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, 2000
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, 2000, were $1,509,457.
The aggregate market value of Common Stock held by non-affiliates of the
registrant at December 4, 2000,
based upon the last reported price on the OTCBB, was $19,250. As of
December 4, 2000, there were approximately 4,310,012 shares of Common Stock
outstanding.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 7
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Item 7. Financial Statements 10
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 10
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a)
of The Exchange Act 10
Item 10. Executive Compensation 11
Item 11. Security Ownership of Certain Beneficial Owners
And Management 11
Item 12. Certain Relationships and Related Transactions 12
Item 13. Exhibits and Reports on Form 8-K 13
2
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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") re-opened the north Houston
location as a "Rick's Cabaret" in December, 1998. 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, which we subsequently sold. 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.
BUSINESS STRATEGY
We have followed a policy of maintaining high standards in the areas of
both personal appearance and personality of the 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 adult entertainment
industry.
We have a policy of ensuring that our business is carried on in conformity
with local, state and federal laws. In particular, we have a no 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
non-alcoholic drinks 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.
3
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COMPETITION
The adult 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" is proprietary.
For example, there are approximately nine adult cabarets located in the Austin,
Texas area which are in competition with us. Although 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.
The location of a sexually oriented business is subject to restriction by
city ordinance. For example, the operation of a sexually oriented business by
our parent company, Rick's Cabaret International, Inc., in Houston, Texas, is
subject to "The Sexually Oriented Business Ordinance" (the "Ordinance") which
contains prohibitions on the location of an adult cabaret. We lease a facility
to Rick's Cabaret International, Inc. 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 our lessee, Rick's Cabaret International, Inc., was not
permitted to operate a sexually oriented business, we could be adversely
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. This Ordinance could have a negative impact on us
if we resume operating adult clubs in Houston, Texas. 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.
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.
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 by other parties, including our parent, Rick's Cabaret
International, Inc. 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.
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. The parties to the lawsuit are
appealing these aspects of the Houston, Texas Ordinance.
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 us. 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 us.
4
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In Austin, we are required to be in compliance with Travis County
restrictions on the location of sexually oriented businesses.
Employees and Independent Contractors
As of September 30, 2000, we had approximately 34 full-time employees, of
which four are in management positions, including corporate and administrative
operations, and approximately 30 are engaged in customer service, including
bartenders and waitresses. None of our employees are represented by a union and
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.
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, 2000, that we owe on the mortgage is $281,682 and the interest
rate is 10%. We pay $13,758 in monthly mortgage payments. The last mortgage
payment is due in August, 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, 2000 that we owe on the mortgage
is $184,376 and the interest rate is 14%. We pay 17,957 in monthly mortgage
payments. The last mortgage payment is due in August 2001.
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, 2000, that we owe on the Brazoria County
ranch mortgage is $305,732 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, 2000 that we owe on the Wise County raw
land mortgage is $146,634 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 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 plaintiff alleged a
tortuous interference claim against Citation in the amount of $540,000 in
connection with a Purchase Option Agreement the plaintiff claims to have with a
company named Texas Warehouse Company, Inc. In October 2000, we were granted a
partial summary judgment on some of the issues in this matter. In November
2000, the court signed a take-nothing judgment in our favor against the
plaintiff on all other matters.
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. This Ordinance could have a negative impact on us
if we resume operating adult clubs in Houston, Texas, or if the operation of our
tenant in Houston, Rick's Cabaret (our parent) is adversely affected. 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.
5
<PAGE>
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.
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 by other parties, including our parent, Rick's Cabaret
International, Inc. 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. Our parent. Rick's Cabaret International,
Inc. and other parties have filed briefs in this appeal to the Fifth Circuit
Court of Appeals. Our business would be adversely affected if the appeal is
unsuccessful.
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 and club managers
that were upheld which may be detrimental to our business. The parties to the
lawsuit are appealing these aspects of the Houston, Texas Ordinance.
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 and club managers be licensed.
The City of Houston's enforcement of the recently implemented provisions of the
Ordinance could have an adverse impact on us. The current requirement that
there be 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 Us.
In Austin, we are required to be in compliance with Travis County
restrictions on the location of sexually oriented businesses.
In November 2000, a suit was filed against one of our subsidiaries. The
subsidiary has not been served yet. The suit is styled David Peters, et al v.
XTC Cabaret, Inc. et al, Number GN003282, 126th District Court, Travis County,
Texas. The plaintiffs claim that they were assaulted by persons acting within
the scope of our employment. We intend to file an answer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 2000, 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 (*).
COMMON STOCK PRICE RANGE
HIGH BID LOW BID
Our fiscal year ends September 30, 2000
Fiscal 1999
First Quarter $ .01 $ .01
Second Quarter $ (*) $ (*)
Third Quarter $ (*) $ (*)
Fourth Quarter $ (*) $ (*)
Fiscal 2000
First Quarter $ (*) $ (*)
Second Quarter $ .50 $ .50
Third Quarter $ (*) $ (*)
Fourth Quarter $ .02 $ .02
____________________
(*) During these quarters we believe there were no bids or trades for our
common stock on the OTCBB. On December 4, 2000, there were approximately 1,389
stockholders of record of the common stock. The most recent bid price occurred
in October, 2000, and was reported on the OTCBB at $.0625 per share.
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Transfer Agent and Registrar
The transfer agent and registrar for the our common stock is Computershare
Investor Services.
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
The following discussion should be read in conjunction with the Company's
audited consolidated financial statements and related notes thereto included
in this annual report.
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.
GENERAL
We currently own and operate one adult nightclub under the name "X.T.C.
Cabaret " in Austin, Texas. We own commercial income real estate and undeveloped
real estate. Our revenues are derived from cover charges, and the sale of
non-alcoholic beverages.
7
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RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000, AS
COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
For the year ended September 30, 2000, the Company had consolidated total
revenues of $1,509,457 compared to consolidated total revenues of $1,667,778 for
the year ended September 30, 1999, or a decrease of $158,321. The decrease in
revenues was due to the decrease in revenues at the Company's location in
Austin, Texas.
The cost of goods sold for the year ended September 30, 2000 was
approximately 6% of total revenues compared to approximately 4% for the year
ended September 30, 1999. The increase was due primarily to increased cost of
providing complimentary food and the addition of logo merchandise to our sales
mix, which has a higher cost of goods sold.
Payroll and related costs for the year ended September 30, 2000 were
$304,182 compared to $354,643 for the year ended September 30, 1999. The
decrease was due to the decrease in payroll expenses in the Austin location.
Other selling, general and administrative expenses for the year ended
September 30, 2000 were $878,914 compared to $928,228 for the year ended
September 30, 1999. The decrease in these expenses was primarily due to expense
reductions.
Interest expense for the year ended September 30, 2000 was $133,487
compared to $190,664 for the year ended September 30, 1999. The decrease was
attributable to the Company's policy to pay its debts down and due to the sale
of certain property and the payoff of related debt.
Other Income for year ended September 30, 2000 was $262,486 due to vendors'
concessions on our liabilities, and a $181,840 gain on the sale of assets.
Net income for the year ended September 30, 2000 was $549,238 compared to
net income of $246,919 for the year ended September 30, 1999. The increase was
primarily due to the vendors' concessions on our liabilities and gains on the
sale of assets.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had a working capital deficit of
$376,461 compared to a working capital deficit $198,892 at September 30, 1999.
The decrease in working capital was primarily due to the additions to property &
equipment, payments on note payable, and an increase in the current portion of
long term debt.
Net cash provided by operating activities in the year ended September 30,
2000 was $255,353 compared to net cash provided by operations of $143,942 for
the year ended September 30, 1999. The increase in cash provided by operating
activities was primarily due to the increase in net income due to debt
concessions by vendors.
Depreciation and Amortization for the year ended September 30, 2000 were
$65,000 compared to $46,538 for the year ended September 30, 1999.
In the opinion of management, working capital is not a true indicator of
the financial status. Typically, the Company carries current liabilities in
excess of current assets because the business receives substantially immediate
payment for sales, with nominal receivables, while inventories and other current
liabilities normally carry longer payment terms. Vendors and purveyors often
remain flexible with payment terms providing the Company with opportunities to
adjust to short-term business down turns. The Company considers the primary
indicators of financial status to be the long term trend, the mix of sales
revenues, overall cash flow and profitability from operations, and the level of
long-term debt.
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 sexually oriented business 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 sexually oriented business industry 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.
8
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SEASONALITY
The Company is significantly affected by seasonal factors. Typically, the
Company has experienced reduced revenues from April through September with the
strongest operating results occurring during October through March.
YEAR 2000 ISSUES
We have not had any Year 2000 deficiencies internally or externally. We do
not expect to have any Year 2000 deficiencies internally and externally. If a
Year 2000 deficiency occurs internally or externally, we will shift our internal
and external resources to fix the deficiency. We do not expect any Year 2000
deficiency to require an expenditure of more than $10,000.
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 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
Since 1997, Eric S. Langan, age 32, 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. 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 All
Name and Annual Restricted Underlying Other
Principal Compen- Stock Options/ LTIP Compens-
Position Year Salary Bonus sation (1) Awards SARs sation Payouts
--------- ---- ---------- ----- ---------- ---------- ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eric 2000 $-0- (2) -0- -0- -0- -0- -0- -0-
Langan 1999 $ 52,000(2) -0- -0- -0- -0- -0- -0-
1998 $108,275 -0- -0- -0- -0- -0- -0-
Director,
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.
(2) Our parent, Rick's Cabaret International, Inc. paid Mr. Langan
$175,890 as compensation in fiscal 2000, none of which was allocated to us. In
fiscal 1999, $ 52,000 was allocated to us.
</TABLE>
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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 4, 2000
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 4 2000, there were approximately 4,310,012 shares
of our Common Stock outstanding.
Name and Number of Title of Percent
Address Shares Class of Class
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%
__________________________
(1) Mr. Langan is a Director and President of Rick's Cabaret International,
Inc.
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.
10
<PAGE>
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.
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 owned certain real
estate in Houston, Texas which we subsequently sold in July, 2000. 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"). At the time, XTC operated two adult entertainment businesses, in
Houston and Austin. At the time, Citation was the landlord of one of XTC's
adult nightclubs and had 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.
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.
11
<PAGE>
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.
12
<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 6, 2000.
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 6, 2000
Eric Langan Chief Executive Officer, President
And Chief Financial Officer
13
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
AUDITED FINANCIAL INFORMATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets for the years ended
September 30, 2000 and 1999. . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years ended
September 30, 2000 and 1999. . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 2000 and 1999 . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
September 30, 2000 and 1999. . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . F-7
F-1
<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, 2000 and
1999, 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, 2000 and
1999, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Jackson & Rhodes P.C.
Dallas, Texas
November 30, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
ASSETS
2000 1999
------------ ------------
Current assets:
<S> <C> <C>
Cash $ 35,184 $ 13,775
Accounts receivable 36,413 6,254
Inventory 2,276 -
Prepaid expenses 4,510 7,866
Land held for sale 200,000 200,000
------------ ------------
Total current assets 278,382 227,895
------------ ------------
Property and equipment:
Buildings, land and leasehold improvements 1,678,915 1,782,119
Furniture and equipment 230,186 251,684
------------ ------------
1,909,101 2,033,803
Less accumulated depreciation (146,740) (99,195)
------------ ------------
1,762,362 1,934,608
------------ ------------
Other assets 139,839 55
------------ ------------
$ 2,180,583 $ 2,162,558
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 3) $ 335,955 $ 195,821
Payable to Parent 197,324 67,484
Accounts payable - trade 75,173 133,705
Accrued expenses 46,391 29,777
Income taxes payable - -
------------ ------------
Total current liabilities 654,843 426,787
Long-term debt, less current portion (Note 3) 610,619 1,369,888
------------ ------------
Total liabilities 1,265,463 1,796,675
------------ ------------
Commitments and contingencies (Note 6) - -
Stockholders' equity:
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) (3,115,567) (3,664,805)
------------ ------------
Total stockholders' equity 915,121 365,883
------------ ------------
$ 2,180,583 $ 2,162,558
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
----------- -----------
Revenues:
Sales of alcoholic beverages $ - $ -
Sales of non-alcoholic beverages 157,518 176,405
Service revenues 1,338,669 1,380,643
Other 13,271 110,730
----------- -----------
1,509,457 1,667,778
----------- -----------
Operating expenses:
Cost of goods sold 97,557 81,386
Salaries and wages 304,182 354,643
Other general and administrative:
Taxes and permits 166,028 182,232
Charge card fees 4,476 9,128
Rent - 99,156
Legal and accounting 40,251 69,860
Advertising 124,734 59,549
Other 543,424 508,303
----------- -----------
1,280,653 1,364,257
----------- -----------
Income from operations 228,804 303,521
Interest expense (133,487) (190,664)
Gain on fire damages - 290,769
Loss on termination of lease - (219,780)
Vendors' concessions 262,486
Gain on sale of assets 181,840
Other 9,594 63,073
----------- -----------
Net income $ 549,238 $ 246,919
=========== ===========
Basic net income (loss) per common share $ 0.13 $ 0.06
=========== ===========
Weighted average shares outstanding 4,305,012 4,305,012
=========== ===========
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, 2000 AND 1999
Common Stock
------------------ Additional Retained
Number of Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- ------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
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
Net income - - - 549,238 549,238
--------- ------- ---------- ------------ --------
Balance, September 30, 2000 4,305,012 $ 4,305 $4,026,383 $(3,115,567) $915,121
========= ======= ========== ============ ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<TABLE>
<CAPTION>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
---------- ----------
<S> <C> <C>
Net income $ 549,238 $ 246,919
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 65,000 46,538
Gain on fire damages - (290,769)
Loss on termination of lease - 219,780
Vendors' concessions (262,486) -
Gain on sale of assets (181,840) -
Changes in assets and liabilities:
Accounts receivable (30,159) (3,911)
Inventory (2,276) -
Prepaid expenses and other assets 38,572 103,149
Accounts payable and accrued liabilities 79,305 (139,319)
Income taxes payable/receivable - (38,445)
---------- ----------
Net cash provided by operating activities 255,353 143,942
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (135,912) (280,894)
Proceeds from sale of assets 240,136 -
Insurance proceeds from fire damaged assets - 496,625
---------- ----------
Net cash provided by investing activities 104,224 215,731
---------- ----------
Cash flows from financing activities:
Increase in notes payable and long-term debt 228,150 -
Payments on long-term debt (696,158) (326,040)
Increase in accounts receivable - related party - 9,755
Increase (decrease) in loan from Parent 129,840 (272,959)
---------- ----------
Net cash used by financing activities (338,168) (589,244)
---------- ----------
Net increase (decrease) in cash 21,409 (229,571)
Cash at beginning of year 13,775 243,346
---------- ----------
Cash at end of year $ 35,184 $ 13,775
========== ==========
Cash paid during the period for:
Interest 133,487 190,664
========== ==========
Income taxes - 30,793
========== ==========
Noncash transactions:
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, 2000 AND 1999
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. 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 $376,461 and has an accumulated deficit of $3,115,567 at
September 30, 2000.
The Company has become profitable in the years ended September 30, 2000 and
1999 and management believes it has implemented plans that will ensure that
the Company will continue to be profitable. 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.
Inventories
Inventories, consisting principally of 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 Per Common Share
The Company reports earnings per share in accordance with 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. Because the
Company has no potential dilutive securities outstanding, the accompanying
presentation is only of basic income 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.
3. LONG-TERM DEBT
Long-term debt at year-end consists of the following at September 30:
2000 1999
-------- --------
Note payable to partnership maturing March 2026,
due in monthly installments of $576 including principal
and interest at 12%; secured by real estate. $ 54,860 $ 55,169
Note payable to partnership maturing July 2007,
due in monthly installments of $653 including principal
and interest at 12%; secured by real estate. 62,207 62,557
Note payable to partnership maturing July 2007,
due in monthly installments of $309 including principal
and interest at 12%; secured by real estate. 29,567 29,713
Note payable to individual maturing March 2006,
due in monthly installments of $2,573, plus interest at
9.25%; secured by real estate. 305,732 308,201
Note payable to corporation maturing April 2002,
due in monthly installments of $13,758 including
principal and interest at 10%; secured by real estate. 281,682 411,478
F-9
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
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
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 - 151,127
Note payable to an individual, payable $17,957 per
month including interest at 12%, collateralized by real
estate in Austin, Texas 184,376 -
Note payable to a finance company, payable $597 per
month including interest at 9.9%, collateralized by
equipment 28,150 -
---------- -----------
946,574 1,565,709
Less current maturities (335,955) (195,821)
---------- -----------
$ 610,619 $1,369,888
========== ===========
</TABLE>
Scheduled maturities of long-term debt are as follows for the years ending
September 30:
2001 $335,889
2002 147,293
2003 9,934
2004 10,964
2005 12,105
Thereafter 430,389
---------
$946,574
=========
F-10
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FIRE DAMAGE
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.
5. INCOME TAXES
The Company will be included in a consolidated federal income tax return
with its parent. No income taxes are payable since the consolidated group
has a net operating tax loss carryforward for the periods ended September
30, 2000 and 1999. The consolidated group has elected to not allocate taxes
in periods in which no tax is paid by the group.
For tax purposes, the consolidated group has a net operating loss
carryforward amounting to approximately $3,125,000 which will expire, if
not utilized, beginning in 2012.
6. 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:
2001 $ 13,536
2002 14,382
2003 15,228
2004 7,614
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
F-11
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
Litigation
In November, 1998, LMTD, Inc. initiated litigation against 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 Plaintiff
alleged a tortuous interference claim against Citation in the amount of
$540,000 in connection with a Purchase Option Agreement the plaintiff
claims to have with a company named Texas Warehouse Company, Inc. In
October 2000, the Company was granted a partial summary judgment on some of
the issues in this matter. In November 2000, the court signed a
take-nothing judgment in the Company's favor against the plaintiff in all
matters.
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-12
<PAGE>
TAURUS ENTERTAINMENT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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.
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7. RELATED PARTY TRANSACTIONS
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 $300,000 and $132,000 in management fees expenses during the
years ended September 30, 2000 and 1999, respectively (included in other
general and administrative expenses).
8. OTHER INCOME
Vendors' concessions represents approximately $263,000 representing the
writeoff of old outstanding accounts payable which the Company believes is
no longer owed to certain third parties.
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