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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997 Commission File No. 0-25022
CERX ENTERTAINMENT CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 72-1148906
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
90 Madison Street, Suite 707
Denver, Colorado 80206
(Address of Principal Executive Offices) (Zip Code)
(303) 355-3350
(Registrant's Telephone Number, including Area Code)
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 to such filing requirements for at least the past 90 days.
Yes X No
The number of shares outstanding of each of the Registrant's classes of
common equity, as of March 31, 1997 are as follows:
Class of Securities Shares Outstanding
------------------- ------------------
Common Stock, $.001 par value 4,952,838
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INDEX
Page of
Report
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets:
As of March 31, 1997 (Unaudited) and December 31, 1996.......... 3
Statement of Operations (Unaudited):
For the three months ended March 31, 1997 and 1996 and
Cumulative from inception (April 4, 1989) through March 31,
1997............................................................ 4
Statements of Cash Flows (Unaudited):
For the three months ended March 31, 1997 and 1996 and
Cumulative from inception (April 4, 1989) through March 31,
1997............................................................ 5
Notes to Financial Statements (Unaudited)....................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation....... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 11
Signatures..................................................... 11
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Balance Sheets
(Unaudited)
March 31, Dec. 31,
1997 1996
--------- --------
ASSETS
------
CURRENT ASSETS
Cash 39,724 2,309
Note receivable 3,014 -
--------- --------
Total Current Assets 42,738 2,309
--------- --------
TOTAL ASSETS 42,738 2,309
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable 7,304 -
Due to officer 55,309 16,637
Promissory notes to officer 97,522 83,022
Short term loan 74,590 -
--------- ---------
Total Liabilities 234,725 99,659
--------- ---------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value;
15,000,000 shares authorized;
4,000,000 shares designated as Series
A, 6.75% Non-Voting Convertible
Prefered Stock; none issued - -
Common stock, $.001 par value; 50,000,000
shares authorized, 4,952,838 shares
issued and outstanding 4,953 4,953
Additional paid-in capital 165,199 165,199
Deficit accumulated during the
development stage (362,139) (267,502)
--------- ---------
Total Stockholders' Deficit (191,987) (97,350)
TOTAL LIABILITIES AND --------- ---------
STOCKHOLDERS' DEFICIT 42,738 2,309
========= =========
See accompanying notes to financial statements.
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statement of Operations
(Unaudited)
Cumulative from
For The Three Months Ended, inception to
March 31, March 31, March 31,
1997 1996 1997
------------ ------------- --------------
Revenues
Interest 14 - 14
------------ ------------- --------------
Total revenue 14 - 14
Costs and Expenses:
Costs related to attempted
business acquisition 11,090 - 165,517
General and administrative 81,698 3,565 171,266
Interest 1,863 - 2,336
Offering costs - - 18,034
------------ ------------- --------------
Total expenses 94,651 3,565 357,153
------------ ------------- --------------
Net loss (94,637) (3,565) (357,139)
============ ============= ==============
Net loss per common share (0.02) (Nil)
============ =============
Weighted average shares
outstanding 4,952,838 3,113,245
============ =============
See accompanying notes to financial statements.
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
For the Three months ended, Cumulative from
March 31, inception to
1997 1996 March 31, 1997
---------- ---------- --------------
Cash flows from operating
activities
Net loss (94,637) (3,565) (362,139)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Note receivable (3,014) - (3,014)
Common stock issued for
costs advanced and
services - 2,465 151,112
Increase in amounts due
to officer 45,976 1,100 62,613
---------- ---------- -------------
Net cash used in operating
activities (51,675) - (151,428)
Cash flows from financing
activities
Proceeds from promissory
notes 14,500 - 97,522
Short term loan 74,590 - 74,590
Proceeds from sale of
common stock - - 19,040
----------- ----------- -------------
Net cash provided by
financing activities 89,090 - 191,152
------------ ------------ -------------
Net increase in cash and
cash equivalents 37,415 - 39,724
------------ ------------ -------------
Cash and cash equivalents
at beg. period 2,309 - -
------------ ------------ -------------
Cash and cash equivalents
at end of period 39,724 - 39,724
============ ============ =============
See accompanying notes to financial statements.
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
Note 1. Cerx Entertainment Corporation ("Company") was incorporated in the
State of Nevada on April 4, 1989, under the name Chelsea Atwater,
Inc. The Company's name was changed in January 1997 to Cerex
Entertainment Corporation and changed again due to potential name
conflicts in February 1997 to Cerx Entertainment Corporation. The
common stock of the Company is quoted on the OTC Electronic Bulletin
Board under symbol CERX but has not been actively traded.
The Company's former business was to find and acquire an unidenti-
fied existing company or business in order to become operational and
increase shareholder value. The Company's Board of Directors
determined in late 1996 to seek funding to originate a new business,
that of creating and operating various entertainment, news and
information, sports, gaming and children's networks on the World
Wide Web portion of the Internet. The Company initiated certain
efforts and has made certain expenditures during the first quarter
in connection with its attempts to establish this new business.
The audit report of the Company's independent accountants reporting
on the Company's financial statements for the year ended December 31,
1996, expressed doubt regarding the Company's ability to continue as
a going concern in light of the Company's recurring losses and
current liabilities, unless the Company obtains future profitable
operations or additional financing. The financial statements do not
include any adjustments that might be necessary should the Company
be unable to continue in existence.
Note 2. The accompanying unaudited financial statements of the Company have
been prepared on the accrual basis and in accordance with the
instructions to Form 10-QSB and do not include all of the information
and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the
financial statements and motes thereto included in the Company's
annual report on Form 10-KSB for the period ended December 31, 1996.
Note 3. At the end of the first quarter, the Company owed $97,522 in
principal and $2,335 in interest to John D. Brasher Jr., the
Company's principal shareholder and Chairman, President and Chief
Executive Officer, for cash loaned, evidenced by demand promissory
notes bearing simple interest at 8% per annum, and $908 in
corporate expenses personally advanced by him. The Company also owed
to its legal counsel, Brasher & Company, which is owned by Mr.
Brasher, $22,501 for corporate expenses advanced and $31,640 in
legal fees.
Note 4. The Company is attempting to raise cash 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 of shares is antici-
pated to be made outside the United States of America in reliance upon
Regulation S under the Securities Act of 1933, as amended. During the
first quarter, the Company received from the firm designated to act
as distributor of the preferred shares approximately US$75,000 as an
advance against this anticipated offering to assist the Company in
ramping up to conduct the offering. Although no loan documents have
been executed, the Company has elected to treat the advance as a loan.
Should the offering be succesful, the advance will either be repaid
or converted to the Company preferred stock on the same terms as the
preferred stock offering, as the distributor elects. The Company has
not yet executed a formal agreement with the distributor, and the
distributor is not under any legal or other obligation to sell any
shares of preferred stock. Thus there can be no assurance that any
such stock can be sold. The Company's failure to raise such funds
would mean its inability to launch its business plan described above
at Note 3.
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
Note 5. The Board of Directors, pursuant to statutory authority set forth in
the Nevada General Corporation Law and pursuant to authority contained
in the Company's articles of incorporation as amended to date, by
resolution established and designated a series of preferred stock
consisting of 4,000,000 shares, designated as the SERIES A, 6.75%
NON-VOTING CONVERTIBLE PREFERRED STOCK. No shares of such series have
been issued.
Note 6. Loss per common share is based on the weighted average number of
common shares outstanding during the period.
Note 7. During the year ended December 31, 1996, the Company incurred a net
loss of $233,902 and as of that date had accumulated a deficit of
$267,502. During the first quarter covered by these statements, the
Company realized no revenues and incurred a loss for the quarter of
$89,637. The Company's operations during the first quarter consisted
primarily of activities related to its attempt to raise capital for
operations and preliminary activities looking toward launch of its
operations once funding is received.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Background Information
Cerx Entertainment Corporation, a Nevada corporation ("Cerx" or the
"Company"), is in the development stage in accordance with Financial
Accounting Standards Board Standard No. 7. 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. See "Plan of Operation" below. 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 is (303) 355-3063.
Forward-Looking Information
This report contains certain forward-looking statements and infor-
mation relating to Cerx that are based on the beliefs of its manage-
ment as well as assumptions made by and information currently avail-
able to its management. When used in this report, the words
"anticipate", "believe", "estimate", "expect", "intend", "plan",
and similar expressions, as they relate to Cerx or its management,
are intended to identify forward-looking statements. These statements
reflect management's current view of Cerx with respect to future
events and are subject to certain risks, uncertainties and assumptions.
Should any of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary
materially from those described in this report as anticipated,
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, planned fundings 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 develop-
ment 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.
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 avail-
able to Cerx from its management and current shareholders are not
sufficient for Cerx to carry out its business plan as described in
this report without additional funding.
As of March 31, 1997, Cerx had accumulated a deficit (net loss) of
$357,139 since inception and had $39,724 in cash on hand but no other
significant assets. Cerx was indebted to John D. Brasher Jr., at
March 31, 1997, for cash loans, expenses advanced and legal fees,
including $97,522 in principal and $2,335 in interest for cash loans
and $908 for expenses advanced. In addition, at March 31, 1997, Cerx
owed Mr. Brasher's law firm, Brasher & Company, $22,501 for Cerx
expenses advanced and $31,640 in legal fees. Cerx has no long-term
liabilities.
The most likely 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. During the first quarter, Cerx
received, from the group designated to act as distributor of the
preferred shares, approximately US$75,000 as an advance against this
offering to assist Cerx with expenses of ramping up to conduct this
offering.
Although no formal loan documents have been executed, Cerx has
elected to treat the advance as a loan. Should the offering be
succesful, the advance 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, and the distributor is not under any legal or
other obligation 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 from another source would mean its inability to launch its
business plan described in this report.
If the required 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 equivalents and cash advances available from
shareholders will be sufficient to cover its expenses for the remain-
der of calendar 1997.
Results of Operations - First Quarter 1997
During the quarter ended March 31, 1997, the first quarter of the
year, Cerx incurred a net loss of $89,637. Expenses in the first
quarter related primarily to miscellaneous operating costs and
professional fees. Activities during the quarter included taking
preliminary steps to launch Cerx's new business plan of operating
interactive entertainment networks on the Internet, change of the
corporate name and other amendments of Cerx's articles of incorpora-
tion, ramping-up activities preparatory to a planned offering of
preferred stock, and other miscellaneous activities. Cerx paid no
rent or salaries during the quarter.
Results of Operations - First Quarter 1996
During the quarter ended March 31, 1996, Cerx had no revenues and
incurred a net loss of $3,565. Expenses in the first quarter of 1996
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 the first quarter
of 1996 and incurred only insignificant administrative or overhead
costs. Operations for the quarter consisted primarily of investi-
gating potenial acquisitions of other businesses.
New Business Direction
Cerx plans upon receipt of adequate funding, of which there is no
assurance, to begin design and construction of interactive entertain-
ment, information, children's, sports and gaming networks on the World
Wide Web, as described below. 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. More detailed information
concerning the business plan of Cerx is set forth in its annual
report on Form 10-KSB for the year ended December 31, 1996, filed
with the Securities and Exchange Commission.
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 SPORTS NETWORK (CSpN). Planned to be a sports oriented network
eventually featuring virtual sporting events, fantasy (rotisserie)
sports leagues, virtual interaction with historical sports figures,
a sports ticker allowing members to keep track of scores, injuries,
trades, updates and upcoming events and general sports news, and much
more.
CERX KIDS NETWORK (Ckids). 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.
CERX XTENDED NEWS NETWORK (CXNN). Cerx plans to offer news on CXNN
in a three-tiered arrangement. The first tier will be briefs of the
day's financial, political and other news, arranged logically and
cross-referenced in a manner easy to navigate for users. 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.
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, including offerings for
younger members not attracted to traditional casino-style games. 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.
Cerx management believes that the Web is a fundamentally different
medium from its "old media" predecessors, meaning radio, television,
newspapers and cable television. The Web is interactive and operates
in a rich, multimedia environment. Cerx management anticipates that
successful operators in the digital economy will succeed by focusing
on empowering Web site users and facilitating meaningful communica-
tion between users.
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.
Management anticipates that a Cerx priority will be to form strate-
gic alliances with both other content providers and Internet infra-
structure 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 networks on a paid subscription basis in
which 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 will be
reasonable, since Cerx believes that the high costs of subscribing to
numerous Web sites (newspapers, magazines, encyclopedias, other news
sites, financial news sites, and the like), each of which run from
$4.95 to $19.95 per month, are prohibitive. Cerx believes that it can
add value for members by making such information 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 or members
of its entertainment networks, management anticipates that it will
eventually be able to sell advertising of various types on its net-
works and derive additional income from advertising. However, manage-
ment 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 adver-
tising at this time and is not aware of any known to have made money
consistently or on a significant scale.
Cerx is planning its networks to be content-driven and its business
orientation will be revenue-based. Cerx is committed to generating
revenues and focusing 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, charac-
terized 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. For a fuller description of Cerx's
business plan, please see the Cerx Entertainment Corporation annual
report on Form 10-KSB for the year ended December 31,1996, which
contains additional information concerning Cerx's marketing plans
and applicable competitive and risk factors, among other information.
Plan of Operation - Next Twelve Months
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 raises the requisite funding, 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 the first two entertainment networks,
CWIN and CGN. Cerx believes that it can make advantageous arrange-
ments 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 pro-
gramming 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 as large a
base of paying membership as possible as fast as possible.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
NONE.
(b) Reports on Form 8-K.
Report on Form 8-K dated January 27, 1997 (change of name, etc.)
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report on Form 10-QSB to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATED: April 29, 1997 CERX ENTERTAINMENT CORPORATION
/s/ John D. Brasher Jr.
By.......................................
John D. Brasher Jr.,
Chairman, Chief Exec. Officer,
President, Chief Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
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