______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-KSB
_________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934; For the Fiscal Year Ended: September 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-8835
TAURUS PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0736215
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2016 Main Street, Suite 109
Houston, Texas 77002
(Address of principal executive offices, including zip code)
(713) 650-0161
(Registrant's telephone number, including area code)
_________________
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on which Registered
N/A N/A
Securities registered pursuant to 12(g) of the Exchange Act:
Title of Each Class
Common Stock, $.001 par value
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (ii) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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. [ ]
Issuer's revenues for the year ended September 30, 1996 were $88,340. The
aggregate market value of Common Stock held by non-affiliates of the registrant
at September 30, 1996, based upon the last reported sales prices on OTC
Bulletin Board, was $60,000.00 As of September 19, 1997, there were 60,307,749
shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
N/A
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 8
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 7. Financial Statements 11
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of The Exchange Act 13
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial Owners and Management 16
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 17
<PAGE>
PART I
Item 1. BUSINESS
Taurus Petroleum, Inc. (the "Company") was organized in 1977, as a Colorado
corporation, and was engaged in the oil and gas business until 1996. In
November, 1984 Taurus Oil Corporation and The Methane Gas Company were merged
into the Company under Chapter 11 of the Bankruptcy Reform Act of 1978, as
amended. The Company owned interests in 67 productive oil and gas wells
located in Texas, Louisiana, Wyoming, Oklahoma, and Montana, and operated 39 of
the wells, until July 1, 1996, when the Company reached an agreement to sell
substantially all of its oil and gas assets to its principal stockholder,
Thomas P. McDonnell and to Validus Operating, Inc. ("Validus") a corporation
wholly owned by Mr. McDonnell. In exchange for the sale of the assets to Mr.
McDonnell and Validus, which was the Company's largest creditor, Mr. McDonnell
and Validus agreed to assume substantially all of the then existing
indebtedness of the Company. As a result of this transaction, the Company may
be categorized as being a "clean public shell" at the present time, that is a
corporation with a substantial number of stockholders but with only nominal
assets and little or no liabilities, which might ultimately be combined with a
privately-held business.
In July 1996 SBCA Holdings, Inc. ("SBCA") entered into an agreement to acquire
all of the common stock of the Company held individually and/or beneficially by
Mr. McDonnell and Validus. SBCA, which is controlled by Stephen E. Fischer, a
member of the Board of Directors of the Company and currently the President and
Chairman of the Company, acquired a total of 28,262,602 shares from Mr.
McDonnell and Validus which represented approximately 47% of the outstanding
shares of common stock of the Company. In exchange for the shares of common
stock of the Company, SBCA conveyed 17,500 shares of common stock in The Enigma
Group, Inc. ("Enigma"), a private Texas corporation, which Mr. Fischer also
controlled. The Board of Directors of the Company (other than Mr. McDonnell
and Mr. Fischer) determined that the transaction was in the best interest of
the Company as the Board of Directors believed that the liabilities assumed by
Mr. McDonnell were in excess of the asset value of the oil and gas properties
conveyed to him.
Mr. McDonnell is presently a director of the Company although he will not stand
for re-election at the Company's next annual stockholder's meeting. As a
result of these transactions, the Company may be categorized as being a shell
company at the present time.
Entry Into Adult Entertainment Industry
In November, 1996, the Company entered into discussions with Enigma which owns
and operates certain commercial real estate assets in Houston, Texas, as well
as certain adult entertainment venues, for the purposes of exploring mutual
business interests and the desirability of a business combination. As a result
of these discussions the Company decided to enter the adult entertainment
business and is currently in discussions with Enigma related to a business
combination with Enigma. The Company is also engaged in discussions with other
private companies in the adult entertainment business, which are controlled by
Eric Langan, who will be a nominee as a Director at the next annual meeting of
stockholders of the
<PAGE>
Company. Such negotiations are intended to result in
business combinations which will cause the Company to enter into the adult
entertainment business.
It is the Company's intention to acquire existing clubs, and to open new adult
cabarets in metropolitan areas other than Houston, Texas. In general, the
target acquisitions will need to be currently profitable and catering to the
middle income to upper income market. Clubs that are not profitable will be
considered only if the Company's management team determines these operations
are potentially profitable with improved management systems and marketing. In
most acquisitions the Company will seek operations where the real estate can
also be purchased. Start-up projects also will be considered if market and
demographic data meets the Company's standards. However, the Company prefers
to purchase existing operations. Over time the Company will try to cross
market its clubs to not only build its client base but to also build name
recognition.
There are more than 2,500 clubs throughout the United States currently
operating, many of which are owned and managed by their founders. The Company
believes that there are a limited number of buyers for gentlemen's clubs and
that the opportunity presently exists to acquire existing operations from their
owners. The Company believes that with the proceeds from this Offering that it
is well positioned to aggressively pursue the acquisition of these gentlemen's
clubs through the use of not only its cash but its stock.
In determining which cities will be prime locations, a variety of factors will
be considered. The current regulatory environment will be one of the factors.
The city must presently permit alcoholic beverages to be sold in a topless
cabaret or allow alcohol consumption on premises in an all-nude cabaret and
must permit table dancing. Other factors that will be considered are the
availability of locations. The city must have available a number of sites,
located in high traffic commercial areas. The Company also will review
potential competition in the area and will attempt to analyze the current
market conditions and profitability of other adult cabarets in the city. The
proximity to Houston of a particular city will also be considered. In the
early years of expansion, the city must be within easy commuting distance.
This will facilitate the participation of Houston-based management in the
construction and opening of the new club projects. It is anticipated that a
significant number of personnel from the Houston operation will be used to
ensure the same level of quality operations and controls. The existing
business climate will also be of critical importance. The city must have a
significant population of indigenous businessmen, be a recognized tourist
destination and have a well-developed convention business.
Compliance and Controls
The Company will have a policy of ensuring that its business is carried on in
conformity with local, state and federal laws. In particular, the Company's
management will have a "no tolerance" policy as to illegal drug use in or
around its premises. Posters will be placed throughout the clubs to reinforce
this policy as will periodic unannounced searches of the entertainer's lockers.
Entertainers and waitresses who arrive for work will not be allowed to leave
the premises without the permission of management. Once an entertainer does
leave the premises, she will not be allowed to return to work until the next
day. Management will continually monitor the behavior of entertainers,
waitresses and customers to ensure
<PAGE>
that proper standards of behavior are
observed. The Company's management will have the power to suspend an
entertainer for breaches of the Company's rules. In the event an entertainer
is suspended, a consultation with management will be required of the
entertainer.
Management will have in place a policy which provides that all credit card
charges must be approved, in writing, by management before any charges are
accepted. Management will be particularly trained to review credit card
charges to ensure that the only credit card charges approved for payment are
for food, drink and entertainment. A guest's identification is also reviewed
in this process.
Operational and accounting controls are essential to the successful operation
of a cash intensive nightclub and bar business. The Company will implement
internal procedures and controls designed to ensure the integrity of its
operational and accounting records. The Company will use a blind cash check in
and check out procedures. The Company will use a combination of accounting and
physical inventory control mechanisms to ensure a high level of integrity in
its accounting practices. Computers will play a significant role in capturing
and analyzing a variety of information to provide management with the
information necessary to efficiently manage and control the nightclub.
Deposits of cash and credit card receipts will be reconciled each day to a
daily income report. In addition, management will review on a daily basis (i)
cash and credit card summaries which tie together all cash and credit card
transactions occurring at the front door, the bars in the club and the cashier
station, (ii) a summary of the daily bartenders' check-out reports, and (iii) a
daily cash requirements analysis which reconciles the previous day's cash on
hand to the requirements for the next day's operations. These daily computer
reports from the point of sale network will alert management of any variances
from expected financial results based on historical norms.
Competition
The adult entertainment business is highly competitive with respect to price,
service and location, as well as the professionalism of its entertainment. The
Company will compete with a number of adult cabarets. While there are
restrictions on the location of a so-called "sexually oriented business" there
are no barriers to entry into the adult cabaret entertainment market. There
are approximately 36 adult cabarets located in the Houston area which would be
in direct competition with the Company. Although the Company believes that it
will be well-positioned to compete successfully, there can be no assurance that
the Company will be competitive in Houston or any other city.
Governmental Regulations
The Company is subject to various federal, state and local laws affecting its
business activities. A significant portion of revenues will come from the sale
of alcoholic beverages. In Texas, the authority to issue a permit to sell
alcoholic beverages is governed by the Texas Alcoholic Beverage Commission (the
"TABC"), which has the authority, in its discretion, to issue the appropriate
permits. These permits are subject to annual renewal. Renewal of a permit is
subject to protest, which may be made by a law enforcement agency or by a
member of the general public. In the event of a protest, the TABC may hold a
hearing at which time the views of interested parties are expressed. The TABC
has the authority after
<PAGE>
such hearing not to issue a renewal of the protested
alcoholic beverage permit. Other states may have similar laws which may limit
the availability of a permit to sell alcoholic beverages or which may provide
for suspension or revocation of a permit to sell alcoholic beverages in certain
circumstances. The temporary or permanent suspension or revocations of either
of the Permits or the inability to obtain permits in areas of expansion would
have a material adverse effect on the revenues, financial condition and results
of operations of the Company. Prior to expanding into any new market, the
Company will take all steps necessary to ensure compliance with all licensing
and regulatory requirements for the sale of alcoholic beverages as well as the
sale of food.
Various groups have increasingly advocated certain restrictions on "happy hour"
and other promotions involving alcoholic beverages. The Company cannot predict
whether additional restrictions on the promotion of sales of alcoholic
beverages will be adopted, or if adopted, the effect of such restrictions on
its business.
The Company intends to operate adult entertainment businesses in Houston, Texas
and other cities. In January, 1997 the City Council of the City of Houston
passed a comprehensive new ordinance regulating the location of and the conduct
within Sexually Oriented Businesses (the "Ordinance"). The new Ordinance
establishes new distances that Sexually Oriented Businesses ("SOB") may be
located to schools, churches, playgrounds and other sexually oriented
businesses. There are no provisions in the Ordinance exempting previously
permitted sexually oriented businesses from the effect of the new Ordinance.
The Company has entered into discussions with entities that own and operate
SOB's and own the real estate upon which SOB's are located. These entities
have applied for new permits under the new ordinance, but the permits were
denied. The Ordinance provides for an amortization period during which and SOB
can continue to operate as it recaptures its investment. The entities which the
Company has entered into discussions with have been denied amortization, but
intend to appeal this decision. These entities and a number of sexually
oriented businesses have filed suit against the City of Houston to challenge
the constitutionality of the new ordinance, seeking injunctive relief to halt
implementation of the new ordinance until such time as the matter can be
brought before a full and considered hearing. There are other provisions in
the ordinance, such as provisions governing the level of lighting in a sexually
oriented business, the distance between a customer and a dancer while the
dancer is performing in a state of nudity and provisions regarding the
licensing of dancers which may be detrimental to the conduct of business by the
Company and all of these provisions also are the subject of the above mentioned
litigation. The City of Houston has agreed not to enforce the Ordinance until
the constitutionality of the Ordinance has been decided at court trial.
No assurance can be given as to the likelihood of the success of any
litigation filed against the City of Houston, but in the event that such
litigation is unsuccessful the Company will be able to take the benefit of an
amortization provision contained in the new ordinance designed to allow
recovery of a business's investment and which will allow the Company to
continue in business at its present location during the amortization period.
<PAGE>
Future Events
The Company anticipates holdings its next annual meeting of stockholders during
October, 1997. At the stockholder meeting, the Company intends to change its
name to Taurus Entertainment, Inc., to effect a one share for 300 share reverse
stock split of the issued and outstanding shares of common stock of the
Company, to reduce the number of the Company's authorized shares of common
stock to 20,000,000 after the reverse stock split and to authorize 10,000,000
shares of preferred stock of the Company. In addition, the Company intends to
nominate five directors to serve for the ensuing year.
Employees
As of September 8, 1997 the Company had one full time employee, Mr. Fischer.
Transfer Agent
The transfer agent and registrar for the Common Stock and the Warrant Agent for
the Warrants is Colonial Stock Transfer, 455 E. 400 So. #100, Salt Lake City,
Utah, 84111; telephone (801) 355-5740.
Item 2. PROPERTIES
The Company's principal executive offices are located in shared facilities in
Houston, Texas, consisting of a total of approximately 500 square feet. The
Company believes that its offices are adequate for its present needs and that
suitable space will be available to accommodate its future needs.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding. As disclosed
herein in Item 1--Business--Government Regulations, entities with which the
Company has entered into discussions for business combinations have commenced
litigation challenging the constitutionality of the City of Houston SOB
Ordinance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
The Company's Common Stock is traded in the over-the-counter securities market
under the symbol "TAUR" The following table sets forth, for the periods
indicated, the high and low closing bid prices for the Common Stock of the
Company taking into account and restated for all stock splits. The bid prices
are believed to reflect inter-dealer quotations, do not include retail markups,
markdowns or commissions and do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK PRICE RANGE
HIGH BID LOW BID
<S> <C> <C>
1995
First Quarter $ 0.001 $ 0.001
Second Quarter $ 0.001 $ 0.001
Third Quarter $ 0.001 $ 0.001
Fourth Quarter $ 0.001 $ 0.001
<S> <C> <C>
1996
First Quarter $ 0.001 $ 0.001
Second Quarter $ 0.001 $ 0.001
Third Quarter $ 0.001 $ 0.001
Fourth Quarter $ 0.001 $ 0.001
<S> <C> <C>
1997
First Quarter $ 0.001 $ 0.001
Second Quarter $ 0.001 $ 0.001
Third Quarter $ 0.001 $ 0.001
Fourth Quarter (through September 16, 1997) $ 0.001 $ 0.001
</TABLE>
On September 16, 1997 , the last bid price for the Common Stock of the Company
was $0.001 per share. On September 16, there were approximately 4,978
stockholders of record of the Common Stock, including broker-dealers holding
shares beneficially owned by their customers.
<PAGE>
Dividend Policy
The Company has never declared a cash dividend on its Common Stock. The Board
of Directors presently intends to retain all earnings for use in the Company's
business, and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The declaration of dividends in the future, if any, will
be subject to the discretion of the Board of Directors, which will consider
such factors as the Company's results of operations, financial condition,
capital needs and acquisition strategy, among others.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Consolidated net losses were $95,304, $137,056, and $83,119 for fiscal years
1996, 1995 and 1994 respectively. Operating revenue decreased $62,733 during
fiscal 1996, and decreased $98,110 during fiscal 1995, as compared to fiscal
1994. The decrease in operating revenue in fiscal 1996 was due to the decrease
in the price the Company received for its gas along with a reduction in the
quantities of oil and gas production due primarily to the natural production
decline in the Company's properties and the disposal of all oil and gas
properties
The Company produced 1,157 barrels of oil during fiscal 1996 as compared to
3,380 barrels in fiscal 1995 and 5,696 in fiscal 1994. Gas production in
fiscal 1996 was 24,503 MCF as compared to 61,227 MCF in fiscal 1995 and 88,893
MCF in fiscal 1994. The decrease in oil production is due to the aging of the
Company's oil properties combined with the divestiture of wells. The reduction
in gas production is attributed to the natural aging of the gas properties.
Administrative overhead revenue in fiscal 1996 decreased $3,970 compared to
fiscal 1995. This decrease is the result of the loss of administrative
overhead from properties that have been sold or plugged and all operations were
liquidated as of July 1996.
Lease operating expenses for the Company were $59,414, $121,04 and $117,700 for
fiscal 1996, 1995, and 1994, respectively. The decrease in 1996 as compared to
fiscal 1995 is primarily due to discontinuing lease operations.
The Company's depreciation and depletion ("D&D") expense decreased by $20,397
in fiscal 1996 as compared to 1995. The decrease in fiscal 1995 and fiscal
1996 was the result of production volumes being a smaller percentage of
reserves.
The Company's general and administrative expenses increased by $17,406 in
fiscal 1996. This increase is associated with the transition of new management
and a change in the Company's business plan.
<PAGE>
Interest expense decreased to $482 in fiscal 1996 as compared to $10,468 and
$7,656 in fiscal 1995 and 1994, respectively. This is the result of the
Company liquidating the assets of the Corporation to settle its debt
obligation.
For the fiscal year 1996, the Company sold all of its oil and gas properties.
The Company sold one producing property in fiscal 1995 and none in fiscal 1994.
Liquidity and Capital Resources
The Company's current liabilities exceed current assets by $29,844 at September
30, 1996 as compared to a negative working capital of $155,938 at September 30,
1995.
The Company had a negative cash flow of $82,464 (Net loss plus depreciation and
depletion) during fiscal 1996 as compared to the negative cash flow of $103,819
for fiscal 1995 and $42,727 for fiscal 1994. The negative cash flow in fiscal
1996, 1995, and 1994 were funded by loans from its controlling shareholders,
existing cash, issuance of Common Stock and sale of properties.
On December 7, 1992 the Company issued 20,000,000 shares of TPI Common Stock to
Validus Operating, Inc. ("Validus") at $.005 per share as consideration for
$100,000 of the management fees payable to Validus. In addition, TPI converted
a portion of the management fee payable of $99,000 to a long-term note. Also,
on September 30, 1993, TPI converted $50,000 of the management fee payable to
Validus to long-term note. Validus has represented that it will require
payment of future management fees and the notes payable only to the extent of
available cash flow of TPI.
In addition, on December 7, 1992, the Company issued 2,000,000 shares of newly
issued TPI Common Stock to Brian Cornish at $.005 per share as consideration
for the $10,000 owed to Mr. Cornish.
Management is aware that positive steps are needed to increase the Company's
size. In 1996, the Company decided to liquidate the assets of the Company, pay
liabilities and give the Company a new direction. The largest creditor and
President of the Company accepted all the oil and gas assets and certain
liabilities of the Company as payment for his notes to the corporation, past
due management fees and other moneys loaned to the Company. The liabilities of
the company, with the exception of certain accrued administrative costs, of
$149,000, were liquidated. The book value of the assets exchanged was $26,007.
In the view of the Board of Directors, the Company received above market value
for the assets exchanged. This transaction facilitated two objectives. First,
it eliminated the ongoing negative cash flow operations. Second, it made the
"shell company" available as a vehicle to enter other business ventures as
described below.
In July, 1996 SBCA Holdings, Inc. a company controlled by Stephen E. Fischer
exchanged shares of the Enigma Group, Inc., a private Texas corporation, for
Mr. McDonnell's approximately 47% interest in Taurus. The Board of Directors
of Taurus authorized this stock exchange. In April, 1996 Mr. Fischer was
voted Chairman of the Board. At this time it was decided that the Company
would shift its efforts away from the energy industry to the real estate and
adult entertainment
<PAGE>
business. As of the end of the fiscal year 1996 no
transactions were completed, however several business combinations have been
studied.
Item 7. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth in
the "Index to Financial Statements" on page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Ernst & Young L.L.P. ("Ernst & Young"), Certified Public Accountants, of San
Antonio, Texas, audited the financial statements of the Company for the year
ended September 30, 1995. Ernst and Young was dismissed as of January 6, 1997.
Simonton, Kutac & Barnidge, L.L.P. ("SB&K"), Certified Public Accountants, of
Houston, Texas was engaged as the Company's accountant on June 3, 1997.
There were no disagreements between the Company and Ernst & Young, whether
resolved or not resolved, on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which, if not
resolved, would have caused them to make reference to the subject matter of the
disagreement in connection with their report.
The report of Ernst & Young for the past two fiscal years did not contain any
adverse opinion or disclaimer of opinion, excepting a "going concern"
qualification, and was not qualified or modified as to uncertainty, audit scope
or accounting principles.
The decision to change principal accountants was not submitted for approval to
the Board of Directors; the change was made by the Company's President, Stephen
E. Fischer, because SK&B's offices were located near the new principal
executive offices of the Company.
Also, during the Company's two most recent fiscal years, and since then, Ernst
& Young has not advised the Company that any of the following exist or are
applicable:
(1) That the internal controls necessary for the Company to develop reliable
financial statements do not exist, that information has come to their attention
that has lead them to no longer be able to rely on management's
representations, or that has made them unwilling to be associated with the
financial statements prepared by management;
(2) That the Company needs to expand significantly the scope of its audit, or
that information has come to their attention that if further investigated may
materially impact the fairness or reliability of a previously issued audit
report or the underlying
<PAGE
financial statements or any other financial
presentation, or cause him to be unwilling to rely on management's
representations or be associated with the Company's financial statements for
the foregoing reasons or any other reason; or
(3) That they have advised the Company that information has come to their
attention that they have concluded materially impacts the fairness or
reliability of either a previously issued audit report or the underlying
financial statements for the foregoing reasons or any other reason.
Further, during the Company's two most recent fiscal years and since then, the
Company has not consulted Ernst & Young regarding the application of accounting
principles to a specified transaction, either completed or proposed; or the
type of audit opinion that might be rendered on the Company's financial
statements or any other financial presentation whatsoever.
The Company subsequently filed a current report on Form 8-K dated January 10,
1997 which reported the termination of Ernst & Young and included a letter from
Ernst & Young addressed to the Commission pursuant to Regulation S-B Item 304.
The Company subsequently filed a current report on Form 8-K dated June 3, 1997
which reported the engagement of SK&B.
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors are elected annually and hold office until the next annual meeting of
the stockholders of the Company or until their successors are elected and
qualified. Officers are elected annually and serve at the discretion of the
Board of Directors. There is no family relationship between or among any of the
directors and executive officers of the Company.
The following table provides information with respect to all directors and
executive officers of the Company.
Name Age Term as Director
STEPHEN E. FISCHER, Chairman of 49 April 1996-present
the Board of Directors, Chief
Executive Officer,President,
Secretary, and Chief Accounting Officer
BRIAN E. CORNISH, Director 56 August 1987-present
DAVID S. CROCKETT, JR., Director, 51 July 1988-present
CHRISTOPHER N. CURNOW, Director 50 November 1987-present
THOMAS P. MCDONNELL, Director, 43 July 1990-present
WILLIAM B. WEEKLEY, Director 44 April 1996-present
Business Experience
Stephen E. Fischer has been involved in the food and beverage business since
1975. He was elected to the Board of Directors in April, 1996. He has owned
and operated eleven clubs, and one motel project. Mr. Fischer has owned and
operated three adult entertainment clubs in the Houston, Texas area. He has a
B.B.A. degree from the University of North Dakota (1975). His experience
includes club design, construction, and management.
<PAGE>
Brian E. Cornish was elected to the Board of Directors in August, 1987, and
became Chairman of the Board on July 12, 1988. Effective January 1, 1989, Mr.
Cornish became Chairman of the Board and Chief Executive Officer of the
Company. Mr. Cornish is a practicing petroleum geologist who graduated from
the University of Adelaide in Economic Geology in 1960. He subsequently has
gained wide experience in resource exploration both in the Australian and
international oil exploration industry which included a number of years with
The Superior Oil Co. Group. He has been a consulting geologist to a number of
resource oriented corporations. Mr. Cornish is an active member of a number of
professional petroleum and mineral organizations both in Australia and the
United States. Since 1967 he has been the Geologist and Managing Director of
B.E. Cornish & Associates Pty. Ltd., geological and technical consultants, of
Sydney, Australia. Mr. Cornish is Chairman and Managing Director of both
Cornwall Resource Corporation N.L. and its wholly owned subsidiary CPC
Petroleum Corporation N.L. of Sydney.
Thomas P. McDonnell was elected to the Board of Directors in July, 1990. Mr.
McDonnell is a graduate of the University of Florida, where he received his BS
degree in Electrical Engineering in 1975. Mr. McDonnell received an MBA from
Corpus Christi State University in 1978. Mr. McDonnell was employed by
Schlumberger Offshore Services as an Openhole Logging Engineer from 1975 to
1978. Mr. McDonnell was a District Manager of an Openhole logging District for
Birdwell Division of SSC from 1978 to 1980. In 1980 Mr. McDonnell was employed
by WENCO Engineering as a Petroleum Engineer. WENCO is an engineering firm
specializing in production exploration and reservoir engineering. Mr.
McDonnell was involved in reservoir engineering for private companies; however,
his main position involved supervising exploration and development. From 1981
to 1987, Mr. McDonnell was employed as President of McDonnell Oil and Gas
Consultants, Inc. In this position, Mr. McDonnell consulted in the drilling
and completion of numerous wells in Oklahoma, Texas and Tennessee. He also
operated over 50 wells in the Midcontinent Region. In 1984 Mr. McDonnell
formed Validus Operating, Inc. of which he is the President and Chairman of the
Board. Validus Operating, Inc. is an oil and gas production company with
production in Texas, Oklahoma and New Mexico. Along with operating its own
properties, Validus Operating, Inc. operates properties as a third party. Mr.
McDonnell is also Chairman of the Board of Epoch Resources, Inc. an oil and gas
production company with operations in Texas and Oklahoma.
Christopher N. Curnow was elected to the Board of Directors in November, 1987.
On December 15, 1988, Mr. Curnow was elected Vice President of the Company.
Mr. Curnow has over 20 years' experience in the petroleum industry since
graduating from the University of Adelaide with a Bachelor of Science (Honors)
degree in 1968. Mr. Curnow spent 13 years with Exxon Corporation both in
Australia and Canada, the USA and Malaysia. During these years, he gained a
wide range of experience in technical, operational and management aspects of
the oil industry. Since 1981 Mr. Curnow has been a consultant specializing in
the management and technical supervision of oil and gas activities of several
Australian companies. Mr. Curnow has been associated with Cornwall Resource
Corporation N.L. since January 1986 and has been responsible for the management
of the petroleum interests of the Cornwall Group of Companies. Since 1982 Mr.
Curnow has been Chief Executive Officer of Centaur Petroleum Pty. Ltd., a
company engaged in oil exploration in Australia. Mr. Curnow is a Director of
Cornwall Resource Corporation N.L. of Sydney, Australia.
<PAGE>
David S. Crockett, Jr. was elected to the Board of Directors in July, 1988.
Mr. Crockett has been President of David S. Crockett & Co., certified public
accountants, since July 1972. Since April 1983, Mr. Crockett has been
Assistant Treasurer, and since May 1984 Vice President of Stonetex Oil Corp.
William B. Weekley holds an MBA from the University of Texas. Mr. Weekley was
elected to the Board of Directors in April, 1996. During the past twelve years
he has been an independent consultant providing financial advisory services,
and a private investor in the oil & gas and entertainment industries. He has
been the President of HarCor Capital Markets Inc. which is an investment
banking firm, and he presently serves as the Chairman of Cambridge Trading and
Transportation, Inc. and Pen Roy Oil Company.
Certain Securities Filings
The Company believes that the following persons are each late in filing Form 5:
Thomas P. McDonnell, David S. Crockett, Jr., Brian E. Cornish, William B.
Weekley, Christopher N. Curnow, and Stephen E. Fischer. The Company also
believes that Messrs. Fischer and McDonnell are each late filing one
transaction on Form 4 reporting the acquisition by Mr. Fischer of common stock
of the Company from Mr. McDonnell.
Item 10. EXECUTIVE COMPENSATION
Mr. Stephen E. Fischer became Chairman of the Board of Directors, President and
Chief Executive Officer of the Company in April 1996. During 1996, Mr. Fischer
did not receive any compensation for the services he rendered to the Company.
Mr. Thomas P. McDonnell served as Director and President during 1995 and until
Mr. Fischer replaced him in April, 1996. No executive officer of the Company
received compensation in 1995 or 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Annual Compensation All
Principal Other
Position Year Salary Bonus Other Compensation
<S> <C> <C> <C> <C> <C>
Stephen E. Fischer
Chief Executive Officer 1996 -0- -0- -0- -0-
Thomas P. McDonnell
Formerly, Chief Executive 1996 -0- -0- -0- -0-
Officer 1995 -0- -0- -0- -0-
</TABLE>
Director Compensation
The Company does not currently pay any cash director's fees, but it pays the
expenses, if any, of its directors in attending board meetings.
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 1, 1997 with
respect to the beneficial ownership of shares of Common Stock by (i) each
person who owns beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each executive officer of the
Company and (iv) all executive officers and directors of the Company as a
group. Each stockholder has sole voting and investment power with respect to
the shares shown.
<TABLE>
<CAPTION>
Shares of
Name of Beneficial Owner Common Stock % of Total
<S> <C> <C>
Stephen E. Fischer 28,262,602(1) 46.87%
Christopher N. Curnow 15,425,611(2) 25.73%
Brian E. Cornish 6,250,000 10.42%
David S. Crockett -0- -0-
William B. Weekley -0- -0-
Thomas P. McDonnell -0- -0-
All directors and officers
as a group (6 persons) 49,938,213 83.29%
_____________________
<FN>
(1)Includes holdings of SBCA Holdings, Inc. which is controlled by Stephen E.
Fischer.
(2) Includes shares of Centaur Petroleum Pty. Ltd. which is controlled by
Christopher N. Curnow.
</TABLE>
The Company has entered into discussions for business combinations with
entities in the adult entertainment business which are controlled by Eric
Langan. Mr. Langan will be a nominee for Director of the Company at the next
annual meeting of stockholders of the Company, anticipated to be held in
October 1997. The Company's discussions with Mr. Langan have not resulted in
any definitive agreements as of the date hereon. In the event that a business
combination is consummated with such entities, Eric Langan could acquire
control of the Company.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was operated by Validus Operating, Inc. ("Validus") under a
Management Agreement, which was originally effective April 1, 1990 and had been
extended through January 31, 1996. Under the terms of this agreement, Validus
was entitled to receive $10,000 per month for its services. Validus is an oil
and gas operating company of which Thomas P. McDonnell is the sole stockholder.
Mr.
<PAGE>
McDonnell currently serves as a member of the Board of Directors. On
December 7, 1992, the Company issued 20,000,000 shares of the Company's Common
Stock to Validus at $.005 per share as consideration for $100,000 of the
management fees payable to Validus. In addition, the Company converted the
remaining management fee payable of $99,000 to a long-term note payable. Also
on September 30, 1993, the Company converted an additional $50,000 of
management fee payable to a long-term note payable. The principal of both
notes would have been amortized over a 10 year period at the prevailing monthly
prime rate of interest. In an effort to eliminate the liabilities of the
Company, the Board of Directors decided to divest all the oil and gas assets of
the Company in exchange for the extinguishment of the debt owed to Validus. In
July, 1996, the Company reached an agreement to sell substantially all of its
oil and gas assets to its principal stockholder, Mr. McDonnell and to Validus.
In exchange for the sale of the assets to Mr. McDonnell and Validus, which was
the Company's largest creditor, Mr. McDonnell and Validus agreed to assume
substantially all of the then existing indebtedness of the Company. This
transaction was effective July 1, 1996.
SBCA Holdings, Inc. ("SBCA") entered into an agreement to acquire all of the
common stock of the Company held individually and/or beneficially by Mr.
McDonnell and Validus. SBCA, which is controlled by Stephen E. Fischer, a
member of the Board of Directors of the Company and currently the President and
Chairman of the Company, acquired a total of 28,262,602 shares from Mr.
McDonnell and Validus which represented approximately 47% of the outstanding
shares of common stock of the Company. In exchange for the shares of common
stock of the Company, SBCA conveyed 17,500 shares of common stock in The Enigma
Group, Inc. ("Enigma"), a private Texas corporation, which Mr. Fischer also
controlled. The Board of Directors of the Company (other than Mr. McDonnell
and Mr. Fischer) determined that the transaction was in the best interest of
the Company as the Board of Directors believed that the liabilities assumed by
Mr. McDonnell was in excess of the asset value of the oil and gas properties
conveyed to him.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Identification of Exhibit
10.1 Agreement between the Company and Thomas P. McDonnell
27.1 Financial Data Schedule
____________________
(b) Reports on Form 8-K.
A report on Form 8-K was filed on July 22, 1996, which reported a change in
control, disposition of assets, and other events.
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
FINANCIAL STATEMENTS
For the Years Ended September 30, 1996 and 1995
and
Report of Independent Auditors
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Taurus Petroleum, Inc.
We have audited the consolidated balance sheets of Taurus Petroleum, Inc. and
Subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the management of Taurus Petroleum, Inc.. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits 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 consolidated 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. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements included herein present
fairly, in all material respects, the financial position of Taurus Petroleum,
Inc. and Subsidiaries at September 30, 1996, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Taurus
Petroleum, Inc. will continue as a going concern. As more fully discussed in
Note 1, the Company has incurred recurring operating losses and has a working
capital deficiency. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. These financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
September 15, 1997
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30,
1996 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 156 $ 2,174
Accounts receivable:
Joint interest owners, net of allowance for
doubtful accounts of $17,009 in 1995 -- 5,650
Oil and gas sales -- 24,809
_________ _________
Total accounts receivable -- 30,459
Other current assets -- 17,163
_________ _________
Total Current Assets 156 49,796
_________ _________
Property and Equipment, at cost:
Oil and gas properties, successful
efforts methods (Notes 1 and 7)
Unproved oil and gas properties -- 17,285
Proved oil and gas properties -- 2,145,930
Other -- 36,110
-- 2,199,325
Less accumulated depreciation and depletion -- 1,888,241
_________ _________
Net Property and Equipment -- 311,084
_________ _________
Other assets 26,844 --
_________ _________
Total Assets $ 27,000 $ 360,880
___________ ___________
CONSOLIDATED BALANCE SHEETS
</TABLE>
The following notes are an integral part of these financial statements
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
<TABLE>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
Current Liabilities:
Accounts payable - trade $ 30,000 $ 61,000
Accounts payable - related parties -- 107,396
Current portion of notes payable -
related parties -- 21,922
Undistributed oil and gas sales -- 13,451
Other current liabilities -- 1,965
---------- ----------
Total Current Liabilities 30,000 205,734
---------- ----------
Notes payable - related parties, net of
current portion -- 92,358
Stockholders' Equity:
Common stock, par value $.001; authorized
200,000,000 shares; issued 60,307,749
shares in 1996 and 1995 60,307 60,307
Additional paid-in capital 3,111,844 3,082,328
Accumulated deficit (since date of
reorganization in November 1994) (3,092,578) (2,997,274)
----------- -----------
79,573 145,361
Less treasury stock, 353,707 shares at cost (82,573) (82,573)
----------- -----------
Total Stockholders' (Deficit) Equity (3,000) 62,788
----------- -----------
Total Liabilities and Stockholders'
(Deficit) Equity $ 27,000 $ 360,880
------------- -------------
</TABLE>
The following notes are an integral part of these financial statements
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended
September 30,
1996 1995
<S> <C> <C>
Operating Revenue:
Oil and gas sales $ 82,782 $ 141,545
Administrative overhead 5,558 9,528
___________ __________
88,340 151,073
Costs and operating expenses:
Lease operating, including taxes 59,414 121,043
Depreciation and depletion 12,840 33,237
General and administrative 50,964 33,558
Management agreement 60,000 120,000
Bad debt provision -- 8,811
----------- -----------
183,218 316,649
----------- -----------
Loss from operations (94,878) (165,576)
Other income (expense):
Interest expense (482) (10,468)
Gain on sale of property and equipment -- 37,723
Other 56 1,265
----------- -----------
(426) 28,520
Net loss $ (95,304) $ (137,056)
---------------- ---------------
Net loss per common share $ (0.00) $ (0.00)
---------------- ---------------
Weighted average number of
common shares outstanding 60,307,749 59,954,042
---------------- ---------------
</TABLE>
The following notes are an integral part of these financial statements
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
For the Years Ended September 30, 1996 and 1995
<CAPTION> Total
Additional Less Stockholders'
Common Stock Paid-In Accumulated Treasury (Deficit)
Shares Amount Capital Deficit Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 60,307,749 $ 60,307 $ 3,082,328 $ (2,860,218) $ (82,573) $ 199,844
Net loss -- -- -- (137,056) -- (137,056)
---------- -------- ----------- ------------- ---------- ----------
Balance, September 30, 1995 60,307,749 60,307 3,082,328 (2,997,274) (82,573) 62,788
Contributed capital -- -- 29,516 -- -- 29,516
Net loss -- -- -- (95,304) -- (95,304)
---------- -------- ----------- ------------- ---------- ----------
Balance, September 30, 1996 60,307,749 $ 60,307 $ 3,111,844 $ (3,092,578) $ (82,573) $ (3,000)
---------- -------- ----------- ------------- ---------- ----------
</TABLE>
The following notes are an integral part of these financial statements
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended
September 30,
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (95,304) $ (137,056)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and depletion 12,840 33,237
Gain from sale of property and equipment -- (37,723)
Bad debt provision -- 3,217
Other changes in current assets and
liabilities relating to operations (128,112) 94,358
--------- ----------
Net cash provided by (used in) operating
activities (210,576) (43,967)
Cash Flows from Investing Activities:
Net proceeds from sale of property
and equipment 311,084 70,000
Capital expenditures -- (11,524)
Increase in other assets (26,844) --
--------- -----------
Net cash provided by (used in) investing
activities 284,240 58,476
Cash Flows from Financing Activities:
Note payments (92,358) (13,235)
Other 16,676 --
--------- ------------
Net cash (used in) financing activities (75,682) (13,235)
--------- ------------
Net increase (decrease) in cash (2,018) 1,274
Cash and cash equivalents:
Beginning of year 2,174 900
-------- ------------
End of year $ 156 $ 2,174
---------- -------------
</TABLE>
The following notes are an integral part of these financial statements
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<CAPTION>
For the Years Ended
September 30,
1996 1995
<S> <C> <C>
Supplemental disclosure of cash
flow information:
Cash paid during the year
for interest $ 482 $ 9,190
------- -------
Supplemental schedule of noncash
investing and financing activities:
Conversion of accounts payable
to common stock $ -- $ --
Conversion to accounts payable ------- -------
to note payable $ -- $ --
Purchase of oil and gas properties ------- -------
for reduction in accounts receivable $ -- $ --
------- -------
</TABLE>
The following notes are an integral part of these financial statements
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation --- The accompanying consolidated financial
statements include the accounts of Taurus Petroleum, Inc. ("TPI" or the
"Company") and its wholly owned subsidiaries for year ended September 30, 1996.
The Company's only significant subsidiary was Ridgeway Exco, Inc. ("Ridgeway").
All intercompany balances and transactions have been eliminated in
consolidation, and Ridgeway is no longer a subsidiary at September 30, 1996.
Effective July 1, 1996, SBCA Holdings, Inc. acquired all the common stock
previously controlled individually and/or beneficially by Thomas P. McDonnell
and Validus Operating, Inc., (8,262,602 and 20,000,000, respectively) for a
total of 28,262,602 shares or 46.87% of the Company's common stock. SBCA
Holdings, Inc. exchanged 17,500 shares of common stock it owns in a private
company, The Enigma Group, Inc., for the aforementioned common stock of the
Company. SBCA Holdings, Inc. is controlled by Mr. Stephen E. Fischer. The
Board of Directors of the Company appointed Mr. Stephen E. Fischer to the Board
of Directors and appointed Mr. Fischer as Chairman of the Board on April 29,
1996. The Company has entered into business combination discussions with
entities controlled by Mr. Fischer, as well as other entities.
These financial statements have been prepared on the "going concern" basis,
which presumes that the Company will be able to realize its assets and
discharge its liabilities in the normal course of business for the foreseeable
future.
The Company's continuation as a "going concern" is dependent on the
establishment of profitable operations, and upon either the continued financial
support of its principal shareholders or upon the ability of the Company to
raise additional capital. Management is pursuing various options to attract
capital, including infusions of cash and mergers. The outcome of these matters
cannot be predicted at this time. These financial statements do not include
any adjustments to the amounts and classification of assets and liabilities
that might be necessary should the Company be unable to continue in business.
Property and Equipment --- The Company follows the successful efforts method
of accounting for its oil and gas producing activities. Under this method of
accounting, all property acquisition costs and well costs of exploratory and
development wells are capitalized when incurred, pending determination of
whether the well will be productive. If any exploratory well is nonproductive,
the capitalized costs of drilling the well, net of any salvage value, are
charged to expense. The cost of development wells are capitalized, whether the
well is productive or unproductive. Unproved properties are assessed
periodically to determine whether there has been a decline in value, and if
such decline is indicated, a loss is recognized.
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties, including delay rentals, are expenses as incurred.
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation and depletion are computed separately on each individual prospect.
Proved property leasehold and mineral rights are depleted on the unit-of-
production method over the estimated total proved reserves of the individual
prospects. Completed well costs are depreciated on the unit-of-production
method over the estimated proved developed reserves of each well.
The Company uses the present value of net revenue from proved oil and gas
reserves, based on constant prices in assessing the recorded net investment in
proved oil and gas properties.
Depreciation of other property and equipment is computed on the straight line
method over estimated useful lives ranging from 5 to 10 years.
Federal Income Tax --- The Company records income taxes under Financial
Accounting Standards Board Statement No. 109 using the liability method (See
Note 3). Under this method, deferred tax assets and liabilities are measured
by using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to the adoption of Statement No.
109, income tax expense was determined using the deferred method. Deferred tax
expense was based on items of income and expense that were reported in
different years in the financial statements and tax returns and were measured
at the tax rate in effect in the year the differences originated.
Loss Per Common Share --- Loss per common share was computed by dividing the
net loss by the weighted average number of common shares outstanding during the
respective periods.
Cash Equivalents --- For purposes of the statement of cash flows, all highly
liquid investments with original maturities of three months or less are
considered to be cash equivalents.
Oil and Gas Sales --- The Company recognizes revenue for its oil and gas
sales when produced and delivered to the purchaser.
Gas Balancing --- The Company recognizes the sale of gas when the gas is
produced and delivered to the purchasers. At this time the Company's exposure
with respect to gas imbalances is minimal. The Company has no gas imbalance
situations involving its operated properties. Outside operated properties may
have gas imbalance situations. However, if present, the effect to the Company
would be minimal, due to the Company's small ownership in outside operated
properties.
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
NOTE 2 - NOTES PAYABLE
At September 30, 1995, notes payable consisted of unsecured notes in the
original amounts of $99,000 and $50,000 due in monthly installments through
2002 and 2004, respectively. The notes were payable to Validus Operating, Inc.
and bear interest at the prime rate of six and one half percent at September
30, 1995. These notes were extinguished as part of the change of ownership and
control effective July 1, 1996.
NOTE 3 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. There are no
significant temporary differences.
Deferred tax assets consist of the Company's net operating losses. Due to past
operating losses and the probable limitations on the future use of the
operating loss carryforwards as discussed below, a valuation allowance to
offset the deferred tax assets has been established at September 30, 1996.
As a result of the business and ownership changes discussed in Notes 1 and 6,
it is unlikely that the Company will ever be able to utilize the net operating
loss carryforwards or unused investment tax credits that have accumulated over
past years.
NOTE 4 - STOCK OPTIONS AND COMPENSATION
On April 24, 1986, the Board of Directors of TPI adopted the 1986 Incentive
Stock Option Plan (the "Option Plan"), reserving 500,000 shares for issuance
under the Option Plan. Under the Option Plan, the Board of Directors may grant
options to the officers and key employees of TPI and its subsidiaries. As of
September 30, 1991, all options granted under this plan have expired. At
September 30, 1995, options to purchase 500,000 shares remained available for
grant under the plan, however, the plan was terminated on April 24, 1996.
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
NOTE 5 - MAJOR CUSTOMERS
Sales to individual customers which as a percentage of total revenue exceeded
10% were as follows:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
<S> <C> <C>
Customers 1996 1995
Detroit of Texas (Gulf Coast Pipeline) 64% 44%
Texaco Trading & Transportation 26% --
Enron Oil Trading & Transportation (EOTT) -- 17%
Longhorn Production -- 10%
</TABLE>
NOTE 6 - SIGNIFICANT SUBSEQUENT EVENTS
In addition to the change of ownership and control effective July 1, 1996 (See
Note 1), the Company's business and operations have also changed significantly.
It has divested itself of all oil and gas assets and will no longer continue in
this business. The Company plans to enter the entertainment business.
NOTE 7 - RELATED PARTY TRANSACTIONS
Prior to July 1, 1996, TPI was operated by Validus Operating, Inc. (Validus)
under a Management Agreement, which was originally effective April 1, 1990, and
has been extended through January 31, 1996. Under the terms of this agreement,
Validus is entitled to $10,000 per month for its services. Validus is an oil
and gas operating company controlled by Thomas P. McDonnell ("McDonnell"). Mr.
McDonnell currently serves as a member of the Board of Directors. On December
7, 1992, the Company issued 20,000,000 shares of TPI Common Stock to Validus at
$.005 per share as consideration for $100,000 of the management fees payable to
Validus. In addition, TPI converted the remaining management fee payable at
September 30, 1992 of $99,000 to a long-term note payable. Also on September
30, 1993, TPI converted an additional $50,000 of management fee payable to a
long-term note payable. The principal of both notes would have been amortized
over a 10 year period at the prevailing monthly prime rate of interest. In an
effort to eliminate the liabilities of the Company, the Board of Directors
decided to divest all of the oil and gas assets of the Company in exchange for
the extinguishment of the debt owed to Validus. These assets were divested to
Mr. Thomas P. McDonnell currently the sole shareholder of Validus Operating,
Inc. The liabilities exceeded the asset value of the Company. This
transaction was effective July 1, 1996.
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
NOTE 8 - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES
At September 30, 1996 and 1995, capitalized costs and the accumulated
depreciation and depletion relating to the Company's oil and gas producing
activities, all of which are in the United States, were as follows:
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
Unproved oil and gas properties $ -- $ 17,285
Proved oil and gas properties -- 2,145,930
Accumulated depreciation and depletion -- (1,852,597)
------- -----------
Net capitalized costs $ -- $ 310,618
------- -----------
</TABLE>
Costs incurred, capitalized and expensed in connection with oil and gas
producing activities for the years ended September 30, 1996 and 1995 were as
follows:
<TABLE>
1996 1995
<S> <C> <C>
Property acquisition costs:
Proved $ -- $ 11,524
Unproved -- --
Exploration costs -- --
Depreciation and depletion 12,640 33,107
Results of operations from oil and gas producing activities for the years ended
September 30, 1996 and 1995 were as follows:
</TABLE>
<TABLE>
1996 1995
<S> <C> <C>
Oil and gas leases $ 82,782 $ 141,545
Lease operating costs (59,414) (121,043)
Depreciation and depletion (12,640) (33,107)
General and administrative (10,482) (16,779)
---------- -----------
Results of operations for producing
activities, excluding corporate
overhead and interest expense $ 246 (29,384)
---------- -----------
</TABLE>
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
NOTE 8 - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (Continued)
No income taxes are reflected in the above table due to the effect of tax
credits and loss carryforwards related to oil and gas producing activities.
A summary of changes in quantities of proved oil and gas reserves for the years
ended September 30, 1996 and 1995 is as follows (all reserves are proved
developed) (unaudited):
<TABLE>
<CAPTION>
Gas Oil
(MCF) (Bbls.)
<S> <C> <C>
Balances, September 30, 1994 1,038,861 32,434
Revisions to previous estimates 51,720 (9,276)
Sales of Reserves in Place -- (13,575)
Production (61,227) (3,380)
----------- ---------
Balances, September 30, 1995 1,029,354 6,203
Sales of Reserves in Place (1,004,851) (5,046)
Production (24,503) (1,157)
----------- --------
Balances, September 30, 1996 $ -- $ --
------------- -----------
</TABLE>
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
NOTE 8 - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (Continued)
The standardized measured of discounted future net cash flows relating to
proved oil and gas reserves at September 30, 1996 and 1995 are as follows
(unaudited):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Future cash inflows $ -- $ 1,355,556
Future production and development costs -- (648,945)
--------- -------------
Future net cash flows -- 706,611
10% annual discount for estimated
timing of cash flows -- 337,675
--------- --------------
Standardized measure of discounted
future net cash flows $ -- $ 368,936
------------ --------------
</TABLE>
The changes in the standardized measure of discounted future net cash flows
relating to proved oil and gas reserves for the years ended September 30, 1996
and 1995 are as follows (unaudited):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Sales of oil and gas produced, net
of production costs $ -- $ (20,502)
Net change in prices and production costs -- (222,080)
Revisions of previous quantity estimates -- (1,400)
Sales of reserves in place (368,936) (84,000)
Net change in discount -- 185,642
Other -- (162,444)
--------- ---------
Net increase (decrease) (368,936) (304,784)
Beginning of period 368,936 673,720
--------- ---------
End of period $ -- $ 368,936
----------- -----------
</TABLE>
<PAGE>
TAURUS PETROLEUM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 AND 1995
NOTE 8 - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (Continued)
The estimate of proved reserves and related valuations for 1996 and 1995 were
determined by an independent petroleum engineering firm. The standardized
measure of discounted future net cash flows relating to proved oil and gas
reserves and the changes in standardized measure of discounted future net cash
flows relating to proved oil and gas reserves were presented in accordance with
the provisions of Statement of Financial Accounting Standard No. 69. The
standardized measure does not purport to represent the fair market value of the
Company's proved oil and gas reserves. An estimate of fair market value would
also take into account, among other factors, anticipated future changes in
prices and costs and a discount factor more representative of the time value of
money and the risks inherent in reserve estimates. Under the standardized
measure future cash inflows were computed by applying year-end prices to
estimated future production of year-end reserves. Future production and
development costs are computed by estimating the expenditures to be incurred in
developing and producing the proved oil and gas reserves at year-end, based on
year-end costs and assuming continuation of existing economic conditions. No
future income taxes are reflected due to the effect of tax credits and loss
carryforwards related to oil and gas producing activities. Future net cash
flows are discounted at a rate of 10% annually to derive the standardized
measure of discounted future net cash flows.
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 22
day of September, 1997.
By /s/ Stephen E. Fischer
Stephen E. Fischer
Chairman of the Board, Chief Executive
Officer, President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the undersigned on behalf of the registrant and
in the capacity and on the date indicated.
Date September 22, 1997 By /s/ Stephen E. Fischer
Stephen E. Fischer
Chairman of the Board, Chief Executive
Officer President and Chief Accounting
Officer
Date September 24, 1997 /s/ Thomas P. McDonnell
Thomas P. McDonnell
Director
Date September ___, 1997
Brian E. Cornish, Director
Date September 24, 1997 /s/ Christopher N. Curnow
Christopher N. Curnow, Director
Date September 24, 1997 /s/ David S. Crockett, Jr.
David S. Crockett, Jr., Director
Date September 22, 1997 /s/ William B. Weekley
William B. Weekley, Director
<PAGE>
EXHIBTS
Exhibits No. Identification of Exhibits
10.1 Agreement between the Company and Thomas P. McDonnell
27.1 Financial Data Schedule
<PAGE>
SBCA HOLDINGS, INC.
412 N. SAM HOUSTON PARKWAY EAST
HOUSTON, TEXAS 77060
February 21, 1996
Mr. Thomas P. McDonnell
P.O. Box 790710
San Antonio, Texas 78279
Dear Tom,
Per our conversations over the past few months, SBCA Holdings, Inc. (or its
nominee) is prepared to make the following offer to purchase your beneficial
ownership of Taurus Petroleum, Inc.:
1. SBCA will purchase your beneficial ownership (common stock) of Taurus
Petroleum, Inc. for 1.5% of the common stock of The Enigma Group, Inc. (the
owner of Northbelt Market Investments, Inc./Atcomm Services, Inc./Broadstreets,
Inc.) This ownership position represents approximately 47% of the outstanding
common stock of Taurus.
2. The financial liabilities assumed by SBCA/Taurus will include the remaining
Auditor fees of E. Young and the transfer agent AST for a total not to exceed
$13,500.00. Certain oil and gas properties will be transferred from the
Company before closing and will not be part of this transaction.
3. As the controlling shareholder, SBCA will liquidate the indebtedness of
Taurus to you and all oil and gas related venders, royalty interest and tax
authorities through the exchange of all the oil and gas properties, leases
(producing and non-producing), equipment and prepaid expenses to you or your
nominee. In this regard, you will be responsible for all the aforementioned
liabilities as they pertain to oil and gas related activities of the Company.
4. Upon taking control, you will work with the Company to make the necessary
transition of the properties and corporate activities. It will be your
responsibility to implement the release of title, tile opinions, or other
releases required by you to transfer the properties. It is also required that
to your best knowledge this releases Taurus of any loan obligations.
5. While their will be no requirements that you escrow funds to pay the
liabilities above, SBCA will need reasonable assurance that payment will be
made since the credit reporting, they are the obligations of Taurus if you
default.
6. In the event the Australian investor group requires additional ownership in
Taurus to smooth the transition in ownership, Taurus will issue a pro-rata
shares to you or your nominee.
<PAGE>
It is our desire to complete this transaction as soon as possible with an
effective date of March 1, 1996. We look forward to working with you and
hearing from you in the very near future.
Sincerely yours,
/s/ Stephen E. Fischer
Stephen E. Fischer
Chairman
AGREED AND ACCEPTED THIS 24th DAY OF FEBRUARY 1996
By: /s/ Thomas P. McDonnell
Thomas P. McDonnell
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1997
<CASH> 156
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 156
<PP&E> 26844
<DEPRECIATION> 0
<TOTAL-ASSETS> 27000
<CURRENT-LIABILITIES> 30000
<BONDS> 0
0
0
<COMMON> 60397
<OTHER-SE> (63307)
<TOTAL-LIABILITY-AND-EQUITY> 27000
<SALES> 82782
<TOTAL-REVENUES> 88340
<CGS> 59414
<TOTAL-COSTS> 72254
<OTHER-EXPENSES> 110964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 482
<INCOME-PRETAX> (95478)
<INCOME-TAX> 0
<INCOME-CONTINUING> (94878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95304)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
