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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-8835
TAURUS ENTERTAINMENT COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-0736215
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
505 NORTH BELT, SUITE 630
HOUSTON, TEXAS 77060
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(281) 820-1181
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
TITLE OF EACH CLASS NOT APPLICABLE
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. [X]
Issuer's revenues for the year ended September 30, 1999 were $1,667,778.
The most recent bid price occurred in December, 1998. The aggregate market value
of Common Stock held by non-affiliates of the registrant at December 20, 1999,
based upon the December, 1998 last reported price on the OTCBB, was $3030. As of
December 20, 1999, there were 4,305,012 shares of Common Stock outstanding.
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TABLE OF CONTENTS
PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 10
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
Item 7. Financial Statements 15
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a)
of The Exchange Act 15
Item 10. Executive Compensation 16
Item 11. Security Ownership of Certain Beneficial Owners
And Management 17
Item 12. Certain Relationships and Related Transactions 18
Item 13. Exhibits and Reports on Form 8-K 20
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PART I
ITEM 1. BUSINESS
Taurus Entertainment Companies, Inc. currently owns and operates an adult
cabaret in Austin under the name XTC Cabaret. We also own a facility in north
Houston which suffered damage in a fire in May, 1998. Our parent company, Rick's
Cabaret International, Inc. (Nasdaq "Rick's) re-opened the north Houston
location as a "Rick's Cabaret" in December, 1998. We also own a facility located
in South Houston which suffered fire damage in December, 1998 and is presently
undergoing renovations to be reopened as an XTC Cabaret. Our other real estate
holdings consist of 350 acres of ranch land in Brazoria County, Texas and
approximately 50 acres of raw land in Wise County, Texas.
Our company was formed as a Colorado corporation in 1977. During 1997 and
1998, we entered the adult entertainment business. In December, 1997, we
purchased assets from The Enigma Group, Inc. and we issued 350,000 shares of our
common stock to Enigma. These assets consisted of real estate known as 410 N.
Sam Houston Parkway E. Houston, Texas 77060, which was leased to Atcomm
Services, Inc. Also in December, 1997, we purchased assets from Atcomm for
$225,000 promissory note. These assets consisted of the lease and a permit to
operate a sexually oriented business.
In December, 1997, we purchased Citation Land, L.L.C., which owned a
facility in south Houston. We also purchased XTC Cabaret, Inc., which owned an
adult entertainment business. We paid 2,500,000 shares of our common stock to
the Citation stockholders. We paid 525,000 shares of our common stock to the
XTC shareholders.
In February, 1998, we purchased and subsequently sold back Lucky's of
Bourbon Street, Inc. which was the lessee for a facility in New Orleans.
In August, 1998, Rick's Cabaret International, Inc. (Nasdaq RICK) acquired
approximately 93% of our common stock.
We were an oil and gas company until 1997. All oil and gas properties and
operations were divested by 1996. We entered the adult entertainment business
in December, 1997.
BUSINESS STRATEGY
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We have followed a policy of maintaining high standards in the areas of
both personal appearance and personality of the topless entertainers and
waitresses. Though a performer's physical appearance is very important, of
equal importance is her ability to present herself attractively and to converse
intelligently with customers. We prefer that the performers we hire are
experienced dancers. We make a determination as to whether a particular
applicant is suitable based on such factors of appearance, attitude, dress,
communication skills and demeanor.
We recruit staff from both inside and outside the topless industry, in the
belief that management which has not been exposed to operating practices
prevalent in the topless industry and with diverse management backgrounds will
produce a management team that operates with a high level of integrity. This
practice of training management without adult nightclub experience may cause us
to experience a shortage of qualified management necessary to fulfill growth
plans.
We have a policy of ensuring that our business is carried on in conformity
with local, state and federal laws. In particular, we have an tolerance" policy
as to illegal drug use in or around the premises. Posters placed throughout the
nightclubs reinforce this policy, as do periodic unannounced searches of the
entertainer's lockers. Entertainers and waitresses who arrive for work are not
allowed to leave the premises without the permission of management. Once an
entertainer does leave the premises, she is not allowed to return to work until
the next day. We continually monitors the behavior of entertainers, waitresses
and customers to ensure that proper standards of behavior are observed.
We also review all credit card charges made by our customers.
Specifically, we have in place a formal policy which provides that all credit
card charges must be approved, in writing, by management before any charges are
accepted. Management is particularly trained to review credit card charges to
ensure that the only credit card charges approved for payment are for food,
drink and entertainment at XTC Cabarets.
Operational and accounting controls are essential to the successful
operation of a cash intensive nightclub and bar business. We have implemented
internal procedures and controls designed to ensure the integrity of our
operational and accounting records. We separate management personnel from all
cash handling to ensure that management is isolated from and does not handle any
cash. We use a combination of accounting and physical inventory control
mechanisms to ensure a high level of integrity in our accounting practices.
Computers 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 are
reconciled each day to a daily income report. In addition, we 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 alert management of any variances from expected financial
results based on historical norms. Further, we conduct, on a monthly basis, an
independent overview of our financial condition and have engaged independent
accountants to conduct an annual audit and to review and advise us relating to
our internal controls.
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COMPETITION
The adult topless club entertainment business is highly competitive with
respect to price, service and location, as well as the professionalism of our
entertainment product. All of our nightclubs compete with a number of
locally-owned adult cabarets. While there may be restrictions on the location of
a so-called "sexually oriented business" there are no barriers to entry into the
adult cabaret entertainment market and only the name "XTC Cabaret" are
proprietary. For example, there are approximately nine adult cabarets located
in the Austin which in competition with us. Although the we believe that we are
well-positioned to compete successfully, there can be no assurance that we will
be able to maintain our high level of name recognition and prestige within the
marketplace.
GOVERNMENTAL REGULATIONS
We are subject to various federal, state and local laws affecting our
business activities. In particular, in Texas the authority to issue a permit to
sell alcoholic beverages is governed by the Texas Alcoholic Beverage Commission
(the "ABC"), which has the authority, in its discretion, to issue the
appropriate permits. We presently hold a Mixed Beverage Permit and a Late Hours
Permit (the "Permits"). These Permits are subject to annual renewal, provided
we have complied with all rules and regulations governing the permits. Renewal
of a permit is subject to protest, which may be made by a law enforcement agency
or by the public. In the event of a protest, the ABC may hold a hearing at
which time the views of interested parties are expressed. The ABC has the
authority after such hearing not to issue a renewal of the protested alcoholic
beverage permit. We have never been the subject of a protest hearing against
the renewal of Permits.
In addition to various regulatory requirements affecting the sale of
alcoholic beverages the location of a topless cabaret is subject to restriction
by city ordinance. For example, the operation of a topless club by our parent
company, Rick's, in Houston, Texas is subject to "The Sexually Oriented Business
Ordinance" (the "Ordinance") which contains prohibitions on the location of an
adult cabaret. The prohibitions deal generally with distance from schools,
churches, and other sexually oriented businesses and contain restrictions based
on the percentage of residences within the immediate vicinity of the sexually
oriented business. The granting of a Sexually Oriented Business Permit
("Business Permit") is not subject to discretion; the Business Permit must be
granted if the proposed operation satisfies the requirements of the Ordinance.
If the operation of a sexually oriented business at our Houston locations was
not permitted we could be adversly affected.
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 new Ordinance established new minimum
distances that Sexually Oriented Businesses may be located from schools,
churches, playgrounds and other sexually oriented businesses. There were no
provisions in the Ordinance exempting previously permitted sexually oriented
businesses from the effect of the new Ordinance. In 1997, we were informed that
one of our Houston locations at 3113 Bering Drive failed to meet the
requirements of the Ordinance and accordingly the renewal of our Business
License at that location was denied.
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The Ordinance provided that a business which was denied a renewal of its
operating permit due to changes in distance requirements under the Ordinance
would be entitled to continue in operation for a period of time (the
"Amortization Period") if the owner were unable to recoup, by the effective date
of the Ordinance, its investment in the business that was incurred through the
date of the passage and approval of the Ordinance.
We filed a request with the City of Houston requesting an extension of time
during which operations at our north Houston facility could continue under the
Amortization Period provisions of the Ordinance since we were unable to recoup
our investment prior to the effective date of the Ordinance. An administrative
hearing was held by the City of Houston to determine the appropriate
Amortization Period to be granted to us. At the Hearing, we were granted an
amortization period through June 2000 for its location in north Houston. We
have the right to appeal any decision of the Hearing official to the district
court in the State of Texas.
In May, 1997, the City of Houston agreed to defer implementation of the
Ordinance until the constitutionality of the entire Ordinance was decided by
court trial. In February 1998 the U.S. District Court for the Southern District
of Texas, Houston, Division, struck down certain provisions of the Ordinance,
including the provision mandating a 1,500 foot distance between a club and
schools, churches and other sexually oriented business, leaving intact the
provision of the 750 foot distance as it existed in the prior Houston, Texas
Ordinance.
The City of Houston has appealed the District Court's rulings with the
Fifth Circuit Court of Appeals, and the Company filed a brief with the Fifth
Circuit. In the event that the City of Houston is successful in an appeal, the
Company's Bering Drive location could be out of compliance. Such an outcome
could have an adverse impact on the Company's future.
There are other provisions in the Houston, Texas Ordinance, such as
provisions governing the level of lighting in a sexually oriented business, the
distance between a customer and dancer while the dancer is performing in a state
of undress and provisions regarding the licensing of dancers that were upheld
which may be detrimental to our business. We, in concert with other sexually
oriented businesses, are appealing these aspects of the Houston, Texas
Ordinance. In the event that our court appeal is unsuccessful, such an outcome
could have an adverse impact on us.
In 1998, the City of Houston began enforcing certain portions of the
Ordinance, including the distance requirement between a customer and a dancer
while dancing, and the requirement that dancers be licensed. The City of
Houston's enforcement of the recently implemented provisions of the Ordinance
could have an adverse impact on the Rick's locations in Houston, Texas. The
current requirement of a three foot distance between a dancer and a customer
could reduce customer satisfaction and could result in fewer customers at the
Houston location. The requirement that a dancer be licensed may result in fewer
dancers working, which could have an adverse impact on the Houston locations.
It is unknown what future impact the enforcement of the Ordinance may have on
our Houston locations.
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In Austin, we are required to be in compliance with liquor licensing laws
and with Travis County restrictions on the location of sexually oriented
businesses.
Employees and Independent Contractors
As of September 30, 1998, we had approximately 40 full-time employees, of
which 4 are in management positions, including corporate and administrative
operations, and approximately 36 are engaged in customer service, including
bartenders and waitresses. None of our employees are represented by a union and
the We consider our employee relations to be good.
Additionally, we have independent contractor relationships with over 100
entertainers, who are self-employed and work with us on a non-exclusive basis as
independent contractors.
Transfer Agent and Registrar
The transfer agent and registrar for the our common stock is American
Securities Transfer & Trust, Inc., 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202-1817.
ITEM 2. PROPERTIES
Our principal executive offices are co-located at 505 North Belt, Houston,
Texas 77060 with our parent, Rick's Cabaret International, Inc. in leased
facilities consisting of a total of 1,200 square feet. Rick's provides this
office space at no charge to us. We believe that our offices are adequate for
our present needs and that suitable space will be available to accommodate our
future needs.
We own the north Houston location where our parent, Rick's Cabaret
International, Inc., operates a Rick's Cabaret. We also own the Austin
location of our XTC Cabarets.
Our north Houston location has 12,000 square feet of space. The balance as
of September 30, 1999 that we owe on the mortgage is $411,478 and the interest
rate is 10%. We pay $13,758 in monthly mortgage payments. The last mortgage
payment is due in April, 2002.
The XTC nightclub in Austin has 6,800 square feet of space, which sits on
1.2 acres of land. The balance as of September, 1999 that we owe on the mortgage
is $547,464 and the interest rate is 10%. We pay $5,380 in monthly mortgage
payments. The last mortgage payment is due in July, 2003 with a balloon payment
of $432,682.
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Taurus also owns a 12,000 square foot building in Houston, Texas which was
purchased from Ralph McElroy, one of our principal stockholders, and this
property is presently being renovated after fire damage for reopening as an XTC
Cabaret. We acquired the property from Mr. McElroy for the same price that Mr.
McElroy paid for the property. We financed the purchase of the property by the
issuance of a six year $286,744 Convertible Debenture, secured by the real
estate acquired. We are a guarantor of this Convertible Debenture. The
principal balance of the Convertible Debenture is due in July, 2004, in one lump
sum payment. Interest is due and payable monthly, with the first interest
payment beginning in September, 1998. The Convertible Debenture is convertible
into shares of our common stock at any time prior to maturity at the Conversion
Price of $5.50 per share. See, Certain Relationships and Related Transactions.
Taurus and its subsidiaries own a 350 acre ranch in Brazoria County, Texas,
and approximately 50 acres of raw land in Wise County, Texas.
The balance as of September 30, 1999 that we owe on the Brazoria County
ranch mortgage is $308,202 and the interest rate is 9.25%. We pay $2,573 in
monthly mortgage payments. The last mortgage payment is due in 2006 with a
balloon payment of $287,920.
The balance as of September 30, 1999 that we owe on the Wise County raw
land mortgage is $147,439 and the interest rate is 12%. We pay $1,537 in
monthly mortgage payments. The last mortgage payment is due in March, 2026.
ITEM 3. LEGAL PROCEEDINGS
In November, 1998, LMTD, Inc. initiated litigation against a subsidiary of
one of our subsidiaries, Citation Land, LLC ("Citation"), in a case styled LMTD,
Inc. v. Texas Warehouse Company, Inc., et al. in Cause No. 98-12570, in the
200th Judicial District Court of Travis County, Texas. The suit seeks specific
performance and damages against Texas Warehouse Company, Inc. regarding a
Purchase Option Agreement. Plaintiff also alleges a tortuous interference claim
against Citation in the amount of $540,000. Counsel for Citation filed a
counterclaim. Counsel for Citation believes that the exposure to Citation is
minimal. We intend to vigorously defend itself in this matter and to deny all
allegations.
On October 15, 1998, All City Beverage and Entertainment, Inc. initiated
litigation against one of our subsidiaries in a case styled All City Beverage
and Entertainment, Inc. v. Taurus Entertainment Companies, Inc.("Taurus") in
Cause No. 98-49119, in the 61st Judicial District Court of Harris County, Texas.
The suit sought damages in the amount of $25,000 and 175,000 shares of common
stock of Taurus in connection with an Asset Purchase Agreement between All City
Beverage and Entertainment, Inc. and Taurus. Taurus filed a counter-claim
asserting that there were undisclosed obligations that Taurus was required to
pay. The counter-claim sought damages in an amount in excess of $25,000. This
matter was dismissed for want of prosecution.
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Sexually Oriented Business Ordinance of Houston, Texas
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 new Ordinance established new minimum
distances that Sexually Oriented Businesses may be located from schools,
churches, playgrounds and other sexually oriented businesses. There were no
provisions in the Ordinance exempting previously permitted sexually oriented
businesses from the effect of the new Ordinance. In 1997, we were informed that
our Houston location in north Houston failed to meet the requirements of the
Ordinance and accordingly the renewal of our Business License at that location
was denied.
The Ordinance provided that a business which was denied a renewal of its
operating permit due to changes in distance requirements under the Ordinance
would be entitled to continue in operation for a period of time (the
"Amortization Period") if the owner were unable to recoup, by the effective date
of the Ordinance, its investment in the business that was incurred through the
date of the passage and approval of the Ordinance.
We filed a request with the City of Houston requesting an extension of time
during which operations at our north Houston facility could continue under the
Amortization Period provisions of the Ordinance since we were unable to recoup
our investment prior to the effective date of the Ordinance. An administrative
hearing was held by the City of Houston to determine the appropriate
Amortization Period to be granted to us. At the Hearing, we were granted an
amortization period through June 2000 for our location in north Houston. We
have the right to appeal any decision of the Hearing official to the district
court in the State of Texas.
In May, 1997, the City of Houston agreed to defer implementation of the
Ordinance until the constitutionality of the entire Ordinance was decided by
court trial. In February 1998 the U.S. District Court for the Southern District
of Texas, Houston, Division, struck down certain provisions of the Ordinance,
including the provision mandating a 1,500 foot distance between a club and
schools, churches and other sexually oriented business, leaving intact the
provision of the 750 foot distance as it existed in the prior Houston, Texas
Ordinance.
The City of Houston has appealed the District Court's rulings with the
Fifth Circuit Court of Appeals, and the Company filed a brief with the Fifth
Circuit. In the event that the City of Houston is successful in an appeal, the
Company's Bering Drive location could be out of compliance. Such an outcome
could have an adverse impact on the Company's future.
There are other provisions in the Houston, Texas Ordinance, such as
provisions governing the level of lighting in a sexually oriented business, the
distance between a customer and dancer while the dancer is performing in a state
of undress and provisions regarding the licensing of dancers that were upheld by
the court which may be detrimental to our business. We, in concert with other
sexually oriented businesses, are appealing these aspects of the Houston, Texas
Ordinance. In the event that our court appeal is unsuccessful, such an outcome
could have an adverse impact on us.
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In 1998, the City of Houston began enforcing certain portions of the
Ordinance, including the distance requirement between a customer and a dancer
while dancing, and the requirement that dancers be licensed. The City of
Houston's enforcement of the recently implemented provisions of the Ordinance
could have an adverse impact on our locations in Houston, Texas. The
current requirement of a three foot distance between a dancer and a customer
could reduce customer satisfaction and could result in fewer customers at the
Houston location. The requirement that a dancer be licensed may result in fewer
dancers working, which could have an adverse impact on the Houston locations. It
is unknown what future impact the enforcement of the Ordinance may have on our
Houston locations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, there were no matters submitted to a
vote of the Security Holders, through solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock is traded on the OTCBB under the symbol "TAUR" The
following table sets forth, for the periods indicated the high and low closing
bid prices of our common stock 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. Periods for which we believe no bids were being made are
indicted by an asterisk (*).
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COMMON STOCK PRICE RANGE
HIGH BID LOW BID
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1998
First Quarter $ .001 $ .001
Second Quarter $ .001 $ .001
Third Quarter $ .75 $ .75
Fourth Quarter (*) (*)
1999
First Quarter $ .01 $ .01
Second Quarter $ (*) $ (*)
Third Quarter $ (*) $ (*)
Fourth Quarter $ (*) $ (*)
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(*) During the last quarter of fiscal 1998, and the last three quarters of
fiscal 1999, we believe there were no bids or trades for our common stock on the
OTCBB, which we believe is a result of the acquisition of 93% of our common
stock by Rick's in August, 1998. On December 20, 1999, there were 1388
stockholders of record of the common stock. The most recent bid price occurred
in December, 1998 and was reported on the OTCBB at $.01.
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Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American
Securities Transfer & Trust, Inc., 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202-1817.
Dividend Policy
We have not paid, and do not currently intend to pay cash dividends on our
common stock in the foreseeable future. Our current policy is to retain all
earnings, if any, to provide funds for operation and expansion of our business.
The declaration of dividends, if any, will be subject to the discretion of the
Board of Directors, which may consider such factors as our 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
FORWARD LOOKING STATEMENT AND INFORMATION
The Company is including the following cautionary statement in this Form
10-KSB to make applicable and take advantage of the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements which are
other than statements of historical facts. Certain statements in this Form
10-KSB are forward-looking statements. Words such as "expects", "anticipates"
and "estimates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties are set forth below. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the Company to have
a reasonable basis, including without limitation, management's examination of
historical operating trends, data contained in the Company's records and other
data available from third parties, but there can be no assurance that
management's expectation, beliefs or projections will result, be achieved, or be
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in the view of the Company,
could cause material adverse affects on the Company's financial condition and
results of operations: the impact and implementation of the sexually oriented
business ordinance in the City of Houston, competitive factors, the timing of
the openings of other clubs, the integration of our operations and management
with our parent, Rick's Cabaret International, Inc., the availability of
acceptable financing to fund corporate expansion efforts, competitive factors,
and the dependence on key personnel. The Company has no obligation to update or
revise these forward-looking statements to reflect the occurrence of future
events or circumstances.
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GENERAL
We currently own and operate one adult nightclub under the name "XTC
Cabaret " in Austin, Texas. We own commercial income real estate and
undeveloped real estate.
Our revenues are derived from club cover charges, food, and charges to the
entertainers. Our fiscal year end is September 30.
General
The Company had been operated as an oil and gas company until 1997. All oil
and gas properties and operations were divested by 1996 and the Company entered
the adult entertainment business in December, 1997.
Results of Operations
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998.
For the 1999 fiscal year, we had consolidated total revenues of
$1,667,778, a decrease of $1,727,005 compared to fiscal 1998 revenues of
$3,394,783. This decrease was due to the closing of a location due to fire
damage.
Costs of goods sold were 46% and 34% of beverage sales for fiscal 1999 and
1998, respectively. This increase is due to the fact that 1998 included
alcoholic beverage sales at the fire damaged location.
Salaries and wages decreased $729,814 from fiscal 1998 due to the closing
of a location due to fire damage and a reduction in corporate overhead due to
our being acquired by our parent, Rick's Cabaret International, Inc.
Other general and administrative expenses decreased $1,346,752 from fiscal
1998 to fiscal 1999. Charge card fees decreased $37,777. All of these
decreases were due to the closing of a location due to fire damage
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Legal and accounting fees decreased $72,055. Advertising and promotion
decreased by $140,078 due to the closing of a location due to fire damage.
Other costs decreased $732,739 from fiscal 1998 due to the closing of a location
due to fire damage and a reduction in corporate overhead due to our being
acquired by our parent, Rick's Cabaret International, Inc. Interest expense
increased to $190,664 during fiscal 1999.
We experienced net income of $246,919 for fiscal 1999 compared to a net
loss of $604,864 for fiscal 1998.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997.
For the 1998 fiscal year, we had consolidated total revenues of $3,394,783,
an increase of $1,634,397 from fiscal 1997 revenues of $1,760,386.
Consolidated net losses were $620,464 and $90,048 for fiscal years 1998 and
1997 respectively.
Operating revenue increased by $1,634,397 during fiscal 1998 over fiscal
1997. The increase in operating revenue in fiscal 1998 was the direct result of
our acquisitions and entry into the adult entertainment business.
The overall decline in profitability was attributable to the effect of a
new ordinance passed in by Houston City Council in January, 1997, by the failure
of a new location in New Orleans to produce significant sales from the time of
its opening in April, 1998 to the time of its closure in July, 1998 and by a
fire in May, 1998 which closed our location at 410 Sam Houston Parkway East,
Houston, Texas.
Salaries and wages increased $434,408 or 60% from fiscal 1997 due to the
addition of personnel related to the acquisition of Taurus Entertainment
Companies, Inc.
Other general and administrative expenses increased 262% or $1,409,262 from
fiscal 1997 to fiscal 1998. Charge card fees increased $37,750 largely due to
the operation of one of locations for a portion of the fiscal year. Legal and
accounting fees increased $89,775 as a result of the opening of the New Orleans
property and legal and accounting assistance obtained in connection with the
acquisition of 93% of our common stock by Rick's Cabaret International, Inc.
Advertising and promotion increased by $93,038 because of the opening of the New
Orleans location and our location at 410 Sam Houston Parkway East. Our current
media expenditures have declined reflecting the decrease in need for advertising
due to the closure of the New Orleans location and the closure of one of our
locations. Other costs increased $765,623 during fiscal 1998 as a result of the
costs associated with opening the New Orleans location and the operation of our
other locations. Interest expense was ($156,238) during fiscal 1998.
We experienced a net loss of $620,464 for fiscal 1998 compared to a net
loss of $90,048 for fiscal 1997.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 we had a working capital deficit of $(198,892)
compared to a working capital deficit of $(295,335) at the end of fiscal 1998.
The decrease in the working capital deficit is primarily due to net income for
1999.
In our opinion, working capital is not a good indicator of our financial
status due to the short cash liquidity cycle that results in the realization of
cash within no more than five days after the culmination of a transaction.
Net cash provided by operating activities in fiscal 1999 was $143,942
compared to net cash provided by operating activities of $147,129 in fiscal
1998.
Net cash provided by investing activities was $215,731 in 1999 compared to
net cash used of $(785,619) in 1998. The increase in cash provided is due to
receipt of fire insurance proceeds and decreased investment in property and
equipment.
Cash used by financing activities was $(589,244) compared to cash provided
by financing activities of $875,964 in fiscal 1998. The increase in cash used
is due to the payment of long term debt and payments on a loan from our parent
company, Rick's Cabaret International, Inc.
We have not established lines of credit other than the existing debt.
There can be no assurance that we will be able to obtain additional financing on
reasonable terms, if at all.
Because of the large volume of cash we handle, stringent cash controls have
been implemented. In the event the topless club industry is required in all
states to convert the entertainers who perform from independent contractor to
employee status, we have prepared alternative plans that we believe will protect
our profitability. We believe that the industry standard of treating the
entertainers as independent contractors provides sufficient safe harbor
protection to preclude any payroll tax assessment for prior years.
The adult topless club entertainment business is highly competitive with
respect to price, service and location, as well as the professionalism of the
entertainment. Although we believe that we are well-positioned to compete
successfully in the future, there can be no assurance that we will be able to
maintain our high level of name recognition and prestige within the marketplace.
14
<PAGE>
SEASONALITY
We are significantly affected by seasonal factors. Typically, we
experience reduced revenues from May through September. We have historically
experienced our strongest operating results during October through April.
YEAR 2000
We believe that we do not have any significant exposure to uncertainties
nor material anticipated costs related to Year 2000 issues including internal,
vendor and customer issues. Our current systems and any anticipated upgrades
are Year 2000 compliant.
ITEM 7. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth
beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
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 Company's Board of
Directors consists of one person, Eric Langan, who is also our Chairman, Chief
Executive Officer, President and Chief Financial Officer
15
<PAGE>
Since 1997, Eric S. Langan, age 31, has been our Director, Chief Executive
Officer, President and Chief Financial Officer. Mr. Langan has been involved in
the adult entertainment business since 1989. From January 1997 through the
present, he has held the position of President with XTC Cabaret, Inc., which we
subsequently acquired. From November 1992 until January 1997, Mr. Langan was
the President of Bathing Beauties, Inc. Since 1989, Mr. Langan has exercised
managerial control over the grand openings and operations of more than twelve
adult entertainment businesses. Through these activities, Mr. Langan has
acquired the knowledge and skills necessary to successfully operate adult
entertainment businesses. Through these activities, Mr. Langan has acquired the
knowledge and skills necessary to successfully operate adult entertainment
businesses. Mr. Langan has also been an officer of Citation Land Company which
owned commercial income real estate in Houston, Texas, which we also
subsequently acquired . Since 1998, Mr. Langan has been a director of our
parent company, Rick's Cabaret International, Inc.
Certain Securities Filings
The Company believes that all persons subject to Section 16(a) of the
Exchange Act in connection with the Company have complied on a timely basis.
We have no compensation, nominating or audit committees. Mr. Langan is our
only director and officer.
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Other Securities
Name and Annual Restricted Underlying Other All
Principal Compen- Stock Options/ LTIP Compens-
Position Year Salary Bonus sation (1) Awards SARs Payouts sation
- --------- ---- -------- ----- ---------- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Eric 1999 $ 52,000 (2)-0- -0- -0- -0- -0- -0-
Langan 1998 $108,275 -0- -0- -0- -0- -0- -0-
Director, 1997 -0- -0- -0- -0- -0- -0- -0-
President
and CFO
<FN>
_____________________
(1) The Company provides Mr. Langan with certain personal benefits. Since the value of
such benefits does not exceed the lesser of $50,000 or 10% of annual compensation, the amounts
are omitted. Mr. Langan is also an employee of Rick's Cabaret International, Inc. which owns
93% of the Common Stock of the Company. Mr. Langan also receives compensation from Rick's
Cabaret International, Inc.
16
<PAGE>
(2) Our parent, Rick's Cabaret International, Inc. paid Mr. Langan $155,000 as compensation
in fiscal 1999, of which $52,000 was allocated to us.
</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.
Employee Stock Option Plan
The Company does not presently have a stock option plan in place and has no
present intention to implement such a plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at December 20, 1999
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company 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. Rick's Cabaret International, Inc. has sole
voting and investment power with respect to the shares shown as beneficially
owned by it. As of December 20, 1999. there were 4,305,012 shares of Common
Stock outstanding.
<TABLE>
<CAPTION>
Name and Number of Title of Percent
Address Shares Class of Class
<S> <C> <C> <C>
Rick's Cabaret International, Inc.
505 North Belt, Suite 630
Houston, Texas 77060 4,002,006 (1) Common Stock 93.0%
Eric Langan
505 North Belt, Suite 630
Houston, Texas 77060 -0- (1) Common Stock 0.0%
All directors and officers as
a group (one persons) -0- Common Stock 0.0%
<FN>
__________________________
(1) Mr. Langan is a Director and President of Rick's Cabaret International,
Inc.
</TABLE>
17
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The current Board of Directors of the Company has adopted a policy that
Company affairs will be conducted in all respects by standards applicable to
publicly-held corporations and that the Company will not enter into any
transactions and/or loans between the Company and its officers, directors and 5%
stockholders unless the terms are no less favorable than could be obtained from
independent, third parties and will be approved by a majority of the
independent, disinterested directors of the Company.
In connection with all of the transactions below, interested persons who
are or were directors of the Company refrained from board votes reflecting these
matters:
In December, 1997, 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"); (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. 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. However,
no appraisal was done. Eric Langan, a Director of the Company, and Stephen E.
Fischer, a former Director of the Company, controlled Enigma.
The lessee of the Enigma Location was Atcomm Services, Inc. ("Atcomm"),
which operated an adult entertainment business. In December, 1997, 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. 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 is owned by the son of Stephen E. Fischer, a former Director of the
Company.
18
<PAGE>
In 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, at the time of this transaction, owned
an option to purchase real estate in Austin, Texas, at which the Company had
contemplated operating adult entertainment businesses. Mr. Langan, a Director,
of the Company received 1,153,137 shares of the Company as a result of this
transaction.
In December, 1997, 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, a Director of the Company,
controlled Citation.
In December, 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 two adult entertainment businesses, in Houston and
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. 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. Eric Langan, a Director of the Company and
Mitchell White, a former director of the Company, were the sole stockholders of
XTC.
19
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Identification of Exhibit
3.1 * The Company's Articles of Incorporation as amended incorporated by
reference to the Company's report on Form 10-KSB for the year ended
September 30, 1998.
3.2 * The Company's By-laws as amended incorporated by reference to the
Company's report on Form 10-KSB for the year ended September 30, 1998.
4.1 * Specimen of the Company's common stock certificate incorporated by
reference to the Company's report on Form 10-KSB for the year ended
September 30, 1998.
21.1 * Subsidiaries incorporated by reference to the Company's report on Form
10-KSB for the year ended September 30, 1998.
27.1 ** Financial Data Schedule
__________________________
* Incorporated by reference
** Filed herewith
(b) Reports on Form 8-K.
None.
20
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the Exchange
Act, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on December 20, 1999.
TAURUS ENTERTAINMENT COMPANIES INC.
/s/ Eric Langan
-------------------------------------
Eric Langan
Director, Chairman of the Board,
Chief Executive Officer, President
And Chief Financial Officer
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Eric Langan Director, Chairman of the Board, December 20,1999
- ----------------- Chief Executive Officer, President
Eric Langan And Chief Financial Officer
21
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
AUDITED FINANCIAL INFORMATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
<S> <C>
Independent Auditors' Report F-2-3
Consolidated Balance Sheets for the years ended
September 30, 1999 and 1998 F-4
Consolidated Statements of Operations for the years ended
September 30, 1999 and 1998 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Taurus Entertainment Companies, Inc.
We have audited the accompanying consolidated balance sheets of Taurus
Entertainment Companies, Inc. and subsidiaries as of September 30, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity 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 consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those 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 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Taurus
Entertainment Companies, Inc. and subsidiaries as of September 30, 1999 and
1998, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Jackson & Rhodes P.C.
Dallas, Texas
December 1, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
ASSETS
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,775 $ 243,346
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 6,254 2,343
Accounts receivable - related party. . . . . . . . . . . . . . - 9,755
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 7,866 2,365
Land held for sale . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 227,895 457,809
------------ ------------
Property and equipment:
Buildings, land and leasehold improvements . . . . . . . . . . 1,782,119 2,138,641
Furniture and equipment. . . . . . . . . . . . . . . . . . . . 251,684 169,671
------------ ------------
2,033,803 2,308,312
Less accumulated depreciation. . . . . . . . . . . . . . . . . (99,195) (69,751)
------------ ------------
1,934,608 2,238,561
------------ ------------
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 55 108,705
------------ ------------
$ 2,162,558 $ 2,805,075
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable (Note 4). . . . . . . . . . . . . . . . . . . . . $ - $ 25,000
Current portion of long-term debt (Note 5) . . . . . . . . . . 195,821 220,527
Payable to Parent. . . . . . . . . . . . . . . . . . . . . . . 67,484 79,851
Accounts payable - trade . . . . . . . . . . . . . . . . . . . 133,705 185,644
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 29,777 203,677
Income taxes payable . . . . . . . . . . . . . . . . . . . . . - 38,445
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . 426,787 753,144
Long-term debt, less current portion (Note 5). . . . . . . . . . 1,369,888 1,932,967
------------ ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . 1,796,675 2,686,111
------------ ------------
Commitments and contingencies (Note 8) . . . . . . . . . . . . . - -
Stockholders' equity (Notes 1 and 3):
Preferred stock - $.10 par, authorized
10,000,000 shares; none issued and outstanding . . . . . . . - -
Common stock - $.01 par, authorized
20,000,000 shares; issued and outstanding 4,305,012 shares. 4,305 4,305
Additional paid-in capital . . . . . . . . . . . . . . . . . . 4,026,383 4,026,383
Retained earnings (deficit). . . . . . . . . . . . . . . . . . (3,664,805) (3,911,724)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 365,883 118,964
------------ ------------
$ 2,162,558 $ 2,805,075
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Sales of alcoholic beverages . . . . . . . . . $ - $ 781,566
Sales of non-alcoholic beverages . . . . . . . 176,405 311,611
Service revenues . . . . . . . . . . . . . . . 1,380,643 2,275,937
Other. . . . . . . . . . . . . . . . . . . . . 110,730 25,669
----------- -----------
1,667,778 3,394,783
----------- -----------
Operating expenses:
Cost of goods sold . . . . . . . . . . . . . . 81,386 372,585
Salaries and wages . . . . . . . . . . . . . . 354,643 1,084,457
Other general and administrative:
Taxes and permits. . . . . . . . . . . . . . 182,232 414,323
Charge card fees . . . . . . . . . . . . . . 9,128 46,905
Rent . . . . . . . . . . . . . . . . . . . . 99,156 231,168
Legal and accounting . . . . . . . . . . . . 69,860 141,915
Advertising. . . . . . . . . . . . . . . . . 59,549 199,627
Other. . . . . . . . . . . . . . . . . . . . 508,303 1,241,042
----------- -----------
1,364,257 3,732,022
----------- -----------
Income (loss) from operations. . . . . . . . . . 303,521 (337,239)
Interest expense . . . . . . . . . . . . . . . (190,664) (156,238)
Loss (gain) on fire damages. . . . . . . . . . 290,769 (135,377)
Loss on termination of lease . . . . . . . . . (219,780) -
Other. . . . . . . . . . . . . . . . . . . . . 63,073 -
----------- -----------
Loss before income taxes and extraordinary item. 246,919 (628,854)
Income taxes (benefit) (Note 8). . . . . . . . - (8,390)
----------- -----------
Net income (loss). . . . . . . . . . . . . . . . $ 246,919 $ (620,464)
=========== ===========
Basic net income (loss) per common share . . . . $ 0.06 $ (0.16)
=========== ===========
Weighted average shares outstanding. . . . . . . 4,305,012 3,922,711
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
Common Stock Additional Retained
-------------------
Number of Paid-in Earnings
Shares Amount Capital (Deficit) Total
---------- ------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1997 . . . . . 2,000 $ 2,000 $ 284,256 $ 108,704 $ 394,960
Revaluation of equity accounts of the
acquisition of Taurus Entertainment
Companies, Inc. . . . . . . . . . . . 3,674,026 1,676 3,194,094 (3,181,464) 14,306
Deemed dividend on acquisition. . . . - - - (218,500) (218,500)
Purchase of treasury stock. . . . . . (172) - (38) - (38)
Sale of common stock for cash . . . . 195,500 196 155,304 - 155,500
Issuance of common stock for services 340,500 340 323,260 - 323,600
Conversion of debt to common stock. . 93,158 93 69,507 - 69,600
Net loss. . . . . . . . . . . . . . . - - - (620,464) (620,464)
---------- ------- ------------ ------------ ----------
Balance, September 30, 1998 . . . . . 4,305,012 4,305 4,026,383 (3,911,724) 118,964
Net income. . . . . . . . . . . . . . - - - 246,919 246,919
---------- ------- ------------ ------------ ----------
Balance, September 30, 1999 . . . . . 4,305,012 $ 4,305 $ 4,026,383 $(3,664,805) $ 365,883
========== ======= ============ ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
---------- ------------
<S> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 246,919 $ (620,464)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . 46,538 66,388
Common stock issued for services. . . . . . . . . . . - 323,600
Loss (gain) on fire damages . . . . . . . . . . . . . (290,769) 154,634
Loss on termination of lease. . . . . . . . . . . . . 219,780
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . (3,911) 2,946
Prepaid expenses and other assets . . . . . . . . . 103,149 (104,545)
Accounts payable and accrued liabilities. . . . . . (139,319) 339,421
Income taxes payable/receivable . . . . . . . . . . (38,445) (14,851)
---------- ------------
Net cash provided by operating activities . . . . 143,942 147,129
---------- ------------
Cash flows from investing activities:
Additions to property and equipment . . . . . . . . . (280,894) (1,137,348)
Insurance proceeds from fire damaged assets . . . . . 496,625 351,729
---------- ------------
Net cash used by investing activities . . . . . . 215,731 (785,619)
---------- ------------
Cash flows from financing activities:
Common stock issued . . . . . . . . . . . . . . . . . - 155,500
Increase in notes payable and long-term debt. . . . . - 839,991
Payments on long-term debt. . . . . . . . . . . . . . (326,040) (262,918)
Increase in accounts receivable - related party . . . 9,755 63,540
Increase (decrease) in loan from Parent . . . . . . . (272,959) 79,851
---------- ------------
Net cash provided (used) by financing activities. (589,244) 875,964
---------- ------------
Net increase (decrease) in cash . . . . . . . . . . . . (229,571) 237,474
Cash at beginning of year . . . . . . . . . . . . . . . 243,346 5,872
---------- ------------
Cash at end of year . . . . . . . . . . . . . . . . . . 13,775 243,346
========== ============
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . 190,664 156,238
========== ============
Income taxes. . . . . . . . . . . . . . . . . . . . . 30,793 6,461
========== ============
<FN>
Noncash transactions:
During the year ended September 30, 1998, the Company issued $225,000 of
debt in connection with the acquisition (Note 3). The Company also issued
93,158 shares of common stock to convert $69,600 of debt.
During the year ended September 30, 1999, the Company transferred a note
payable of $286,745 to its parent.
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
1. ORGANIZATION
Taurus Entertainment Companies, Inc. ("Taurus"), formerly Taurus Petroleum,
Inc., changed its name in November 1997 to reflect its entry into the adult
entertainment business. The Company, which was formed as a Colorado corporation
in 1977, was previously an independent oil and gas exploration, development and
production company until it divested all of its oil and gas assets in July 1996.
In November 1997, Taurus' 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, Taurus authorized 10,000,000 shares of
preferred stock. See Note 3 for information regarding acquisitions by Taurus in
December 1997 and the basis of presentation of the accompanying consolidated
financial statements. On August 4, 1998, the Company's principal shareholders
entered into an agreement with Rick's Cabaret International, Inc. ("Rick's"),
whereby Rick's acquired approximately 93% of the outstanding common stock of the
Company. Rick's is a publicly held company in the adult entertainment business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The Company is reporting a working capital deficit of $198,892 and has an
accumulated deficit of $3,664,805 at September 30, 1999.
The Company has become profitable for the year ended September 30, 1999 and
management believes it has implemented plans that will ensure that the Company
will continue to be profitable in 2000. Additionally, funds will be generated
by sale of the land held for sale.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation. (Also see Note 3.)
Inventories
Inventories, consisting principally of liquor and food products, are stated at
the lower of cost or market (first-in, first-out method).
F-7
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income (Loss) Per Common Share
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 provides a different method of calculating earnings per share than was
formerly used in APB Opinion 15. SFAS 128 provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Dilutive
earnings per share reflect the potential dilution of securities that could share
in the earnings of the Company. The Company was required to adopt this standard
in the fourth quarter of calendar 1997. Because the Company has no potential
dilutive securities outstanding, the accompanying presentation is only of basic
income (loss) per share.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Cost of property renewals and
betterments are capitalized; costs of property maintenance and repairs are
charged against operations as incurred. Depreciation is computed using the
straight-line method over the estimated useful lives of the individual assets,
as follows:
Building and improvements 31 years
Equipment 5-7 years
Leasehold improvements 10 years
Revenue Recognition
The Company recognizes all revenues at point-of-sale upon receipt of cash, check
or charge sale.
F-8
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Land Held for Sale
Land held for sale is stated at lower of cost or market and is expected to be
liquidated within the next fiscal year.
Income Taxes
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which reflects an asset and liability
approach in accounting for income taxes. The objective of the asset and
liability method is to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
Reclassifications
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
3. ACQUISITIONS AND BASIS OF PRESENTATION
On December 31, 1997, Taurus Entertainment Companies, Inc. ("Taurus"), entered
into an Asset Purchase Agreement (the "Enigma Agreement") with The Enigma Group,
Inc. ("Enigma") which provided for the acquisition by Taurus 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, located
at the Enigma Location; (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 general intangibles. Pursuant to the terms of the
Enigma Agreement, as consideration for the Enigma Assets, Taurus paid to Enigma
350,000 shares of common stock of Taurus.
The lessee of the Enigma Location is Atcomm Services, Inc. ("Atcomm"), which
operates Broadstreets Cabaret. Taurus, through its wholly owned subsidiary,
Broadstreets Cabaret, Inc. ("Broadstreets"), entered into an Asset Purchase
Agreement with Atcomm which provided for the acquisition by Taurus 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
F-9
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS AND BASIS OF PRESENTATION (CONTINUED)
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 (see Note 6
regarding a fire 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. Atcomm was owned by the son of a director of
Taurus.
On December 31, 1997, Taurus entered into an Exchange Agreement with the members
of Citation Land, L.L.C. (the "Citation Agreement") which provided for the
acquisition by Taurus 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") formerly operated an adult
entertainment business (the "XTC Location"). As discussed below, Taurus has
acquired all of the stock of XTC. Citation also owns approximately 350 acres of
ranch land in Brazoria County, Texas, 50 acres of raw land in Wise County,
Texas, and owns real estate in Austin, Texas at which Taurus operates an adult
entertainment businesses and San Antonio, Texas, at which location it leases
real estate to Rick's, which operates an adult entertainment business. 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.
On December 31, 1997, 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 now operates one adult entertainment business in Austin. Citation
has an option to purchase the real estate in Austin. Taurus intends to continue
operating XTC as an adult entertainment business. Pursuant to the terms of the
XTC Agreement, Taurus paid the XTC Stockholders an aggregate of 525,000 shares
of common stock of Taurus.
Each of the aforementioned acquired businesses had common ownership and are
referred to below as "the combined entities". The acquisitions have been
accounted for as a "reverse acquisition" whereby the combined entities acquired
Taurus in a transaction accounted for as a purchase. The purchase price has
been determined based on the fair value of Taurus' net assets (liabilities) at
the date of acquisition. Because Taurus' balance sheet at that date consisted
of cash and accounts payable, the purchase price was determined essentially to
be the net book value of Taurus and no goodwill was recognized in the
transaction. The note consideration of $225,000 paid for the acquired
businesses was accounted for as a deemed dividend.
F-10
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS AND BASIS OF PRESENTATION (CONTINUED)
Since the acquisition has been accounted for as a reverse acquisition, the
combined entities have been deemed the reporting entity. The consolidated
financial statements and financial information as of and for the year ended
September 30, 1998 represent the combined financial position and results of
operations of the combined entities for the entire period and Taurus since the
date of acquisition. Herein, the "Company" refers to the combined entities
before the acquisitions and to the entire consolidated group after the
acquisitions. No pro forma information, as if the combination had occurred as
of the beginning of the earliest year presented, is provided since Taurus had no
continuing operations.
4. NOTE PAYABLE
At September 30, 1998, the Company has a $25,000 non-interest bearing note
payable to a corporation which is in default. The note agreement is for the
purchase of the common stock of Lucky's of Bourbon Street, Inc. d/b/a Lucky
Pierre's Cabaret, a Louisiana corporation that operates an adult entertainment
club in New Orleans. As of September 30, 1998, the Company has not paid the
note or issued the common stock due to a dispute regarding certain post-closing
costs paid by Taurus on behalf of the Seller. The note was written off during
the year ended September 30, 1999 in connection with the termination of the
lease on the property.
5. LONG-TERM DEBT
Long-term debt at year-end consists of the following at September 30:
<TABLE>
<CAPTION>
1999 1998
------- -------
<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.. . . . . . $55,169 $55,443
Note payable to partnership maturing July 2007,
due in monthly installments of $653 including principal
and interest at 12%; secured by real estate.. . . . . . 62,557 62,868
Note payable to partnership maturing July 2007,
due in monthly installments of $309 including principal
and interest at 12%; secured by real estate.. . . . . . 29,713 29,842
</TABLE>
F-11
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable to corporation maturing December 2000,
due in monthly principal installments of $2,000 plus
interest at 9%; secured by real estate. . . . . . . . . . $ - $ 147,854
Note payable to individual maturing July 2004,
due in monthly installments of $2,868 including principal
and interest at 12%; secured by real estate. Transferred
to Rick's during 1999.. . . . . . . . . . . . . . . . . . - 286,745
Note payable to individual maturing March 2006,
due in monthly installments of $2,573, plus interest at
9.25%; secured by real estate.. . . . . . . . . . . . . . 304,201 310,455
Note payable to corporation maturing April 2002,
due in monthly installments of $13,758 including
principal and interest at 10%; secured by real estate.. . 411,478 528,970
Note payable to corporation maturing June 2001,
due in monthly installments of $667, plus interest at
8.3%; secured by certain equipment. Paid in 1999.. . . . - 19,624
Note payable to a financing company maturing
August 2003, due in monthly installments of $5,380,
including interest at 10%, secured by real estate . . . . 547,464 556,566
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 . . . . . . . . . 155,127 155,127
----------- -----------
1,565,709 2,153,494
Less current maturities . . . . . . . . . . . . . . . . . (195,821) (220,527)
----------- -----------
$1,369,888 $1,932,967
=========== ===========
</TABLE>
F-12
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT (CONTINUED)
Scheduled maturities of long-term debt are as follows for the years ending
September 30:
2000. . . . $ 195,821
2001. . . . 164,107
2002. . . . 161,183
2003. . . . 450,647
2004. . . . 4,867
Thereafter 589,084
----------
$1,565,709
==========
6. FIRE DAMAGE
On May 5, 1998, a fire damaged the adult entertainment facility known as
Broadstreets Cabaret located in Houston, Texas. The Company incurred a material
decline in revenues subsequent to the closure of Broadstreets. The insurance
settlement resulted in a loss of $135,577 in 1998.
On December 16, 1998, a fire damaged the adult entertainment facility known as
XTC Cabaret located in Houston, Texas. The Company incurred a material decline
in revenues subsequent to the closure of XTC. The insurance settlement resulted
in a gain of $290,769 in 1999.
7. INCOME TAXES
Income tax expense (benefit) consisted of current taxes for 1999 and 1998.
Following is a reconciliation of income taxes (benefit) at the U.S. Federal tax
rate to the amounts recorded by the Company for the years ended September 30:
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<S> <C> <C>
Taxes (credit) on income (loss) before income
taxes at the statutory rate . . . . . . . . . $ 84,000 $(168,000)
Net operating loss carryover. . . . . . . . . . . (84,000) -
Separate return limitation - unavailable
loss carrybacks and nonconsolidated companies - 159,610
--------- ----------
$ - $ (8,390)
========= ==========
</TABLE>
F-13
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset/liability are as follows at
September 30:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Operating loss carryforwards . . . . . $(150,000) $(226,000)
Deductible preopening costs. . . . . . 16,000 16,000
Deferred tax asset valuation allowance 134,000 210,000
$ - $ -
========== ==========
</TABLE>
For tax purposes, the Company has a net operating loss carryforward amounting to
approximately $440,000 which will expire, if not utilized, beginning in 2012.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company, as lessee, has entered into and/or assumed various non-cancelable
leases for office space and operating facilities. Following is a schedule of
minimum lease payments for the years ending September 30:
2000. . . . $ 13,536
2001. . . . 13,536
2002. . . . 14,382
2003. . . . 15,228
Concentration of Credit Risk
The Company invests its cash and certificates of deposit primarily in deposits
with major banks. Certain deposits may be in excess of federally insured
limits. The Company has not incurred losses related to its cash on deposit with
banks.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments. The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies.
The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents and notes and accounts payable
approximate carrying value due to the short-term maturity of the instruments.
The fair value of short-term and long-term debt approximate carrying value base
on their effective interest rates compared to current market rates.
F-14
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
In November, 1998, LMTD, Inc. initiated litigation against a subsidiary of one
of the Company's subsidiaries, Citation Land, LLC ("Citation"), in a case styled
LMTD, Inc. v. Texas Warehouse Company, Inc., et al. Cause No. 98-12570, in the
200th Judicial District Court of Travis County, Texas. The suit seeks specific
performance and damages against Texas Warehouse Company, Inc. regarding a
Purchase Option Agreement. Plaintiff also alleges a tortious interference claim
against Citation in the amount of $540,000. Counsel for Citation intends to
file a counterclaim and or cross action at the time that its answer is due.
Counsel for Citation believes that the exposure to Citation is minimal. The
Company intends to vigorously defend itself in this matter and to deny all
allegations.
On October 15, 1998, All City Beverage and Entertainment, Inc. initiated
litigation against one of the Company's subsidiaries in a case styled All City
Beverage and Entertainment, Inc. v. Taurus Entertainment Companies,
Inc.("Taurus"), Cause No. 98- 49119, in the 61st Judicial District Court of
Harris County, Texas. The suit seeks damages in the amount of $25,000 and
175,000 shares of common stock of Taurus in connection with an Asset Purchase
Agreement between All City Beverage and Entertainment, Inc. and Taurus. Taurus
has filed a counter-claim asserting that there were undisclosed obligations
which Taurus was required to pay. The counter-claim sought damages in an amount
in excess of $25,000. This matter was dismissed for want of prosecution.
Sexually Oriented Business Ordinance of Houston, Texas
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 new Ordinance established new minimum distances that
Sexually Oriented Businesses may be located from schools, churches, playgrounds
and other sexually oriented businesses. There were no provisions in the
Ordinance exempting previously permitted sexually oriented businesses from the
effect of the new Ordinance. In 1997, the Company was informed that the Houston
location in north Houston failed to meet the requirements of the Ordinance and
accordingly the renewal of its Business License at that location was denied.
The Ordinance provided that a business which was denied a renewal of its
operating permit due to changes in distance requirements under the Ordinance
would be entitled to continue in operation for a period of time (the
"Amortization Period") if the owner were unable to recoup, by the effective date
of the Ordinance, its investment in the business that was incurred through the
date of the passage and approval of the Ordinance.
F-15
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Sexually Oriented Business Ordinance of Houston, Texas (Continued)
The Company filed a request with the City of Houston requesting an extension of
time during which the Company could continue operations at the north Houston
facility under the Amortization Period provisions of the Ordinance since the
Company was unable to recoup its investment prior to the effective date of the
Ordinance. An administrative hearing was held by the City of Houston to
determine the appropriate Amortization Period to be granted to the Company. At
the Hearing, the Company was granted an amortization period through June 2000
for its location in north Houston. The Company has the right to appeal any
decision of the Hearing official to the district court in the State of Texas.
In May, 1997, the City of Houston agreed to defer implementation of the
Ordinance until the constitutionality of the entire Ordinance was decided by
court trial. In February 1998 the U.S. District Court for the Southern District
of Texas, Houston, Division, struck down certain provisions of the Ordinance,
including the provision mandating a 1,500 foot distance between a club and
schools, churches and other sexually oriented business, leaving intact the
provision of the 750 foot distance as it existed in the prior Houston, Texas
Ordinance.
The City of Houston has appealed the District Court's rulings with the Fifth
Circuit Court of Appeals, and the Company filed a brief with the Fifth Circuit.
Such an outcome could have an adverse impact on the Company's future.
There are other provisions in the Houston, Texas Ordinance, such as provisions
governing the level of lighting in a sexually oriented business, the distance
between a customer and dancer while the dancer is performing in a state of
undress and provisions regarding the licensing of dancers that were upheld by
the court which may be detrimental to the business. The Company, in concert
with other sexually oriented businesses, is appealing these aspects of the
Houston, Texas Ordinance. In the event that the court appeal is unsuccessful,
such an outcome could have an adverse impact on the Company.
In 1998, the City of Houston began enforcing certain portions of the Ordinance,
including the distance requirement between a customer and a dancer while
dancing, and the requirement that dancers be licensed. The City of Houston's
enforcement of the recently implemented provisions of the Ordinance could have
an adverse impact on the Rick's locations in Houston, Texas. The current
requirement of a three foot distance between a dancer and a customer could
reduce customer satisfaction and could result in fewer customers at the Houston
locations. The requirement that a dancer be licensed may result in fewer dancers
working, which could have an adverse impact on the Houston locations. It is
unknown what future impact the enforcement of the Ordinance may have on the
Company's Houston locations.
F-16
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ACCOUNTING DEVELOPMENTS
SFAS 130
Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive
Income," establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from investments
by owners and distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Results of operations and financial position are
unaffected by implementation of this new standard.
SFAS 131
SFAS 131, "Disclosure about Segments of a Business Enterprise", establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. This accounting pronouncement will not have an effect on the
Company's financial statements, since the Company only operates in one segment
of business, the operation of adult night clubs.
SFAS 132
Statement of Financial Accounting Standards (SFAS) 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits," revises standards for
disclosures regarding pensions and other postretirement benefits. It also
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. This statement
does not change the measurement or recognition of the pension and other
postretirement plans. The financial statements are unaffected by implementation
of this new standard.
F-17
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ACCOUNTING DEVELOPMENTS (CONTINUED)
SFAS 133
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for sale security, or a foreign-currency-denominated forecasted
transaction. Because the Company has no derivatives, this accounting
pronouncement has no effect on the Company's financial statements.
10. RELATED PARTY TRANSACTIONS
See Note 3 for various related transactions with related parties which comprise
the "reverse acquisitions."
The Company received $41,000 in rent income from Rick's during the year ended
September 30, 1999 (included in other revenues). The Company also was allocated
$132,000 in management fees expenses during the year ended September 30, 1999
(included in other general and administrative expenses).
F-18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 13775
<SECURITIES> 0
<RECEIVABLES> 6254
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 227895
<PP&E> 2033803
<DEPRECIATION> (99195)
<TOTAL-ASSETS> 2162558
<CURRENT-LIABILITIES> 426787
<BONDS> 1369888
0
0
<COMMON> 4305
<OTHER-SE> 361578
<TOTAL-LIABILITY-AND-EQUITY> 2162558
<SALES> 1667778
<TOTAL-REVENUES> 1667778
<CGS> 81386
<TOTAL-COSTS> 1364257
<OTHER-EXPENSES> 56602
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190664
<INCOME-PRETAX> 246919
<INCOME-TAX> 0
<INCOME-CONTINUING> 246919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 246919
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
