- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 8-K
AMENDMENT NO. 1
_________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Earliest Event Reported: December 31, 1997
TAURUS ENTERTAINMENT COMPANIES, INC.
(Exact name of registrant as specified in its charter)
formerly, Taurus Petroleum, Inc.
Colorado 0-8835 84-0736215
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation or organization) Identification No.)
16770 Hedgecroft, Suite 714
Houston, Texas 77060
(Address of principal executive offices, including zip code)
(281) 820-1181
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- ---------------------------------
(a) Financial statements
1. Financial statements of XTC Cabaret, Inc.
a) Balance Sheets of XTC Cabaret, Inc. as of December 31, 1997
(unaudited) and September 30, 1997.
b) Statements of operations of XTC Cabaret, Inc. for the three months
ended December 31, 1997 (unaudited) and for the period November 12, 1996
(inception) to September 30, 1997.
c) Statements of cash flows of XTC Cabaret, Inc. for the three months
ended December 31, 1997 (unaudited) and for the period November 12, 1996
(inception) to September 30, 1997.
2. Financial statements of Citation Land, LLC
a) Balance Sheets of Citation Land, LLC as of December 31, 1997
(unaudited) and September 30, 1997 and 1996.
b) Statements of operations of Citation Land, LLC for the three months
ended December 31, 1997 (unaudited) and years ended September 30, 1997 and 1996.
c) Statements of cash flows of Citation Land, LLC for the three months
ended December 31, 1997 (unaudited) and years ended September 30, 1997 and 1996.
3. Special-purpose financial statements of Atcomm Services, Inc. d/b/a
Broadstreets Cabaret.
a) Statements of assets acquired from Atcomm Services, Inc. d/b/a
Broadstreets Cabaret as of December 31, 1997 (unaudited) and September 30, 1997
and 1996.
b) Statements of operations related to assets acquired from Atcomm
Services, Inc. d/b/a Broadstreets Cabaret for the three months ended December
31, 1997 (unaudited) and years ended September 30, 1997 and 1996.
c) Statements of cash flows related to assets acquired from Atcomm
Services, Inc. d/b/a Broadstreets Cabaret for the three months ended December
31, 1997 (unaudited) and years ended September 30, 1997 and 1996.
4. Special-purpose financial statements of The Enigma Group, Inc.
a) Statements of assets acquired and liabilities assumed from The
Enigma Group, Inc. as of December 31, 1997 (unaudited) and September 30, 1997.
b) Statements of operations related to assets acquired and liabilities
assumed from The Enigma Group, Inc. for the three months ended December 31, 1997
(unaudited) and the year ended September 30, 1997.
c) Statements of cash flows related to assets acquired and liabilities
assumed from The Enigma Group, Inc. for the three months ended December 31, 1997
(unaudited) and the year ended September 30, 1997.
(b) Pro-forma financial information
(c) Exhibits
None.
<PAGE>
ITEM 7(A) 1.
FINANCIAL STATEMENTS OF
XTC CABARET, INC.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
of XTC Cabaret, Inc.
We have audited the accompanying balance sheets of XTC Cabaret, Inc. ("XTC") as
of September 30, 1997, and the related statements of operations and cash flows
for the period November 12, 1996 (Inception) to September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of XTC Cabaret, Inc. as of
September 30, 1997, and the statements of operations and cash flows for the
period November 12, 1996 (Inception) to September 30, 1997, in conformity with
generally accepted accounting principles.
/s/ Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
May 13, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
XTC CABARET, INC.
-----------------
BALANCE SHEETS
--------------
ASSETS
------
December 31, September 30,
1997 1997
-------------- ---------------
(Unaudited)
<S> <C> <C>
Current Assets:
Accounts receivable
Trade, net . . . . . . . . . . . . . . . . . . $ 12,248 $ 5,289
Employees. . . . . . . . . . . . . . . . . . . 8,479 9,968
Other. . . . . . . . . . . . . . . . . . . . . 2,876 1,556
Notes receivable - related party . . . . . . . 84,927 46,623
Prepaid expenses . . . . . . . . . . . . . . . 4,500 --
-------------- ---------------
Total Current Assets . . . . . . . . . . . . 113,030 63,436
-------------- ---------------
Property & Equipment:
Leasehold improvements . . . . . . . . . . . . . 47,196 24,327
Furniture and equipment. . . . . . . . . . . . . 57,379 8,982
-------------- ---------------
104,575 33,309
Less: Accumulated depreciation and amortization. (20,486) (1,642)
-------------- ---------------
Total Property & Equipment . . . . . . . . . 84,089 31,667
-------------- ---------------
Other Assets:
Other assets . . . . . . . . . . . . . . . . . . -- 4,002
-------------- ---------------
Total Other Assets . . . . . . . . . . . . . . -- 4,002
-------------- ---------------
Total Assets . . . . . . . . . . . . . . . . . . . $ 197,119 $ 99,105
============== ===============
LIABILITIES & STOCKHOLDERS' EQUITY
- --------------------------------------------------
Current Liabilities:
Cash overdraft . . . . . . . . . . . . . . . . . $ 23,162 $ 9,565
Accounts payable and accrued liabilities . . . . 71,075 51,944
Income taxes payable . . . . . . . . . . . . . . 24,122 12,216
Note payable - related party . . . . . . . . . . 52,060 --
-------------- ---------------
Total Current Liabilities. . . . . . . . . . 170,419 73,725
-------------- ---------------
Stockholders' Equity:
Common stock, no par value 1,000 shares
authorized, issued and outstanding . . . . . . 1,000 1,000
Retained earnings. . . . . . . . . . . . . . . . 25,700 24,380
-------------- ---------------
Total Stockholders' Equity . . . . . . . . . . 26,700 25,380
-------------- ---------------
Total Liabilities and Stockholders' Equity . . . . $ 197,119 $ 99,105
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
XTC CABARET, INC.
-----------------
STATEMENTS OF OPERATIONS
------------------------
Period from
For the Three November 22,
Months Ended 1996 to
September 30, December 31,
1997 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Operating Revenue:
Cover charge revenue . . . . . $ 474,950 $ 971,122
Floor fee revenue. . . . . . . 64,791 111,722
Bar & Food sales revenue . . . 60,078 96,881
Other revenue. . . . . . . . . 37,330 110,971
-------------- --------------
Total operating revenue. . . 637,149 1,290,696
-------------- --------------
Operating Expenses:
Costs of sales . . . . . . . . 45,748 69,161
Salaries and wages . . . . . . 232,444 558,562
Rent and utilities . . . . . . 185,047 372,687
General and administrative . . 39,461 84,240
Taxes and insurance. . . . . . 45,418 85,740
Advertising. . . . . . . . . . 59,859 80,818
Depreciation and amortization. 15,946 1,642
-------------- --------------
Total operating expenses . . 623,923 1,252,850
-------------- --------------
Income from operations . . . . . 13,226 37,846
-------------- --------------
Other Income (Expense):
Other income (expense), net. . -- (1,250)
-------------- --------------
Total other income (expense) -- (1,250)
-------------- --------------
Income before income taxes . . . 13,226 36,596
Income taxes . . . . . . . . . . 11,906 12,216
-------------- --------------
Net income . . . . . . . . . . . $ 1,320 $ 24,380
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
------------------------
Period from
For the Three November 22,
Months Ended 1996 to
September 30, December 31,
1997 1997
--------------- --------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operations:
Net income . . . . . . . . . . . . . . . . . . . . . $ 1,320 $ 24,380
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and amortization. . . . . . . . . . . 15,946 1,642
Increase in accounts receivable. . . . . . . . . . (6,959) (5,289)
Increase in accounts receivable - employees. . . . 1,489 (9,968)
Increase in accounts receivable - other. . . . . . (1,320) (1,556)
Decrease (increase) in prepaid expenses. . . . . . (4,500) --
Increase in other assets . . . . . . . . . . . . . 4,002 (4,002)
Increase in cash overdrafts. . . . . . . . . . . . 13,597 9,565
Increase in accounts payable and accrued expenses. 19,132 51,944
Increase in income taxes payable . . . . . . . . . 11,906 12,216
--------------- --------------
Net Cash Provided by Operations. . . . . . . . . 54,613 78,932
--------------- --------------
Cash Flows from Investing Activities:
Payments on notes receivable . . . . . . . . . . . (38,305) (46,623)
Cash payments for the purchase of property . . . . (68,368) (33,309)
--------------- --------------
Net Cash Used in Investing Activities. . . . . . (106,673) (79,932)
--------------- --------------
Cash Flows from Financing Activities:
Proceeds from sale of common stock . . . . . . . . -- 1,000
Proceeds from notes payable - related party. . . . 52,060 --
--------------- --------------
Net Cash Provided by Financing Activities. . . . 52,060 1,000
--------------- --------------
Net increase (decrease) in cash. . . . . . . . . . . . -- --
Cash, beginning of year. . . . . . . . . . . . . . . . -- --
--------------- --------------
Cash, end of year. . . . . . . . . . . . . . . . . . . $ -- $ --
=============== ==============
</TABLE>
F-5
<PAGE>
XTC CABARET, INC.
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - BUSINESS
- --------------------
ORGANIZATION - XTC Cabaret, Inc. ("XTC" or "Company") was incorporated on
November 12, 1996 in the State of Texas. Headquartered in Houston, Texas, XTC
operates three adult nightclubs, two in Houston, Texas and one in Austin, Texas.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
REVENUE RECOGNITION - Revenues are recognized when services are performed and
are recorded.
CASH EQUIVALENTS - For purposes of the statement of cash flows, XTC considers
any short-term cash investment with a maturity of three months or less to be a
cash equivalent.
PROPERTY AND EQUIPMENT - Property and equipment is carried at cost.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the asset or over the lease term, if shorter. Lease terms are generally
five to seven years for equipment and furniture.
INCOME TAXES - The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes," which requires the use of the "liability
method" of accounting for income taxes. Deferred taxes are provided using the
liability method whereby deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. As of September 30, 1997, there are no
significant temporary differences for book vs. tax purposes.
USE OF ESTIMATES AND ASSUMPTIONS - Management uses estimates and assumptions in
preparing its financial statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses. Actual
results may vary from the estimates that were used.
F-6
<PAGE>
NOTE 3 - LEASES
- ------------------
The Company, as lessee, has entered into a non-cancelable lease for real estate
with Citation Land, LLC. Eric Langan, the majority shareholder of Citation Land,
LLC, is a majority shareholder of XTC. Future minimum lease payments under
non-cancelable leases at September 30,1997 are as follows:
For the Years Ending Operating
September 30, Leases
-------------- ----------
1998 $ 234,000
1999 234,000
2000 234,000
2001 234,000
2002 234,000
Thereafter 3,330,000
----------
Total minimum lease payments $4,500,000
==========
Rent expense during the years ended September 30,1997 and 1996, for all
operating leases was $261,459 and $98,117, respectively, and is included in
operating expenses.
NOTE 4 - RELATED PARTY TRANSACTIONS
- ----------------------------------------
Notes receivable from related parties consists primarily of working capital
advances to Taurus Entertainment Companies, Inc. and BBI, Inc., entities which
have common shareholders of XTC. These amounts bear no interest and are due upon
demand.
NOTE 5 - SUBSEQUENT EVENTS
- ------------------------------
On December 31, 1997, Taurus Entertainment Companies, Inc. ("Taurus") entered
into a Stock Exchange Agreement with the stockholders of XTC Cabaret, Inc. (the
"XTC Agreement") which provided for the acquisition by Taurus of all of the
outstanding stock of XTC Cabaret, Inc. ("XTC"). XTC operates three adult
entertainment businesses, two in Houston and one in Austin. (On December 31,
1997, Taurus also entered into an Exchange Agreement with the members of
Citation Land, LLC (the "Citation Agreement") which provided for the acquisition
by Taurus of all of the outstanding membership interests in Citation Land, LLC
("Citation")). Citation owns certain real estate in Houston, Texas at which
XTC operates an adult entertainment business. The Company intends to continue
operating XTC as an adult entertainment business.
F-7
<PAGE>
NOTE 5 - SUBSEQUENT EVENTS, CONTINUED
- ------------------------------------------
Pursuant to the terms of the XTC Agreement, Taurus paid the XTC Stockholders an
aggregate of 525,000 shares of common stock of Taurus valued at $1.00 per share.
The XTC Agreement was the result of negotiations between Taurus and the XTC
Stockholders and was based on numerous factors including the Company's estimate
of the value of the assets of XTC which the Company estimated, based upon
current operations and future revenues from its three existing adult nightclubs
to be approximately $525,000. Eric Langan, Chairman of the Board of Taurus, and
Mitchell White, director of Taurus, are the sole stockholders of XTC. Messrs.
Langan and White abstained on voting on this transaction.
F-8
<PAGE>
ITEM 7(A) 2.
FINANCIAL STATEMENTS OF
CITATION LAND, LLC
F-9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
of Citation Land, LLC
We have audited the accompanying balance sheets of Citation Land, LLC
("Company") as of September 30, 1997 and 1996, and the related statements of
operations and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Citation Land, LLC as of
September 30, 1997 and 1996, and the statements of operations and cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
May 13, 1998
F-10
<PAGE>
<TABLE>
<CAPTION>
CITATION LAND, LLC
------------------
BALANCE SHEETS
--------------
ASSETS
------
December 31, September 30, September 30,
1997 1997 1996
-------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and equivalents. . . . . . . $ 15,624 $ 5,872 $ 3,700
Accounts receivable - officers. . 1,000 2,200 --
Notes receivable - related party. 75,608 16,500 --
-------------- --------------- ---------------
Total Current Assets. . . . . . 92,232 24,572 3,700
-------------- --------------- ---------------
Property & Equipment:
Land. . . . . . . . . . . . . . . 494,732 494,732 399,442
Building. . . . . . . . . . . . . 468,000 468,000 468,000
Furniture and equipment . . . . . 68,290 31,250 --
-------------- --------------- ---------------
1,031,022 993,982 867,442
Less: Accumulated depreciation
and amortization. . . . . . . . (53,711) (34,449) (8,454)
-------------- --------------- ---------------
Total Property & Equipment. . 977,311 959,533 858,988
-------------- --------------- ---------------
Other Assets:
Other assets. . . . . . . . . . . 54,400 -- 1,000
-------------- --------------- ---------------
Total Other Assets. . . . . . . 54,400 -- 1,000
-------------- --------------- ---------------
Total Assets. . . . . . . . . . . $ 1,123,943 $ 984,105 $ 863,688
============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
CITATION LAND, LLC
------------------
BALANCE SHEETS, CONTINUED
-------------------------
LIABILITIES & MEMBERS' EQUITY
-----------------------------
December 31, September 30, September 30,
1997 1997 1996
------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Current Liabilities:
Accounts payable . . . . . . . . . . . $ 1,895 $ -- $ --
Income taxes payable . . . . . . . . . 46,405 41,080 --
Note payable - related parties . . . . 110,213 10,213 10,213
Current portion long-term obligations. 131,030 112,899 112,974
------------- -------------- --------------
Total Current Liabilities. . . . . . 289,543 164,192 123,187
Long-term obligations. . . . . . . . . . 735,668 734,589 734,260
------------- -------------- --------------
Total Liabilities. . . . . . . . . . 1,025,211 898,781 857,447
------------- -------------- --------------
Members' Equity. . . . . . . . . . . . . 98,733 85,324 6,241
------------- -------------- --------------
Total Liabilities and Members' Equity. $ 1,123,944 $ 984,105 $ 863,688
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
CITATION LAND, LLC
------------------
STATEMENTS OF OPERATIONS
------------------------
For the Three For the For the
Months Ended Year Ended Year Ended
December 31, September 30, September 30,
1997 1997 1996
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Operating Revenue:
Rental revenue . . . . . . . . $ 74,424 $ 227,262 $ 51,257
Other revenue. . . . . . . . . 346 13,434 8,733
--------------- --------------- ---------------
Total operating revenue. . . 74,770 240,696 59,990
--------------- --------------- ---------------
Operating Expenses:
General and administrative . . 348 103 4,003
Rent and utilities . . . . . . 5,768 9,770 --
Taxes and insurance. . . . . . 17,161 8,126 --
Depreciation and amortization. 19,261 25,994 8,454
--------------- --------------- ---------------
Total operating expenses . . 42,538 43,993 12,457
--------------- --------------- ---------------
Income from operations . . . . . 32,232 196,703 47,533
--------------- --------------- ---------------
Other Income (Expense):
Interest expense . . . . . . . (18,823) (80,496) (42,292)
--------------- --------------- ---------------
Total other income (expense) (18,823) (80,496) (43,292)
--------------- --------------- ---------------
Income before income taxes . . . 13,409 116,207 5,241
Income tax expense . . . . . . . -- 37,124 --
--------------- --------------- ---------------
Net income . . . . . . . . . . . $ 13,409 $ 79,083 $ 5,241
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
<TABLE>
<CAPTION>
CITATION LAND, LLC
------------------
STATEMENTS OF CASH FLOWS
------------------------
For the Three For the For the
Months Ended Year Ended Year Ended
December 31, September 30, September 30,
1997 1997 1996
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operations:
Net income. . . . . . . . . . . . . . . . . . $ 13,409 $ 79,083 $ 5,241
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operations:
Depreciation and amortization . . . . . . . . 19,261 25,994 8,454
Decrease (increase) in accounts receivable -
related party . . . . . . . . . . . . . . . 1,200 (2,200) --
Decrease (increase) in other assets . . . . . (54,400) 1,001 (1,000)
Increase in accounts payable. . . . . . . . . 1,895 -- --
Increase in income taxes payable. . . . . . . 5,325 41,080 --
--------------- --------------- ---------------
Net Cash Provided (Used) by
Operations. . . . . . . . . . . . . . . . (13,310) 144,958 12,695
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Payments for notes receivable - related
party . . . . . . . . . . . . . . . . . . . (59,108) (16,500) --
Cash payments for the purchase of
property. . . . . . . . . . . . . . . . . . (37,040) (126,540) (867,442)
--------------- --------------- ---------------
Net Cash Used by Investing Activities . . . (96,148) (143,040) (867,442)
--------------- --------------- ---------------
Cash Flows from Financing Activities:
Proceeds from notes payable - related party . 100,000 -- 10,213
Proceeds from long-term obligations . . . . . 35,000 120,330 889,622
Payments on long-term obligations . . . . . . (15,790) (120,076) (42,388)
--------------- --------------- ---------------
Net Cash Provided by Financing
Activities . . . . . . . . . . . . . . 119,210 254 857,447
--------------- --------------- ---------------
Net increase in cash. . . . . . . . . . . . . . 9,752 2,172 2,700
Cash and equivalents, beginning of year . . . . 5,872 3,700 1,000
--------------- --------------- ---------------
Cash and equivalents, end of year . . . . . . . $ 15,624 $ 5,872 $ 3,700
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
CITATION LAND, LLC
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - BUSINESS
- --------------------
ORGANIZATION - Citation Land, LLC ("Citation" or "Company") was incorporated on
August 23, 1995 in Texas. Headquartered in Houston, Texas, Citation primarily
operates commercial real estate in Houston, Texas.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
REVENUE RECOGNITION - Revenues are recognized when services are performed and
are recorded.
CASH EQUIVALENTS - For purposes of the statement of cash flows, Citation
considers any short-term cash investment with a maturity of three months or less
to be a cash equivalent.
EQUIPMENT - Equipment is carried at cost. Depreciation is calculated on a
straight-line basis over the estimated useful life of the asset or over the
lease term, if shorter. Lease terms are generally five to seven years for
equipment and furniture.
INCOME TAXES - The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes," which requires the use of the "liability
method" of accounting for income taxes. Deferred taxes are provided using the
liability method whereby deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. As of September 30, 1997 and 1996, there are no
significant temporary differences for book vs. tax purposes.
USE OF ESTIMATES AND ASSUMPTIONS - Management uses estimates and assumptions in
preparing its financial statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses. Actual
results may vary from the estimates that were used.
NOTE 3 - LONG-TERM OBLIGATIONS
- ----------------------------------
Long-term debt at year-end consists of the following:
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Note payable to partnership maturing March 2026,
due in monthly installments of $576, including principal
and interest at 12%; secured by real estate. . . . . . . . $ 55,686 $ 55,901
F-15
<PAGE>
CITATION LAND, LLC
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 3 - LONG-TERM OBLIGATIONS, CONTINUED
- ------------------------------------------------------------
September 30, September 30,
1997 1996
--------------- ---------------
Note payable to partnership maturing July 2007,
due in monthly installments of $653, including principal
and interest at 12%; secured by real estate. . . . . . . . 63,144 --
Note payable to partnership maturing July 2007,
due in monthly installments of $309, including principal
and interest at 12%; secured by real estate. . . . . . . . 29,956 --
Note payable to corporation maturing December 2000,
due in monthly principal installments of $6,061 plus
interest at 9%; secured by real estate.. . . . . . . . . . 204,302 256,093
Note payable to individual maturing September 2000,
due in monthly installments of $6,556, including principal
and interest at 9.25%; secured by real estate. . . . . . . 156,169 169,712
Note payable to individual maturing March 2006,
due in monthly installments of $2,573, including
principal and interest at 9.25%; secured by real estate. . 312,508 314,383
Note payable to individual maturing September 1998,
due in monthly installments of $2,435, including
principal and interest at 9.25%; secured by real estate. . -- 51,145
Note payable to corporation maturing June 2001,
due in monthly installments of $667, including
principal and interest at 8.3%; secured by certain
equipment. . . . . . . . . . . . . . . . . . . . . . . . . 25,723 --
--------------- ---------------
847,488 847,234
Less current maturities. . . . . . . . . . . . . . . . . . (112,899) (112,974)
--------------- ---------------
$ 734,589 $ 734,260
=============== ===============
</TABLE>
F-16
<PAGE>
CITATION LAND, LLC
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 3 - LONG-TERM OBLIGATIONS, CONTINUED
- ----------------------------------------------
Scheduled maturities of long-term debt are as follows:
For the Years Ending
September 30,
--------------
1998 $112,899
1999 130,622
2000 118,799
2001 30,615
2002 3,958
Thereafter 450,596
--------
$847,489
========
NOTE 4 - LEASES
- ------------------
The Company, as lessor, has entered into non-cancelable leases of real estate to
XTC Cabaret, Inc. for a base amount of $4,500 per week. Eric Langan, majority
shareholder of Citation, is a majority shareholder of XTC Cabaret, Inc. Future
minimum lease payments receivable under non-cancelable leases at September 30,
1997 are as follows:
For the Years Ending Operating
September 30, Leases
------------- ------
1998 $ 234,000
1999 234,000
2000 234,000
2001 234,000
2002 234,000
Thereafter 3,330,000
----------
Total minimum lease payments $4,500,000
==========
F-17
<PAGE>
CITATION LAND, LLC
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 5 - RELATED PARTY TRANSACTIONS
- ----------------------------------------
As of September 30, 1997, note receivable from related party consists of a
$16,500 working capital loan to Taurus Entertainment Companies, Inc. The
Chairman of the Board and Chief Executive Officer of Taurus Entertainment
Companies, Inc. is a majority shareholder of Citation. The note receivable is
due on demand and bears no interest.
As of September 30, 1997 and 1996, note payable to related party consists of a
$10,213 working capital loan from BBI, Inc., of which ownership consists of
common shareholders of Citation. The note payable is due on demand and bears no
interest.
NOTE 6 - SUBSEQUENT EVENTS
- ------------------------------
On December 31, 1997, the Taurus Entertainment Companies, Inc. ("Taurus")
entered into an Exchange Agreement with the members of Citation Land, LLC (the
"Citation Agreement") which provided for the acquisition by the Company of all
of the outstanding membership interests in Citation Land, LLC ("Citation").
Citation owns certain real estate in Houston, Texas at which another company,
XTC Cabaret, Inc. ("XTC") operates an adult entertainment business (the "XTC
Location"). Taurus has also acquired all of the stock of XTC and intends to
continue operating an adult entertainment business at the XTC Location.
Citation also owns approximately 350 acres of ranch land in Brazoria County,
Texas, 50 acres of raw land in Wise County, Texas, and owns options to purchase
real estate in Austin, Texas and San Antonio, Texas, at which the Company
contemplates operating adult entertainment businesses.
Pursuant to the terms of the Citation Agreement, Taurus paid to the Citation
Stockholders an aggregate of 2,500,000 shares of common stock of Taurus which
Taurus valued at $1.00 per share. The Citation Agreement was the result of
negotiations between Taurus and the members of Citation and was based on
numerous factors including Taurus' estimate of the value of the assets of
Citation which Taurus estimated, based upon the existing lease, the estimated
value of the real estate and the options, to be approximately $2,500,000. Eric
Langan, Chairman of the Board of Taurus controlled Citation. Mr. Langan
abstained on voting on this transaction.
F-18
<PAGE>
ITEM 7(A) 3.
SPECIAL PURPOSE FINANCIAL STATEMENTS OF
ATCOMM SERVICES, INC. D/B/A
BROADSTREETS CABARET
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
of Taurus Entertainment Companies, Inc.
We have audited the accompanying special-purpose statements of assets acquired
by Taurus Entertainment Companies, Inc. and Subsidiaries ("the Company") from
Atcomm Services, Inc. d/b/a Broadstreets Cabaret ("Atcomm") as of September 30,
1997 and 1996, and the related special-purpose statements of operations and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying special-purpose financial statements were prepared for the
purpose of presenting the assets acquired pursuant to an asset purchase
agreement dated December 31, 1997, between the Company and Atcomm as discussed
in Note 1, and are not intended to be a presentation of financial position,
results of operations, and cash flows of the Company in accordance with
generally accepted accounting principles.
In our opinion, the special-purpose financial statements referred to above
present fairly, in all material respects, the assets acquired from Atcomm as of
September 30, 1997 and 1997, and the statements of operations and cash flows for
the years then ended, on the basis of accounting described in Note 2.
/s/ Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
May 13, 1998
F-20
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
STATEMENTS OF ASSETS ACQUIRED FROM
----------------------------------
ATCOMM SERVICES, INC. D/B/A BROADSTREETS CABARET
------------------------------------------------
NET ASSETS
----------
December 31, September 30, September 30,
1997 1997 1996
------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Inventory. . . $ 6,500 $ 6,525 $ --
------------- -------------- --------------
Net Assets . . $ 6,500 $ 6,525 $ --
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
STATEMENTS OF OPERATIONS RELATED TO ASSETS ACQUIRED FROM
--------------------------------------------------------
ATCOMM SERVICES, INC. D/B/A BROADSTREETS CABARET
------------------------------------------------
For the Three For the For the
Months Ended Year Ended Year Ended
December 31, September 30, September 30,
1997 1997 1996
-------------- --------------- --------------
(Unaudited)
<S> <C> <C> <C>
Operating Revenue:
Cover charge revenue . . . . . $ 25,283 $ 81,086 $ 484,393
Floor fee revenue. . . . . . . 36,470 60,081 95,233
Bar and food sales revenue . . 350,274 278,590 63,308
Other revenue. . . . . . . . . 48,598 9,312 45,335
-------------- --------------- --------------
Total operating revenue. . . 460,625 429,069 688,269
-------------- --------------- --------------
Operating Expenses:
Costs of sales . . . . . . . . 89,544 84,030 46,336
Salaries and wages . . . . . . 120,217 138,350 235,478
Contract labor . . . . . . . . 14,602 45,604 23,603
Rent and utilities . . . . . . 81,949 148,292 137,937
General and administrative . . 66,688 118,119 142,453
Taxes and insurance. . . . . . 53,079 53,167 60,136
Advertising. . . . . . . . . . 21,932 25,771 21,191
Legal and professional . . . . 5,289 22,327 15,807
-------------- --------------- --------------
Total operating expenses . . 453,300 635,660 682,941
-------------- --------------- --------------
Income (loss) from operations. . 7,325 (206,591) 5,328
-------------- --------------- --------------
Other Income (Expense):
Other income (expense), net. . -- 5,910 --
-------------- --------------- --------------
Total other income (expense) -- 5,910 --
-------------- --------------- --------------
Net income (loss). . . . . . . . $ 7,325 $ (200,681) $ 5,328
============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
STATEMENTS OF CASH FLOWS RELATED TO ASSETS ACQUIRED
---------------------------------------------------
FROM ATCOMM SERVICES, INC. D/B/A BROADSTREETS CABARET
-----------------------------------------------------
For the Three For the For the
Months Ended Year Ended Year Ended
December 31, September 30, September 30,
1997 1997 1996
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operations:
Net income (loss). . . . . . . . . . . . $ 7,325 $ (200,681) $ 5,328
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operations:
(Decrease) increase in inventory . . . . (25) 6,525 --
Decrease (increase) in due to parent . . (7,300) 194,156 (5,328)
--------------- --------------- ---------------
Net Cash Provided by Operations. . . . -- -- --
--------------- --------------- ---------------
Net increase (decrease) in cash. . . . . . -- -- --
Cash, beginning of year. . . . . . . . . . -- -- --
--------------- --------------- ---------------
Cash, end of year. . . . . . . . . . . . . $ -- $ -- $ --
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO SPECIAL PURPOSE FINANCIAL STATEMENTS OF
------------------------------------------------
ATCOMM SERVICES, INC. D/B/A BROADSTREETS CABARET
------------------------------------------------
NOTE 1 - BUSINESS AND ASSET ACQUISITION FROM ATCOMM SERVICES, INC. D/B/A
- --------------------------------------------------------------------------------
BROADSTREETS CABARET
- ---------------------
On December 31, 1997, Taurus Entertainment Companies, Inc. (the "Company"),
entered into an Asset Purchase Agreement (the "Enigma Agreement") with The
Enigma Group, Inc. ("Enigma") which provided for the acquisition by the Company
of substantially all of the assets of Enigma (the "Enigma Assets"). The Enigma
Assets consisted of: (i) certain real estate commonly known as 410 N. Sam
Houston Parkway E. Houston, Texas 77060 (the "Enigma Location") which is the
existing location of Broadstreets Caberet, an adult entertainment cabaret
("Broadstreets Cabaret"); (ii) furniture, fixtures, equipment, goods, and other
personal property of Enigma as such existed on December 31, 1997, located
at the Enigma Location (the "Personal Property"); (iii) Enigma's lease interest
as lessor for the Enigma Location; and (iv) all right, title and interest in and
to any and all trademarks, trade names, trade dress, service marks, slogans,
logos, corporate or partnership names (and any existing or possible
combination or derivation of any or all of the same) and general intangibles.
Pursuant to the terms of the Enigma Agreement, as consideration for the Enigma
Assets, the Company paid to Enigma 350,000 shares of common stock of the
Company valued at $1.00 per share. Plus, the Company assumed approximately
$578,000 of debt associated with the real estate. The Enigma Agreement was the
result of negotiations between the Company and Enigma and was based on numerous
factors including the Company's estimate of the value of the Enigma Location
and the Personal Property. Eric Langan and Stephen E. Fischer, directors of the
Company, controlled Enigma. Mr. Langan and Mr. Fischer abstained from voting
on this transaction.
The lessee of the Enigma Location is Atcomm, which operates Broadstreets
Cabaret. The Company, through its wholly owned subsidiary Broadstreets Cabaret,
Inc. ("Broadstreets"), entered into an Asset Purchase Agreement with Atcomm
which provided for the acquisition by the Company of substantially all of the
assets of Atcomm (the "Atcomm Agreement"). The assets acquired by Broadstreets
consisted of: (i) all right, title, interest and claim to the permit to operate
a sexually oriented business at the Enigma Location; (ii) all inventory located
at the Enigma Location; (iii) Atcomm's lease interest as lessee for the Enigma
Location; and (iv) all right, title and interest in and to any and all
trademarks, trade names, trade dress, service marks, slogans, logos, corporate
or partnership names (and any existing or possible combination or derivation of
any or all of the same) and general intangibles. The Company intends to
continue to operate the adult nightclub at this location.
Pursuant to the terms of the Asset Purchase Agreement with Atcomm, Broadstreets
agreed to pay, as consideration, $225,000 to Atcomm, payable pursuant to the
terms of a four year unsecured promissory note of Broadstreets, payable monthly,
in arrears and bearing interest at the rate of six percent (6%) per annum. The
Atcomm Agreement was the result of negotiations between the Company and Atcomm
and was based on numerous factors including the Company's estimate of the value
of the sexually oriented business permit owned by Atcomm, current revenues of
Atcomm and the leasehold rights held by Atcomm. Atcomm was owned by the son of
Stephen E. Fischer, a director of the Company. Mr. Fischer abstained on voting
on this transaction.
F-24
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO SPECIAL PURPOSE FINANCIAL STATEMENTS OF
------------------------------------------------
ATCOMM SERVICES, INC. D/B/A BROADSTREETS CABARET
------------------------------------------------
NOTE 2 - BASIS OF PRESENTATION
- -----------------------------------
The special-purpose financial statements included herein do not include all
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles.
In the opinion of management, the special-purpose financial statements include
all necessary adjustments for the fair presentation of the statements of assets
acquired and the related statements of operations and cash flows for the periods
noted therein.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
PROPERTY AND EQUIPMENT --- Property and equipment is carried at cost.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the asset. Estimated useful lives are generally five to seven years for
property and equipment.
NOTE 4 - LEASES
- ------------------
Atcomm, as lessee, has entered into a non-cancelable leases for building and
land with Enigma, an entity which is owned and operated by a shareholder of the
Company. Future minimum lease payments under this non-cancelable lease at
September 30,1997 are as follows:
For the Years Ending Operating
September 30, Leases
-------------- ------
1998 $ 88,320
1999 88,320
2000 88,320
2001 88,320
2002 88,320
Thereafter 95,680
--------
Total minimum lease payments $537,280
========
Rent expense during the years ended September 30,1997 and 1996, for building
operating leases was $107,093 and $84,252, respectively, and is included in
operating expenses.
F-25
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO SPECIAL PURPOSE FINANCIAL STATEMENTS OF
------------------------------------------------
ATCOMM SERVICES, INC. D/B/A BROADSTREETS CABARET
------------------------------------------------
NOTE 5 - SUBSEQUENT EVENT
- -----------------------------
On May 5, 1998, a fire damaged the adult entertainment facility known as
Broadstreets Cabaret. The Company anticipates that Broadstreets will remain
closed for at least 60 to 90 days during which time the Company plans to remodel
the club. The Company believes this event will result in a material decline in
revenues during the closure of Broadstreets and until it reopens and
re-establishes the business. The Company believes that it has adequate
insurance to cover this property damage.
F-26
<PAGE>
ITEM 7(A) 4.
SPECIAL PURPOSE FINANCIAL STATEMENTS OF
THE ENIGMA GROUP, INC.
F-27
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
of Taurus Entertainment Companies, Inc.
We have audited the accompanying special-purpose statements of assets acquired
and liabilities assumed by Taurus Entertainment Companies, Inc. and Subsidiaries
("the Company") from The Enigma Group, Inc. ("Enigma") as of September 30, 1997,
and the related special-purpose statements of operations and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying special-purpose financial statements were prepared for the
purpose of presenting the assets acquired and liabilities assumed pursuant to an
asset purchase agreement dated December 31, 1997, between the Company and Enigma
as discussed in Note 1, and are not intended to be a presentation of financial
position, results of operations, and cash flows of the Company in accordance
with generally accepted accounting principles.
In our opinion, the special-purpose financial statements referred to above
present fairly, in all material respects, the assets acquired and liabilities
assumed from Enigma as of September 30, 1997, and the statements of operations
and cash flows for the year then ended, on the basis of accounting described in
Note 2.
/s/ Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
May 13, 1998
F-28
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC.
------------------------------------
STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
-----------------------------------------------------
FROM THE ENIGMA GROUP, INC.
---------------------------
ASSETS
------
December 31, September 30,
1997 1997
-------------- ---------------
(Unaudited)
<S> <C> <C>
Property & Equipment:
Land . . . . . . . . . . . . . . . . . . . . . . $ 268,000 $ 268,000
Building . . . . . . . . . . . . . . . . . . . . 392,000 392,000
Furniture and equipment. . . . . . . . . . . . . 268,665 268,665
-------------- ---------------
928,665 928,665
Less: Accumulated depreciation and amortization. (60,396) (45,901)
-------------- ---------------
Total Property & Equipment . . . . . . . . . . 868,269 882,764
-------------- ---------------
Total Assets . . . . . . . . . . . . . . . . . . $ 868,269 $ 882,764
============== ===============
LIABILITIES & NET ASSETS
------------------------
Current Liabilities:
Current portion long-term obligations. . . . . . $ 112,289 $ 109,528
-------------- ---------------
Total Current Liabilities. . . . . . . . . . . . 112,289 109,528
Long-term obligations. . . . . . . . . . . . . . . 466,376 495,505
-------------- ---------------
Total Liabilities. . . . . . . . . . . . . . . . 578,665 605,033
-------------- ---------------
Total Net Assets . . . . . . . . . . . . . . . . $ 289,604 $ 277,731
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC.
------------------------------------
STATEMENTS OF OPERATIONS RELATED TO ASSETS ACQUIRED AND LIABILITIES ASSUMED
---------------------------------------------------------------------------
FROM THE ENIGMA GROUP, INC.
---------------------------
For the Three For the
Months Ended Year Ended
December 31, September 30,
1997 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
Operating Revenue:
Rental revenue . . . . . . . . $ 22,080 $ 88,320
--------------- ---------------
Operating Expenses:
Depreciation and amortization. 14,495 45,901
--------------- ---------------
Total operating expenses . . 14,495 45,901
--------------- ---------------
Income from operations . . . . . 7,585 42,419
--------------- ---------------
Other Income (Expense):
Interest expense . . . . . . . (14,904) (50,073)
--------------- ---------------
Total other income (expense) (14,904) (50,073)
--------------- ---------------
Net loss . . . . . . . . . . . . $ (7,319) $ (7,654)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC.
------------------------------------
STATEMENTS OF CASH FLOWS RELATED TO ASSETS ACQUIRED AND LIABILITIES ASSUMED
---------------------------------------------------------------------------
FROM THE ENIGMA GROUP, INC.
---------------------------
For the Three For the
Months Ended Year Ended
December 31, September 30,
1997 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operations:
Net loss. . . . . . . . . . . . . . . . . . $ (7,319) $ (7,654)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operations:
Depreciation and amortization . . . . . . 14,495 45,901
Increase in due to parent . . . . . . . . 19,192 285,385
--------------- ---------------
Net Cash Provided by Operations . . . . 26,368 323,632
--------------- ---------------
Cash Flows from Investing Activities:
Cash payments for the purchase of property. -- (928,665)
--------------- ---------------
Net Cash Used by Investing Activities . -- (928,665)
--------------- ---------------
Cash Flows from Financing Activities:
Proceeds from long-term obligations . . . . -- 660,000
Payments on long-term obligations . . . . . (26,368) (54,967)
--------------- ---------------
Net Cash (Used) Provided by Financing
Activities. . . . . . . . . . . . . . (26,368) 605,033
--------------- ---------------
Net increase (decrease) in cash . . . . . . . -- --
Cash, beginning of year . . . . . . . . . . . -- --
--------------- ---------------
Cash, end of year . . . . . . . . . . . . . . $ -- $ --
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS OF
------------------------------------------------
THE ENIGMA GROUP, INC.
----------------------
NOTE 1 - BUSINESS AND ASSET ACQUISITION FROM THE ENIGMA GROUP, INC.
- ------------------------------------------------------------------------------
On December 31, 1997, Taurus Entertainment Companies, Inc. (the "Company"),
entered into an Asset Purchase Agreement (the "Enigma Agreement") with The
Enigma Group, Inc. ("Enigma") which provided for the acquisition by the Company
of substantially all of the assets of Enigma (the "Enigma Assets"). The Enigma
Assets consisted of: (i) certain real estate commonly known as 410 N. Sam
Houston Parkway E. Houston, Texas 77060 (the "Enigma Location") which is the
existing location of Broadstreets Cabaret, an adult entertainment cabaret
("Broadstreets Cabaret"); (ii) furniture, fixtures, equipment, goods, and other
personal property of Enigma as such existed on December 31, 1997, located at
the Enigma Location (the "Personal Property"); (iii) Enigma's lease interest as
lessor for the Enigma Location; and (iv) all right, title and interest in and
to any and all trademarks, trade names, trade dress, service marks, slogans,
logos, corporate or partnership names (and any existing or possible combination
or derivation of any or all of the same) and general intangibles.
Pursuant to the terms of the Enigma Agreement, as consideration for the Enigma
Assets, the Company paid to Enigma 350,000 shares of common stock of the
Company valued at $1.00 per share. Plus, the Company assumed approximately
$578,000 of debt associated with the real estate. The Enigma Agreement was the
result of negotiations between the Company and Enigma and was based on numerous
factors including the Company's estimate of the value of the Enigma Location
and the Personal Property. Eric Langan and Stephen E. Fischer, directors of the
Company, controlled Enigma. Mr. Langan and Mr. Fischer abstained from voting
on this transaction.
The business of The Enigma Group, Inc. consists primarily of commercial real
estate rental property noted above as acquired by the Company.
NOTE 2 - BASIS OF PRESENTATION
- -----------------------------------
The special-purpose financial statements included herein do not include all
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles.
In the opinion of management, the special-purpose financial statements include
all necessary adjustments for the fair presentation of the statements of assets
acquired and liabilities assumed and the related statements of operations and
cash flows for the periods noted therein.
The land and building owned by Enigma was acquired on December 15, 1996;
therefore, financial data is not applicable for the Enigma owned assets prior to
December 15, 1996.
F-32
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS OF
------------------------------------------------
THE ENIGMA GROUP, INC.
----------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
PROPERTY AND EQUIPMENT --- Property and equipment is carried at cost.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the asset. Estimated useful lives are generally five to seven years for
furniture and equipment and twenty years for buildings.
NOTE 4 - LONG-TERM DEBT
- ---------------------------
Long-term debt at year-end consists of the following:
<TABLE>
<CAPTION>
September 30,
1997
---------------
<S> <C>
Note payable to corporation maturing April 2002,
due in monthly installments of $13,758 including
principal and interest at 10%; secured by real estate. $ 605,033
Less current maturities. . . . . . . . . . . . . . . . (109,528)
---------------
$ 495,505
===============
</TABLE>
Scheduled maturities of long-term debt are as follows:
For the Years Ending
September 30,
--------------
1998 $109,528
1999 120,997
2000 133,667
2001 147,664
2002 93,177
--------
$605,033
========
F-33
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS OF
------------------------------------------------
THE ENIGMA GROUP, INC.
----------------------
NOTE 4 - LEASES
- ------------------
Enigma, as lessor, has entered into a non-cancelable leases for building and
land with Atcomm Services, Inc., d/b/a Broadstreets Cabaret, an entity which is
owned and operated by a shareholder of the Company. Future minimum lease
revenues under non-cancelable leases at September 30, 1997 are as follows:
For the Years Ending Operating
September 30, Leases
-------------------- ----------
1998 $ 88,320
1999 88,320
2000 88,320
2001 88,320
2002 88,320
Thereafter 95,680
----------
Total minimum lease payments $ 537,280
===========
NOTE 5 - SUBSEQUENT EVENT
- -----------------------------
On May 5, 1998, a fire damaged the adult entertainment facility known as
Broadstreets Cabaret located in the aforementioned building. The Company
anticipates that Broadstreets will remain closed for at least 60 to 90 days
during which time the Company plans to remodel the club. The Company believes
this event will result in a material decline in revenues during the closure of
Broadstreets and until it reopens and re-establishes the business. The
Company believes that it has adequate insurance to cover this property damage.
F-34
<PAGE>
ITEM 7(B)
PRO-FORMA FINANCIAL STATEMENTS OF
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
F-35
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA BALANCE SHEETS (UNAUDITED)
------------------------------------
DECEMBER 31, 1997
-----------------
ASSETS
Atcomm
Taurus Services, Inc The
Entertainment d/b/a Enigma Citation XTC
Companies, Broadstreets Group, Land, Cabaret, Pro-forma
Inc. Cabaret Inc. LLC Inc. Adjustments
-------------- -------------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash. . . . . . . . . . . . . . . . $ 746 $ -- $ -- $ 15,624 $ -- $ --
Accounts receivable, net. . . . . . -- -- -- -- 12,248 --
Accounts receivable - related party -- -- -- 1,000 8,479 --
Accounts receivable - other . . . . -- -- -- -- 2,876 --
Note receivable - related party . . 100,000 -- -- 75,608 84,928 (228,405)
Inventories . . . . . . . . . . . . -- 6,500 -- -- -- --
Prepaid expenses. . . . . . . . . . -- -- -- -- 4,500 --
-------------- -------------- --------- ----------- ---------- -------------
Total Current Assets. . . . . . . 100,746 6,500 -- 92,232 113,031 (228,405)
-------------- -------------- --------- ----------- ---------- -------------
Property & Equipment:
Land. . . . . . . . . . . . . . . . -- -- 268,000 494,732 -- --
Building. . . . . . . . . . . . . . -- -- 392,000 468,000 -- 47,195
Leasehold improvements. . . . . . . -- -- -- -- 47,195 (47,195)
Furniture & equipment . . . . . . . -- -- 268,665 68,290 57,379 --
-------------- -------------- --------- ----------- ---------- -------------
-- -- 928,665 1,031,022 104,574 --
Less: accumulated depreciation. . . . -- -- (60,396) (53,711) (20,486) --
-------------- -------------- --------- ----------- ---------- -------------
Total Property & Equipment. . . . . -- -- 868,269 977,311 84,088 --
-------------- -------------- --------- ----------- ---------- -------------
Other Assets:
Other assets. . . . . . . . . . . . -- -- -- 54,400 -- --
-------------- -------------- --------- ----------- ---------- -------------
Total Other Assets. . . . . . . . -- -- -- 54,400 -- --
-------------- -------------- --------- ----------- ---------- -------------
Total Assets. . . . . . . . . . . . . $ 100,746 $ 6,500 $868,269 $1,123,943 $ 197,119 $ (228,405)
============== ============== ========= =========== ========== =============
Combined
-----------
<S> <C>
Current Assets:
Cash. . . . . . . . . . . . . . . . $ 16,370
Accounts receivable, net. . . . . . 12,248
Accounts receivable - related party 9,479
Accounts receivable - other . . . . 2,876
Note receivable - related party . . 32,131
Inventories . . . . . . . . . . . . 6,500
Prepaid expenses. . . . . . . . . . 4,500
-----------
Total Current Assets. . . . . . . 84,104
-----------
Property & Equipment:
Land. . . . . . . . . . . . . . . . 762,732
Building. . . . . . . . . . . . . . 907,195
Leasehold improvements. . . . . . . --
Furniture & equipment . . . . . . . 394,334
-----------
2,064,261
Less: accumulated depreciation. . . . (134,593)
-----------
Total Property & Equipment. . . . . 1,929,668
-----------
Other Assets:
Other assets. . . . . . . . . . . . 54,400
-----------
Total Other Assets. . . . . . . . 54,400
-----------
Total Assets. . . . . . . . . . . . . $2,068,172
===========
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA BALANCE SHEETS (UNAUDITED), CONTINUED
-----------------------------------------------
DECEMBER 31, 1997
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Atcomm
Taurus Services, Inc The
Entertainment d/b/a Enigma Citation XTC
Companies, Broadstreets Group, Land, Cabaret, Pro-forma
Inc. Cabaret Inc. LLC Inc. Adjustments
--------------- -------------- -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts payable and accrued
expenses . . . . . . . . . . . . $ -- $ -- $ -- $ 1,894 $ 71,075 $ --
Cash overdraft . . . . . . . . . . -- -- -- -- 23,162 --
Accounts payable - related parties 14,880 -- -- -- -- --
Note payable - related parties . . 76,902 -- -- 110,213 52,060 (228,405)
Income taxes payable . . . . . . . -- -- -- 46,405 24,122 --
Long-term debt, current portion. . -- -- 112,289 131,030 -- 55,721
--------------- -------------- -------- ---------- --------- -------------
Total Current Liabilities. . . . 91,782 -- 112,289 289,542 170,419 (172,684)
Long-term debt . . . . . . . . . . -- -- 466,376 735,668 -- 169,279
--------------- -------------- -------- ---------- --------- -------------
Total Liabilities. . . . . . . . 91,782 -- 578,665 1,025,210 170,419 (3,405)
--------------- -------------- -------- ---------- --------- -------------
Stockholders' Equity:
Preferred stock. . . . . . . . . . -- -- -- -- -- --
Common stock . . . . . . . . . . . 301 -- -- -- 1,000 2,375
Additional paid-in capital . . . . 3,272,700 -- -- -- -- 3,371,625
Treasury stock . . . . . . . . . . (82,573) -- -- -- -- --
Due to parent. . . . . . . . . . . -- 6,500 289,604 -- -- (296,104)
Members' equity. . . . . . . . . . -- -- -- 98,733 -- (98,733)
Retained earnings. . . . . . . . . (3,181,464) -- -- -- 25,700 (3,204,163)
--------------- -------------- -------- ---------- --------- -------------
Total Stockholders' Equity . . . 8,964 6,500 289,604 98,733 26,700 (225,000)
--------------- -------------- -------- ---------- --------- -------------
Total Liabilities and
Stockholders' Equity . . . . . . . $ 100,746 $ 6,500 $868,269 $1,123,943 $ 197,119 $ (228,405)
=============== ============== ======== ========== ========= -------------
Combined
------------
<S> <C>
Current Liabilities:
Accounts payable and accrued
expenses . . . . . . . . . . . . $ 72,969
Cash overdraft . . . . . . . . . . 23,162
Accounts payable - related parties 14,880
Note payable - related parties . . 10,770
Income taxes payable . . . . . . . 70,527
Long-term debt, current portion. . 299,040
------------
Total Current Liabilities. . . . 491,348
Long-term debt . . . . . . . . . . 1,371,323
------------
Total Liabilities. . . . . . . . 1,862,671
------------
Stockholders' Equity:
Preferred stock. . . . . . . . . . --
Common stock . . . . . . . . . . . 3,676
Additional paid-in capital . . . . 6,644,325
Treasury stock . . . . . . . . . . (82,573)
Due to parent. . . . . . . . . . . --
Members' equity. . . . . . . . . . --
Retained earnings. . . . . . . . . (6,359,927)
------------
Total Stockholders' Equity . . . 205,501
------------
Total Liabilities and
Stockholders' Equity . . . . . . . $ 2,068,172
============
</TABLE>
F-37
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA STATEMENT OF OPERATIONS (UNAUDITED)
---------------------------------------------
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
--------------------------------------------
Atcomm
Taurus Services, Inc The
Entertainment d/b/a Enigma Citation XTC
Companies, Broadstreets Group, Land, Cabaret, Pro-forma
Inc. Cabaret Inc. LLC Inc. Adjustments Combined
--------------- -------------- ------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue:
Cover charge revenue. . . . $ -- $ 25,283 $ -- $ -- $ 474,950 $ -- $ 500,233
Bar and food sales revenue. -- 350,274 -- -- 60,078 -- 410,352
Floor fee revenue . . . . . -- 36,470 -- -- 64,791 -- 101,261
Rental revenue. . . . . . . -- -- 22,080 74,424 -- (96,504) --
Other revenue . . . . . . . -- 48,598 -- 346 37,330 -- 86,274
--------------- -------------- ------- --------- --------- ------------- ----------
Total Operating Revenue . -- 460,625 22,080 74,770 637,149 (96,504) 1,098,120
--------------- -------------- ------- --------- --------- ------------- ----------
Operating Expenses:
Costs of sales. . . . . . . -- 89,544 -- -- 45,748 -- 135,292
General & administrative. . 15,363 66,688 -- 349 39,461 -- 121,861
Salaries & wages. . . . . . -- 120,217 -- -- 232,444 -- 352,661
Contract labor. . . . . . . -- 14,602 -- -- -- -- 14,602
Rent & utilities. . . . . . -- 81,949 -- 5,768 185,047 (96,504) 176,260
Taxes & insurance . . . . . -- 53,079 -- 17,160 45,418 -- 115,657
Advertising . . . . . . . . -- 21,932 -- -- 59,859 -- 81,791
Legal & professional. . . . 35,017 5,289 -- -- -- -- 40,306
Depreciation & amortization -- -- 14,495 19,261 15,946 -- 49,702
--------------- -------------- ------- --------- --------- ------------- ----------
Total Operating Expenses. . . 50,380 453,300 14,495 42,538 623,923 (96,504) 1,088,132
--------------- -------------- ------- --------- --------- ------------- ----------
Income (loss) from Operations (50,380) 7,325 7,585 32,232 13,226 -- 9,988
--------------- -------------- ------- --------- --------- ------------- ----------
</TABLE>
F-38
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA STATEMENT OF OPERATIONS (UNAUDITED), CONTINUED
--------------------------------------------------------
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
--------------------------------------------
Atcomm
Taurus Services, Inc The
Entertainment d/b/a Enigma Citation XTC
Companies, Broadstreets Group, Land, Cabaret, Pro-forma
Inc. Cabaret Inc. LLC Inc. Adjustments Combined
--------------- -------------- ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Income (Expense):
Interest expense . . . . . . . -- -- (14,904) (18,823) -- -- (33,727)
--------------- -------------- ----------- ----------- ---------- ------------ -----------
Total Other Income (Expense) -- -- (14,904) (18,823) -- -- (33,727)
--------------- -------------- ----------- ----------- ---------- ------------ -----------
Income (loss) before income tax
expense. . . . . . . . . . . . (50,380) 7,325 (7,319) 13,409 13,226 -- (23,739)
Income tax expense . . . . . . . -- -- -- -- 11,906 -- 11,906
--------------- -------------- ----------- ----------- ---------- ------------ -----------
Net income (loss). . . . . . . . $ (50,380) $ 7,325 $ (7,319) $ 13,409 $ 1,320 $ -- $ (35,645)
=============== ============== =========== =========== ========== ============ ===========
Earnings (loss) per share:
Basic and diluted. . . . . . . $ (0.25) $ 0.04 $ (0.04) $ 0.07 $ 0.01 $ 0.00 $ (0.18)
=============== ============== =========== =========== ========== ============ ===========
Weighted average common
shares:
Basic and diluted. . . . . . . 201,026 201,026 201,026 201,026 201,026 201,026 201,026
=============== ============== =========== =========== ========== ============ ===========
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA BALANCE SHEETS (UNAUDITED)
------------------------------------
SEPTEMBER 30, 1997
------------------
ASSETS
Atcomm
Taurus Services, Inc The
Entertainment d/b/a Enigma Citation XTC
Companies, Broadstreets Group, Land, Cabaret, Pro-forma
Inc. Cabaret Inc. LLC Inc. Adjustments
-------------- -------------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash. . . . . . . . . . . . . . . . $ 797 $ -- $ -- $ 5,872 $ -- $ --
Accounts receivable, net. . . . . . -- -- -- -- 5,289 --
Accounts receivable - related party -- -- -- 2,200 9,968 --
Accounts receivable - other . . . . -- -- -- -- 1,556 --
Note receivable - related party . . -- -- -- 16,500 46,623 (30,713)
Inventories . . . . . . . . . . . . -- 6,525 -- -- -- --
-------------- -------------- --------- ---------- ---------- -------------
Total Current Assets. . . . . . . 797 6,525 -- 24,572 63,436 (30,713)
-------------- -------------- --------- ---------- ---------- -------------
Property & Equipment:
Land. . . . . . . . . . . . . . . . -- -- 268,000 494,732 -- --
Building. . . . . . . . . . . . . . -- -- 392,000 468,000 -- 24,327
Leasehold improvements. . . . . . . -- -- -- -- 24,327 (24,327)
Furniture & equipment . . . . . . . -- -- 268,665 31,250 8,982 --
-------------- -------------- --------- ---------- ---------- -------------
-- -- 928,665 993,982 33,309 --
Less: accumulated depreciation. . . . -- -- (45,901) (34,449) (1,642) --
-------------- -------------- --------- ---------- ---------- -------------
Total Property & Equipment. . . . . . -- -- 882,764 959,533 31,667 --
-------------- -------------- --------- ---------- ---------- -------------
Other Assets:
Other assets. . . . . . . . . . . . -- -- -- -- 4,002 --
-------------- -------------- --------- ---------- ---------- -------------
Total Other Assets. . . . . . . . -- -- -- -- 4,002 --
-------------- -------------- --------- ---------- ---------- -------------
Total Assets. . . . . . . . . . . . . $ 797 $ 6,525 $882,764 $ 984,105 $ 99,105 $ (30,713)
============== ============== ========= ========== ========== -------------
Combined
-----------
<S> <C>
Current Assets:
Cash. . . . . . . . . . . . . . . . $ 6,669
Accounts receivable, net. . . . . . 5,289
Accounts receivable - related party 12,168
Accounts receivable - other . . . . 1,556
Note receivable - related party . . 32,410
Inventories . . . . . . . . . . . . 6,525
-----------
Total Current Assets. . . . . . . 64,617
-----------
Property & Equipment:
Land. . . . . . . . . . . . . . . . 762,732
Building. . . . . . . . . . . . . . 884,327
Leasehold improvements. . . . . . . --
Furniture & equipment . . . . . . . 308,897
-----------
1,955,956
Less: accumulated depreciation. . . . (81,992)
-----------
Total Property & Equipment. . . . . . 1,873,964
-----------
Other Assets:
Other assets. . . . . . . . . . . . 4,002
-----------
Total Other Assets. . . . . . . . 4,002
-----------
Total Assets. . . . . . . . . . . . . $1,942,583
===========
</TABLE>
F-40
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA BALANCE SHEETS (UNAUDITED), CONTINUED
-----------------------------------------------
SEPTEMBER 30, 1997
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Atcomm
Taurus Services, Inc The
Entertainment d/b/a Enigma Citation XTC
Companies, Broadstreets Group, Land, Cabaret, Pro-forma
Inc. Cabaret Inc. LLC Inc. Adjustments
--------------- -------------- -------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts payable and accrued
expenses . . . . . . . . . . . . $ 26,573 $ -- $ -- $ -- $ 51,944 $ (20,500)
Cash overdraft . . . . . . . . . . -- -- -- -- 9,565 --
Accounts payable - related parties 14,880 -- -- -- -- --
Note payable - related parties . . -- -- -- 10,213 -- (10,213)
Income taxes payable . . . . . . . -- -- -- 41,080 12,216 --
Long-term debt, current portion. . -- -- 109,528 112,899 -- 55,721
--------------- -------------- -------- --------- ---------- -------------
Total Current Liabilities. . . . 41,453 -- 109,528 164,192 73,725 25,008
Long-term debt . . . . . . . . . . . -- -- 495,505 734,589 -- 169,279
--------------- -------------- -------- --------- ---------- -------------
Total Liabilities. . . . . . . . . 41,453 -- 605,033 898,781 73,725 194,287
--------------- -------------- -------- --------- ---------- -------------
Stockholders' Equity:
Preferred stock. . . . . . . . . . -- -- -- -- -- --
Common stock . . . . . . . . . . . 60,307 -- -- 1,000 (57,731) 3,576
Additional paid-in capital . . . . 3,112,694 -- -- -- -- 3,431,731
Treasury stock . . . . . . . . . . (82,573) -- -- -- -- --
Due to parent. . . . . . . . . . . -- 6,525 277,731 -- -- (284,256)
Members' equity. . . . . . . . . . -- -- -- 85,324 -- (85,324)
Retained earnings. . . . . . . . . (3,131,084) -- -- -- 24,380 (3,229,420)
--------------- -------------- -------- --------- ---------- -------------
Total Stockholders' Equity . . . (40,656) 6,525 277,731 85,324 25,380 (225,000)
--------------- -------------- -------- --------- ---------- -------------
Total Liabilities and
Stockholders' Equity . . . . . . . $ 797 $ 6,525 $882,764 $ 984,105 $ 99,105 $ (30,713)
=============== ============== ======== ========= ========== =============
Combined
------------
<S> <C>
Current Liabilities:
Accounts payable and accrued
expenses . . . . . . . . . . . . $ 58,017
Cash overdraft . . . . . . . . . . 9,565
Accounts payable - related parties 14,880
Note payable - related parties . . --
Income taxes payable . . . . . . . 53,296
Long-term debt, current portion. . 278,148
------------
Total Current Liabilities. . . . 413,906
Long-term debt . . . . . . . . . . . 1,399,373
------------
Total Liabilities. . . . . . . . . 1,813,279
------------
Stockholders' Equity:
Preferred stock. . . . . . . . . . --
Common stock
Additional paid-in capital . . . . 6,544,425
Treasury stock . . . . . . . . . . (82,573)
Due to parent. . . . . . . . . . . --
Members' equity. . . . . . . . . . --
Retained earnings. . . . . . . . . (6,336,124)
------------
Total Stockholders' Equity . . . 129,304
------------
Total Liabilities and
Stockholders' Equity . . . . . . . $ 1,942,583
============
</TABLE>
F-41
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA STATEMENT OF OPERATIONS (UNAUDITED)
---------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30 ,1997
-------------------------------------
Atcomm
Taurus Services, Inc The
Entertainment d/b/a Enigma Citation XTC
Companies, Broadstreets Group, Land, Cabaret, Pro-forma
Inc. Cabaret Inc. LLC Inc. Adjustments Combined
--------------- --------------- ------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue:
Cover charge revenue. . . . $ -- $ 81,086 $ -- $ -- $ 971,122 $ -- $1,052,208
Bar and food sales revenue. -- 278,590 -- -- 96,881 -- 375,471
Floor fee revenue . . . . . -- 60,081 -- -- 111,722 -- 171,803
Rental revenue. . . . . . . -- -- 88,320 227,262 -- (295,959) 19,623
Other revenue . . . . . . . -- 9,312 -- 13,434 110,971 -- 133,717
--------------- --------------- ------- --------- ---------- ------------- ----------
Total Operating Revenue . -- 429,069 88,320 240,696 1,290,696 (295,959) 1,752,822
--------------- --------------- ------- --------- ---------- ------------- ----------
Operating Expenses:
Costs of sales. . . . . . . -- 84,030 -- -- 69,161 -- 153,191
General & administrative. . 38,653 118,119 -- 103 84,240 -- 241,115
Salaries & wages. . . . . . -- 138,350 -- -- 558,562 -- 696,912
Salaries & wages. . . . . . -- 45,604 -- -- -- -- 45,604
Rent & utilities. . . . . . -- 148,292 -- 9,770 372,687 (295,959) 234,790
Taxes & insurance . . . . . -- 53,167 -- 8,126 85,740 -- 147,033
Advertising . . . . . . . . -- 25,771 -- -- 80,818 -- 106,589
Legal & professional. . . . -- 22,327 -- -- -- -- 22,327
Depreciation & amortization -- -- 45,901 25,994 1,642 -- 73,537
--------------- --------------- ------- --------- ---------- ------------- ----------
Total Operating Expenses. . . 38,653 635,660 45,901 43,993 1,252,850 (295,959) 1,721,098
--------------- --------------- ------- --------- ---------- ------------- ----------
Income (loss) from Operations (38,653) (206,591) 42,419 196,703 37,846 -- 31,724
--------------- --------------- ------- --------- ---------- ------------- ----------
</TABLE>
F-42
<PAGE>
<TABLE>
<CAPTION>
PRO-FORMA STATEMENT OF OPERATIONS (UNAUDITED), CONTINUED
--------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30 ,1997
-------------------------------------
Atcomm
Taurus Services, Inc The
Entertainment d/b/a Enigma Citation XTC
Companies, Broadstreets Group, Land, Cabaret, Pro-forma
Inc. Cabaret Inc. LLC Inc. Adjustments
--------------- --------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Other Income (Expense):
Interest expense . . . . . . . -- -- (50,073) (80,496) -- --
Other income (expense), net. . 147 5,910 -- -- (1,250) --
--------------- --------------- ----------- ----------- ----------- ------------
Total Other Income (Expense) 147 5,910 (50,073) (80,496) (1,250) --
--------------- --------------- ----------- ----------- ----------- ------------
Income (loss) before income tax
expense. . . . . . . . . . . . (38,506) (200,681) (7,654) 116,207 36,596 --
Income tax expense . . . . . . . -- -- -- 37,124 12,216 --
--------------- --------------- ----------- ----------- ----------- ------------
Net income (loss). . . . . . . . $ (38,506) $ (200,681) $ (7,654) $ 79,083 $ 24,380 $ --
=============== =============== =========== =========== =========== ============
Earnings (loss) per share:
Basic and diluted. . . . . . . $ (0.01) $ (0.06) $ (0.00) $ 0.02 $ 0.01 $ 0.00
=============== =============== =========== =========== =========== ============
Weighted average common
shares:
Basic and diluted. . . . . . . 3,576,026 3,576,026 3,576,026 3,576,026 3,576,026 3,576,026,
=============== =============== =========== =========== =========== ============
Combined
-----------
<S> <C>
Other Income (Expense):
Interest expense . . . . . . . (130,569)
Other income (expense), net. . 4,807
-----------
Total Other Income (Expense) (125,762)
-----------
Income (loss) before income tax
expense. . . . . . . . . . . . (94,038)
Income tax expense . . . . . . . 49,340
-----------
Net income (loss). . . . . . . . $ (143,378)
===========
Earnings (loss) per share:
Basic and diluted. . . . . . . $ (0.04)
===========
Weighted average common
shares:
Basic and diluted. . . . . . . 3,576,026
===========
</TABLE>
F-43
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
---------------------------------------
NOTE 1 - BASIS OF PRESENTATION
- -----------------------------------
On December 31, 1997, Taurus Entertainment Companies, Inc. (the "Company"),
entered into an Asset Purchase Agreement (the "Enigma Agreement") with The
Enigma Group, Inc. ("Enigma") which provided for the acquisition by the Company
of substantially all of the assets of Enigma (the "Enigma Assets"). The Enigma
Assets consisted of: (i) certain real estate commonly known as 410 N. Sam
Houston Parkway E. Houston, Texas 77060 (the "Enigma Location") which is the
existing location of Broadstreets Cabaret, an adult entertainment cabaret
("Broadstreets Cabaret"); (ii) furniture, fixtures, equipment, goods, and other
personal property of Enigma as such existed on December 31, 1997, located
at the Enigma Location (the "Personal Property"); (iii) Enigma's lease interest
as lessor for the Enigma Location; and (iv) all right, title and interest in
and to any and all trademarks, trade names, trade dress, service marks, slogans,
logos, corporate or partnership names (and any existing or possible combination
or derivation of any or all of the same) and general intangibles.
Pursuant to the terms of the Enigma Agreement, as consideration for the Enigma
Assets, the Company paid to Enigma 350,000 shares of common stock of the
Company valued at $1.00 per share. Plus, the Company assumed approximately
$578,000 of debt associated with the real estate. The Enigma Agreement was the
result of negotiations between the Company and Enigma and was based on numerous
factors including the Company's estimate of the value of the Enigma Location
and the Personal Property. Eric Langan and Stephen E. Fischer, directors of the
Company, controlled Enigma. Mr. Langan and Mr. Fischer abstained from voting
on this transaction.
The lessee of the Enigma Location is Atcomm Services, Inc. ("Atcomm"), which
operates Broadstreets Cabaret. The Company, through its wholly owned subsidiary
Broadstreets Cabaret, Inc. ("Broadstreets"), entered into an Asset Purchase
Agreement with Atcomm which provided for the acquisition by the Company of
substantially all of the assets of Atcomm (the "Atcomm Agreement"). The
assets acquired by Broadstreets consisted of: (i) all right, title, interest and
claim to the permit to operate a sexually oriented business at the Enigma
Location; (ii) all inventory located at the Enigma Location; (iii) Atcomm's
lease interest as lessee for the Enigma Location; and (iv) all right, title and
interest in and to any and all trademarks, trade names, trade dress, service
marks, slogans, logos, corporate or partnership names (and any existing or
possible combination or derivation of any or all of the same) and general
intangibles. The Company intends to continue to operate the adult nightclub at
this location.
Pursuant to the terms of the Asset Purchase Agreement with Atcomm, Broadstreets
agreed to pay, as consideration, $225,000 to Atcomm, payable pursuant to the
terms of a four year unsecured promissory note of Broadstreets, payable monthly,
in arrears and bearing interest at the rate of six percent (6%) per annum. The
Atcomm Agreement was the result of negotiations between the Company and Atcomm
and was based on numerous factors including the Company's estimate of the value
of the sexually oriented business permit owned by Atcomm, current revenues of
Atcomm and the leasehold rights held by Atcomm. Atcomm was owned by the son of
Stephen E. Fischer, a director of the Company. Mr. Fischer abstained on voting
on this transaction.
F-44
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
---------------------------------------
NOTE 1 - BASIS OF PRESENTATION, CONTINUED
- -----------------------------------------------
On December 31, 1997, the Company entered into an Exchange Agreement with the
members of Citation Land, L.L.C. (the "Citation Agreement") which provided for
the acquisition by the Company of all of the outstanding membership interests in
Citation Land, L.L.C. ("Citation"). Citation owns certain real estate in
Houston, Texas at which another company, XTC Cabaret, Inc. ("XTC") operates an
adult entertainment business (the "XTC Location"). As discussed below, the
Company has acquired all of the stock of XTC and intends to continue operating
an adult entertainment business at the XTC Location. Citation also owns
approximately 350 acres of ranch land in Brazoria County, Texas, 50 acres of raw
land in Wise County, Texas, and owns options to purchase real estate in Austin,
Texas and San Antonio, Texas, at which the Company contemplates operating adult
entertainment businesses.
Pursuant to the terms of the Citation Agreement, the Company paid to the
Citation Stockholders an aggregate of 2,500,000 shares of common stock of the
Company which the Company valued at $1.00 per share. The Citation Agreement was
the result of negotiations between the Company and the members of Citation and
was based on numerous factors including the Company's estimate of the value of
the assets of Citation which the Company estimated, based upon the existing
lease, the estimated value of the real estate and the options, to be
approximately $2,500,000. Eric Langan, Chairman of the Board of the Company
controlled Citation. Mr. Langan abstained on voting on this transaction.
On December 31, 1997, the Company entered into a Stock Exchange Agreement with
the stockholders of XTC Cabaret, Inc. (the "XTC Agreement") which provided for
the acquisition by the Company of all of the outstanding stock of XTC Cabaret,
Inc. ("XTC"). XTC operates three adult entertainment businesses, two in Houston
and one in Austin. Citation is the landlord of one of XTC's adult nightclubs in
Houston, Texas and has an option to purchase the real estate in Austin. The
Company intends to continue operating XTC as an adult entertainment business.
Pursuant to the terms of the XTC Agreement, the Company paid the XTC
Stockholders an aggregate of 525,000 shares of common stock of the Company
valued at $1.00 per share. The XTC Agreement was the result of negotiations
between the Company and the XTC Stockholders and was based on numerous factors
including the Company's estimate of the value of the assets of XTC which the
Company estimated, based upon current operations and future revenues from its
three existing adult nightclubs to be approximately $525,000. Eric Langan,
Chairman of the Board of the Company and Mitchell White, director of the
Company, are the sole stockholders of XTC. Messrs. Langan and White abstained
on voting on this transaction.
The pro-forma financial statements included herein do not include all
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles.
F-45
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
---------------------------------------
NOTE 1 - BASIS OF PRESENTATION, CONTINUED
- -----------------------------------------------
In the opinion of management, the pro-forma financial statements include all
necessary adjustments for the fair presentation of the statements of assets
acquired and liabilities assumed and the related statements of operations for
the period noted therein.
The statements of operations for the period presented reflect no adjustments.
Management believes that the allocation methods are reasonable and that
allocated costs and expenses approximate what such amounts would be if the
entities were operated on a stand-alone basis.
NOTE 2 - ACQUISITIONS AND MERGERS
- --------------------------------------
On December 31, 1997, the Company entered into the aforementioned agreements to
purchase the rights to the business and certain assets of Atcomm Services, Inc.
d/b/a Broadstreets Cabaret and certain assets of The Enigma Group, Inc. In
addition, the Company acquired XTC Cabaret, Inc. and Citation Land, LLC by
issuing common shares in exchange for all of the outstanding common shares of
these entities. Each of the aforementioned acquired businesses has common
ownership with the Company as noted. The transaction was accounted for using
the purchase method as follows:
<TABLE>
<CAPTION>
Atcomm
Services, Inc The
d/b/a Enigma Citation XTC
Broadstreets Group, Land, Cabaret,
Cabaret Inc. LLC Inc. Total
-------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Assets . . . . . . . . . . $ 6,500 $ 868,269 $ 1,123,943 $ 197,119 $ 2,195,831
Liabilities. . . . . . . . -- (578,665) (1,025,210) (170,419) (1,774,294)
-------------- ---------- ------------ ---------- ------------
Net tangible assets. . . 6,500 289,604 98,733 26,700 421,537
-------------- ---------- ------------ ---------- ------------
Consideration Paid:
Issuance of note payable 225,000 -- -- -- 225,000
Common stock issued
at $1 per share . . . -- 350,000 2,500,000 525,000 3,375,000
-------------- ---------- ------------ ---------- ------------
Total Consideration. . . 225,000 350,000 2,500,000 525,000 3,600,000
-------------- ---------- ------------ ---------- ------------
Dividend paid to
shareholders . . . . . . $ 218,500 $ 60,396 $ 2,401,267 $ 498,300 $ 3,178,463
============== ========== ============ ========== ============
</TABLE>
Treatment of the excess cash consideration paid for the acquired businesses is
accounted for as a deemed dividend in accordance with generally accepted
accounting principles. Goodwill was not recorded since this transaction was
consummated with related parties and this treatment would have constituted a
step-up in basis. The transaction is reflected in the financial statements on
the date the transaction occurred of December 31, 1997, in accordance with
generally accepted accounting principles.
F-46
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
---------------------------------------
NOTE 3 - LONG-TERM DEBT
- ---------------------------
<TABLE>
<CAPTION>
Long-term debt at year-end consists of the following:
December 31, September 30,
1997 1997
-------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Note payable to partnership maturing March 2026,
due in monthly installments of $576 including principal
and interest at 12%; secured by real estate. . . . . . . . $ 55,628 $ 55,686
Note payable to partnership maturing July 2007,
due in monthly installments of $653 including principal
and interest at 12%; secured by real estate. . . . . . . . 63,078 63,144
Note payable to partnership maturing July 2007,
due in monthly installments of $309 including principal
and interest at 12%; secured by real estate. . . . . . . . 29,929 29,956
Note payable to corporation maturing December 2000,
due in monthly principal installments of $2,000 plus
interest at 9%; secured by real estate.. . . . . . . . . . 190,613 204,302
Note payable to individual maturing September 2000,
due in monthly installments of $6,556 including principal
and interest at 9.25%; secured by real estate. . . . . . . 191,027 156,169
Note payable to individual maturing March 2006,
due in monthly installments of $2,573, plus interest at
9.25%; secured by real estate. . . . . . . . . . . . . . . . 312,180 312,509
Note payable to corporation maturing April 2002,
due in monthly installments of $13,758 including
principal and interest at 10%; secured by real estate. . . 578,664 605,032
Note payable to corporation maturing June 2001,
due in monthly installments of $667, plus interest at
8.3%; secured by certain equipment.. . . . . . . . . . . . 24,244 25,723
Note payable to corporation in connection with
Atcomm acquisition maturing December 2001,
due in monthly installments of $5,284 including
principal and interest at 6%; unsecured. . . . . . . . . . 225,000 225,000
-------------- ---------------
1,670,363 1,677,521
Less current maturities. . . . . . . . . . . . . . . . . . (299,040) (278,148)
-------------- ---------------
$ 1,371,323 $ 1,399,373
============== ===============
</TABLE>
F-47
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
---------------------------------------
NOTE 3 - LONG-TERM DEBT, CONTINUED
- ---------------------------------------
Scheduled maturities of long-term debt are as follows:
For the Years Ending
December 31,
------------
1998 $ 299,040
1999 319,658
2000 328,473
2001 201,887
2002 97,135
Thereafter 424,170
----------
$1,670,363
==========
NOTE 4 - STOCKHOLDERS' EQUITY
- ---------------------------------
In November 1997, the Company's stockholders' approved a 1 for 300 reverse
common stock split and the number of authorized shares of common stock was
reduced from 200,000,000 to 20,000,000. Additionally, the Company authorized
10,000,000 shares of preferred stock.
NOTE 5 - SUBSEQUENT EVENT
- -----------------------------
On May 5, 1998, a fire damaged the adult entertainment facility known as
Broadstreets Cabaret located in Houston, Texas. The Company anticipates that
Broadstreets will remain closed for at least 60 to 90 days during which time the
Company plans to remodel the club. The Company believes this event will result
in a material decline in revenues during the closure of Broadstreets and until
it reopens and re-establishes the business. The Company believes that it
has adequate insurance to cover this property damage.
F-48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TAURUS ENTERTAINMENT COMPANIES, INC.
Date: May 20, 1998 By: /s/ Eric Langan
---------------------
Eric Langan, Chairman of the Board and
Chief Accounting Officer
<PAGE>
