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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 June 30, 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 June 30, 1997 are as follows:
Class of Securities Shares Outstanding
Common Stock, $.001 par value 5,002,838
INDEX
Page of
Report
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets:
As of June 30, 1997 (Unaudited) and December 31, 1996.......... 3
Statement of Operations (Unaudited):
For the six months ended June 30, 1997 and 1996 and
Cumulative from inception (April 4, 1989) through June 30,
1997........................................................... 4
Statements of Cash Flows (Unaudited):
For the six months ended June 30, 1997 and 1996 and
Cumulative from inception (April 4, 1989) through June 30,
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)
June 30, Dec. 31,
1997 1996
--------- --------
ASSETS
------
CURRENT ASSETS
Cash 12,307 2,309
Note receivable 3,074 -
--------- --------
Total Current Assets 15,381 2,309
--------- --------
TOTAL ASSETS 15,381 2,309
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable 4,330 -
Due to officer 55,309 16,637
Promissory notes to officer 97,522 83,022
Short term loan 74,590 -
--------- ---------
Total Liabilities 231,751 99,659
--------- ---------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value;
15,000,000 shares authorized;
5,000,000 shares designated as Series
A, 6.75% Non-Voting Convertible
Prefered Stock; none issued - -
Common stock, $.001 par value; 50,000,000
shares authorized, 5,002,838 shares
issued and outstanding 5,003 4,953
Additional paid-in capital 167,649 165,199
Deficit accumulated during the
development stage (389,022) (267,502)
--------- ---------
Total Stockholders' Deficit (216,370) (97,350)
TOTAL LIABILITIES AND --------- ---------
STOCKHOLDERS' DEFICIT 15,381 2,309
========= =========
See accompanying notes to financial statements.
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statement of Operations
(Unaudited)
Cumulative from
For The Six Months Ended, inception to
June 30, June 30, June 30,
1997 1996 1997
------------ ------------- --------------
Revenues
Interest 74 - 74
------------ ------------- --------------
Total revenue 74 - 74
Costs and Expenses:
Costs related to attempted
business acquisition 13,090 - 162,517
General and administrative 104,474 3,565 199,092
Interest 4,030 - 4,503
Offering costs - - 18,034
------------ ------------- --------------
Total expenses 121,594 3,565 389,146
------------ ------------- --------------
Net loss (121,520) (3,565) (389,072)
============ ============= ==============
Net loss per common share (0.02) (Nil)
============ =============
Weighted average shares
outstanding 4,977,838 3,113,245
============ =============
See accompanying notes to financial statements.
CERX ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
For the Six Months Ended, Cumulative from
June 30, inception to
1997 1996 June 30, 1997
---------- ---------- --------------
Cash flows from operating
activities
Net loss (121,520) (3,565) (389,022)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Note receivable (3,074) - (3,074)
Accounts payable 4,330 - 4,330
Common stock issued for
costs advanced and
services - 2,465 151,112
Increase in amounts due
to officer 38,672 1,100 55,309
---------- ---------- -------------
Net cash used in operating
activities (81,592) - (181,345)
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 2,500 - 21,540
----------- ----------- -------------
Net cash provided by
financing activities 91,590 - 193,652
------------ ------------ -------------
Net increase in cash and
cash equivalents 9,998 - 12,307
------------ ------------ -------------
Cash and cash equivalents
at beg. period 2,309 - -
------------ ------------ -------------
Cash and cash equivalents
at end of period 12,307 - 12,307
============ ============ =============
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 unidentified
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 and second 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 principle 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 notes thereto included in the
Company's annual report on Form 10-KSB for the year ended December
31, 1996.
Note 3.
At the end of the second quarter, the Company owed $97,522 in principal
and $4,030 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. The Company also owed to its legal counsel, Brasher &
Company, which is owned by Mr. Brasher, $55,309 for corporate expenses
advanced and 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 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, 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 successful, 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 obli-
gation 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 second quarter covered by these statements, the Company
realized no revenues and incurred a loss for the quarter of $26,883. The
Company's operations during the second quarter consisted primarily of
activities related to its attempt to raise capital for operations and
preliminary activities looking toward launch ofits 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 number is (303) 355-3063.
Forward-Looking Information
This report contains certain forward-looking statements and information
relating to Cerx that are based on the beliefs of 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",
"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 development
personnel, the inability or failure to recruit and retain qualified research
and development personnel, or the adoption of technology standards which are
different from technologies around which Cerx's business ultimately is built.
Cerx does not intend to update these forward-looking statements.
Liquidity and Capital Resources
Cerx has funded its operations to date exclusively through cash loans and
cash advances provided by shareholders. Cerx did not realize any cash from
equity financing activities in 1996 and has no line of credit or similar
credit facility available to it. However, Cerx currently pays no salaries or
rent, has little in the way of general or administrative overhead expenses,
and has no material capital commitments and will have none unless and until
it is able to raise the equity capital to become operational. Assets and cash
available to Cerx from its management and current shareholders are not
sufficient for Cerx to carry out its business plan described in this report
without additional funding.
As of June 30, 1997, Cerx had accumulated a deficit (net loss) of $389,072
since inception and had $12,307 in cash on hand but no other significant
assets. Cerx was indebted to John D. Brasher Jr., at June 30, 1997, for cash
loans, expenses advanced and legal fees, including $97,522 in principal and
$4,503 in interest for cash loans. In addition, at June 30, 1997, Cerx owed
Mr. Brasher's law firm, Brasher & Company, $55,309 for Cerx expenses advanced
and 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 the offering.
Although no formal loan documents have been executed, Cerx has elected to
treat the advance as a loan. Should the offering be successful, 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 busi-
ness 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 remainder of calendar 1997.
Results of Operations - Second Quarter 1997
During the quarter ended June 30, 1997, the second quarter of the year, Cerx
incurred a net loss of $26,883. Expenses in the second quarter related
primarily to miscellaneous operating costs. 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 incorporation,
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 - Second Quarter 1996
During the quarter ended June 30, 1996, Cerx had no revenues and incurred a
net loss of $3,565. Expenses in the second 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 second quarter of 1996 and incurred only insignificant
administrative or overhead costs. Operations for the quarter consisted
primarily of investigating potential 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 entertainment, 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 communication 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. Market-
ing 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 strategic
alliances with both other content providers and Internet infrastructure
developers in order to establish a "brand" identity and presence on the World
Wide Web. As Cerx establishes this identity and presence through marketing,
high-quality entertainment, a competitive rate structure and aggressive
product acquisition-licensing strategy, management believes that it will have
a unique opportunity to become a significant force in the digital economy.
Through its entertainment networks, Cerx anticipates earning revenues from
many sources, including fees from its network and game subscribers, royalties
and transactional fees from hosted programs, advertising revenues, interest
on deposits, development fees, income from gaming operations, and splitting
of revenues from merchandise and service sales.
Cerx intends to build its 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 networks and derive addi-
tional income from advertising. However, management has determined to
concentrate in the first few years on building a base of paying subscribers
and game players instead of relying on advertising sales, as do many companies
on the Web. Cerx management believes that current advertising-based Internet
business models are not practical due to the general lack of effectiveness of
Web advertising at this time and is not aware of any known to have made money
consistently or on a significant scale.
Cerx is planning its networks to be content-driven and its business orien-
tation 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, characterized by constantly changing and
advancing technology. For these and many other reasons, there can be no
assurance that Cerx's business plan will be successful. For a fuller descrip-
tion 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 applic-
able 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 arrangements for the
purchase, licensing or hosting of advanced Web gambling software and will have
access to professional development teams intimately familiar with the software.
Development of programming for the CWIN network is expected to occur more or
less simultaneously, with Cerx also purchasing, licensing or hosting software
and products developed by independent companies.
4. Market Cerx network platform services to independent producers of
software and media and attempt to purchase, license or obtain hosting agree-
ments 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.
NONE.
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: August 8, 1997
CERX ENTERTAINMENT CORPORATION
/s/ John D. Brasher Jr.
By...........................................................
John D. Brasher Jr.,
Chairman, Chief Exec. Officer,
President, Chief Financial Officer