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, 1998 Commission File No. 0-25022
CERX VENTURE CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 72-1148906
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(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
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(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 1,822,985 shares of common stock of the
registrant held by non-affiliates on March 15, 1998 was $18,130.
At March 15, 1999, a total of 5,002,838 shares of common stock were
outstanding.
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TABLE OF CONTENTS
PART I
Item 1. Description of Business ............................................ 2
Item 2. Description of Property ............................................ 8
Item 3. Legal Proceedings .................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders ................ 8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters .............................................. 8
Item 6. Management's Discussion and Analysis or Plan of Operation........... 9
Item 7. Financial Statements ............................................... 9
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ........................... 10
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ............... 10
Item 10. Executive Compensation ............................................ 11
Item 11. Security Ownership of Certain Beneficial Owners and Management .... 12
Item 12. Certain Relationships and Related Transactions .................... 12
PART IV
Item 13. Exhibits and Reports on Form 8-K .................................. 13
Index to Financial Statements ..................................... 14
Financial Statements .............................................. F-1
PART I
Item 1. DESCRIPTION OF BUSINESS.
Background
Cerx Venture 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, and on
March 23, 1998, changed its name again to Cerx Venture Corporation. Until the
fourth quarter of 1996, when it unsuccessfully attempted to acquire a foreign
casino management company for stock and cash, Cerx had extremely limited
operations. During the last quarter of 1996 and through 1997, Cerx's efforts
were concentrated upon raising capital to execute a now-discontinued business
plan to become the premier operator of entertainment networks on the Internet,
including networks for kids, news, sports, gaming and general entertainment.
During 1998, the Company's efforts were concentrated upon its search for a
business to acquire.
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 the Company that are based on the beliefs of its management as well
as assumptions made by and information currently available to its management.
When used in this report, the words "anticipate", "believe", "estimate",
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"expect", "intend", "plan", and similar expressions, as they relate to the
Company or its management, are intended to identify forward-looking statements.
These statements reflect management's current view of the Company with respect
to future events and are subject to certain risks and uncertainties. In
particular, should the Company fail to raise funding to originate a business, or
should any such business originated fail, or should the Company fail in the
alternative to acquire an operating company which ultimately is successful, it
is unlikely that the Company's stock will have any value or that any benefits
will flow from ownership of the Company's stock. The common stock of the Company
should be viewed at this time as a high risk investment, and no person should
invest in the Company's stock unless able to comfortably afford the loss of the
entire sum invested. The Company does not intend to update these forward-looking
statements.
Current Business
The Company has no significant assets or liabilities and is in the
development stage. The Company intends to either raise funds to originate a
business or, alternatively, enter into a business combination with one or more
as yet unidentified privately held businesses. Management believes that the
Company will be attractive to privately held companies interested in becoming
publicly traded by means of a business combination with the Company, without
offering their own securities to the public. The Company intends to pursue
negotiations with qualified candidates.
The Company will not be restricted in its search for business combination
candidates to any particular geographical area, industry or industry segment,
and may enter into a combination with a private business engaged in any line of
business. Management's discretion is, as a practical matter, unlimited in the
selection of a combination candidate. The Company's search generally will be
directed toward small to medium-sized companies. The Company has not entered
into any agreement or understanding of any kind with any person regarding a
business combination.
PRE-COMBINATION ACTIVITIES. The Company's common stock is publicly quoted
on the OTC Bulletin Board, and it has insignificant assets and liabilities. With
these characteristics, management believes that the Company will be attractive
to privately held companies interested in becoming publicly traded by means of a
business combination with the Company, without offering their own securities to
the public.
The term "business combination" (or "combination") means the result of (i)
a statutory merger or consolidation involving the Company and a privately held
business, (ii) the exchange of securities of the Company for the assets or
outstanding equity securities of a privately held business, (iii) the merger or
consolidation of a privately held business into or with a wholly owned
subsidiary of the Company formed for that purpose, (iv) the sale of securities
of the Company for cash or other value to a business entity or individual, and
similar transactions.
A combination may be structured as a merger, consolidation, exchange of the
Company's Common Stock for assets or the outstanding stock of the business
acquired, sale of Common Stock for cash, or any other form which will result in
the combined entity being a publicly held corporation. A sale of Common Stock
for cash or an exchange of Common Stock for assets or stock may be made to an
individual or a business entity. It is not likely that any proposed combination
will be subject to the approval of the Company's shareholders. Pending
negotiation and consummation of a combination, the Company anticipates that it
will have no business activities or sources of revenues and will incur no
significant expenses or liabilities other than expenses related to SEC filings
or to the negotiation of a combination.
The Company will not be restricted in its search for business combination
candidates to any particular geographical area, industry or industry segment,
and may enter into a combination with a private business engaged in any line of
business, including service, finance, mining, manufacturing, real estate, oil
and gas, distribution, transportation, medical, communications, high technology,
biotechnology or any other. Management's discretion is, as a practical matter,
unlimited in the selection of a combination candidate. The Company's search
generally will be directed toward small to medium-sized companies. Management of
the Company will seek combination candidates in the United States and other
countries, as available time permits, through existing associations and by word
of mouth. The Company also may employ the services of business brokers or other
intermediaries.
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The Company has not entered into any agreement or understanding of any kind
with any person regarding a business combination. There can be no assurance that
the Company will be successful in locating a suitable combination candidate or
in concluding a business combination on terms acceptable to the Company. The
Company's Board of Directors has not established a time limitation by which it
must consummate a suitable combination; however, if the Company is unable to
consummate a suitable combination within a reasonable period, such period to be
determined at the discretion of the Company's Board of Directors, the Board of
Directors will probably recommend its liquidation and dissolution.
The Company will participate in a business combination only after the
negotiation and execution of a written agreement. Although the terms of any such
agreement cannot be predicted, such agreements generally provide for
representations and warranties by the various parties thereto, conditions of
closing, post-closing covenants and restrictions, reciprocal indemnities,
remedies upon default and other terms. As a general matter, management
anticipates that the Company will enter into a letter of intent with the
management, principals or owners of a prospective combination candidate. Such a
letter of intent will set forth the terms of the proposed acquisition but will
not bind the Company to consummate it. Execution of a letter of intent will by
no means indicate that consummation of a combination is probable. The Company
will not be bound unless and until it executes a definitive agreement concerning
the combination, as described in this paragraph, and then only if the Company
has no contractual right to terminate the agreement on specified grounds.
COMBINATION SUITABILITY STANDARDS. The Company will generally seek to avoid
companies whose business appears to be fad-oriented or otherwise incapable of
sustained long-term growth. In seeking combination candidates, management
anticipates that the most desirable combination candidates will possess the
following attributes:
1. Strong operating revenues, or in the process of launching a business
where contracts, purchase orders or other existing relationships are
expected to generate strong revenues.
2. Experienced management in place or ready to joint the management team.
Management also may consider any or all of the following factors, among
other possible factors, no one of which will be determinative:
3. If the candidate is an operating company, its financial track record.
4. The candidate's economic prospects, such as potential for significant
growth in revenues and earnings, proprietary technology and rights,
strength of marketing concept and size of potential market.
5. The candidate's capital requirements in light of its access to
expansion capital.
6. Special risks associated with the candidate and its industry or
industry segment.
7. Perceived desirability of the candidate (or its industry or industry
segment) or its product(s) to investors and investment bankers in the
public capital markets.
8. Current and potential future competition.
Prior to consummation of any combination (other than a mere sale by the
Company of controlling interest in its outstanding stock) the Company will
require that the business to be combined provide the Company at the least with
an audited balance sheet as of the most recent fiscal year end and statements of
operations, cash flows and changes in stockholders' equity for the two most
recent fiscal years, audited by certified public accountants acceptable to the
Company's management. Such financial statements must be adequate to satisfy the
Company's reporting obligations under Section 15(d) or 13 of the Exchange Act.
Following consummation of a combination, the Company will file a current report
on Form 8-K with the Commission which discloses among other things the date and
manner of the combination, the assets and consideration involved, the identity
of the person or persons from whom the assets or other property was acquired,
changes in management and biographies of the new officers and directors,
principal shareholders following the combination, and will provide, if required,
the financial statements referenced above.
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POST-COMBINATION ACTIVITIES. Following consummation of a combination, the
Company anticipates that control of the Company will change as a result of the
issuance of additional Common Stock to the shareholders of the business(es)
acquired in the combination. Once such control has been assumed, it is likely
that the new controlling shareholders will call a meeting for the purpose of
replacing the incumbent directors of the Company with candidates of their own,
and that the new directors will then replace the incumbent officers with their
own nominees. Current management will not object to such replacements when duly
made.
POTENTIAL INSIDER SALES OF STOCK. No officer, director or affiliate of the
Company currently has any intention of selling shares owned by them in the
Company to any person in connection with any business opportunity acquired by
the Company. However, no law, rule or regulation, and no bylaw or charter
provision prevents any such persons from thus actively negotiating or
consummating such a sale of their shares. Company shareholders will not be
afforded any opportunity to review or approve any buyout of shares held by an
officer, director or other affiliate, should such a buyout occur, and
shareholders generally will not be afforded a similar opportunity to sell shares
in connection with such a transaction.
USE OF CONSULTANTS. The Company has had no discussions, and has entered
into no agreements or understandings, with any consultant. The Company's
officers and directors have not in the past used any particular consultant(s) on
a regular basis and have no plan to recommend that any particular consultant(s)
be engaged by the Company on any basis. No particular criteria regarding
experience, services, term of service, or the like has been considered or
developed regarding the engagement of consultant(s). While the Company currently
has no plan to hire or engage consultant(s) and management believes that a
desirable business opportunity can be located and acquired by management, it is
possible that management will find it necessary to hire or pay consultants on
some basis in relation to an acquisition, as discussed in the following
paragraph.
ACQUISITION-RELATED COMPENSATION. It is possible that compensation in the
form of common stock, options, warrants or other securities of the Company, cash
or any combination thereof, may be paid to various persons in connection with an
acquisition by the Company. Such persons may include officers, directors and
promoters of the Company and any of their respective affiliates, finders,
consultants or other persons. Any payments of cash would be made by the business
acquired or persons affiliated or associated with it, since the Company has no
cash. It is possible that the payment of such compensation may become a factor
in any negotiations for the Company's acquisition of a business opportunity. Any
such negotiations and compensation may present conflicts of interest between the
interests of persons seeking compensation and those of the Company's
shareholders, and there is no assurance that any such conflicts will be resolved
in favor of the Company's shareholders.
Possible Origination of a Business
The Board of Directors has left open the possibility that, instead of
seeking a business combination, the Company may instead raise funding in order
to originate an operating business, which may be in any industry or line of
business, and could involve the Company's origination of a start-up business,
purchase and development of a business already originated by third parties,
joint venture of a new or existing business, or take any other lawful form. It
is also possible that the Company may engage in one or more combinations, as
discussed above, and originate a business in addition. Potential shareholders
should consider that management has the widest possible discretion in choosing a
business direction for the Company.
Any funds needed to originate and develop a business would almost certainly
be raised from the sale of the Company's securities, since the Company lacks the
creditworthiness to obtain a loan. Management does not believe that the
principal shareholders, directors or executive officers of the Company would be
willing to guarantee any debt taken on, and obtaining a loan without personal
guarantees is unlikely. Capital could possibly be raised from the sale of debt
instruments convertible into common stock upon the occurrence of certain defined
events, but no such funding has been offered. The Company has no current plans
to offer or sell its securities, but would be agreeable do so if a worthy
business opportunity presents itself and adequate funding then appears to be
available.
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State Securities Law Considerations
Section 18 of the Securities Act of 1933, as amended in 1996, provides that
no law, rule, regulation, order or administrative action of any state may
require registration or qualification of securities or securities transactions
with respect to a "covered security." The term "covered security" is defined in
Section 18 to include, among other things, transactions which are exempt from
registration under the Securities Act of 1933 pursuant to Section 4(1), which
exempts transactions by "any person not an issuer, underwriter or dealer," (that
is, secondary resales, such as market trades) provided the issuer of the
security files reports with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act and is timely in those filings. In other words, Section 18
defines a covered security to include market trades and other secondary
transactions by shareholders in outstanding securities, even if the issuer is a
"blank check" company, provided the issuer is a reporting company.
While subparagraph (c) of Section 18 as amended preserves the authority of
the states to require certain limited notice filings and to collect fees as to
certain categories of covered securities (including Section 4(1) secondary
transactions in the securities of reporting companies), a state may not
"directly or indirectly prohibit, limit, or impose conditions based on the
merits of such offering or issuer, upon the offer or sale of any (covered)
security." This provision prohibits state registration or qualification
requirements, other than requiring certain limited notice filings, of trading in
the securities of blank check companies which are SEC reporting companies. The
Company will comply with any such state limited notice filings as appropriate.
No Investment Company Act Regulation
Prior to completing a combination, the Company will not engage in the
business of investing or reinvesting in, or owning, holding or trading in
securities, or otherwise engaging in activities which would cause it to be
classified as an "investment company" under the 1940 Act. To avoid becoming an
investment company, not more than 40% of the value of the Company's assets
(excluding government securities and cash and cash equivalents) may consist of
"investment securities," which is defined to include all securities other than
U.S. government securities and securities of majority-owned subsidiaries.
Because the Company will not own less than a majority of any assets or business
acquired, it will not be regulated as an investment company. The Company will
not pursue any combination unless it will result in the Company owning at least
a majority interest in the business acquired.
Competition
The Company will be in direct competition with many entities in its efforts
to locate suitable business opportunities. Included in the competition will be
business development companies, venture capital partnerships and corporations,
small business investment companies, venture capital affiliates of industrial
and financial companies, broker-dealers and investment bankers, management and
management consultant firms and private individual investors. Most of these
entities will possess greater financial resources and will be able to assume
greater risks than those which the Company, with its limited capital, could
consider. Many of these competing entities will also possess significantly
greater experience and contacts than the Company's management. Moreover, the
Company also will be competing with numerous small public shell companies for
such opportunities.
Risk Factors
At this time the shares of the Company are speculative and involve a high
degree of risk. The Company is in the development stage with no operations or
revenues, thus there are no financial results upon which anyone may base an
assessment of its potential. No combination candidate has been identified for
acquisition by management, nor has any determination been made as to any
business for the Company to enter, and shareholders will have no meaningful
voice in any such determinations. There is no assurance that the Company will be
successful in completing a combination or originating a business, nor that the
Company will be successful or that its shares will have any value even if a
combination is completed or a business originated.
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The Company's officers and directors, who serve only on a part-time basis,
have had limited experience in the business activities contemplated by the
Company, yet the Company will be solely dependent on them. The Company lacks the
funds or other incentive to hire full-time experienced management. Each of the
Company's management members has other employment or business interests to which
he devotes his primary attention and will continue to do so, devoting time to
the Company only on an as-needed basis. Moreover, members of management are
involved in other companies also seeking to engage in a combination, and
conflicts of interest could arise in the event they come across a desirable
combination candidate. No assurance exists that all or any such conflicts will
be resolved in favor of the Company.
After completion of a combination, the current shareholders of the Company
may experience severe dilution of their ownership due to the issuance of shares
in the combination. Any combination effected by the Company almost certainly
will require its existing management and board members to resign, thus
shareholders have no way of knowing what persons ultimately will direct the
Company and may not have an effective voice in their selection.
Employees
The only employees of the Company currently are its officers, none of which
provide full time services to the Company. It is not expected that the Company
will have or need additional employees except as a result of completing a
combination.
Conflicts of Interest
Certain officers and directors of the Company are affiliated with other
companies having a similar business plan to that of the Company ("affiliated
companies") which may compete directly or indirectly with the Company for
combination candidates. The Company has not identified a specific business area,
industry or industry segment in which it will seek combination candidates. The
Company has made a determination that it will not concentrate its search for
combination candidates in any particular business, industry or industry segment,
since any such concentration is potentially limiting and confers no advantage to
the Company. Certain specific conflicts of interest may include those discussed
below.
1. The interests of any affiliated companies from time to time may be
inconsistent in some respects with the interests of the Company. The nature of
these conflicts of interest may vary. There may be circumstances in which an
affiliated company may take advantage of an opportunity that might be suitable
for the Company. Although there can be no assurance that conflicts of interest
will not arise or that resolutions of any such conflicts will be made in a
manner most favorable to the Company and its shareholders, the officers and
directors of the Company have a fiduciary responsibility to the Company and its
shareholders and, therefore, must adhere to a standard of good faith and
integrity in their dealings with and for the Company and its shareholders.
2. The officers and directors of the Company serve as officers and/or
directors of one or more affiliated companies and may serve as officers and
directors of other affiliated companies in the future. The Company's officers
and directors are required to devote only so much of their time to the Company's
affairs as they deem appropriate, in their discretion. As a result, the
Company's officers and directors may have conflicts of interest in allocating
their management time, services, and functions among the Company and any current
and future affiliated companies which they may serve, as well as any other
business ventures in which they are or may become involved.
3. The affiliated companies may compete directly or indirectly with that of
the Company for the acquisition of available, desirable combination candidates.
Such conflicts are not expected to be resolved through arm's-length negotiation,
but rather in the discretion of management members. While any such resolution
will be made with due regard to the fiduciary duty owed to the Company and its
shareholders, there can be no assurance that all potential conflicts can be
resolved in a manner most favorable to the Company as if no conflicts existed.
Members of the Company's management who also are members of management of
another affiliated company will also owe the same fiduciary duty to the
shareholders of each such affiliated company. Absent factors unique to the
Company or an affiliated company which make it more or less desirable to a
potential combination candidate (such as age, name, capitalization, state of
domicile, etc.), management expects that in the event of a direct conflict, any
combination candidate will be presented to the Company and any applicable
affiliated companies in the order they were organized.
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As a practical matter, such potential conflicts could be alleviated only if
each previously or contemporaneously formed affiliated company either is not
seeking a combination candidate, has already identified a combination candidate,
is seeking a combination candidate in a specifically identified business area,
or is seeking a combination candidate that would not otherwise meet the
Company's selection criteria. In general, the Company will be given priority
over subsequently formed affiliated companies with regard to its initial
acquisition of a combination candidate, assuming that it meets the investment
criteria of the Company. It is likely, however, that the combination criteria of
the Company and any affiliated companies are virtually identical as a practical
matter and that this will remain true. In the final analysis, the Company and
its shareholders ultimately must rely on the fiduciary responsibility owed to
them by the Company's officers and directors.
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, Suite 707, Denver, Colorado
80206, and are provided at no charge by its President. This arrangement will
continue until Cerx raises funding to originate a business or completes an
acquisition of an operating business, in which latter event the offices of the
Company undoubtedly will be the same as those of the acquired company.
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, 1998. However, on March 20, 1998, a single
shareholder (John D. Brasher Jr.) 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 Section 78.320 of the Nevada
General Corporation Law. By means of that written consent, the shareholders
approved a change of the Company's name to Cerx Venture Corporation.
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 on the OTC Bulletin Board maintained by the
National Association of Securities Dealers, Inc. To Cerx's knowledge, no market
transactions have taken place in the common shares, and there currently is no
market for the common shares. At this time, the common stock is quoted $.01 bid,
no offer, on the OTC Bulletin Board under symbol CERX, with two market makers.
Holders
Cerx had 554 shareholders of record as of March 15, 1999.
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.
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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
advances provided by its principal shareholder and from an advance of funds
against a securities placement never completed. Cerx did not realize any cash
from equity financing activities in 1998 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 it should
originate or participate in a business. Assets and cash available to Cerx from
its management and current shareholders are not sufficient for Cerx to originate
or participate in a business, although there is no impediment to engaging in a
combination. President and CEO John Brasher has indicated to the Board of
Directors that he will make cash available sufficient for the Company to pay
expenses related to making required filings with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended ("Exchange
Act").
Results of Operations - 1998
During the year ended December 31, 1998, Cerx incurred a net loss of
$18,410. Cerx had $1,014 in cash but no other significant assets. Expenses in
1998 related primarily to miscellaneous operating costs, filing costs, and
accounting fees. Cerx paid no salaries or rent and incurred no legal fees during
1998. Cerx was indebted to its principal shareholder and President, John D.
Brasher Jr., at December 31, 1998, for cash loans, accrued interest and expenses
advanced. At year end, Cerx owed Mr. Brasher an aggregate of $159,372 in
principal and $18,741 in interest on loans made to the Company. During 1998,
John D. Brasher Jr. loaned an additional $61,850 to the Company, most of which
the Company used to partially repay advances of $74,590 it received in 1997 on a
planned offering of the Company's stock to non-U.S. residents pursuant to
Regulation S under the Securities Act of 1933, as amended ("Act"). During 1998
the advance was paid down by Cerx to $14,590. This amount must at some point be
repaid or converted into shares of Cerx common stock.
Results of Operations - 1997
During the year ended December 31, 1997, Cerx incurred a net loss of
$134,352. Expenses in 1997 related primarily to miscellaneous operating costs,
professional fees, expenditures made preparing for an offering of securities
never completed, amounts spent attempting to launch a now-discontinued business
plan to launch an Internet-based business, and expenses related to the business
acquisitions attempted in 1996 but never completed. Cerx paid no salaries or
rent during 1997 and incurred $40,585 in general and administrative costs. Cerx
also incurred $38,885 in legal fees owed to Brasher & Company.
As of December 31, 1997, Cerx had accumulated a deficit (net loss) of
$401,854 and had $4,609 in cash but no other significant assets. Cerx was
indebted to its principal shareholder and President, John D. Brasher Jr., at
December 31, 1997, for cash loans, accrued interest and expenses advanced. At
year end, Cerx owed Mr. Brasher an aggregate of $97,522 in principal and $8,217
in interest. Prior to year end, Brasher & Company, the Company's law firm owned
by President John D. Brasher Jr., forgave $53,343 owed for expenses advanced and
legal fees, which the Company treated as a capital contribution in that amount.
Plan of Operation
Cerx's plan of operation for the next twelve months is set forth above
under Item 1 (Description of Business).
Item 7. FINANCIAL STATEMENTS.
See index to financial statements at page 14. The financial statements
begin following that index. No supplementary financial data is required.
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Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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. 47 President, Chief Executive Officer, Director,
Chairman of the Board, Secretary, since
April 4, 1989
Johnny D. Brasher 72 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
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. Mr.
Brasher also is a director of Renegade Venture (Nev.) Corporation, a Nevada
corporation, and director and chief executive officer of Cerx Entertainment
Corporation, a Nevada corporation, and Champion Ventures, Inc., a Nevada
corporation, both companies with a business plan similar to that of the Company.
Mr. Brasher is also a director of Vacation Emporium International, Inc., a
Colorado corporation that markets timeshare interests.
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.
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. See Item 1 (Description of
Business) under the caption "Conflicts of Interest." 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.
10
<PAGE>
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, 1997, 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, 1998, no executive officer received cash
compensation.
Compensation Pursuant to Plans
For the year ended December 31, 1998, no executive officer received
compensation pursuant to any plan.
Other Compensation
None.
Compensation of Directors.
No compensation currently is paid or has been 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 2,012,853 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 422 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.
11
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 15, 1999, 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.
Amount
Name and Address of Common Stock Owned Percent of Common
of Beneficial Owner Beneficially Stock Outstanding
------------------- ------------ -----------------
*John D. Brasher, Jr. ................... 2,929,853 (1) 57.9%
90 Madison Street
Suite 707
Denver, Colorado 80206
*Johnny D. Brasher ...................... 250,000 4.9%
P.O. Box 1686
Ferriday, Louisiana 71334
*All directors and executive
executive officers (2 persons) .... 3,179,853 62.9%
(1) 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.
Changes in Control
Management of the Company does not anticipate any change of control in the
management of the Company except as may occur in connection with completing a
combination or originating a business.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Cerx was indebted to its principal shareholder and President, John D.
Brasher Jr., at December 31, 1998, for cash loans and accrued interest. At year
end, Cerx owed Mr. Brasher an aggregate of $159,372 in principal and $18,741 in
interest (at 8% simple interest per annum) pursuant to promissory notes. During
1998, John D. Brasher Jr. loaned an additional $61,850 to the Company, which the
Company used to partially repay advances it received in 1997 on an offering of
the Company's stock under Regulation S which was never completed.
Otherwise, there were no transactions, or series of transactions, for the
year ended December 31, 1998, 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.
12
<PAGE>
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 Venture Corporation.
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
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
13
<PAGE>
3.11 Certificate of Amendment of the Company (changing name
to Cerx Venture Corporation) as filed with the Nevada
Secretary of State on March 23, 1998............................ 1
3.12 Certificate of Amendment of the Company (withdrawing
authorization creating and designating the Series A,
6.75% Nonvoting Convertible Preferred Stock, as filed
with the Nevada Secretary of State on March 23, 1998............ 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
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, 1998.
(c) Financial statements and supplementary data.
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report ........................................... F-1
Balance Sheet as of December 31, 1998 .................................. F-3
Statements of Operations for years ended
December 31, 1998 and 1997 and for the period
April 4, 1989 (inception) through December 31, 1998 ................... F-4
Statements of Cash Flows for years ended
December 31, 1998 and 1997 and for the period
April 4, 1989 (inception) through December 31, 1998 ................... F-5
Statement of Stockholders' Deficit
for the period April 4, 1989 (inception)
through December 31, 1998 ............................................. F-6
Notes to Financial Statements .......................................... F-8
14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Cerx Venture Corporation
Denver, Colorado
I have audited the accompanying balance sheet of Cerx Venture Corporation (a
development stage company) as of December 31, 1998, and the related statements
of operations, cash flows and changes in stockholders' deficit for the two years
then ended and the 1998, 1997 and 1996 amounts included in the cumulative
amounts from April 4, 1989 (inception) through December 31, 1998. These
financial statements are the responsibility of the management of Cerx Venture
Corporation. My responsibility is to express an opinion on these financial
statements based on my audit. The financial statements of Cerx Venture
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 Venture Corporation (a
development stage company) as of December 31, 1998, and the results of its
operations and cash flows for the two years then ended and the 1998, 1997 and
1996 amounts included in the cumulative amounts from April 4, 1989 (inception)
through December 31, 1998, in conformity with generally accepted accounting
principles.
F-1
<PAGE>
To the Board of Directors
Cerx Venture 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.
March 29, 1999
Aurora, Colorado
F-2
<PAGE>
CERX VENTURE CORPORATION
(A Development Stage Company)
Balance Sheet
December 31, 1998
ASSETS
------
Current assets:
Cash $ 1,014
---------
$ 1,014
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities: (Notes A and F)
Accounts payable $ 2,580
Advances 14,590
Accrued interest 18,741
Promissory notes to an officer/stockholder 159,372
---------
195,283
---------
Stockholders' deficit: (Notes B, C 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 -
5,002,838 shares 5,003
Additional paid-in capital 220,992
Deficit accumulated during the development stage (420,264)
---------
Total stockholders' deficit (194,269)
---------
$ 1,014
=========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CERX VENTURE CORPORATION
(A Development Stage Company)
Statements of Operations
April 4, 1989
(inception) to
Year Ended December 31, December 31,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Costs and expenses: (Notes C, D, E and F)
Costs related to attempted
business acquisitions $ -- $ 37,593 $ 192,020
General and administrative 7,885 40,585 143,038
Interest 10,525 7,744 18,742
Offering costs -- 48,430 66,464
----------- ----------- -----------
Net loss $ (18,410) $ (134,352) $ (420,264)
=========== =========== ===========
Loss per common share $ (.004) $ (.027)
=========== ===========
Weighted average common shares outstanding 5,002,838 4,985,440
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CERX VENTURE CORPORATION
(A Development Stage Company)
Statements of Cash Flows
April 4, 1989
(inception) to
Year ended December 31, December 31,
1998 1997 1998
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (18,410) $(134,352) $(420,264)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Capital contribution by an officer/
stockholder -- 53,343 53,343
Common stock issued for costs
advanced and services -- -- 151,112
Changes in operating assets and liabilities:
Accounts payable 2,441 139 2,580
Advances (60,000) 74,590 14,590
Accrued interest 10,524 7,744 18,741
Due to an officer/stockholder -- (16,164) --
--------- --------- ---------
Net cash used in operating activities (65,445) (14,700) (179,898)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from promissory notes 61,850 14,500 159,372
Proceeds from sale of common stock -- 2,500 21,540
--------- --------- ---------
Net cash provided by financing activities 61,850 17,000 180,912
--------- --------- ---------
Net increase (decrease) in cash (3,595) 2,300 1,014
Cash at beginning of year 4,609 2,309 --
--------- --------- ---------
Cash at end of year $ 1,014 $ 4,609 $ 1,014
========= ========= =========
Supplemental disclosure of noncash
investing and financing activities:
Capital contribution by an officer/stockholder $ -- $ 53,343 $ 53,343
========= ========= =========
Common stock issued for services and costs advanced $ -- $ -- $ 151,112
========= ========= =========
Interest paid $ -- $ -- $ --
========= ========= =========
Income taxes paid $ -- $ -- $ --
========= ========= =========
The accompanying notes are an integral part of the financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CERX VENTURE CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders' Deficit for the Period
April 4, 1989 (Inception) to December 31, 1998
Deficit
Additional Accumulated
Common Stock Paid-in from
Shares Amount Capital Inception
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Balances, 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)
---------- ---------- ---------- ----------
Balances, December 31, 1989 2,249,985 2,250 16,790 (825)
Net loss (18,014)
---------- ---------- ---------- ----------
Balances, December 31, 1990 2,249,985 2,250 16,790 (18,839)
Net loss (59)
---------- ---------- ---------- ----------
Balances, December 31, 1991 2,249,985 2,250 16,790 (18,898)
Net loss (142)
---------- ---------- ---------- ----------
Balances, December 31, 1992 2,249,985 2,250 16,790 (19,040)
Net loss --
---------- ---------- ---------- ----------
Balances, December 31, 1993 2,249,985 $ 2,250 $ 16,790 $ (19,040)
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
CERX VENTURE CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders' Deficit for the Period
April 4, 1989 (Inception) to December 31, 1998 - continued
Deficit
Additional Accumulated
Common Stock Paid-in from
Shares Amount Capital Inception
------ ------ ------- ---------
Balances, Forward 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)
---------- ---------- ---------- ----------
Balances, December 31, 1994 2,989,985 2,990 17,530 (20,827)
Net loss (12,773)
---------- ---------- ---------- ----------
Balances, 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)
---------- ---------- ---------- ----------
Balances, December 31, 1996 4,952,838 4,953 165,199 (267,502)
Common stock issued for cash,
May 8, 1997, at $.05 per share 50,000 50 2,450 --
Capital contribution 53,343 --
Net loss (134,352)
---------- ---------- ---------- ----------
Balances, December 31, 1997 5,002,838 5,003 220,992 (401,854)
Net loss (18,410)
---------- ---------- ---------- ----------
Balances, December 31, 1998 5,002,838 $ 5,003 $ 220,992 $ (420,264)
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-7
</TABLE>
<PAGE>
CERX VENTURE 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 Venture Corporation, a
development stage company (the "Company"). The Company was incorporated on April
4, 1989 under the laws of the State of Nevada. A majority of the Company's
shareholders have approved a change in the Company's name from Chelsea Atwater,
Inc. to Cerex Entertainment Corporation to Cerx Entertainment Corporation to
Cerx Venture Corporation.
The Company's activities to date, have been directed towards the raising of
capital and two attempted business acquisitions (Note C).
As shown in the financial statements, as of December 31, 1998, the Company had
incurred an accumulated deficit of $420,264 and has limited cash. The Company's
continued existence is dependent on its ability to generate sufficient cash flow
to meet its obligations on a timely basis. Accordingly, the financial statements
do not include any adjustments that might be necessary should the Company be
unable to continue in existence. The Company has been exploring sources to
obtain additional equity or debt financing. The Company has also indicated its
intention to participate in one or more as yet unidentified business ventures,
which management will select after reviewing the business opportunities for
their profit or growth potential.
Income Taxes
- ------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
Loss Per Common Share
- ---------------------
Loss per common share is computed by dividing the net loss by the weighted
average shares outstanding during the period.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reporting amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
F-8
<PAGE>
CERX VENTURE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Fair Value of Financial Instruments
- -----------------------------------
The fair value of the Company's payables, accrued interest and promissory notes
due to an officer/stockholder is not practicable to estimate due to the related
party nature of the underlying transactions and the indefinite payment terms.
Comprehensive Income
- --------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard Number 130 (SFAS 130) "Reporting Comprehensive
Income", that establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
There were no items of comprehensive income as defined by SFAS 130 for any of
the periods presented.
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.
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. All 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.
F-9
<PAGE>
CERX VENTURE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
On May 8, 1997, the Company sold 50,000 shares of common stock to a corporation
for cash. These shares were valued at $.05 per share or $2,500.
On December 30, 1997, Brasher & Company, of which John D. Brasher Jr. is the
sole owner, forgave $53,343 of accrued legal fees and expenses advanced on
behalf of the Company. The Company has recorded this debt forgiveness as a
capital contribution.
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
- ---------------
On February 10, 1997, the Company's Board of Directors 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 were convertible into 5,500,000 common shares of the Company
under certain circumstances. On March 31, 1998, the Company's Board of Directors
approved the withdrawal of the Company's designation of 4,000,000 shares of
preferred stock as Series A, 6.75% Non-Voting Convertible Preferred Stock,
returning such shares to the status of undesignated preferred shares.
The Company has 15,000,000 preferred shares, $.001 par value, authorized but
undesignated. Dividends, voting rights and other terms, rights and preferences
of these preferred shares have not been designated but may be designated by the
Board of Directors from time to time. As of December 31, 1998, no undesignated
preferred shares have been issued or are outstanding.
1994 Compensatory Stock Option Plan
- -----------------------------------
The Company has adopted a compensatory stock option plan (the "CSO Plan") which
allows for the issuance of options to purchase up to 5,000,000 shares of stock
to employees, officers, directors and consultants of the Company. The CSO Plan
is not intended to qualify as an "incentive stock option plan" under Section 422
of the Internal Revenue Code. Options will be granted under the CSO Plan at
exercise prices to be determined by the Board of Directors or other CSO Plan
administrator. The Company will incur compensation expense to the extent that
the market value of the stock at date of grant exceeds the amount the grantee is
required to pay for the options. No options have been granted under the CSO Plan
to date.
1994 Employee Stock Compensation Plan
- -------------------------------------
The Company has adopted an employee stock compensation plan (the "ESC Plan")
which allows for the issuance of up to 5,000,000 shares of stock to employees,
officers, directors and consultants of the Company. The Company will incur
compensation expense to the extent the market value of the stock at date of
grant exceeds the amount the employee is required to pay for the stock (if any).
The ESC Plan will be administered by the Board of Directors or a committee of
directors. As of December 31, 1998, the Company has awarded 2,012,853 shares of
common stock under the ESC Plan.
F-10
<PAGE>
CERX VENTURE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Note C - Attempted Business Acquisitions
The Company charged $154,427 to operations during the year ended December 31,
1996 in connection with two attempted business acquisitions of companies engaged
in the gaming business in the British West Indies. The Company cancelled the
purchase agreements for numerous violations, breaches or failures of
representations and warranties contained in the agreements. Cash advances, legal
fees and travel costs were charged to operations and the Company cancelled all
of its common shares issued on the Company' stock transfer books. All attempts
to complete these acquisitions were terminated in 1996.
During the year ended December 31, 1997 the Company incurred additional costs of
$37,593 relating to these two attempted acquisitions.
Note D - Private Offering
The Company was unsuccessful in making a private offering of its Series A, 6.75%
Non-Voting Convertible Preferred Stock and, therefore, offering costs in the
amount of $48,430 were charged to operations during the year ended December 31,
1997.
Note E - Income Taxes
There is no provision for income taxes since the Company has incurred net
operating losses.
Income taxes at the federal statutory rate is reconciled to the Company's actual
income taxes as follows:
December 31,
---------------------
1998 1997
---- ----
Federal income tax benefit at statutory rate $ (7,180) $(35,647)
State income tax benefit net of federal tax effect -- --
Non deductible expenses -- 7,086
Other -- 1,018
Deferred income tax valuation allowance 7,180 27,543
-------- --------
$ -- $ --
======== ========
F-11
<PAGE>
CERX VENTURE CORPORATION
(A Development Stage Company)
Notes to Financial Statements
The Company's deferred tax assets are as follows:
December 31,
--------------------
1998 1997
---- ----
Accrued expenses $ 5,865 $ 2,512
Net operating loss carryforward 62,128 58,301
Valuation allowance (67,993) (60,813)
-------- --------
$ -- $ --
======== ========
At December 31, 1998, the Company has net operating loss carryforwards of
$198,547 which may be available to offset future taxable income through 2013.
Note F - Related Party Transactions
During 1998, John D. Brasher Jr., the Company's principal shareholder and
president, loaned the Company $61,850 and these funds subsequently were used to
partially repay advances of $60,000.
On December 31, 1998, the Company owed John D. Brasher Jr. an aggregate of
$159,372 in demand promissory notes and $18,741 of accrued interest (8% simple
interest per annum) for cash loans and expenses advanced on behalf of the
Company. The Company has recorded interest expense of $10,525 and $7,744 for the
years ended December 31, 1998 and 1997.
The law firm of Brasher & Company, of which John D. Brasher Jr. is the sole
owner, has provided legal services and advanced expenses on behalf of the
Company in the amounts of $0 and $38,885 for the years ended December 31, 1998
and 1997.
On December 30, 1997, Brasher & Company forgave $53,343 of accrued legal fees
and expenses advanced on behalf of the Company. The Company has recorded this
debt forgiveness as a capital contribution.
The Company utilized office space provided by Brasher & Company at no charge
during the years ended December 31, 1998 and 1997.
F-12
<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 12, 1999
CERX VENTURE CORPORATION
By /s/ John D. Brasher Jr.
------------------------------------------
John D. Brasher Jr., President, Chief
Executive Officer, 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 04/12/99
John D. Brasher Jr. Officer, Chief Financial
Officer, Director
/s/ Johnny D. Brasher
- --------------------- Vice President, Director 04/12/99
Johnny D. Brasher
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE PERIOD ENDING DEC. 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,014
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,014
<PP&E> 0
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<CURRENT-LIABILITIES> 195,283
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0
0
<COMMON> 5,003
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,014
<SALES> 0
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<CGS> 0
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<OTHER-EXPENSES> 18,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,525
<INCOME-PRETAX> 0
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<INCOME-CONTINUING> (18,410)
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