as a profit-sharing partner in the firm
19
<PAGE>
of Pred and Miller, Denver, Colorado, concentrating in corporate and securities
law. From August 1982 until February 1987, Mr. Brasher practiced corporate and
securities law as an associate and later as a partner of Broadhurst, Brook,
Mangham and Hardy, of Lafayette, Louisiana. Mr. Brasher received a B.A. degree
in English in 1979, and in 1982 received a law degree (J.D.), both from
Louisiana State University. He is admitted to practice in the States of Colorado
and Louisiana and is a member of the bar of the United States Supreme Court.
JOHNNY D. BRASHER. From 1962 to late 1988, Mr. Brasher owned and operated
Central Construction Company, a sole proprietorship located in Ferriday,
Louisiana, which engaged in the business of supplying services and equipment to
the oil drilling industry. Since early 1989 he has been semi-retired, engaging
in farming and other business activities in Louisiana.
If Cerx is successful in obtaining needed funding, it anticipates that it
will hire several persons at the executive and key employee level, including an
experienced gaming executive, one or more executives with experience in Internet
programming and development, and persons experienced in software programming and
development, network and telephone systems and computer systems engineers. No
agreements have been reached with any such persons, but on the basis of
discussions to date, Cerx is confident that it will be able to hire persons with
the requisite background, experience and skills to execute its business plan.
General Conflicts of Interest
Certain conflicts of interest now exist and will continue to exist between
Cerx and its officers and directors due to the fact that each has other
employment or business interests to which he devotes his attention. Each officer
and director is expected to continue to do so, notwithstanding the fact that
management time should be devoted to Cerx's affairs, until Cerx provides a
viable source of support. The officers and directors are accountable to Cerx as
fiduciaries, which means that they are legally obligated to exercise good faith
and integrity in handling Cerx's affairs. Failure by them to conduct Cerx's
business in its best interests may result in liability to them.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the Company's executive officers, directors and
persons who beneficially own more than 10% of a class of the Company's equity
securities registered under the Exchange Act to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based solely
on a review of the forms it has received and on representations from certain
reporting persons, the Company believes to the best of its knowledge that,
during the year ended December 31, 1996, all Section 16(a) filing requirements
applicable to its officers, directors and 10% beneficial owners were complied
with by such persons.
Significant Employees
None, other than officers of Cerx listed above.
Item 10. EXECUTIVE COMPENSATION.
Cash Compensation
For the year ended December 31, 1996, no executive officer received cash
compensation.
Compensation Pursuant to Plans
During the year ended December 31, 1996, Cerx issued 123,260 shares of its
common stock, giving effect to a 5-for-1 forward split, to John D. Brasher Jr.,
its Chief Executive Officer, in consideration of expenses of the Company (filing
fees, etc.) paid by him personally in 1995. In December 1996, Cerx issued an
additional 1,839,593 shares of common stock to Mr. Brasher at a price of $0.08
20
<PAGE>
per share in payment of approximately $147,167 in legal fees and expenses owed
to Brasher & Company, a law firm owned by Mr. Brasher. All such shares were
issued under the Company's 1994 Employee Stock Compensation Plan and had, at the
time of issuance, been registered under the Act under cover of a registration
statement on Form S-8. The Company has no other agreement or understanding,
express or implied, with any officer or director concerning employment or cash
compensation for services.
Other Compensation
None, other than as disclosed above under "Compensation Pursuant to Plans."
Compensation of Directors.
No compensation currently is paid to any person for serving as a director
of the Company.
Employee Stock Compensation Plan
The Company has adopted the 1994 Employee Stock Compensation Plan for
employees, officers, directors of the Company and advisors to the Company (the
"ESC Plan"). The Company has reserved a maximum of 5,000,000 Common Shares to be
issued upon the grant of awards under the ESC Plan. Employees will recognize
taxable income upon the grant of Common Stock equal to the fair market value of
the Common Stock on the date of the grant and the Company will recognize a
compensating deduction at such time. The ESC Plan will be administered by the
Board of Directors. An aggregate of 1,962,853 common shares have been awarded
under the ESC Plan.
Compensatory Stock Option Plan
The Company has adopted the Compensatory Stock Option Plan for officers,
employees, directors and advisors (the "CSO Plan"). The Company has reserved a
maximum of 5,000,000 Common Shares to be issued upon the exercise of options
granted under the CSO Plan. The CSO Plan will not qualify as an "incentive stock
option" plan under Section 422A of the Internal Revenue Code of 1986, as
amended. Options will be granted under the CSO Plan at exercise prices to be
determined by the Board of Directors or other CSO Plan administrator. With
respect to options granted pursuant to the CSO Plan, optionees will not
recognize taxable income upon the grant of options granted at or in excess of
fair market value. The Company will be entitled to a compensating deduction
(which it must expense) in an amount equal to any taxable income realized by an
optionee as a result of exercising the option. The CSO Plan will be administered
by the Board of Directors or a committee of directors. Options covering an
aggregate of 1,765,000 shares have been granted under the CSO Plan.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of February 28, 1997, the stock
ownership of each officer and director of the Company, of all officers and
directors of the Company as a group, and of each person known by the Company to
be a beneficial owner of 5% or more of its Common Stock, $.001 par value per
share. Except as otherwise noted, each person listed below is the sole
beneficial owner of the shares and has sole investment and voting power as such
shares. No person listed below has any option, warrant or other right to acquire
additional securities of the Company, except as may be otherwise noted. The
Company had 4,952,838 common shares issued and outstanding as of February 28,
1997. The calculations set forth in the following table are based upon a total
of 6,652,838 shares, which includes the shares actually issued and outstanding
and an additional 1,700,000 common shares not currently outstanding but issuable
upon the exercise of stock options held by management.
21
<PAGE>
Amount
Name and Address of Common Stock Owned Percent of Common
of Beneficial Owner Beneficially Stock Outstanding
*John D. Brasher, Jr. .............. 4,429,853 (1) 66.5
90 Madison Street
Suite 707
Denver, Colorado 80206
*Johnny D. Brasher ................. 450,000 (2) 6.7
P.O. Box 1686
Ferriday, Louisiana 71334
*All directors and executive
executive officers (2 persons) ... 4,879,793 73.3%
(1)Includes options to purchase an aggregate of 1,500,000 shares of common
stock. Mr. Brasher disclaims beneficial ownership as to 85,000 shares held
in the name of the Lisa K. Brasher Children's Trust, of which his wife,
Lisa K. Brasher, is the trustee.
(2)Includes options to purchase an aggregate of 200,000 shares of common stock.
Changes in Control
Management of the Company does not currently anticipate any change of
control in the management of the Company.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In January 1996, the Company issued 123,260 shares of common stock to its
President and principal shareholder, John D. Brasher Jr., at a price of $0.02
per share in reimbursement of expenses advanced by him on the Company's behalf
in 1995. In December 1996, Cerx issued an additional 1,839,593 shares of common
stock to Mr. Brasher at a price of $0.08 per share in payment of approximately
$147,167 in legal fees owed to and expenses advanced by Brasher & Company, a law
firm owned by Mr. Brasher.
Cerx on July 12, 1996, entered into an Asset Purchase Agreement ("PLC
Purchase Agreement") with Casino Casino PLC, a company organized in the Island
of Nevis (British West Indies) under Section 4(6) of the Nevis Business
Corporation Ordinance 1984, as amended ("Casino PLC"). Pursuant to the Purchase
Agreement, Casino PLC assigned to Cerx certain rights which Casino PLC held
under an Option to Purchase and that certain Management Agreement, both dated
June 26, 1996, between Casino PLC and E.V.A. LIMITED, a limited liability
company organized in St. Vincent and the Grenadines (British West Indies) under
the provisions of the Companies Act, Chapter 219 ("EVA"). The PLC Purchase
Agreement called for the issuance and delivery to the shareholders of Casino PLC
an aggregate of 1,195,035 shares of Cerx common stock, $.001 par value per share
(the "PLC Shares"), and options (the "PLC Options") to purchase an aggregate of
4,500,000 shares of Cerx common stock (the "PLC Option Shares"), all such
amounts giving effect to the 5:1 forward split of Cerx common stock effective in
July 1996. Cerx and Casino PLC executed an Assignment and Reservation of Rights
which purported to assign to Cerx all Casino PLC rights, except for Casino PLC's
reservation of a revenue interest. The PLC Shares were issued and delivered to
Casino PLC, but the PLC Options never were issued or delivered. Cerx reported in
a report on Form 8-K dated July 12, 1996, that it had consummated the PLC
Purchase Agreement, but Cerx believes for several reasons that such agreement in
fact never was consummated. Certain deliveries required of Casino PLC were not
made, and the PLC Options never were issued or delivered by Cerx, among other
things. Cerx cancelled the PLC Purchase Agreement and all related transactions
and cancelled all of the PLC Shares on its stock transfer books for breaches of
that agreement by Casino PLC.
22
<PAGE>
Cerx executed an Exchange Agreement dated September 30, 1996, later
amended, among Cerx, E.V.A. LIMITED, a St. Vincent and the Grenadines company
("EVA"), and the shareholders or members of EVA, pursuant to which Cerx agreed
among other things and subject to certain terms and conditions to purchase all
of the issued and outstanding common shares of EVA. The agreement called for
Cerx to pay and issue to the EVA shareholders in exchange an aggregate of
$200,000 in cash represented by promissory notes payable over several years,
500,000 shares of Cerx common stock, and warrants for the purchase of an
additional 500,000 shares of Cerx common stock at a price of $2.75 per share,
all subject to adjustment. Cerx terminated the Exchange Agreement in December
1996 due to numerous violations of that agreement and breaches or failures of
representations and warranties contained in the agreement, and due to the
termination by the casino owner of the casino lease under which EVA claimed to
operate the casino due to numerous alleged breaches of that lease. Neither the
promissory notes, stock or warrants called for in the Exchange Agreement were
issued or delivered.
Cerx was indebted to its principal shareholder and President, John D.
Brasher Jr., at December 31, 1996, for cash loans, expenses advanced and legal
fees. At year end, Cerx owed Mr. Brasher an aggregate of $83,022 in principal
and $473 in interest (at 8% simple interest per annum) for cash loans and $908
for Cerx expenses advanced. In addition, at year end Cerx owed Mr. Brasher's law
firm, Brasher & Company, $15,256 for Cerx expenses advanced.
Otherwise, there were no transactions, or series of transactions, for the
year ended December 31, 1996, nor are there any currently proposed transactions,
or series of transactions, to which Cerx is a party, in which the amount exceeds
$60,000, and in which to the knowledge of Cerx any director, executive officer,
nominee, five percent or greater shareholder, or any member of the immediate
family of any of the foregoing persons, have or will have any direct or indirect
material interest. John D. Brasher Jr. has indicated to management his
willingness to loan modest sums to the Company in the event it cannot obtain
funding for the business plan discussed in this report. Mr. Brasher has, as
noted above, loaned money to Cerx and advanced certain expenses of Cerx.
Otherwise, Cerx has no understandings with its officers, directors or
shareholders pursuant to which such persons have agreed to contribute capital to
Cerx or otherwise loan funds.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits are either filed with this report or have
previously been filed with the Securities and Exchange Commission and are
incorporated by reference to another report, registration statement or form. As
to any shareholder of record requesting a copy of this report, the Company will
furnish any exhibit indicated in the list below as filed with this report upon
payment to the Company of its expenses in furnishing the information. References
to the "Company" mean Cerx Entertainment Corporation.
<TABLE>
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as filed with the Nevada
Secretary of State on April 4, 1989, incorporated by reference to Exhibit
3.1 to registration statement on Form 10-SB, file no. 0-25022 .......................................... 1
3.2 Certificate of Amendment of the Company, as filed with the Nevada Secretary
of State of the State of Nevada on November 8, 1990, incorporated by reference
to Exhibit 3.2 to registration statement on Form 10-SB, file no. 0-25022 ............................... 1
3.3 Certificate of Amendment of the Company, as filed with the Nevada Secretary
of State on October 26, 1994, incorporated by reference to Exhibit 3.3 to
registration statement on Form 10-SB, file no. 0-25022 ................................................. 1
3.4 Bylaws of the Company as adopted on March 22, 1989, incorporated by reference
to Exhibit 3.4 to registration statement on Form 10-SB, file no. 0-25022 ............................... 1
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
3.5 Certificate of Increase in Number of Authorized Shares of Common Stock
of the Company, as filed with the Nevada Secretary of State on July 15,
1996,
incorporated by reference to Exhibit 3.5 to report on Form 8-K dated July 12, 1996 ...................... 1
3.6 Certificate of Amendment of the Company (changing name to Cerex
Entertainment Corporation) as filed with the Nevada Secretary of State
on January 27, 1997,
incorporated by reference to Exhibit 3.1 to report on Form 8-K dated January 27, 1997 ................ 1
3.7 Certificate of Amendment of the Company (amending certificate of incorporation
in its entirety) as filed with the Nevada Secretary of State on February 28, 1997,
incorporated by reference to Exhibit 3.2 to report on Form 8-K dated January 27, 1997 ................ 1
3.8 Certificate of Amendment of the Company (establishing and designating
the Series A, 6.75% Non-Voting Convertible Preferred Stock of the
Company) as filed with the Nevada Secretary of State on March 12, 1997,
incorporated by
reference to Exhibit 3.3 to report on Form 8-K dated January 27, 1997 ................................... 1
3.9 Certificate of Amendment of the Company (changing name to Cerx
Entertainment Corporation) as filed with the Nevada Secretary of State
on March 19, 1997,
incorporated by reference to Exhibit 3.4 to report on Form 8-K dated January 27, 1997 ................ 1
3.10 Bylaws of the Company adopted February 20, 1997, incorporated by reference
to Exhibit 3.5 to report on Form 8-K dated January 27, 1997 ............................................. 1
4.1 Specimen common stock certificate of the Company, incorporated by reference
to Exhibit 4.1 to registration statement on Form 10-SB, file No. 0-25022 ................................ 1
10.1 1994 Compensatory Stock Option Plan, incorporated by reference to
Exhibit 10.1 to registration statement of Form 10-SB, file No. 0-25022 .................................. 1
10.2 1994 Employee Stock Compensation Plan, incorporated by reference to
Exhibit 10.2 to registration statement of Form 10-SB, file No. 0-25022 .................................. 1
10.3 Amendment to 1994 Compensatory Stock Option Plan of the Company, incorporated
by reference to Exhibit 10.1 to report on Form 8-K dated January 27, 1997 ............................... 1
10.4 Option to Purchase granted by E.V.A. Limited in favor of
Casino Casino PLC dated June 26, 1996, incorporated by reference
to Exhibit 10.5 to report on Form 8-K dated July 12, 1996 ............................................... 1
10.5 Management Agreement between E.V.A. Limited and Casino Casino PLC
dated June 26, 1996, incorporated by reference to Exhibit 10.6 to
report on Form 8-K dated July 12, 1996 .................................................................. 1
10.6 Asset Purchase Agreement between Casino Casino PLC as seller and
the Company as purchaser dated July 12, 1996, incorporated by
reference to Exhibit 10.7 to report on Form 8-K dated July 12, 1996 ..................................... 1
10.7 Assignment and Reservation of Rights between Casino Casino PLC and
the Company dated July 12, 1996, incorporated by reference to Exhibit
10.8 to report on Form 8-K dated July 12, 1996 .......................................................... 1
</TABLE>
24
<PAGE>
1 - Incorporated by reference to another registration statement, report or
document.
2 - Filed herewith as an exhibit.
(b) Reports on Form 8-K.
None were filed by the Company during the fourth quarter ended December 31,
1996.
(c) Financial statements and supplementary data. None.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C> <C>
Independent Auditor's Report ............................................................................................ F-1
Balance Sheet as of December 31, 1996 ................................................................................... F-3
Statements of Operations for years ended December 31, 1996 and 1995 and
from April 4, 1989
(inception) through December 31, 1996 .................................................................................. F-4
Statement of Shareholders' Equity
from April 4, 1989 (inception) through
December 31, 1996 ...................................................................................................... F-5
Statements of Cash Flows for years ended December 31, 1996 and 1995 and
from April 4, 1989
(inception) through December 31, 1996 .................................................................................. F-7
Notes to Financial Statements ........................................................................................... F-8
</TABLE>
25
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Cerx Entertainment Corporation
Denver, Colorado
I have audited the accompanying balance sheet of Cerx Entertainment Corporation
(a development stage company) as of December 31, 1996, and the related
statements of operations, changes in stockholders' deficit, and cash flows for
the year then ended and the 1996 amounts included in the cumulative amounts from
April 4, 1989 (inception) through December 31, 1996. These financial statements
are the responsibility of the management of Cerx Entertainment Corporation. My
responsibility is to express an opinion on these financial statements based on
my audit. The financial statements of Cerx Entertainment Corporation (a
development stage company) for the period from April 4, 1989 (inception) to
December 31, 1995, were audited by other auditors whose opinion, dated February
29, 1996, on those financial statements was unqualified.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Cerx Entertainment Corporation (a
development stage company) as of December 31, 1996, and the results of its
operations and cash flows for the year then ended and the 1996 amounts included
in the cumulative amounts from April 4, 1989 (inception) to December 31, 1996,
in conformity with generally accepted accounting principles.
F-1
<PAGE>
To the Board of Directors
Cerx Entertainment Corporation
Page Two
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company's recurring losses and stockholders' deficit
raise substantial doubt about the Company's ability to continue as a going
concern unless the Company obtains future profitable operations and/or
additional financing. Management's plans in regard to these matters are
discussed in Note A. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Stephen M. Siedow, P.C.
April 9, 1997
Aurora, Colorado
F-2
<PAGE>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Balance Sheet
December 31, 1996
ASSETS
Current assets
Cash $ 2,309
---------
$ 2,309
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities (Note F)
Due to officer/stockholder $ 16,637
Promissory notes to officer/stockholder 83,022
---------
99,659
Stockholders' deficit (Notes B and F)
Preferred stock; $.001 par value; Authorized -
15,000,000 shares; Issued - none --
Common stock; $.001 par value; Authorized -
50,000,000 shares; Issued and outstanding -
4,952,838 shares 4,953
Additional paid-in capital 165,199
Deficit accumulated during the development stage (267,502)
---------
Total stockholders' deficit (97,350)
$ 2,309
=========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Operations
April 4, 1989
Year Ended December 31, (inception) to
December 31,
1996 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Costs and expenses (Notes C, D, E and F)
Costs related to attempted
business acquisitions $ 154,427 $ -- $ 154,427
General and administrative 79,002 12,773 94,568
Interest 473 -- 473
Offering costs -- -- 18,034
----------- ----------- -------------
Net loss $ (233,902) $ (12,773) $ (267,502)
=========== ========== =============
Loss per common share $ (.047) $ (.004)
=========== ==========
Weighted average shares outstanding 4,952,800 2,990,000
============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders' Deficit for the Period
April 4, 1989 (Inception) to December 31, 1996
Deficit
Common Stock Additional Accumulated
------------------------ Paid-in from
Shares Amount Capital Inception
------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 4, 1989 (inception) -- $ -- $ -- $ --
Common stock issued for cash,
March 29, 1989, at $.006 per share 405,000 405 1,845 --
Common stock issued for cash,
March 29, 1989, at $.012 per share 911,010 911 9,839 --
Common stock issued for cash,
April 3, 1989, at $.012 per share 211,860 212 2,288 --
Common stock issued for cash,
April 7, 1989, at $.006 per share 90,000 90 410 --
Common stock issued for cash,
April 7, 1989, at $.012 per share 127,115 127 1,373 --
Common stock issued for cash,
May 23, 1989, at $.002 per share 175,000 175 175 --
Common stock issued for cash,
May 23, 1989, at $.004 per share 310,000 310 840 --
Common stock issued for cash,
May 31, 1989, at $.002 per share 20,000 20 20 --
Net loss (825)
----------- ---------- ---------- -----------
Balance at December 31, 1989 2,249,985 2,250 16,790 (825)
Net loss (18,014)
----------- ---------- ---------- ------------
Balance at December 31, 1990 2,249,985 2,250 16,790 (18,839)
Net loss (59)
----------- ---------- ---------- ------------
Balance at December 31, 1991 2,249,985 2,250 16,790 (18,898)
Net loss (142)
----------- ---------- ---------- ------------
Balance at December 31, 1992 2,249,985 2,250 16,790 (19,040)
Net loss --
----------- ---------- ---------- -----------
Balance at December 31, 1993 2,249,985 2,250 16,790 (19,040)
Common stock issued for out of
pocket expenses incurred,
valued at $.002 per share 740,000 740 740 --
Net loss (1,787)
----------- ---------- ---------- -----------
Balance at December 31, 1994 2,989,985 $ 2,990 $ 17,530 $ (20,827)
=========== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders' Deficit for the Period
April 4, 1989 (Inception) to December 31, 1996 - continued
Deficit
Common Stock Additional Accumulated
----------------------- Paid-in from
Shares Amount Capital Inception
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Balance Forward 2,989,985 $ 2,990 $ 17,530 $ (20,827)
Net loss (12,773)
----------- ---------- ---------- -----------
Balance at December 31, 1995 2,989,985 2,990 17,530 (33,600)
Common stock issued for out of pocket
expenses incurred, valued at
$.02 per share 123,260 123 2,342 --
Common stock issued pursuant to an
asset purchase agreement, valued
at $.001 per share 1,195,035 1,195 -- --
Recission of common stock issued
pursuant to an asset purchase
agreement, valued at $.001 per share (1,195,035) (1,195) -- --
Common stock issued for out of pocket
expenses and legal fees incurred,
valued at $.10 per share `1,839,593 1,840 145,327 --
Net loss (233,902)
----------- ----------- ----------- -----------
Balance at December 31, 1996 4,952,838 $ 4,953 $ 165,199 $ (267,502)
=========== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Cash Flows
April 4, 1989
Year ended December 31, (inception) to
------------------------- December 31,
1996 1995 1996
---------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (233,902) $ (12,773) $ (267,502)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Common stock issued for costs
advanced and services 149,632 -- 151,112
Increase in amounts due to
officer/stockholder 3,557 12,773 16,637
---------- -------- ---------
Net cash used in operating activities (80,713) -- (99,753)
----------- -------- ---------
Cash flows from financing activities
Proceeds from promissory notes 83,022 -- 83,022
Proceeds from sale of common stock -- -- 19,040
---------- -------- ---------
Net cash provided by financing activities 83,022 -- 102,062
---------- -------- ---------
Net increase in cash and cash equivalents 2,309 -- 2,309
Cash and cash equivalents at beginning of year -- -- --
---------- -------- ---------
Cash and cash equivalents at end of year $ 2,309 $ -- $ 2,309
=========== ========= ==========
Supplemental cash flow information
Interest paid $ -- $ -- $ --
Income taxes paid $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Note A -- Summary of Significant Accounting Policies
Description of Business
The financial statements presented are those of Cerx Entertainment Corporation,
a development stage company ("Company"). The Company was incorporated on April
4, 1989 under the laws of the State of Nevada. The Company's initial activities
were directed towards the raising of capital. On December 28, 1996 a consent by
a majority of the Company's shareholders approved a change in the Company's name
from Chelsea Atwater, Inc. to Cerex Entertainment Corporation.
As shown in the financial statements, as of December 31, 1996, the Company has
incurred cumulative losses of approximately $267,500 and has limited cash. The
Company's continuation in existence is dependent on its ability to generate
sufficient cash flow to continue to meet its obligations on a timely basis, to
obtain additional equity or debt financing, and to obtain future profitable
operations. Accordingly, the financial statements do not include any adjustments
that might be necessary should the Company be unable to continue in existence.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of three
months or less when purchased.
Income Taxes
The Company accrues income taxes based on the determination of the amount of
taxes payable or refundable currently or in future years using the currently
enacted tax laws.
Loss Per Common Share
Loss per common share is computed by dividing the net loss by the weighted
average shares outstanding during the period.
Note B -- Stockholders' Deficit
Common Stock Transactions
In 1989, the Company sold 2,249,985 shares of common stock to fifteen persons
for the aggregate sum of $19,040. Of these shares, 805,000 common shares were
sold to officers and directors of the Company for $3,900.
On September 21, 1994, the Company issued 740,000 shares of common stock to John
D. Brasher Jr., the Company's principal shareholder and President for out of
pocket expenses paid on behalf of the Company. These shares were valued at $.002
per share or $1,480.
On January 25, 1996, the Company issued 123,260 shares of common stock to John
D. Brasher Jr., for out of pocket expenses paid on behalf of the Company. These
shares were valued at $.02 per share or $2,465.
F-8
<PAGE>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Notes to Financial Statements
On July 12, 1996, the Company's Board of Directors approved a 5 for 1 forward
stock split of the Company's $.001 par value common stock. The shares and per
share amounts have been restated to reflect this forward stock split.
On December 28, 1996, a majority of the Company's shareholders approved a
restructuring of the Company's authorized capital including (1) a reduction in
the authorized common shares from 250,000,000 to 50,000,000, (2) an increase in
the authorized preferred shares from 5,000,000 to 15,000,000, and (3) a change
in par value to $.001 for both the common and preferred stock. All shares and
per share amounts have been restated to reflect this restructuring of the
Company.
On December 31, 1996, the Company issued 1,839,593 shares of common stock to
John D. Brasher Jr., for Company expenses advanced and legal services provided
by Brasher & Company. These shares were valued at $.08 per share or $147,167.
Dividends may be paid on outstanding shares as declared by the Board of
Directors. Each share of common stock is entitled to one vote.
Preferred Stock
No shares of the Company's $.001 par value preferred stock have been issued or
are outstanding. Dividends, voting rights and other terms, rights and
preferences of the preferred shares have not been designated but may be
designated by the Board of Directors from time to time.
1994 Compensatory Stock Option Plan
The Company's shareholders on October 10, 1994 approved a Compensatory Stock
Option Plan for officers, key employees, potential key employees, non-employee
directors and advisors (the "CSO Plan"). The Company has reserved a maximum of
5,000,000 common shares to be issued upon the exercise of options granted under
the CSO Plan. The CSO Plan will not qualify as an "incentive stock option" plan
under Section 422A of the Internal Revenue Code of 1986, as amended. Options
will be granted under the CSO Plan at exercise prices to be determined by the
Board of Directors or other CSO Plan administrator. With respect to options
granted pursuant to the CSO Plan, optionees will not recognize taxable income
upon the grant of options, but will realize income (or capital loss) at the time
the options are exercised to purchase common stock. The amount of income will be
equal to the difference between the exercise price and the fair market value of
the common stock on the date of exercise. The Company will be entitled to a
compensating deduction in an amount equal to the taxable income realized by an
optionee as a result of exercising the option. The CSO Plan will be administered
by the Board of Directors or a committee of directors. As of December 31, 1996,
the Company has awarded 1,765,000 shares of common stock under the CSO Plan. The
exercise prices range from $.25 to $1.00 per share.
1994 Employee Stock Compensation Plan
The Company's shareholders on October 10, 1994 approved an Employee Stock
Compensation Plan for employees, officers, directors of the Company and advisors
to the Company (the "ESC Plan"). The Company has reserved a maximum of 5,000,000
common shares to be issued upon the grant of awards under the ESC Plan.
Employees will recognize taxable income upon the grant of common stock equal to
the fair market value of the common stock on the date of the grant and the
Company will be entitled to a compensating deduction in the same amount. The ESC
Plan will be administered by the Board of Directors or a committee of directors.
As of December 31, 1996, the Company has awarded 1,962,853 shares of common
stock under the ESC Plan.
F-9
<PAGE>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Note C - Attempted Business Acquisitions
The Company on July 12, 1996, entered into an Asset Purchase Agreement (PLC
Purchase Agreement") with Casino Casino PLC, a company organized in the Island
of Nevis (British West Indies) under Section 4(6) of the Nevis Business
Corporation Ordinance 1984, as amended ("Casino PLC"). Pursuant to the Purchase
Agreement, Casino PLC assigned to the Company certain rights which Casino PLC
held under an Option to Purchase and that certain Management Agreement, both
dated June 26, 1996, between Casino PLC and E. V. A. LIMITED, a limited
liability company organized in St. Vincent and the Grenadines (British West
Indies) under the provisions of the Companies Act, Chapter 219 ("EVA"). The PLC
Purchase Agreement called for the issuance and delivery to the shareholders of
Casino PLC an aggregate of 1,195,035 shares of the Company's common stock, $.001
par value per share (the "PLC Shares") and options ("the PLC Options") to
purchase an aggregate of 4,500,000 shares of the Company's stock (the "PLC
Option Shares"). The Company and Casino PLC executed an Assignment and
Reservation of Rights which purported to assign to the Company all Casino PLC
rights, except for Casino PLC's reservation of a revenue interest. The PLC
Shares were issued and delivered to Casino PLC, but the PLC Options never were
issued or delivered. The Company reported in a report on Form 8-K dated July 12,
1996, that it had consummated the PLC Purchase Agreement, but the Company
believes for several reasons that such agreement in fact never was consummated.
Certain deliveries required of Casino PLC were not made, and the PLC Options
never were issued or delivered by the Company, among other things. The Company
cancelled the PLC Purchase Agreement and all related transactions and cancelled
all of the PLC Shares on its stock transfer books for breaches of that agreement
by Casino PLC.
The Company executed an Exchange Agreement dated September 30, 1996, later
amended, among the Company, E. V. A. LIMITED, a St. Vincent and the Grenadines
company ("EVA"), and the shareholders or members of EVA, pursuant to which the
Company agreed among other things and subject to certain terms and conditions to
purchase all of the issued and outstanding common shares of EVA. The agreement
called for the Company to pay and issue to the EVA shareholders in exchange an
aggregate of $200,000 in cash represented by promissory notes payable over
several years, 500,000 shares of the Company's stock and warrants for the
purchase of an additional 500,000 shares of the Company's stock at a price of
$2.75 per share, all subject to adjustment. The Company terminated the Exchange
Agreement in December, 1996 due to numerous violations of that agreement and
breaches or failures of representations and warranties contained in the
agreement, and due to the termination by the casino owner of the casino lease
under which EVA claimed to operate the casino due to numerous alleged breaches
of that lease. Neither the promissory notes, stock or warrants called for in the
Exchange Agreement were issued or delivered.
The Company was unsuccessful in these attempted business acquisitions and,
therefore, cash advances, legal fees and travel costs in the amount of $154,427
were charged to operations during the year ended December 31, 1996.
Note D -- Public Offering
The Company was unsuccessful in making a public offering and, therefore,
offering costs in the amount of $18,034 were charged to operations during the
year ended December 31, 1991.
Note E -- Income Taxes
The Company has a net operating loss carryforwards of approximately $267,500
which expire in the years 2004 through 2011.
F-10
<PAGE>
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Notes to Financial Statements
The Company has recorded a deferred tax asset for the net operating loss of
approximately $87,600 and has provided a 100% valuation allowance of $87,600 on
the deferred tax asset as management has determined that it is more likely than
not that the net operating losses will not be utilized in future years.
When more than a 50% change in ownership occurs, the Tax Reform Act of 1986
limits the utilization of NOL carryforwards in the year following the change in
ownership to the fair market value of the corporation multiplied by the
applicable long-term rate on federal obligations.
Note F -- Related Party Transactions
On January 25, 1996, the Company issued 123,160 shares of common stock to John
D. Brasher Jr., the Company's principal shareholder and President for out of
pocket expenses paid on behalf of the Company. These shares were valued at $.02
per share or $2,465.
On December 31, 1996, the Company issued 1,839,593 shares of common stock to
John D. Brasher Jr., for Company expenses advanced and legal services provided
by Brasher & Company. These shares were valued at $.08 per share or $147,167.
The Company was indebted to John D. Brasher Jr., at December 31, 1996, for cash
loans and expenses advanced on behalf of the Company. The Company owed Mr.
Brasher an aggregate of $83,022 in demand promissory notes and $473 in interest
(8% simple interest per annum) for cash loans and $908 for Company expenses
advanced. In addition, the Company owed Mr. Brasher's law firm, Brasher &
Company, $15,256 for Company expenses advanced in 1996.
The Company owed John D. Brasher Jr., $2465 for out of pocket expenses paid on
behalf of the Company at December 31, 1995. In addition, the Company owned Mr.
Brasher's law firm $464 for Company expenses advanced and $9,844 in legal
services.
The Company utilized office space provided by Brasher & Company at no charge
during the years ended December 31, 1996 and 1995.
NOTE G - Subsequent Events
On February 10, 1997, the Board of Directors of the Company designated 4,000,000
shares of the Company's authorized 15,000,000 shares, $.001 par value, preferred
stock as a Series A, 6.75% Non-Voting Convertible Preferred Stock. The Series A
preferred shares are convertible into 5,500,000 common shares of the Company
under certain circumstances. No preferred shares have been issued.
On March 19, 1997, a majority of the Company's shareholder's approved a change
in the name of the Company from Cerex Entertainment Corporation to Cerx
Entertainment Corporation.
F-11
<PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report on Form 10-KSB to be signed on its
behalf by the undersigned, thereto duly authorized individual.
Date: April 14, 1997
CERX ENTERTAINMENT CORPORATION
/s/ John D. Brasher Jr.
By...................................
John D. Brasher Jr., President, Chief Exec. Officer,
and Chief Financial Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Name Title Date
/s/ John D. Brasher Jr.
.............................. President, Chief Executive 04/14/97
John D. Brasher Jr. Officer, Chief Financial Officer,
Director, Chairman of the Board
/s/ Johnny D. Brasher
.............................. Vice President, Director 04/14/97
Johnny D. Brasher
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000932127
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 2,309
<SECURITIES> 0
<RECEIVABLES> 99,659
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,309
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,309
<CURRENT-LIABILITIES> 99,659
<BONDS> 0
0
0
<COMMON> 4,953
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,309
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 233,902
<OTHER-EXPENSES> 79,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (233,902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (233,902)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
