SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 ending December 31, 1997
Commission File No. 0000-9297
CRONUS CORPORATION
A Nevada corporation 36-3890744
(I.R.S. Employer Identification Number)
7660 E. BROADWAY BLVD., TUCSON, ARIZONA 85710
Registrant's telephone number, including area code: (520)
885-1220
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]Yes [ ] No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in
this form, and no disclosure will 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]
The issuer's revenues for its most recent fiscal year is:
$12,193
As of December 31,1997 the aggregate market value of voting
stock held by non-affiliates of the registrant was
$ 5,487,555 based on $0.55 per share.
Class Outstanding as of December 31, 1997
$.001 Par Value Common Stock 15,277,316 SHARES
PART I
ITEM 1. Business
History of the Company.
The Company was incorporated in Nevada as TR-3 Industries,
Inc. in 1979. Together with its subsidiary, TR-3 Chemical
Corporation, TR-3 Industries was involved in the manufacture
and sale of TR-3 Resin Glaze, a cleanser and polisher for
automobiles. The products were sold internationally through
mass marketing distributors. TR-3 Industries, Inc. filed a
registration statement on Form 10 with the Securities and
Exchange Commission for the purpose of registering its
common stock under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Act"). Such
registration was filed on June 23, 1980.
In 1982, TR-3 Industries, Inc. and its wholly owned
subsidiary, TR-3 Chemical Corporation (a California
corporation), filed a Chapter 11 proceeding in the U.S.
Bankruptcy Court, Central District of California, Docket
Number SA82-3767. The case was converted to a proceeding
under Chapter 7 of the Bankruptcy Code in January, 1986.
The proceedings were concluded and the bankruptcy case was
closed pursuant to an order issued by the U.S. Bankruptcy
Court on June 11, 1992. In connection therewith, the assets
of TR-3 Industries and TR-3 Chemical Corporation were
liquidated and applied to satisfy liabilities to the extent
of available assets. Because liabilities of a corporation
cannot be discharged pursuant to a Chapter 7 proceeding, the
unsatisfied liabilities of TR-3 Industries, Inc. and TR-3
Chemical Corporation remained outstanding after the closing
of the Chapter 7 bankruptcy case.
The unsatisfied liabilities of TR-3 Industries, Inc. and TR-
3 Chemical Corporation may have been assumed by the Company,
as successor to TR-3 Industries, Inc. Current management of
the Company only has limited information regarding the
amount and nature of unsatisfied liabilities of TR-3
Industries Inc. and TR-3 Chemical Corporation. However,
management of the Company notes that the liabilities of TR-3
Industries, Inc. and TR-3 Chemical Corporation, as scheduled
in their Chapter 11 reorganization petition, amounted to
approximately $4,500,000 of secured and unsecured debt, held
by 248 holders, and various unquantified contingent
iabilities, including ten pending lawsuits, and that, as set
forth in the final accounting of the Chapter 7 case, the
assets of TR-3 Industries, Inc. and TR-3 Chemical
Corporation were applied to satisfy approximately $30,000 of
such debt. Management believes that most, if not all, of
the bankruptcy debts of TR-3 Industries, Inc. and TR-3
Chemical Corporation are now barred by the applicable
statutes of limitations. The corporate charter and
existence of TR-3 Chemical Corporation was suspended under
California law on July 2, 1984.
On June 14, 1995, the Company changed its name to
Diversified American Industries, Inc. On November 13, 1995
the Company changed its name to Thunderstone Group Inc.
On November 30, 1995 all of the outstanding stock of the
Amateur Golf Association of America, Inc. ("AGAA"), a
company involved in promoting and staging amateur golf
tournaments, was acquired by the Company through a
reorganization and stock exchange agreement. The assets of
AGAA included franchise rights, trademarks, tournament
rights, capital assets and membership list. The
Shareholders of AGAA were issued 614,000 shares of the
Company's Common Stock in exchange for 100% of AGAA's
outstanding stock.
On December 5, 1995 all of the outstanding stock of the
Perimeter Bicycling Association of America, Inc. ("PBAA"), a
company involved in international bicycle event promoting,
staging and publications, was acquired by the Company
through a reorganization and stock exchange agreement. The
assets of PBAA included the rights to four bicycling events,
a monthly and annual publication, capital assets and
membership list. The principal shareholders of PBAA were
issued 750,000 shares of the Company's Common Stock in
exchange for 100% of PBAA's outstanding stock.
On December 13, 1995 all of the outstanding stock of TGI
Inc. ("TGII"), a niche marketing company providing goods and
services in the entertainment industry, was acquired through
a reorganization and stock exchange agreement. TGII held
various video, radio and recording assets. The shareholders
of TGII were issued a total of 2,000,000 shares of the
Company's Common Stock in exchange for 100% of TGII's
outstanding stock.
On February 27, 1996 the Company sold all of the stock of
both AGAA and TGII, to Applied Logic Inc., pursuant to an
Assignment and Release Agreement, in exchange for 3,114,000
shares of the Company's Common Stock. Such 3,114,000 shares
of Common stock consisted of (i) the 614,000 shares
previously issued to the former shareholders of AGAA, (ii)
2,000,000 shares previously issued to the former
shareholders of TGII, and (iii) 500,000 shares previously
issued in payment of consulting fees in connection with the
original acquisition of TGII, all of which were transferred
by the holders thereof to Applied Logic, Inc., and then by
Applied Logic, Inc. to the Company, pursuant to the
Assignment and Release Agreement. Also pursuant to the
agreement, Applied Logic, Inc. issued shares of its common
stock to the former shareholders of AGAA and TGII. In
addition, AGAA, TGII and their former shareholders agreed to
release the Company from all liabilities the Company might
have to any of them in connection with the matters arising
prior to the date of the Assignment and Release Agreement,
and the Company agreed to release AGAA, TGII and their
former shareholders from all liability any of them might
have to the Company in connection with matters arising prior
to the date of such agreement. Pursuant to such agreement,
the Company received a note for $500,000.00 and 500,000
shares of Applied Logic, Inc. common stock for those assets.
On March 4, 1996, the Company changed its name to Cronus
Corporation.
On March 31, 1996 the Company entered into an agreement with
the Black Diamond Mining Corporation to purchase the Lelan-
Dividend Mine Group assets. The Company agreed to issue
2,250,000 shares of its Common Stock for the purchase of the
Lelan-Dividend Mine Group assets owned by Black Diamond
Mining Corporation. Subsequently, while waiting for the
appraisal and audited financial statements, a new agreement
was negotiated. The new agreement consisted of a
Reorganization and Stock Exchange Agreement between Cronus
Corporation and Black Diamond Mining Corporation which was
signed May 23, 1996. While this agreement was in effect,
the parties formulated a second reorganization agreement on
July 8, 1996 in the form of a reverse triangular merger for
tax purposes. Pursuant to the merger agreement, the
shareholders of Black Diamond Mining Corporation's sole
shareholder were to have acquired shares of the Company's
Common Stock constituting 80% of the outstanding Common
Stock of the Company.
On July 19, 1996 PBAA, then a wholly owned subsidiary of
Cronus Corporation, sold substantially all of its assets,
other than shares of the Company's Common Stock held by
PBAA, to EI Tour De Tucson, Inc., a Arizona non-profit
corporation, as provided for in an Asset Purchase Agreement.
As consideration for such sale, El Tour de Tucson, Inc.
assumed PBAA's outstanding obligations. On August 7, 1996,
Perimeter Bicycling Association of America, Inc. changed its
name to Sunorc, Inc.
On December 11, 1996, the Company and Black Diamond Mining
Corporation agreed to terminate the amended reorganization
Agreement, due to questions that had arisen regarding the
appraisals of the Leland-Dividend Mine Group assets.
Subsequently, share certificates previously delivered to
Black Diamond Mining Corporation's shareholders pending
closing of the merger were returned to the Company and
certain affiliates of Black Diamond Mining Corporation
transferred their interests in certain mining claims to the
Company as consideration for certain testing and development
expenditures made by the Company in connection with the
Leland-Dividend mine Group assets. The mining claims
transferred to the Company consist of the Black
Diamond Lode Mining Claims and Gila Gold Placer Claims,
which are more fully described below under the Properties
section.
On April 3, 1997, the Company entered into a Reorganization
Agreement with PetroSun Exploration & Production, Inc.
(hereinafter referred to as "PetroSun"), an Arizona
corporation incorporated on April 4, 1996. PetroSun
controls certain oil and gas leases in Louisiana and
Northern Arizona. Pursuant to the Reorganization Agreement,
the outstanding shares of PetroSun were acquired by the
Company in return for 600,000 shares of the Company's
restricted common stock. The Agreement called for PetroSun
to be merged with Big Bug Acquisition Company, a wholly
owned subsidiary of the Company, in the form of a reverse
triangular merger. The transaction closed on June 4, 1997.
On April 28, 1997, PetroSun has executed an Employment
Contract with the President of PetroSun, Gordon M. LeBlanc,
Jr. for a period of 2 years. Additionally, Mr. LeBlanc was
granted an employee Incentive Stock Option. The grant
provides the option for Mr. LeBlanc, Jr. to acquire up to
2,400,000 shares of the Company's stock at a price of $
0.50.
Also on April 3, 1997, the Company and Temple Summit
Financial Projects Inc. ("TSFP") entered into a Joint
Venture Agreement to conduct testing regarding the viability
of extracting gold from an area of mining claims held by
Temple Summit. Temple Summit holds an existing 80 acre
block of proven gold reserves in the Moapa District, Nevada.
The assets of the new Moapa Project are approximately two
square miles of claims adjacent to TSFP's proven reserve
block. Cronus and Temple Summit will test the area and
samples from the Moapa Project will be assayed. If the
assays reflect economical viable gold, the Joint Venture
will proceed with the project.
The Company entered the secondary oil recovery business
through its acquisition of 50% of Tiger Energy Corporation
on July 24, 1997. Cronus issued 800,000 shares of its
restricted common stock to the shareholders of Tiger
Energy Corporation in return for 50% of the outstanding
shares of Tiger Energy Corporation. Tiger Energy is
licensed as the exclusive domestic service operation for
Tiger Enhanced Oil Recovery ("EOR") Tool by Tiger Tool Inc.
Tiger Tool Inc. holds the U.S. patent, service and
manufacturing rights for the electro-hydraulic crude oil
recovery technology using a pulsed plasma tool. Target
properties consist of shut-in, plugged, or marginal oil
fields with proven reserves that require secondary recovery
operations to produce commercial quantities of crude oil.
On October 17, 1997, the Company entered into an agreement
to acquire all the outstanding shares of Strategic
Consulting and Administration, Inc. ("SCI"). SCI is the
designated company to receive ATP 636P, a 640,000 acre oil
and gas concession located in Queensland, Australia within
the oil and gas producing region of the Eromanga basin.
Cronus has issued 500,000 shares of the restricted common
stock of the Company and will pay $475,000 to shareholders
of SCI. Additionally, Cronus will issue up to an additional
1,500,000 shares of the Company's restricted common stock
and pay up to an additional $500,000 to the former
shareholders of SCI upon the reaching of certain goals and
conditions.
On February 14, 1998, the Company entered into a letter
agreement to acquire all the outstanding shares of Triple
"J" Resources Pty., LTD. ("JJJ"). JJJ is the holder of ATP
594P, a 375,000 acre oil and gas concession located in
Queensland, Australia within the oil and gas producing
region of the Eromanga basin. Cronus has issued 1,500,000
shares of the restricted common stock of the Company and
paid $100,000 to shareholders of JJJ. Additionally, the
Company will issue up to an additional 1,500,000 shares of
the Company's restricted common stock to the former
shareholders of JJJ upon the reaching of certain goals and
conditions. JJJ has a farmout agreement with Icon Oil, NL
by which Icon agreed to drill the first test well on ATP
594P, and to thereafter provide 50% of the costs of any
additional wells in return for half of the Company's
interest in ATP 594P.
Business of Issuer.
Original Business.
The Company originally was engaged in the manufacture and
sale of TR-3 Resin Glaze, a cleanser and polish for
automobiles. In 1988, the Company divested itself of assets
related to such business in connection with its bankruptcy.
See "History of Company" above.
Other Prior Business.
The Company did not engage in any further business until
November 13, 1995, when it recommenced business in the
sports promotion and entertainment area through the
acquisition of the stock of the Amateur Golfers Association
of America, Inc. ("AGAA"), Perimeter bicycling Association
of America, Inc. ("PBAA") and TGI Inc. ("TGII"). See
"History of Company" above. During the fiscal year ended
December 31, 1995, the Company attempted to develop
various sports promotion and entertainment businesses
through these three wholly owned subsidiaries. However, the
Company did not derive any revenues from any of these
subsidiaries. Both AGAA and TGII were sold on February 27,
1996. The assets of PBAA were sold on July 19, 1996.
During the fiscal year ended December 31, 1996, the Company
exited the sports promotion and entertainment businesses,
selling the stock of AGAA and TGII, and the assets of PBAA.
During such year, the Company took steps to become involved
in the natural resources industry. In 1996, the Company
considered acquiring Black Diamond Mining Corporation which
held title to the Leland-Dividend Mining Group of Claims,
but elected not to consummate such acquisition. However,
the Company did obtain an interest in certain mining claims
from affiliates of Black Diamond in connection with the
settlement of such proposed acquisition.
Subsequent Business Developments.
In 1997, the Company has taken steps to become strongly
involved in the oil and gas industry. The Company
affirmatively entered the natural resources market
in 1997 with the acquisition of PetroSun Exploration &
Production, Incorporated ("PetroSun"). PetroSun is devoted
to oil and gas exploration and production. Also in 1997,
the Company acquired Strategic Consulting and
Administration, Inc. ("SCI"), which is the designated
company to receive an Authority To Prospect ("ATP") 636P, a
640,000 acre oil and gas concession located in
Queensland, Australia within the oil and gas producing
region of the Eromanga basin. The ATP will not be issued
until the Australian government resolves issues related to
the Native Claims Title Act regarding Aborigine rights. See
"History of Company" above, and "Oil and Gas Plan of
Operations" below.
On October 2, 1996, the Company acquired from affiliates of
Black Diamond Mining Corporation, two groups of mining
claims located in the State of Arizona. Title to such
claims was transferred to the Company through quit claim
mining deeds as reimbursement for certain testing and
development expenditures incurred by the Company for the
benefit of Black Diamond Mining Corporation's Leland-
Dividend Mining Group Claims. The two groups of mining
claims acquired by the Company are the Black Diamond group
of claims, and the Gila Gold Placer claims. The management
of the Company has not been able to determine whether the
Gila Gold Placer claims have mineral deposits that could be
economically and legally extracted or produced. Moreover,
the claims were transferred to the Company by quit claim
deeds and without further representation or warranty or
title assurance, and thus, the Company is presently
uncertain as to the legal status of its rights, title and
interest, if any, in and to the claims. See "Title to
Mining Properties" below. Additionally, although
information exists regarding mineral deposits located at the
claims, such information was not prepared for the Company,
and the Company has not been authorized to rely on such
information, and, accordingly, the Company's management is
unable to determine the reliability or accuracy of such
information. The Company desires to asses the nature of
mineral deposits within these mining claims and the
feasibility of developing mining operations at such claims.
The Black Diamond group of claims, located in northeastern
Maricopa County, Arizona were released by the Company after
the Company's chief geologist determined that commercial
production of minerals would not be economically viable
under current and foreseeable conditions.
Gila Gold Placer mining claims consist of unpatented
association placer claims covering 640 acres in the Safford
Mining District, Graham County, Arizona. The Company owns
the claims by way of mining deeds. The Company has been
searching, unsuccessfully, for a joint venture partner to
develop the Gila Gold Placer claims. There can be no
assurance that any such joint venture will be formed or that
such exploration and development will be profitable. The
Gila Gold Placer mining claim is more fully described below
in the "Properties" section.
On April 3, 1997, the Company entered into a joint venture
project with Temple Summit Financial Projects, Inc. ("TSFP")
whereby TSFP will contribute approximately 1,200 acres of
mining claims in Moapa County, Nevada (the "TSFP Moapa
Claims"). The Company engaged with TSFP in a multi-phase
project to test the TSFP Moapa Claims area. The Company is
in the process of reviewing and confirming the results of
testing the analytical procedure and determination of the
economic viability of the project.
Future Business Strategy and Operations.
The Company's ongoing business strategy is to create and
expand its reserve base and cash flow primarily through the
following:
1. Raising significant capital to conduct assessments of
the economical feasibility of extracting natural resources
from its properties, and to take advantage of leading edge
technologies such as pulsed plasma secondary recovery and 3-
D seismic exploration projects.
2. Position itself with strategic sources of capital and
partners that can react to opportunities in the mining and
oil and gas business when they present themselves.
3. Developing alliances with major mineral and oil and gas
finders that have been trained by the major oil and mineral
companies.
4. Participate in projects that have opportunities
involving relatively small amounts of capital that could
potentially generate significant rates of return. These
projects include areas with large field potentials in
Northern Arizona, New Mexico, Louisiana and Queensland,
Australia.
5. Implementing the Company's investment strategy to
carefully consider, analyze, and exploit the potential value
of the Company's existing assets to increase the rate of
return to its shareholders.
6. Reinvesting future operating cash flows into development
of drilling and recompletion activities.
7. Acquiring properties that build upon and enhance the
Company's existing asset base.
8. Developing a long term track record regarding stock
price performance and a reasonable rate of return to the
shareholder.
The Company recognizes that the ability to implement its
business strategies is largely dependent on the ability to
increase operating cash flows by raising additional debt or
equity capital to fund future drilling and developmental
activities. Management believes that it will be necessary
to raise additional equity or debt capital to overcome the
Company's undercapitalization. However, the Company
currently has no commitments for any type of funding, and
there is no assurance that the Company will be able to
obtain any such financing or that such financing, if
obtainable, will be on terms necessary to enable the Company
to operate profitably.
The steps the Company intends to take to assess the
feasibility of its current projects is described below.
There can be no assurance that the Company will be able to
place such oil and gas assets into production or to conclude
such feasibility assessments, or that if it is able to do
so, that it will be able to engage in oil and gas and/or
mining operations profitably.
OIL AND GAS PLAN OF OPERATIONS
The Company's primary objective will be to place the oil and
gas assets of its subsidiary into production. PetroSun
controls oil and gas leases on approximately 2,200 acres of
land in Louisiana referred to as Bayou Pierre Project. The
leases contain 17 proven developed oil and gas wells. These
wells have been shut-in since the late 1980's due to the
then low price of oil, so it will be necessary to change the
pumps on the pumping wells and conduct related maintenance
work that is normal for this type operation. Currently, 5
of the wells have been rehabilitated and placed into
production. The Company estimates that the cost to complete
the rehabilitation of the wells to be $60,000. The leases
also contain an additional 105 proven undeveloped locations
which the Company plans to drill if economically feasible.
Drilling Projects
Louisiana:
PetroSun has joint ventured with Vector Horizontal Inc. and
Tiger Exploration & Production Inc. to drill a horizontal
Nacatoch gas well (William Prince #20) on the Bayou Pierre
lease. The drilling is anticipated to begin in July 1998.
The drilling cost have been funded for this project. Also,
PetroSun has Joint Ventured with Tedan and Tiger Exploration
& Production Incorporated to drill a Paluxy / Glen Rose test
well ( William Prince #21) on the Bayou Pierre Lease.
The drilling is anticipated to begin in August 1998. The
drilling cost have been funded for this project.
New Mexico:
On October 22, 1997, PetroSun the acquired the Red Dog
Prospect located in McKinley County, New Mexico, covering
1,921.18 acres. The Red Dog Prospect is situated on a
northeast - southwest trending anticlinal fold on the Chaco
Slope of the San Juan Basin. Seismic data indicates a
feature in the Entrada formation that has been interpreted
as a reflection from an oil-water contact. In a
homogenous sandstone such as the Entrada a 30 foot oil
column is needed before an oil-water contact can be
detected. Analysis of satellite imagery confirmed that
there is micro-seepage to the surface. The hydrocarbon
reflectance covers approximately 1420 acres. The Entrada has
excellent reservoir quality, with an average porosity of
23.6% and an average permeability of 315 millidarcies. On
40 acre spacing, recoverable reserves are estimated to
be 456,800 barrels of oil for a well with 30 feet of pay and
a water drive recovery of 35%. The secondary objectives of
the Red Dog Prospect include the Dakota at 3,300 feet and
the Mancos at 2,900 feet. PetroSun anticipates drilling the
initial test well in the Entrada by the end of July, 1998.
PetroSun has joint ventured with industry partners to raise
the funds for this prospect.
PetroSun acquired the Cholla Tank Prospect located in
McKinley County, New Mexico on November 22, 1997. The
Cholla Prospect is situated on a northeast - southwest
trending anticlinal fold on the Chaco Slope of the San Juan
Basin. Seismic data indicates a feature in the Entrada
formation that has been interpreted as a reflection from an
oil-water contact. In a homogenous sandstone such as the
Entrada a 30 foot oil column is needed before an oil-
water contact can be detected. Analysis of satellite
imagery confirmed that there is microseepage to the surface.
The Entrada has excellent reservoir quality, with an average
porosity of 23.6% and an average permeability of 315
millidarcies. On 40 acre spacing, recoverable reserves are
estimated to be 456,800 barrels of oil for a well with 30
feet of pay and a water drive recovery of 35%. The
secondary objectives of the Cholla Prospect include the
Dakota at 3,300 feet and the Mancos at 2,900 feet.
PetroSun is currently in the process of surveying and
permitting the initial test well and anticipates drilling to
commence by the end of August, 1998 with funding from
industry partners. The Cholla Tank Prospect is a direct
offset to PetroSun's Red Dog Prospect.
Australia:
Triple JJJ Resources Pty., Ltd.
On February 14, 1998, the Company entered into a letter
agreement to acquire all the outstanding shares of Triple
"J" Resources Pty., LTD. ("JJJ"). JJJ is the holder of ATP
594P, a 375,000 acre oil and gas concession located in
Queensland, Australia within the oil and gas producing
region of the Eromanga basin. JJJ has a farmout agreement
with Icon Oil, NL by which Icon agreed to drill the first
test well on ATP 594P, and to thereafter provide 50% of the
costs of any additional wells in return for half of the
Company's interest in ATP 594P.
On April 16, 1998, Cronus announced the completion of
drilling on the first well on ATP 594P, the Taylor Franks
No. 1 well in the Eromanga Basin of east-central Australia.
The well reached a total depth of 2,643 meters with gas
shows from 2,520 to 2,643 meters. Two drill stem tests were
performed in the Toolachee and Patchawarra formations in the
Permian section. The tests indicated gas flow rates of
approximately 30,000 cubic feet per day with no water.
The results of this first well indicate good structure and
the presence of gas in this province. The flow results and
penetration rate confirmed a tight reservoir and lack of
sufficient porosity at this location, thus the well was
plugged. While proving that there is gas on this
concession, the next step is to drill a confirmation well in
the same zone that has greater porosity and provides
commercially viable flow rates to capitalize on this find.
Cronus and Icon Oil NL have determining a second location
for the next well and anticipates the well to be spudded in
September 1998 on the concession. The cost to the Company
to drill the next well is approximately $300,000.
Strategic Consulting and Administration, Inc.
On October 17, 1997, the Company entered into an agreement
to acquire all the outstanding shares of Strategic
Consulting and Administration, Inc. ("SCI"). SCI is the
designated company to receive ATP 636P, a 640,000 acre oil
and gas concession located in Queensland, Australia within
the oil and gas producing region of the Eromanga basin. SCI
cannot receive the Authority To Prospect until the issues
surrounding the Native Title Claims Act have been resolved
by the parliament of Queensland, Australia.
With the establishment of commercial production on any
prospect, further development wells will be drilled during
the balance of 1998.
Although the Company is currently pursuing prospects within
the project areas described above, and has budgeted to drill
the number of wells, there can be no assurance that these
prospects will be drilled at all or within the expected time
frame. In particular, budgeted wells that are based upon
statistical results of drilling activities in other project
areas are subject to greater uncertainties than wells for
which drillsites have been identified. The final
determination with respect to the drilling of any identified
drillsites or budgeted wells will be dependent on a number
of factors, including (i) the results of exploration efforts
and the acquisition, review and analysis of the seismic
data, (ii) the availability of sufficient capital resources
by the Company and the other participants for the drilling
of the prospects, (iii) the approval of the prospects by
other participants after additional data has been compiled,
(iv) the economic and industry conditions at the time of
drilling, including prevailing and anticipated prices for
oil and natural gas and the availability of drilling rigs
and crews, (v) the financial resources and results of the
Company and (vi) the availability of leases on reasonable
terms and permitting for the prospect. There can be no
assurance that these projects can be successfully developed
or that the identified drillsites or budgeted wells
discussed will, if drilled, encounter reservoirs of
commercially productive oil or natural gas.
The success of the Company will be materially dependent upon
the success of its exploratory drilling program.
Exploratory drilling involves numerous risks, including the
risk that no commercially productive oil or natural gas
reservoirs will be encountered. The cost of drilling,
completing and operating wells is often uncertain, and
drilling operations may be curtailed, delayed or canceled
as a result of a variety of factors, including unexpected
drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, adverse weather
conditions, compliance with governmental requirements and
shortages or delays in the availability of drilling rigs and
the delivery of equipment. Although the Company believes
that its use of available data and other advanced
technologies should increase the probability of success of
its exploratory wells and should reduce average finding
costs, exploratory drilling remains a speculative activity.
Even when fully utilized and properly interpreted,
seismic data and other advanced technologies only assist
geoscientists in identifying subsurface structures and do
not enable the interpreter to know whether hydrocarbons are
in fact present in such structures. In addition, the use
of seismic data and other advanced technologies requires
greater predrilling expenditures than traditional drilling
strategies and the Company could incur losses as a result of
such expenditures. The Company's future drilling activities
may not be successful, and if unsuccessful, such failure
will have a material adverse effect on the Company's results
of operations and financial condition. There can be no
assurance that the Company's overall drilling success rate
or its drilling success rate for activity within a
particular project area will not decline.
The Company may choose not to acquire option and lease
rights prior to acquiring seismic data and, in many cases,
the Company may identify a prospect or drilling location
before seeking option or lease rights in the prospect
or location. Although the Company has identified or
budgeted for numerous drilling prospects, there can be no
assurance that such prospects will ever be drilled (or
drilled within the scheduled or budgeted time frame) or that
oil or natural gas will be produced from any such prospects
or any other prospects. In addition, prospects may
initially be identified through a number of methods,
some of which do not include interpretation of seismic data.
Wells that are currently included in the Company's capital
budget may be based upon statistical results of drilling
activities in other project areas that the Company
believes are geologically similar, rather than on analysis
of seismic or other data. Actual drilling and results are
likely to vary from such statistical results and such
variance may be material. Similarly, the Company's drilling
schedule may vary from its capital budget because of future
uncertainties, including those described elsewhere.
MINING
The Company intends to asses the feasibility of potential
future mining projects, involving the Gila Gold Placer
mining claims.
Gila Association Placer Mine Project.
Gila Gold Placer Project:
The Company plans to verify and confirm the existence,
extend and grade of placer gold located at the Gila Gold
Placer claims. First, it intends to asses the presence and
tenor of placer gold as described in engineering reports of
past exploration efforts. Next, the Company will analyze
the economic viability of such deposit by determining
optimal production rate and stripping-sorting ratios,
defining a mining and reclamation technique, generating a
flow sheet, and isolating processing, mining, capital,
reclamation and general overhead cost factors.
The Company plans to conduct a seismic survey consisting of
a 5-line, 25' spacing, 9000 lineal foot, segmented survey.
This survey will be complimented with computer enhanced
calculations, storage, retrieval and printout capabilities.
This survey will provide definitions of the alluvial-bedrock
contact. From this information, cross-sectional views will
be generated to define ore reserve volume, assist in mine
planning and describe mining technique.
The Company also plans to conduct a bulk sampling, intended
to ascertain the following: value recoverable per cubic
yard, concentrating ratio, concentrating technique, and
general ground conditions and boulder contact, nature of
interbeds, slope stability, reject swell and nature of
backfill material. The Company estimates the costs of the
assessment to that point to be $75,000. The accumulation of
data from this sampling project will provide the baseline to
confirm ore reserves and feasibility of the mining project.
Due to the current prices of gold, this project has been
placed on hold until such time as gold prices warrant
continuation of this project.
Moapa Project
The Company entered into a joint venture project with Temple
Summit Financial Projects, Inc. ("TSFP") whereby TSFP will
contribute approximately 1,200 acres of mining claims in
Moapa County, Nevada (the "TSFP Moapa Claims"). The Company
engaged with TSFP in a multi-phase project to test the TSFP
Moapa Claims area. The Company is in the process of
reviewing and confirming the results of testing the
analytical procedure and determination of the economic
viability of the project.
Competition - Oil and Gas
The oil and gas industry is highly competitive in all
phases. The Company will encounter strong competition from
other independent oil and gas companies in acquiring
economically desirable prospects as well as in marketing
production therefrom and obtaining external financing.
Substantially all of the Company's competitors have
financial resources, personnel resources, and facilities
substantially greater than those of the Company.
Because there has been a decrease in exploration for and
development of oil and gas properties in the United States,
there is increased competition for lower risk development
opportunities and for available sources of financing.
In addition, the marketing and sale of natural gas and
processed gas are extremely competitive. Accordingly, the
competitive environment in which the Company operates is
unsettled.
Furthermore, the oil and gas industry is characterized by
rapid and significant technological advancements and
introductions of new products and services utilizing new
technologies. As others use or develop new technologies,
the Company may be placed at a competitive disadvantage, and
competitive pressures may force the Company to implement
such new technologies at substantial cost. In addition,
other oil and gas companies may have greater financial,
technical and personnel resources that allow them to enjoy
technological advantages and may in the future allow them to
implement new technologies before the Company. There can be
no assurance that the Company will be able to respond to
such competitive pressures and implement such technologies
on a timely basis or at an acceptable cost. One or more of
the technologies currently utilized by the Company or
implemented in the future may become obsolete. In such
case, the Company's business, financial condition and
results of operations could be materially adversely
affected. If the Company is unable to utilize the most
advanced commercially available technology, the Company's
business, financial condition and results of operations
could be materially and adversely affected.
Competition - Mining
There is considerable competition for mining prospects on
federal lands. Costs of exploration, testing and mining,
milling, transportation, labor and other costs have risen
dramatically. These costs would be a factor in determining
whether the discovery of minerals, if any, would be
commercial or not, and could render a discovery
unprofitable, even if made.
In addition to the uncertainty surrounding the eventual
development of commercial mineralization on the Company's
properties, the success of any mining operation which might
be conducted is dependent upon the price of minerals on the
domestic and world markets, which is subject to
fluctuations, in part as a result of actions by central
banks and government policies.
Employees
As of December 31, 1997, the Company had three employees,
Jonathan Roberts, Kevin Sherlock and Gordon M. LeBlanc, Jr.
In order to optimize prospect generation and development,
the Company utilizes the services of independent consultants
and contractors to perform a variety of services. All
other work, geographical, engineering, metallurgical, legal,
accounting and otherwise, is performed on a fee basis. As
drilling and production activities increase, the Company may
hire additional personnel as appropriate. The Company's
activities in connection with the acquisition, exploration
and development of mining, oil and gas and other mineral
properties, the development of new business lines, and the
negotiation with potential contractual and joint venture
partners are conducted principally by Jonathan Roberts,
President of the Company. See "Item 10, Directors and
Executive Officers" and "Item 11, Executive Compensation"
below.
Certain Factors Affecting the Industry and the Company.
Exploration, development and mining of mineral properties,
including the extraction of oil and gas, involve unique and
greater risks than those generally associated with other
industries. Many exploration programs do not result in the
discovery of a commercially mineable mineral deposit, in
which case the costs of exploration are not recoverable.
The Company's operations are subject to all the hazards and
risks normally incident to the exploration, development and
mining of mineral properties, such as the extent of domestic
production and imports, price fluctuations, the proximity
and capacity of pipelines and other transportation
facilities, demand for oil and gas, and other minerals, the
marketing of competitive fuels and products, and the effects
of state, federal, and foreign regulation on production and
sales. Further factors including the particular risks
described below:
1. Long Lead Time, Expense and Delay.
The risks normally associated with the exploration and
development of a mineral deposit, including oil and gas,
include the extended period of time, and the costs and
expenses, required to complete such exploration and
development, as well as the risks and delays normally
associated with permitting and construction. Such events
can result in a delay in the receipt of income from
a property or operation with serious adverse consequences to
the Company's liquidity, financial condition and
profitability. In addition, there can be no assurance that
any such exploration activities will be successful.
Therefore, exploration costs could result in substantial
losses to the Company which might not be offset by revenues
from the properties explored or otherwise.
2. Need for Additional Financing
The Company needs to undertake significant exploration at
the properties in which it has an interest and will require
additional financing beyond its current capital resources,
such as additional debt or equity financing or a joint
venture or merger with another mining or oil and gas
company. Neither the amount of additional capital needed to
conduct adequate exploration and development activities, nor
the Company's ability to raise such capital, can be
accurately predicted at this time.
Mining and oil and gas companies have historically required
substantial capital to conduct and expand an exploration and
development program, and have frequently sought additional
capital as business has developed. The Company's current
capital resources are limited (See "Item 6 -- Management's
Discussion and Analysis or Plan of Operation; Financial
Condition, Liquidity and Capital Resources" below) and it
will need additional financing if it is to conduct any
significant exploration activities and thereby develop and
commence its business. Financing for such purpose could be
sought through the issuance of additional shares of Common
Stock or other equity securities, or through debt financing,
or through various arrangements with third parties. There
is no assurance that the Company will be able to obtain any
such additional financing or that such financing, if
available, will be on terms necessary to enable the Company
to operate profitably. Any such additional financing
obtained through the issuance of additional shares of Common
Stock or other equity securities could result in further
dilution to the Company's shareholders. Any debt financing
would increase the Company's operating expenses and could
reduce or eliminate the Company's net profit. Any
arrangement with third parties to finance the Company's
exploration, development, or operations could take the
form of a joint venture, merger, lease, royalty, purchase
option, or some other participation which could reduce, or
involve a disposition of, the Company's interests in its
properties or the revenues therefrom.
3. Effect of Exploration Costs, Risk of Losses.
Exploration costs incurred by the Company will not generate
offsetting revenues unless and until the exploration is
successful and the Company can commence additional
production, sell the property or otherwise realize the
benefits of additional discoveries.
4. Fluctuating Price for Minerals.
If the Company's exploration and development plans result in
oil and gas or mineral production, the Company anticipates
that most of its revenues would be derived from the sale of
oil and gas and possibly minerals produced from its
mining and processing operations. Thus, the Company's
future prospects depend upon the ability of the Company to
locate and profitably exploit mineral deposits through the
mining, production and sale of minerals. The feasibility of
developing and operating new production and mining
operations and the future profitability of any such
operations will depend on the price of minerals. Mineral
prices, including oil and gas, and in particular gold
prices, fluctuate widely from time to time and are affected
by numerous factors beyond the Company's control which
cannot be accurately predicted, including expectations about
inflation, exchange rates, banking, economic and political
crises, interest rates, global supply and demand, political
and economic conditions, and production costs in major
mineral producing regions, and many other factors.
The two principal products the Company currently plans to
produce and market by the Company are crude oil and natural
gas. The Company does not currently use commodity futures
contracts and price swaps in the sales or marketing of
its natural gas and crude oil.
Crude Oil - Crude Oil that could be produced from the
Company's properties is generally to be transported by truck
to unaffiliated third-party purchasers at the prevailing
field price ("the posted price"). The market for the
Company's crude oil is competitive. Oil prices are subject
to volatility due to several factors beyond the Company's
control including: political turmoil; domestic and foreign
production levels; OPEC's ability to adhere to production
quotas; and possible governmental control or regulation.
Natural Gas - The Company anticipates that it would sell any
natural gas production at the wellhead to various pipeline
purchasers or natural gas marketing companies. Such
wellhead contracts typically have various terms and
conditions, including contract duration. Under wellhead
contracts the purchaser is generally responsible for
gathering, transporting, processing and selling the natural
gas and natural gas liquids and the seller receives a net
price at the wellhead. Accordingly, net prices are affected
by such costs to be incurred by the purchaser.
5. Title to Properties.
The Company believes it has satisfactory title to all of its
producing properties in accordance with standards generally
accepted in the oil and natural gas industry. The Company's
properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes
and other burdens which the Company believes do not
materially interfere with the use of or affect the value of
such properties. As is customary in the industry in the
case of undeveloped properties, little investigation of
record title is made at the time of acquisition (other than
a preliminary review of local records). Investigations,
including a title opinion of local counsel, are
generally made before commencement of drilling operations.
The successful acquisition of producing properties requires
an assessment of recoverable reserves, future oil and
natural gas prices, operating costs, potential environmental
and other liabilities and other factors. Such assessments
are necessarily inexact and their accuracy inherently
uncertain. In connection with such an assessment, the
Company performs a review of the subject properties that it
believes to be generally consistent with industry practices,
which generally includes on-site inspections and the review
of reports filed with various regulatory entities. Such a
review, however, will not reveal all existing or potential
problems nor will it permit a buyer to become sufficiently
familiar with the properties to fully assess their
deficiencies and capabilities. Inspections may not always
be performed on every well, and structural and environmental
problems are not necessarily observable even when an
inspection is undertaken. Even when problems are
identified, the seller may be unwilling or unable to provide
effective contractual protection against all or part of such
problems. There can be no assurances that any acquisition
of property interests by the Company will be successful and,
if unsuccessful, that such failure will not have an adverse
effect on the Company's future results of operations and
financial condition.
The legal status of the Company's right, title and interest,
if any, in and to the Gila Gold Placer claims is currently
uncertain. See "Properties" section below. Therefore, the
Company may be required to expend additional funds in order
to, or may ultimately be unable to, establish its rights to
develop and mine such properties.
6. Governmental Regulation and Environmental Controls.
The following discussion of regulation of the mining
industry is necessarily brief and is not intended to
constitute a complete discussion of the various statutes,
rules, regulations or governmental orders to which the
Company's operations may be subject.
The oil and gas industry and the mining industry are subject
to extensive federal, state and local laws and regulations
covering exploration, development, operations and
production, taxes, labor standards, occupational health,
waste disposal, environmental protection, reclamation, mine
and well safety, toxic substances and other matters.
Environmental, operating, water, dust and other federal and
state permits are essential to any mining operation. The
nature of the mining business is such that mining companies
are frequently in the process of applying for additional
permits or modifications to existing permits at any given
time. There can be no assurance that such permits will be
granted in the future as needed, and, if such permits are
not granted, that the Company or any mining venture in which
it is a participant could be required to curtail or cease
its development plans or operations with serious adverse
consequences to its liquidity and profitability. Amendments
to current laws and regulations governing operations and
activities of mining companies or more stringent
implementation thereof or additional taxes could have a
material adverse impact on the Company. In addition,
opposition to development of mining operations by
environmental and other groups is increasing, and such
opposition may result in delays, increased costs or
abandonment of development plans.
Any future exploration, rehabilitation, or development
programs of the Company, as well as any future commercial
production which might be warranted, will be subject to
extensive federal, state and local laws and regulations
controlling not only the exploration for viable minerals in
the ground, the condition of the shafts and the nature of
milling and leaching operations, but also the possible
environmental effects of water and particle contaminant
discharges resulting from the Company's activities. No
environmental impact studies have been performed by the
Company, and there is no assurance that environmental or
safety standards more stringent than those presently in
effect will not be imposed in the future.
Government Regulation - Oil and Gas
General - All aspects of the oil and gas industry are
extensively regulated by federal, state, and local
governments in all areas in which the Company intends
to have operations.
The following discussion of regulation of the oil and gas
industry is necessarily brief and is not intended to
constitute a complete discussion of the various statutes,
rules, regulations or governmental orders to which the
Company's operations may be subject.
Price Controls on Liquid Hydrocarbons - There are currently
no federal price controls on liquid hydrocarbons (including
oil, natural gas and natural gas liquids). As a result, any
oil produced from the Company's properties will be sold at
unregulated market prices which historically have been
volatile.
Federal Regulation of Sales and Transportation of Natural
Gas - Historically, the transportation and sale of natural
gas in interstate commerce have been regulated pursuant to
the Natural Gas Act ("NGA"), the Natural Gas Policy Act of
1978 ("NGPA") and regulations promulgated thereunder. The
Natural Gas Wellhead Decontrol Act of 1989 eliminated all
regulation of wellhead gas sales effective January 1, 1993.
As a result, gas sales are not regulated.
The transportation and resale in interstate commerce of
natural gas continues to be subject to regulation by the
Federal Energy Regulatory Commission ("FERC") under the NGA.
The transportation and resale of natural gas transported and
resold within the state of its production is usually
regulated by the state involved. In Louisiana such
regulation is by the Office of Conservation. In Arizona,
such regulation is by the Oil and Gas Commission. Although
federal and state regulation of the transportation and
resale of natural gas currently does not have any material
direct impact on the Company's planned operations, such
regulation does have a material impact on the market for
natural gas production and the price that can be received
for natural gas production. Adverse changes in the
regulations affecting gas markets could have a material
impact on the Company.
Commencing in the mid-1980's and continuing until the
present, the FERC promulgated several orders designed to
correct market distortions and to make gas markets more
flexible and competitive. These orders have had a profound
influence on natural gas markets in the United States and
have, among other things, increased the importance of
interstate gas transportation and encouraged development of
a large spot market for gas.
On April 8, 1992, the FERC issued Order No. 636 requiring
material restructuring of the sales and transportation
service provided by interstate pipeline companies. The
primary element of Order No. 636 was the mandatory
unbundling of interstate gas transportation services and
storage separately from their gas sales. The unbundled
transportation and storage was required to be offered
without favoring gas bought from the pipeline. Order No.
636 did not require pipelines to stop buying and reselling
gas; to the contrary, it contained specific provisions to
allow pipelines to continue unbundled sales of natural gas.
However, after Order No. 636 there was little reason for a
pipeline to continue selling natural gas and most pipelines
moved all or almost all of their gas purchases and sales to
affiliated marketing companies.
Order No. 636 does not regulate gas producers. However,
Order No. 636 does appear to have achieved FERC's stated
goal of fostering increased competition within all phases
of the natural gas industry. Generally speaking, this
increased competition has driven the price down for natural
gas. It is unclear what further impact the increased
competition will have on the Company's ability to operate
as a gas producer and seller in the future. Increased
flexibility and competition provides greater assurance of
access to markets, but has consequently reduced or
restrained prices.
The FERC has announced several important transportation-
related policy statements and proposed rule changes,
including a statement of policy and a request for comments
concerning alternatives to its traditional cost-of-service
ratemaking methodology to establish the rates interstate
pipelines may charge for their services. A number of
pipelines have obtained FERC authorization to charge
negotiated rates as one such alternative. In February 1997,
the FERC announced a broad inquiry into issues facing the
natural gas industry to assist the FERC in establishing
regulatory goals and priorities in the post-Order No.
636 environment. Similarly, state agencies such as the Texas
Railroad Commission, have been reviewing changes to its
regulations governing transportation and gathering services
provided by intrastate pipelines and gatherers and recently
implemented a code of conduct intended to prevent undue
discrimination by intrastate pipelines and gatherers in
favor of their marketing affiliates. Although the changes
being considered by these federal and state regulators would
affect the Company only indirectly, they are intended
to further enhance competition in natural gas markets.
In addition to FERC regulation of interstate pipelines under
the NGA, various state commissions also regulate the rates
and services of pipelines whose operations are purely
intrastate in nature. To the extent intrastate pipelines
elect to transport gas in interstate commerce under certain
provisions of the NGPA, those transactions are subject to
limited FERC regulation under the NGPA and may ultimately
effect prices of natural gas.
There are many legislative proposals pending in Congress and
in the legislatures of various states that, if enacted,
might significantly affect the oil and gas industry. The
Company is not able to predict what will be enacted and thus
what effect, if any, such proposals would ultimately have on
the Company.
State and Local Regulation of Drilling and Production -
State regulatory authorities have established rules and
regulations requiring permits for drilling, bonds for
drilling, reclamation and plugging operations, limitations
on spacing and pooling of wells, and reports concerning
operations, among other matters. The states in which the
Company plans to operate also have statutes and
regulations governing a number of environmental and
conservation matters, including the unitization and pooling
of oil and gas properties and establishment of maximum rates
of production from oil and gas wells. A few states also
prorate production to the market demand for oil and gas.
These statutes and regulations limit the rate at which oil
and gas could otherwise be produced and the prices that can
be obtained for such products.
Environmental Regulations - The production, handling,
transportation and disposal of oil and gas and by-products
are subject to regulation under federal, state and local
environmental laws. In most instances, the applicable
regulatory requirements relate to water and air pollution
control and solid waste management measures or to
restrictions of operations in environmentally sensitive
areas. However, it is reasonably likely that the trend in
environmental legislation and regulations will continue
towards stricter standards and may result in significant
future costs to the Company. For instance, efforts have
been made in Congress to amend the Resource Conservation and
Recovery Act to reclassify oil and gas production wastes as
"Hazardous Waste," the effect of which would be to further
regulate the handling, transportation and disposal of
such waste. If such legislation were to pass, it could have
a significant adverse impact on the anticipated operating
costs of the Company, as well as the oil and gas industry in
general.
The Company may generate wastes that may be subject to the
federal Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes. The U.S. Environmental
Protection Agency ("EPA") and various state agencies have
limited the approved methods of disposal for certain
hazardous and nonhazardous wastes. Furthermore, certain
wastes generated by the Company's oil and natural gas
operations that are currently exempt from treatment as
"hazardous wastes" may in the future be designated as
"hazardous wastes," and therefore be subject to more
rigorous and costly operating and disposal requirements.
The Company currently owns or leases numerous properties
that for many years have been used for the exploration and
production of oil and gas. Although the Company believes
that it has used good operating and waste disposal
practices, prior owners and operators of these properties
may not have used similar practices, and hydrocarbons or
other wastes may have been disposed of or released on or
under the properties owned or leased by the Company or on or
under locations where such wastes have been taken for
disposal. In addition, many of these properties have been
operated by third parties whose treatment and disposal or
release of hydrocarbons or other wastes was not under the
Company's control. These properties and the wastes
disposed thereon may be subject to the Comprehensive
Environmental Response, Compensation and Liability Act
("CERCLA"), RCRA and analogous state laws as well as state
laws governing the management of oil and gas wastes. Under
such laws, the Company could be required to remove or
remediate previously disposed wastes (including wastes
disposed of or released by prior owners or operators) or
property contamination (including groundwater contamination)
or to perform remedial plugging operations to prevent future
contamination.
The Company's operations may also be subject to the Clean
Air Act ("CAA") and comparable state and local requirements.
Amendments to the CAA were adopted in 1990 and contain
provisions that may result in the gradual imposition
of certain pollution control requirements with respect to
air emissions from the operations of the Company. The EPA
and states have been developing regulations to implement
these requirements. The Company may be required to
incur certain capital expenditures in the next several years
for air pollution control equipment in connection with
maintaining or obtaining operating permits and approvals
addressing other air emission-related issues. However, the
Company does not believe its operations will be materially
adversely affected by any such requirements.
Federal regulations require certain owners or operators of
facilities thatstore or otherwise handle oil, to prepare and
implement spill prevention, control, countermeasure ("SPCC")
and response plans relating to the possible discharge of oil
into surface waters. The Oil Pollution Act of 1990, ("OPA")
contains numerous requirements relating to the prevention of
and response to oil spills into waters of the United States.
The OPA subjects owners of facilities to strict joint and
several liability for all containment and cleanup costs and
certain other damages arising from a spill, including, but
not limited to, the costs of responding to a release of oil
to surface waters. The OPA also requires owners and
operators of offshore facilities that could be the source of
an oil spill into federal or state waters, including
wetlands, to post a bond, letter of credit or other form of
financial assurance in amounts ranging from $10 million in
specified state waters to $35 million in federal outer
continental shelf waters to cover costs that could be
incurred by governmental authorities in responding to an oil
spill. Such financial assurances may be increased by as
much as $150 million if a formal risk assessment indicates
that the increase is warranted. Noncompliance with OPA may
result in varying civil and criminal penalties and
liabilities.
Operations of the Company are also subject to the federal
Clean Water Act ("CWA") and analogous state laws. In
accordance with the CWA, the state of Louisiana has issued
regulations prohibiting discharges of produced water in
state coastal waters effective July 1, 1997. While the
Company has no plans to drill in Louisiana coastal waters,
if it did, the Company will be obligated to comply with
these regulations. Pursuant to other requirements of the
CWA, the EPA has adopted regulations concerning discharges
of storm water runoff. This program requires covered
facilities to obtain individual permits, participate in a
group permit or seek coverage under an EPA general permit.
Like OPA, the CWA and analogous state laws relating to the
control of water pollution provide varying civil and
criminal penalties and liabilities for releases of petroleum
or its derivatives into surface waters or into the ground.
CERCLA, also known as the "Superfund" law, and similar state
laws impose liability, without regard to fault or the
legality of the original conduct, on certain classes of
persons that are considered to have contributed to the
release of a "hazardous substance" into the environment.
These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were
responsible for releases of hazardous substances under
CERCLA may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural
resources and for the costs of certain health studies, and
it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and
property damage allegedly caused by the hazardous substances
released into the environment.
New initiatives regulating the disposal of oil and gas waste
are also pending in certain states, including states in
which the Company plans to conduct operations, and these
various initiatives could have an adverse impact on the
Company. Management believes that compliance with current
applicable laws and regulations or with proposals in their
present form could possibly have a material adverse impact
on the Company, but management is unable to predict the
final form of the pending regulations or their potential
impact on the Company.
Although the Company does not believe its planned business
operations will impair environmental quality, compliance
with federal, state and local regulations which have been
enacted or adopted regulating the discharge of materials
into the environment could have an adverse effect upon the
capital expenditures, earnings and competitive position of
the Company, the extent of which the Company now is unable
to assess.
ITEM 2. Properties
PRINCIPAL OIL AND GAS INTERESTS
Productive Wells and Acreage - The Company's producing
properties as of December 31, 1997 are located in the
following areas shown in the table below:
OIL GAS Developed
Field, State Wells Wells Acreage
Lake End Field, LA 17 340
The Company's producing oil and gas properties are located
on leases held by the Company for as long as production is
maintained.
Undeveloped Acreage - The Company's gross interests in
leased undeveloped acreage in Louisiana and Northern Arizona
as of December 31, 1997 is 1,660 and 18,212.23 acres,
respectively. All the properties located in Louisiana
and Northern Arizona will expire at various times in 2001
unless production has been obtained.
LOUISIANA PROPERTIES
Lake End Field, Red River Parish, Louisiana - In July 1997,
the Company purchased a majority working interest in
approximately 1,860 acres in the Lake End Field. The Lake
End Field is located about 47 miles south of Shreveport,
Louisiana near the community of Lake End, Louisiana. The
producing area is bounded on the East and North by Red River
and on the West and South by Bayou Pierre (which is an
ancient river bed of Red River). Within this producing area
is located the Lake End Field, Jordon Ferry Field and the
Red Oak Field.
There are currently 17 wells shut-in with 93 proven
drillable locations. The Company is presently working to
recomplete several wells in behind-pipe zones to take
advantage of current gas prices in the market. The Company
expects that after finishing the recompletion program, daily
gas production can be significantly increased. A geological
and engineering study is currently being conducted to seek
further development opportunities in the existing wells
as well as to delineate optimal drilling locations.
Red Oak Lake Field, Red River Parish, Louisiana - In July
1997, the Company purchased a majority working interest in
approximately 640 acres in the Red Oak Field. There are 3
proven drillable gas well locations in the Rodessa
formation in the Red Oak Field.
NORTHERN ARIZONA PROSPECTS
Overview - In late 1997 and through out 1998, the Company
will be directing a significant portion of its resources to
the Holbrook Basin region. The Company is focusing in the
Holbrook Basin as the result of a seven year evaluation to
determine the possibility of hydrocarbon accumulations in
the Supai, Penn and Devonian formations.
Currently, two prospects are in the process of drilling or
are expected to commence drilling in the fourth quarter of
1998. These include El Tule, and Manuel Seep. A brief
description of these prospects follows.
The El Tule Prospect is located on the southwest flank of
the Cedar Mesa Anticline, a large surface anticline along
the southeast edge of the Holbrook Basin in Apache County,
Arizona. The Cedar Mesa Anticline is located in the
part of the upper Supai evaporite basin where there are
carbonates and sulfates.
The Manuel Seep Prospect is located on a broad surface
anticline (the highest structure in the basin) along the
southern edge of the Holbrook Basin in Apache County,
Arizona. It trends northwest for a distance of 3 1/2 miles,
and it covers an area of at least 23 sections. Some of
those sections are irregular, so the total prospect contains
13,766.19 acres, which is large enough to hold potential oil
reserves of one hundred million barrels, or more.
The Oso Draw Prospect is located on the north end of Concho
Dome in the Holbrook Basin in Apache County, Arizona. The
Holbrook Basin is a relatively shallow Permian salt basin,
so only a 3,800 foot well will be needed to test the
prospect formations. These productive Paleozoic formations
are continuously present from the Paradox Basin in northern
Apache County through the Black Mesa Basin to the Holbrook
Basin and on to the Permian Basin. As a result, this
prospect has the potential to produce from at least three
formations with excellent reservoir quality, a history of
production and shows of oil and gas close to the prospect.
The Little Colorado Prospect is located on a large untested
surface anticline in the Southeast of the Holbrook Basin in
Apache County, Arizona. The structure covers nineteen (19)
sections (12,162.3 acres) in Townships 14 and 15 North,
Range 24 East, and the Little Colorado River runs through
the middle of the prospect.
NEW MEXICO PROPERTIES
Currently, two prospects are in the process of drilling or
are expected to commence drilling in New Mexico during the
third quarter of 1998. These include the Red Dog and Cholla
Tank. A brief description of these prospects follows.
Red Dog Prospect is located in McKinley County, New Mexico,
covering 1,921.18 acres. The Red Dog Prospect is situated
on a northeast - southwest trending anticlinal fold on the
Chaco Slope of the San Juan Basin. Seismic data indicates a
feature in the Entrada formation that has been interpreted
as a reflection from an oil-water contact. In a homogenous
sandstone such as the Entrada a 30 foot oil column is needed
before an oil-water contact can be detected. Analysis of
satellite imagery confirmed that there is micro-seepage to
the surface. The hydrocarbon reflectance covers
approximately 1420 acres. The Entrada has excellent
reservoir quality, with an average porosity of 23.6% and
an average permeability of 315 millidarcies. On 40 acre
spacing, recoverable reserves are estimated to be 456,800
barrels of oil for a well with 30 feet of pay and a water
drive recovery of 35%. The secondary objectives of the Red
Dog Prospect include the Dakota at 3,300 feet and the Mancos
at 2,900 feet. PetroSun anticipates drilling the initial
test well in the Entrada by the end of July, 1998. PetroSun
has joint ventured with industry partners to raise the funds
for this prospect.
The Cholla Tank Prospect is located in McKinley County, New
Mexico. The Cholla Prospect is situated on a northeast -
southwest trending anticlinal fold on the Chaco Slope of the
San Juan Basin. Seismic data indicates a feature in the
Entrada formation that has been interpreted as a reflection
from an oil-water contact. In a homogenous sandstone such
as the Entrada a 30 foot oil column is needed before an oil-
water contact can be detected. Analysis of satellite
imagery confirmed that there is microseepage to the surface.
The Entrada has excellent reservoir quality, with an average
porosity of 23.6% and an average permeability of 315
millidarcies. On 40 acre spacing, recoverable reserves are
estimated to be 456,800 barrels of oil for a well with 30
feet of pay and a water drive recovery of 35%. The
secondary objectives of the Cholla Prospect include the
Dakota at 3,300 feet and the Mancos at 2,900 feet.
PetroSun is currently in the process of surveying and
permitting the initial test well and anticipates drilling to
commence by the end of August, 1998 with funding from
industry partners. The Cholla Tank Prospect is a direct
offset to PetroSun's Red Dog Prospect.
AUSTRALIA
On February 14, 1998, the Company entered into a letter
agreement to acquire all the outstanding shares of Triple
"J" Resources Pty., LTD. ("JJJ"). JJJ is the holder of ATP
594P, a 375,000 acre oil and gas concession located in
Queensland, Australia within the oil and gas producing
region of the Eromanga basin. JJJ has a farmout agreement
with Icon Oil, NL by which Icon agreed to drill the first
test well on ATP 594P, and to thereafter provide 50% of the
costs of any additional wells in return for half of the
Company's interest in ATP 594P.
On April 16, 1998, Cronus announced the completion of
drilling on the first well on ATP 594P, the Taylor Franks
No. 1 well in the Eromanga Basin of east-central Australia.
The well reached a total depth of 2,643 meters with gas
shows from 2,520 to 2,643 meters. Two drill stem tests were
performed in the Toolachee and Patchawarra formations in the
Permian section. The tests indicated gas flow rates of
approximately 30,000 cubic feet per day with no water.
The results of this first well indicate good structure and
the presence of gas in this province. The flow results and
penetration rate confirmed a tight reservoir and lack of
sufficient porosity at this location, thus the well was
plugged. While proving that there is gas on this
concession, the next step is to drill a confirmation well in
the same zone that has greater porosity and provides
commercially viable flow rates to capitalize on this find.
Cronus and Icon Oil NL have determining a second location
for the next well and anticipates the well to be spudded in
September 1998 on the concession. The cost to the Company
to drill the next well is approximately $300,000.
PROVED DEVELOPED AND UNDEVELOPED RESERVES
The oil and gas reserve and reserve value information is
based upon an engineering evaluation by Kenneth W. Frazier.
The estimated proved reserves represent forward-looking
statements and should be read in connection with the
disclosure on forward-looking statements included herein
under Item 6 in Management's Discussion and Analysis.
The Company has not filed any reports containing oil and gas
reserve estimates with any federal authority or agency other
than the Securities and Exchange Commission.
All of the Company's current oil and gas reserves are
located in the Continental United States. The table below
sets forth the Company's estimated quantities of proved
reserves, and the present value of estimated future net
revenues. The standardized measure of discounted future net
cash flows is computed by applying year-end prices of oil
($15.46 per barrel) and gas ($2.40 per MCF) to the estimated
future production of proved and developed oil and gas
reserves, less estimated future expenditures (based on year-
end costs) to be incurred in developing and producing the
proved reserves, less estimated future income tax expenses
(based on year-end statutory rates, with consideration of
future tax rates already legislated) to be incurred on
pretax net cash flows less tax basis of the properties and
available credits, and assuming continuation of existing
economic conditions. The estimated future net cash flows
are then discounted using a rate of 10% per year to reflect
the estimated timing of the future cash flows.
Oil (Bbls) Gas (Mcf)
Proved Developed and Undeveloped Reserves
Beginning -0- -0-
Purchase 1,126,510 25,133,272
Production (211) (6,236)
End of Year 1,126,229 25,127,036
Proved Developed Reserves
Beginning of Year -0- -0-
End of Year 173,886 2,868,764
Standardized measure of discounted future net cash flows at
December 31, 1997.
Future Cash Inflows $9,397,254
Future Production Rates (469,803)
Future Income Tax Expense (2,142,574)
6,784,817
10% annual discount for estimated timing of cash flows
(4,278,175)
Standardized measures of discounted future net cash flows
relating to proved oil and gas reserves.
$ 2,506,642
In accordance with Commission regulations, the reserve
reports used oil and natural gas prices in effect at
December 31, 1997. The prices used in calculating the
estimated future net revenue attributable to proved reserves
do not necessarily reflect market prices for oil and natural
gas production subsequent to December 31, 1997. There can
be no assurance that all of the proved reserves will be
produced and sold within the periods indicated, that the
assumed prices will actually be realized for such production
or that existing contracts will be honored or judicially
enforced.
There are numerous uncertainties inherent in estimating oil
and natural gas reserves and their estimated values,
including many factors beyond the control of the producer.
The reserve data set forth in this Annual Report on Form 10-
KSB represent only estimates. Reservoir engineering is a
subjective process of estimating underground accumulations
of oil and natural gas that cannot be measured in an exact
manner. Estimates of economically recoverable oil and
natural gas reserves and of future net cash flows
necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area
compared with production from other producing areas, the
assumed effects of regulations by governmental agencies and
assumptions concerning future oil and natural gas prices,
future operating costs, severance and excise taxes,
development costs and workover and remedial costs, all of
which may in fact vary considerably from actual results.
For these reasons, estimates of the economically recoverable
quantities of oil and natural gas attributable to any
particular group of properties, classifications of such
reserves based on risk f recovery, and estimates of the
future net cash flows expected therefrom prepared by
different engineers or by the same engineers but at
different times may vary substantially and such reserve
estimates may be subject to downward or upward adjustment
based upon such factors. Actual production, revenues
and expenditures with respect to the Company's reserves will
likely vary from estimates, and such variances may be
material. In addition, the 10% discount factor, which is
required by the Commission to be used in calculating
discounted future net cash flows for reporting purposes, is
not necessarily the most appropriate discount factor based
on interest rates in effect from time to time and risks
associated with the Company or the oil and natural gas
industry in general.
In general, the volume of production from oil and natural
gas properties declines as reserves are depleted, with the
rate of decline depending on reservoir characteristics.
Except to the extent the Company conducts successful
exploration and development activities or acquires
properties containing proved reserves, or both, the proved
reserves of the Company will decline as reserves are
produced. The Company's future oil and natural gas
production is, therefore, highly dependent upon its level of
success in finding or acquiring additional reserves. The
business of exploring for, developing or acquiring reserves
is capital intensive. To the extent cash flow from
operations is reduced and external sources of capital become
limited or unavailable, the Company's ability to make the
necessary capital investment to maintain or expand its asset
base of oil and natural gas reserves would be impaired. The
failure of an operator of the Company's wells to adequately
perform operations, or such operator's breach of the
applicable agreements, could adversely impact the Company.
In addition, there can be no assurance that the Company's
future exploration, development and acquisition activities
will result in additional proved reserves or that the
Company will be able to drill productive wells at acceptable
costs. Furthermore, although the Company's revenues could
increase if prevailing prices for oil and natural gas
increase significantly, the Company's finding and
development costs could also increase.
MINING CLAIMS:
GILA GOLD PLACER MINING CLAIMS:
Gila Placer Mining Claims consist of unpatented association
mining claims covering 640 acres. Cronus Corporation
acquired the claims by way of mining deed on October 2,
1996. The claims lie along the prehistoric bed of which
once was part of the Gila river. The terrace gravel's are
of auriferous origin, deposited by erosive agents, and are
of a later flow than the Gila conglomerate. This
conglomerate forms the bed-rock or strates of gold
concentration. These gravel's no doubt are a remnant of an
ancient river channel. The channel may be traced by its
exposed edges and rims in several places. The gold is of
ancient origin and is derived from the disintegration of the
immeasurable gold-bearing quartz veins in the igneous rocks
which are of the post-Paleozoic age. There has been no
previous mining on these claims. The property is without
reserves, and any activities to be undertaken would be
exploratory in nature.
Location
The Gila Mining Group of Claims are located in the Safford
Mining District, Graham County, State of Arizona. The
association placer claims are approximately 25 miles
northeast of Safford, Arizona.
Access
The claims are reached via a graded county road that extends
from Highway 666. The forest road passes adjacent to the
northern end of the claims.
Relief and Topography
The elevation of the area is approximately 4600 feet above
sea level. Relief in the claim area ranges from 50 feet to
over 1000 feet. The claims are located in an area of rugged
topography characterized by canyons and steep tributary
valleys.
Weather and Climate
Weather is typically semi-arid. At no time of the year will
climate cause a serious problem. Rainfall occurs chiefly in
summer as thunderstorms. These can cause damage to roads
and structures if they are not properly engineered.
Water and Power
There is no electrical power or water in the claim area. It
will have to be generated at the mine site and wells
drilled.
Mills, Smelter and Similar Facilities
No mills, smelter or related facilities are available in the
claim area. Concentrates or any ore would be trucked off-
site to a processing plant.
TITLE TO MINING PROPERTIES
The Company's only significant mining assets as of December
31, 1997, consists of its possessory interest in the Gila
Gold Placer mining claims, which consist of unpatented
mining claims. The validity of all unpatented mining
claims is dependent upon various inherent uncertainties and
conditions that may prevent a fee title in the usual sense
from existing or vesting.
Unpatented mining claims, when properly located, staked and
posted according to regulation, give the claimant a
possessory right only. Possessory title to an
unpatented claim, when validly initiated, endures unless
lost through abandonment or through a forfeiture which
results from an adverse location made while the claim is in
default with respect to the performance of annual
assessment work. Because many of these factors involve
findings of fact, title validity cannot be determined solely
from an examination of the record.
The continued validity of the Gila unpatended mining claims
is subject to many contingencies, including the availability
of land for the claim at the time location is made, the
making of valid mineral discoveries within the boundary of
each claim, the compliance with all regulations, both state
and federal, for locating claims, and the performance of
annual assessment work which is currently in the
amount of $100.00 per claim. Failing satisfaction of the
requirements, the claims are subject to cancellation by the
United States upon finding of no valid discovery or failure
to perform annual assessment work. Failure to perform
annual assessment work subjects the claimant to the risk of
forfeiture of rights through valid subsequent locations by
others or through cancellation by the government agency
involved.
In addition, the Company acquired its possessory interests
in the Gila Gold Placer claims through quit-claim deeds.
Pursuant to a quit-claim deed, the transfer of an interest
in property transfers whatever right, title and interest it
may have in and to the property without representation or
warranty as the extent of such right, title and interest or
as to the absence of adverse claims. Thus, the Company's
claims are dependent upon the validity, extent and quality
of the transferor's right, title and interest in and to such
claims. The Company does not have any information regarding
the nature of its transferor's right, title and interest in
and to the Gila Gold Placer claims, nor has the Company
received any warranties of title, title opinions or policies
of title insurance. As a result, the legal status of the
Company's right, title and interest, if any, in and to these
claims is currently uncertain.
TITLE TO OIL AND GAS
The Company believes it has satisfactory title to all of its
producing properties in accordance with standards generally
accepted in the oil and natural gas industry. The Company's
properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes
and other burdens which the Company believes do not
materially interfere with the use of or affect the value of
such properties. As is customary in the industry in the
case of undeveloped properties, little investigation of
record title is made at the time of acquisition (other than
a preliminary review of local records). Investigations,
including a title opinion of local counsel, are generally
made before commencement of drilling operations.
The successful acquisition of producing properties requires
an assessment of recoverable reserves, future oil and
natural gas prices, operating costs, potential environmental
and other liabilities and other factors. Such assessments
are necessarily inexact and their accuracy inherently
uncertain. In connection with such an assessment, the
Company performs a review of the subject properties that it
believes to be generally consistent with industry practices,
which generally includes on-site inspections and the review
of reports filed with various regulatory entities. Such a
review, however, will not reveal all existing or potential
problems nor will it permit a buyer to become sufficiently
familiar with the properties to fully assess their
deficiencies and capabilities. Inspections may not always
be performed on every well, and structural and environmental
problems are not necessarily observable even when an
inspection is undertaken. Even when problems are
identified, the seller may be unwilling or unable to provide
effective contractual protection against all or part of such
problems. There can be no assurances that any acquisition
of property interests by the Company will be successful and,
if unsuccessful, that such failure will not have an adverse
effect on the Company's future results of operations and
financial condition.
GLOSSARY OF CERTAIN INDUSTRY TERMS
The definitions set forth below shall apply to the indicated
terms as used herein. All volumes of natural gas referred
to herein are stated at the legal pressure base of the state
or area where the reserves exist and at 60 degrees
Fahrenheit and in most instances are rounded to the nearest
major multiple.
After payout. With respect to an oil or gas interest in a
property, refers to the time period after which the costs to
drill and equip a well have been recovered.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid
volume, used herein in reference to crude oil or other
liquid hydrocarbons.
Bbls/d. Stock tank barrels per day.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the
ratio of six Mcf of natural gas to one Bbl of crude oil,
condensate or natural gas liquids.
Before payout. With respect to an oil or gas interest in a
property, refers to the time period before which the costs
to drill and equip a well have been recovered.
Btu or British Thermal Unit. The quantity of heat required
to raise the temperature of one pound of water by one degree
Fahrenheit.
Completion. The installation of permanent equipment for the
production of oil or gas or, in the case of a dry hole, the
reporting of abandonment to the appropriate agency.
Developed acreage. The number of acres which are allocated
or assignable to producing wells or wells capable of
production.
Development well. A well drilled within the proved area of
an oil or gas reservoir to the depth of a stratigraphic
horizon known to be productive.
Dry hole or well. A well found to be incapable of producing
hydrocarbons in sufficient quantities such that proceeds
from the sale of such production exceed production expenses
and taxes.
Exploratory well. A well drilled to find and produce oil or
gas reserves not classified as proved, to find a new
reservoir in a field previously found to be productive of
oil or gas in another reservoir or to extend a known
reservoir.
Farm-in or farm-out. An agreement whereunder the owner of a
working interest in an oil and natural gas lease assigns the
working interest or a portion thereof to another party who
desires to drill on the leased acreage. Generally, the
assignee is required to drill one or more wells in order to
earn its interest in the acreage. The assignor usually
retains a royalty or reversionary interest in the lease.
The interest received by an assignee is a "farm-in" while
the interest transferred by the assignor is a "farm-out."
Field. An area consisting of a single reservoir or multiple
reservoirs all grouped on or related to the same individual
geological structural feature and/or stratigraphic
condition.
Finding costs. Costs associated with acquiring and
developing proved oil and natural gas reserves which are
capitalized by the Company pursuant to generally accepted
accounting principles, including all costs involved in
acquiring acreage, geological and geophysical work and the
cost of drilling and completing wells.
Gross acres or gross wells. The total acres or wells, as
the case may be, in which a working interest is owned.
MBbls. One thousand barrels of crude oil or other liquid
hydrocarbons.
MBbls/d. One thousand barrels of crude oil or other liquid
hydrocarbons per day.
Mcf. One thousand cubic feet.
Mcf/d. One thousand cubic feet per day.
Mcfe. One thousand cubic feet equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil,
condensate or natural gas liquids.
MMBbls. One million barrels of crude oil or other liquid
hydrocarbons.
MMBtu. One million British Thermal Units.
Mmcf. One million Cubic feet.
MMcf/d. One million cubic feet per day.
MMcfe. One million cubic feet equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil,
condensate or natural gas liquids, which approximates the
relative energy content of crude oil, condensate and natural
gas liquids as compared to natural gas. Prices have
historically been higher or substantially higher for crude
oil than natural gas on an energy equivalent basis.
Net acres or net wells. The sum of the fractional working
interests owned in gross acres or gross wells.
Normally pressured reservoirs. Reservoirs with a formation-
fluid pressure equivalent to 0.465 psi per foot of depth
from the surface. For example, if the formation pressure is
4,650 psi at 10,000 feet, then the pressure is considered
to be normal.
Over-pressured reservoirs. Reservoirs subject to abnormally
high pressure as a result of certain types of subsurface
formations.
Present value. When used with respect to oil and natural
gas reserves, the estimated future gross revenue to be
generated from the production of proved reserves, net of
estimated production and future development costs, using
prices and costs in effect as of the date indicated, without
giving effect to nonproperty-related expenses such as
general and administrative expenses, debt service and future
income tax expense or to depreciation, depletion and
amortization, discounted using an annual discount rate of
10%.
Productive well. A well that is found to be capable of
producing hydrocarbons in sufficient quantities such that
proceeds from the sale of such production exceed production
expenses and taxes.
Proved developed nonproducing reserves. Proved developed
reserves expected to be recovered from zones behind casing
in existing wells.
Proved developed producing reserves. Proved developed
reserves that are expected to be recovered from completion
intervals currently open in existing wells and able to
produce to market.
Proved developed reserves. Proved reserves that can be
expected to be recovered from existing wells with existing
equipment and operating methods.
Proved reserves. The estimated quantities of crude oil,
natural gas and natural gas liquids that geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved undeveloped location. A site on which a development
well can be drilled consistent with spacing rules for
purposes of recovering proved undeveloped reserves.
Proved undeveloped reserves. Proved reserves that are
expected to be recovered from new wells on undrilled acreage
or from existing wells where a relatively major expenditure
is required for recompletion.
Recompletion. The completion for production of an existing
well bore in another formation from that in which the well
has been previously completed.
Reservoir. A porous and permeable underground formation
containing a
natural accumulation of producible oil and/or gas that is
confined by impermeable rock or water barriers and is
individual and separate from other reservoirs.
Royalty interest. An interest in an oil and natural gas
property entitling the owner to a share of oil or gas
production free of costs of production.
3-D seismic data. Three-dimensional pictures of the
subsurface created by collecting and measuring the intensity
and timing of sound waves transmitted into the earth as they
reflect back to the surface.
Undeveloped acreage. Lease acreage on which wells have not
been drilled or completed to a point that would permit the
production of commercial quantities of oil and natural gas
regardless of whether such acreage contains proved
reserves.
Working interest. The operating interest that gives the
owner the right to drill, produce and conduct operating
activities on the property and a share of production.
Workover. Operations on a producing well to restore or
increase production.
ITEM 3. Legal Proceedings.
Cronus, formerly known as TR-3 Industries, Inc., was in
Chapter 7 bankruptcy from 1982 through 1992. The Company had
no operations and substantially no assets or liabilities
through November 1995. The Company was subject to a
number of lawsuits and claims (some of which involve
substantial amounts) arising out of the conduct of its
business prior to 1982, which were subject to the
bankruptcy proceeding. Although the Company does not
currently possess sufficient information to reasonably
estimate the amounts of liabilities to be recorded, they may
be significant to the results of operations. Management,
however, is of the opinion that the statute of limitations
relating to these liabilities has likely expired as of
August, 1997, fifteen years after the filing of the
bankruptcy. Accordingly, the Company removed the
liabilities from the balance sheet and recorded an
extraordinary gain of $2,930,134 in the third quarter of
1997.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Cronus Corporation has not submitted any matter to vote of
security holders during the period of this report.
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholders Matters.
Trades in the common stock of the Company have been reported
on the OTC Bulletin Board since March 5, 1996, under the
symbol CRON. The quarterly high and low prices for 1997 are
as follows:
High Low
First Quarter $0.94 $0.25
Second Quarter $0.62 $0.13
Third Quarter $0.81 $0.25
Fourth Quarter $0.86 $0.50
The quarterly high and low prices for 1996 are as follows:
High Low
First Quarter $0.00 $0.00
Second Quarter $3.25 $1.50
Third Quarter $2.00 $0.50
Fourth Quarter $1.81 $0.62
The foregoing are over-the-counter market quotations
obtained through PC Quotes, which may reflect inter-dealer
prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
As of December 31, 1997, there were approximately 244 record
holders (excluding brokerage firms and other nominees) of
the Company's common stock. The Company has not declared
any dividends during the period of this report, and does not
anticipate declaring any dividends in the foreseeable
future. The Company intends to retain any earnings for
future operations and for the development of its business.
ITEM 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Disclosure Regarding Forward-Looking Statements.
This report on Form 10-KSB includes "forward-looking
statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). All statements other than
statements of historical facts included in this report,
including, without limitation, statements under "Business
and Properties" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding the
Company's financial position, reserve quantities and net
present values, business strategy, plans and objectives of
management of the Company for future operations and capital
expenditures, are forward-looking statements and the
assumptions upon which such forward-looking statements are
based are believed to be reasonable. The Company can give
no assurance that such expectations and assumptions will
prove to have been correct. Reserve estimates of oil and
gas properties are generally different from the quantities
of oil and natural gas that are ultimately recovered or
found. This is particularly true for estimates applied to
exploratory prospects. Additionally, any statements
contained in this report regarding forward-looking
statements are subject to various known and unknown risks,
uncertainties and contingencies, many of which are beyond
the control of the Company. Such things may cause actual
results, performance, achievements or expectations to differ
materially from the anticipated results, performance,
achievements or expectations. Factors that may affect such
forward-looking statements include, but are not limited to,
the Company's ability to generate additional capital, risks
inherent in oil and gas acquisitions, exploration, drilling,
development and production, price volatility of oil and gas,
competition, shortages of equipment, services and supplies,
government regulation, environmental matters, financial
condition of the other companies participating in the
exploration, development and production of oil and gas
programs and other matters. All written and oral forward-
looking statements attributable to the Company or persons
acting on its behalf subsequent to the date of this report
are expressly qualified in their entirety by this
disclosure.
There has been limited operations this past fiscal year. As
the Company entered the natural resources market in March of
1996, and sold AGAA, PBAA and TGII, the Company has embarked
upon a new direction focusing on the acquisition,
development and management of natural resources. The
Company sold AGAA and TGII because neither subsidiary had
became operational, thereby raising significant doubts about
their ability to earn income. The Company sold the assets
of PBAA after the results of their first quarter of 1996
indicated that PBAA would not likely earn a profit in 1996
or 1997.
In order to create revenues, and expand on its natural
resources base, the Company acquired PetroSun Exploration &
Production, Incorporated in 1997. As described more fully
below, management expects to receive income from PetroSun
oil and gas leases in Louisiana and elsewhere sufficient to
cover its operating costs by the end of 1998.
As can be seen in the financial statements, the Company has
incurred losses from operations and has deficits in working
capital and net worth. The Company has earned only minimal
income from its operations, however, it expects to receive
income from oil and gas leases in Louisiana and elsewhere
by the end of 1998. The lack of significant revenues to
date raises a doubt about the Company's ability to continue
as a going concern. Management expects to earn revenues in
1998 and also expects to raise additional funding as
needed. There can be no assurance that a cash flow will be
generated or that funding will be raised. The Company
currently has no commitments for any type of funding, and
there is no assurance that the Company will be able to
obtain any such financing or that such financing, if
obtainable, will be on terms necessary to enable the Company
to operate profitably.
During 1996, the Company acquired the Gila mining claims and
Black Diamond mining claims (which it released in 1997),
both in southern Arizona for $130,504. The future
realization of the cost of these mining claims is dependent
upon the claims becoming proven reserves. A proven reserve
is the estimated quantity of mineral which geological and
engineering data demonstrates with reasonable
certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions.
Currently, these claims are considered unproven.
Additionally, the claims were transferred to the Company
without warranty or title assurance, and thus, the Company
is uncertain as to the legal status of its interest, if any,
in the claims. See "Title To Mining Properties" above.
The Company, doing business as TR-3 Industries, Inc. was in
chapter 7 bankruptcy from 1982 through 1992. The Company
had no operations and substantially no assets through
November, 1995, when the Company then acquired AGAA, TGII
and PBAA. As noted above, the Company sold AGAA, TGII and
the assets of PBAA in 1996 and then entered the natural
resources market, with the acquisition of the mining claims
in 1996, and into the oil and gas field with the acquisition
of PetroSun. As of December 31, 1996, Cronus was possibly
subject to a number of lawsuits, judgments and claims
arising out of the conduct of business of TR-3 Industries,
Inc. prior to 1983. Liabilities not discharged in the
bankruptcy totaled $2,930,134.00 which the Company had
carried as a liability on its balance sheet. However, in
August 15, 1997, fifteen years after the bankruptcy filing,
in the opinion of management, the statute of limitations has
expired on these possible claims. Accordingly, the Company
removed the liabilities from the balance sheet and recorded
an extraordinary gain of $2,930,134 during the third quarter
of 1997.
Financial Requirements and Source of Funds.
The Company is currently rehabilitating the shut-in oil and
gas wells by setting compressors and pumps which will allow
PetroSun to put its remaining revenue producing assets in
Louisiana into production starting in 1998. Based on
historical production rates, the Company believes that
PetroSun's oil and gas production in Louisiana should
produce net revenues sufficient to cover basic operating
expenses of the Company of $30,000 per month.
Thereafter, the Company believes it will need to raise at
least $1,500,000 in order to conduct testing and drilling of
its oil and gas properties, and to conduct testing of the
Moapa Project and the Gila Gold Placer Project. Such
funds may be sought through the issuance of additional
shares of the Company's Common Stock or other equity
securities, through debt financing, or through various
arrangements, including joint ventures and/or mergers, with
third parties. However, the Company currently has no
commitments for any type of funding, and there is no
assurance that the Company will be able to obtain any
such financing or that such financing, if obtainable, will
be on terms necessary to enable the Company to operate
profitably. If the Company is unsuccessful in completing a
private type placement, or if additional funds are
necessary either before or after such a transaction, it is
uncertain at this time what actions the Company will take.
Possibilities include other debt or equity financing or the
sale of existing assets.
ITEM 7. Financial Statements.
Audited Balance Sheet for 1997.
See Item 13
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
See 8-K filed on November 7, 1996.
PART III
ITEM 9. Directors and Executive Officers of the Registrant.
At the time the Company's Chapter 7 case was concluded in
1992, the Company's board of directors consisted of seven
persons, all of whom resigned on or prior to July 14, 1992,
other than Jeanette Bowen, who remained as a director,
pursuant to the Company's by-laws, until the election and
qualification of a successor. On or prior to July 14, 1992,
all of the Company's officers resigned from their respective
positions, other than Jeanette Bowen, who remained as the
sole officer of the Company.
Until February 2, 1998, the Company's shareholders have not
met for an annual or other meeting since October 23, 1990.
Consequently, in accordance with the Company's by-laws,
Jeanette Bowen continued as the sole director of the
Company until December 21, 1994, at which time she acted to
appoint Jonathan Roberts as president, and as a director,
filling one of the vacant directorships in accordance with
the Company's by-laws.
After making such appointment, on December 14, 1995,
Jeanette Bowen resigned as director with the result that
Jonathan Roberts became the sole director of the Company.
On July 22, 1996, Mr. Roberts, acting as sole director
of the Company, appointed George Hennessey and Kevin
Sherlock to be Directors of the Company, filling two of the
vacant directorships in accordance with the Company's by-
laws. Also on July 22, 1996, Kevin Sherlock was
appointed as secretary of the Company.
The Company called and held a meeting of shareholders for
February 2, 1998 for the purpose of electing directors,
voting on the 1997 Employee Stock Option Investment Plan,
ratifying the appointment of the Company's auditors, and
taking other action as properly came before the meeting.
Seven Directors were elected at that meeting, and those
directors elected officers of the Company at the director's
meeting.
The following table shows the positions held by the
Company's officers and directors. The directors were
elected for a term of one year and will serve until
the next annual meeting of the Company's shareholders, and
until their successors have been elected and have qualified.
The officers were appointed to their positions, and continue
in such positions, at the discretion of the directors.
NAME AGE POSITION TERM
Jonathan Roberts 39 President 1 year
Director
George Hennessey 52 Director 1 year
Kevin Sherlock 36 Secretary, Vice 1 year
President and Director
Gordon M. LeBlanc, Jr. 45 President of subsidiary
(PetroSun)
Director 1 year
J. Dennis Bartlett 45 Chief Financial Officer
Director 1 year
Jim Karten 38 Director 1 year
Thomas J. Nieman 41 Director 1 year
JONATHAN ROBERTS, was originally appointed a director in
December 1994, and appointed as President in December, 1994.
He was elected a director at the shareholders meeting on
February 2, 1998. In addition to his management position
with the Company, Mr. Roberts has been the General Manager
of R K Management Group L. C. since 1993.
KEVIN SHERLOCK, was originally appointed a director and the
Secretary in July, 1996. In May, 1997, Mr. Sherlock was
appointed Vice President in charge of Legal Affairs. He was
elected a director at the shareholders meeting on
February 2, 1998. An attorney since 1988, Mr. Sherlock
practiced aviation law and insurance defense litigation in
Washington D.C. until 1993, when he then opened a solo
practice assisting small businesses with various matters,
including mergers and acquisitions.
GEORGE HENNESSEY, was appointed a director in July, 1996. He
was elected a director on February 2, 1998. He has been a
geological consultant since 1977. As a geological
consultant, and in some instances as owner/operator, Mr.
Hennessey has consulted for several major mining companies,
at various exploration, development and production levels of
involvement regarding surface, underground and offshore
precious metals and base metal deposits and mill tailing
recovery undertakings. Mr. Hennessey is also a director,
geological consultant, and shareholder of Temple Summit
Financial Projects, Inc. ("TSFP"). The Company and TSFP are
engaged in a joint venture project in Moapa, Nevada to test
out the viability of extracting gold from mining claims held
by TSFP.
GORDON M. LEBLANC, JR., has been an oil and gas operator for
over 20 years. Mr. LeBlanc is the president of PetroSun
Exploration & Production, Incorporated, a wholly owned
subsidiary of Cronus. He was elected a director on February
2, 1998. Mr. LeBlanc is also president of Tiger Tool, Inc.,
an enhanced oil recovery technology and manufacturing
company, and Tiger Energy, Inc., an enhanced oil recovery
operating company. Mr. LeBlanc is also a member of the
Executive Committee of the Arizona Chapter of the NFL Alumni
Association and is the founder and director of Every Kid
Counts, a non-profit children's charity.
J. DENNIS BARTLETT, is a certified public accountant and the
principal behind J. Dennis Bartlett, PC. He was elected a
director on February 2, 1998 and has acted as the Company's
chief financial officer. Mr. Bartlett has been in practice
since 1975 and specializes in taxation, financial planning
and consulting with closely held businesses and individuals.
Mr. Bartlett's clients include large and small businesses
and individuals in need of tax planning.
JIM KARTEN, has over 15 years experience in finance and
investment. He was elected a director on February 2, 1998.
Mr. Karten is a consultant to the Company which negotiated
and arranged for various sources of financing since
the Company's inception. Additionally, Mr. Karten is a
principal behind Cumarin Limited, a consulting company
incorporated in the Isle of Man, and is managing
director of Karten Asset Management, a money management firm
specializing in derivative trading of foreign and domestic
currencies, indexes, bonds and energy for institutions and
high net worth individuals.
THOMAS J. NIEMAN, has been a licensed commercial real estate
agent since 1977, possessing a diverse background in
brokerage, development and management. He was elected a
director on February 2, 1998. Additionally, Mr. Nieman is
very active in community affairs in Tucson, Arizona,
including being the President of the Tucson Mayor &
Council's Downtown Advisory Committee.
Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to the Company during its most recent
fiscal year, and Form 5 and amendments thereto furnished to
the Company with respect to its most recent fiscal year, and
any written representation received by the Company, there is
no person, except as disclosed below, who was a director,
officer, or beneficial owner of more than 10 percent of any
class of equity securities of the Company pursuant to
Section 12 of the Exchange Act that failed to file on a
timely basis reports required by Section 16(a) of the
Exchange Act during the most recent fiscal year.
Based on the foregoing review, the Company believes the
following persons failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act: None.
ITEM 10. Executive Compensation.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and Year Paid Deferred Royalty
Position 1997 Salary Salary Paid
Jonathan Roberts,
President, CEO
and Director $3,000 $172,000 $44
_____________________________________________________
Kevin Sherlock,
Secretary and
Director $37,500 $22,500 $22
_____________________________________________________
George Hennessey,
Director and Geological
Consultant 0 0 $0
_____________________________________________________
Gordon M. LeBlanc, Jr.
Director and
President of PetroSun $42,500 0 $154
_____________________________________________________
Name and Year Paid Deferred Royalty
Position 1996 Salary Salary Paid
Jonathan Roberts,
President, CEO
and Director $18,000 $157,000 0
_____________________________________________________
Kevin Sherlock,
Secretary and
Director $10,500 $4,000 $3,187*
_____________________________________________________
George Hennessey,
Director and Geological
Consultant 0 0 $26,180*
_____________________________________________________
*Consists of Consulting and Expense reimbursement.
OPTION GRANTS IN FISCAL YEAR 1997
Number of Percent Exercise Expiration
Options of Total Price Date
Granted Options
Granted to
Name Employees
________________________________________________________
Jonathan Roberts 500,000 15% $0.31 2-15-2002
__________________________________________or termination
Gordon M. LeBlanc 2,400,000 70% $0.50 3-31-2002
__________________________________________or termination
George Hennessey 500,000 15% $0.50 6-5-2002
__________________________________________or termination
OPTION GRANTS IN FISCAL YEAR 1996
Number of Percent Exercise Expiration
Options of Total Price Date
Granted Options
Granted to
Name Employees
________________________________________________________
Kevin Sherlock 550,000 100% $0.05 7-22-2001
__________________________________________or termination
AGGREGATED OPTIONS EXERCISED IN FISCAL YEAR 1997 AND
FISCAL YEAR END OPTION VALUES
Shares Value Number of Value of
Acquired Realized Unexercised Unexercised
on Options at Options at
Name Exercise FY-End FY-End
____________________________________________________________
Jonathan Roberts 0 0 500,000 $120,000
____________________________________________________________
Kevin Sherlock 550,000 275,000 0 0
____________________________________________________________
Gordon M. LeBlanc 0 0 2,400,000 $120,000
____________________________________________________________
George Hennessey 0 0 500,000 $25,000
____________________________________________________________
AGGREGATED OPTIONS EXERCISED IN FISCAL YEAR 1996 AND
FISCAL YEAR END OPTION VALUES
Shares Value Number of Value of
Acquired Realized Unexercised Unexercised
on Options at Options at
Name Exercise FY-End FY-End
____________________________________________________________
Jonathan Roberts 2,000,000 $1,540,000 0 0
____________________________________________________________
Kevin Sherlock 0 0 550,000 $396,000
____________________________________________________________
In 1995 there was no cash compensation for officers and
directors for performance of their duties. Mr. Roberts was
issued 1,000,000 shares of Common Stock of the Company in
consideration of his services in 1995. Also, as part of the
Company's Executive Long-Term Stock Investment Plan, Mr.
Roberts was granted an option to purchase 2,000,000 shares
of Common Stock, which was exercised in 1996 for $2,000.
Pursuant to the Executive Long-Term Stock Investment Plan,
Mr. Roberts was granted an option in 1997 to purchase
500,000 shares of Common Stock of the Company.
In 1997, Mr. Roberts also entered into a employment
agreement with the Company for $175,000 per year, of which
$100,000 is deferred until the Company obtains additional
operating funds. Mr. Roberts received total cash
compensation of $18,000.00 in 1996, and $3,000 in 1997.
In 1997, the Company entered into an employment agreement
with Mr. Sherlock for $60,000 per year. Also, as part of
the Company's Executive Long-Term Stock Investment Plan, Mr.
Sherlock was granted, in 1996 the option to purchase 550,000
shares of the Company's Common Stock. Mr. Sherlock
received employee compensation of $10,500.00, and $3,186.78
in consulting and expense reimbursement, for a total cash
compensation of $13,686.78, in 1996, and $37,500 in 1997.
In 1996, Mr. Hennessey received a total cash compensation of
$26,180.26, in consulting fees and expense reimbursement.
On June 4, 1997, the Company entered into a consulting
agreement with its chief geological consultant, Mr.
George Hennessey, with a term of two years. The Consulting
Agreement called for the issuance of 500,000 shares of the
Company's Common Stock, granted Mr. Hennessey an option to
acquire 500,000 shares of the Company's Common Stock, and
provides for consulting fees in the amount of $4,000 per
month while Mr. Hennessey is devoting himself to the Moapa
project. Mr. Hennessey has not received any consulting fees
under the Consulting Agreement through December 31, 1997.
In 1997, Mr. LeBlanc received a total cash compensation of
$42,500 pursuant to his employment agreement with PetroSun.
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth, as of September 10, 1997,
information regarding the beneficial ownership of shares of
the Company's Common Stock by each person known by the
Company to own five percent or more of the outstanding
shares of the Company's Common Stock, by each of the
officers and directors, and by the officers and directors as
a group.
Name and Address of Amount of Percent
Security Ownership of Beneficial of
Certain Beneficial Ownership Class
Ownership of Management:
Jonathan Roberts 3,500,000* 19%
President and Director
660 S. Freeman Rd.
Tucson, Arizona 85748
Kevin Sherlock 550,000 3%
43 E. 2nd Street
Tucson, Arizona 85705
George Hennessey 1,000,000* 5.4%
4291 S. Polaris Ave., #A
Las Vegas, Nevada 89117
Gordon M. LeBlanc, Jr. 3,000,000** 16%
8129 N. 87th Place
Scottsdale, Arizona 85258
J. Dennis Bartlett 0 0
2461 E. 6th Street
Tucson, Arizona 85716
Jim Karten 84,943 0.4%
440 Paseo Flamenco, #C
Rio Rico, Arizona 85648
Thomas J. Nieman 0 0
5761 East 13th Street
Tucson, Arizona 85711
All Directors and Officers 8,034,943*** 43%
*Includes option to purchase 500,000 shares.
**Includes options to purchase 2,400,000 shares.
***Includes total options to purchase up to 3,400,000
shares.
(1) Each person named in the table has sole voting and
investment power with respect to all Common Stock
beneficially owned by him or her, subject to applicable
community property law, except as otherwise indicated.
Except as otherwise indicated, each of such persons may be
reached through the Company at 7660 East Broadway, Suite
210, Tucson, Arizona 85710.
(2) The percentages shown are calculated based upon
18,677,316 shares of Common Stock on December 31, 1997. The
numbers and percentages shown include the shares of Common
Stock actually owned and outstanding as of December 31,
1997, (15,277,316) and the shares of Common Stock that the
identified person or group had the right to acquire within
60 days of such date, (3,400,000). In calculating the
percentage of ownership, all shares of Common Stock that the
identified person or group had the right to acquire within
60 days of December 31, 1997 upon the exercise of options
are deemed to be outstanding for the purpose of computing
the percentage of the shares of Common Stock owned by such
person or group, but are not deemed to be outstanding for
the purpose of computing the percentage of the shares of
Common Stock owned by any other person.
ITEM 12. Certain Relationships and Related Transactions.
No officer, director, nominee for election as a director, or
associate of such officer, director or nominee is or has
been in debt to the Company during the last fiscal year.
On April 3, 1997, the Company and Temple Summit Financial
Projects Inc. ("TSFP") entered into a Joint Venture
Agreement to conduct testing regarding the viability of
extracting gold from an area of mining claims held by Temple
Summit. The Company and Temple Summit will test the area
and samples from the Moapa Project will be assayed. If the
assays reflect economical viable gold, the Joint Venture
will proceed with the project. Mr. George Hennessey is
also a member of the board of directors of TSFP and he hold
the position of chief geologist. Additionally, Mr.
Hennessey is a major shareholder of TSFP, holding
approximately 10% of the outstanding shares. The Board of
Directors of the Company was aware of Mr. Hennessey's
position with TSFP prior to approving the project.
On May 2, 1997, the Company purchased, for $12,000, an
option to buy the outstanding stock of Grayhawk Oil and Gas,
Inc., a company owned by Gordon M. LeBlanc, Jr., the
president and key employee of PetroSun Exploration &
Production, Incorporated, and now a director of Cronus. The
Board of Directors of the Company was aware of Mr. LeBlanc's
position prior to approving the purchase of the option.
On July 24, 1997, Cronus entered a contract to obtain half
of the outstanding shares of Tiger Energy Corporation, a
company partially owned by Gordon M. LeBlanc., Jr., the
president and key employee of PetroSun Exploration &
Production, Incorporated, and now a director of Cronus.
Tiger Energy is a Nevada corporation with an understanding
to be the exclusive Enhanced Oil Recovery operating company
for Tiger Tools, Inc., in the United States. 400,000
out of the purchase price of 800,000 shares of the
restricted common stock of Cronus was issued to shareholders
of Tiger Energy on or about November 3, 1997. The remaining
400,000 shares of restricted common stock were issued
on or about January 16, 1998 to complete the transaction.
The Board of Directors of the Company was aware of Mr.
LeBlanc's position prior to approving the purchase of the
option.
There were no other related or reportable transactions.
PART IV
ITEM 13. Exhibits, Financial Statements Schedules and
Reports on Form 8-K.
List of Exhibits.
1. The Company's Articles of Incorporation, as amended.
2. The Company's By-Laws, incorporated by reference from
the 1995 10-KSB filed on April 15, 1997.
3. The Company's Executive long-term Stock Investment Plan,
incorporated by reference from the Proxy Statement filed on
January 15, 1998.
4. Employment Contract of Jonathan Roberts.
5. Employment Contract of Kevin Sherlock.
6. Reorganization agreement with PetroSun Exploration &
Production, Incorporated, incorporated by reference from the
Form 8-K filed on June 16, 1997.
8. Employment Contract of Gordon M. LeBlanc, Jr.,
incorporated by reference from the Form 8-K filed on June
16, 1997.
9. Consulting Contract with George Hennessey, incorporated
by reference from the 1996 10-KSB filed on October 15, 1997.
10. Contract for the sale of gas products to Louisiana
Intrastate Gas.
11. List of subsidiaries.
12. Consent of Auditors.
Exhibit 27. Financial Data Schedule as required by Item 601
of Regulation SB.
Financial Statements and Financial Statement Schedules.
(a) Independent Auditor's Report.
(b) Balance Sheet December 31, 1997.
(c) Statement of Operations for the years ended December
31, 1997 and 1996.
(d) Statement of Changes in Stockholders' Deficit for the
years ended December 31, 1997 and 1996.
(e) Statement of Cash Flows for the years ended December
31, 1997 and 1996.
(f) Notes to Financial Statements.
Reports on Form 8-K.
During the fiscal quarter ending on March 31, 1997, no
reports on form 8-K were filed.
During the fiscal quarter ending on June 30, 1997, one 8-K
report was filed on June 16, 1997 containing the following
items:
Item 2. Acquisition or Disposition of Assets.
Item 7. Financial Statements and Exhibits.
During the fiscal quarter ending on September 30, 1997, no
8-K reports were filed.
During the fiscal quarter ending on December 31, 1997, no 8-
K reports were filed.
During 1998 through the date of this report, there were no
8-K reports filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CRONUS CORPORATION
DATE: June 15, 1998
Kevin M. Sherlock, Secretary and Director
On behalf of the Board of Directors.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
and on the dates indicated.
Date: June 15, 1998 By:
/s/
Jonathan Roberts, President and Director
Date: June 15, 1998 By:
/s/
Kevin M. Sherlock, Secretary and Director
Date: June 15, 1998 By:
/s/
George Hennessey, Director
Date: June 15, 1998 By:
/s/
James Karten, Director
Date: June 15, 1998 By:
/s/
J. Dennis Bartlett, Director
Date: June 15, 1998 By:
/s/
Thomas J. Nieman, Director
CRONUS CORPORATION
CRONUS CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
For the years ended
December 31, 1997 and 1996
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Consolidated Balance Sheet 2-3
Consolidated Statements of Operations 4
Statements of Changes in Consolidated
Stockholders' Deficit 5
Consolidated Statements of Cash Flows 6-7
Notes to Financial Statements 8-18
Supplementary Information:
Consolidating Balance Sheet 20-21
Consolidating Statement of Operations 22
Unaudited Supplementary Information:
Supplementary Reserve Information (Unaudited) 24-25
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Cronus Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet
of Cronus Corporation and Subsidiaries as of December 31,
1997, and the related consolidated statements of operations,
changes in stockholders' deficit, and cash flows for the
years ended December 31, 1997 and 1996. These consolidated
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 consolidated financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our 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 financial position of Cronus Corporation and
Subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for the years ended
December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a
whole. The supplementary information on pages 19-22 is
presented for the purpose of additional analysis and is not
a required part of the basic consolidated financial
statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, is
fairly stated in all material respects in relation to the
basic consolidated financial statements taken as a whole.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial
statements, the Company has incurred recurring losses from
operations and has a deficit in working capital and net
worth. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans
regarding those matters also are described in Note 1. The
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
June 10, 1998
Tucson, Arizona
CRONUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 1,195
Other current assets 3,356
Accounts receivable 10,338
Prepaid consulting fees 125,000
Total current assets 139,889
Oil and gas properties, using successful efforts accounting:
Proved property 217,728
Unproved properties 121,390
Wells and related equipment and facilities 5,200
Total oil and gas properties 344,318
Less accumulated amortization and depletion (1,543)
Net oil and gas properties 342,775
Other assets:
Prepaid consulting 31,250
Deposits 1,802
Office equipment, net of
accumulated depreciation of $3,062 5,351
Receivable from related company 19,212
Investment in mining claims 143,530
Goodwill, net of accumulated amortization and
valuation allowance of $604,355 516,829
Total other assets 717,974
Total assets $ 1,200,638
(The accompanying notes are an integral part of the
financial statements.)
CONSOLIDATED BALANCE SHEET, Continued
December 31, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft $ 4,518
Drilling advance 26,300
Accrued payroll and related taxes 392,162
Accounts payable 171,347
Revenue distribution 4,536
Accrued interest 4,356
Due to related party 439,976
Notes payable - officers, shareholders and related
entities 80,129
Notes payable - other, net of non-current portion
146,243
Total current liabilities 1,269,567
Non-current liabilities:
Notes payable - other 16,000
Investment in joint venture 40,508
Total liabilities 1,326,075
Commitments and contingencies (Notes 3, 6, 10 and 14)
Stockholders' equity:
Common stock, $.001 par value; 40,000,000 shares
authorized, 15,283,106 shares issued and 15,033,1096 shares
outstanding 15,284
Additional paid in capital 1,801,826
Receivable from the sale of common stock (175,981)
Accumulated deficit (1,766,316)
(125,187)
Treasury stock; 250,000 shares at cost (250)
Total stockholders' deficit (125,437)
Total liabilities and stockholders' deficit
$ 1,200,638
(The accompanying notes are an integral part of the
financial statements.)
CRONUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 and 1996
1997 1996
Revenues:
Oil and gas sales $ 10,193
Other 2,000
Total revenues 12,193
Operating expenses:
Lease operation and exploration 63,953
Salaries and related taxes 272,440 $ 215,042
Professional fees 151,932 234,392
Depreciation and depletion 3,511
Other general and administrative 56,365 10,825
Total operating expenses 548,201 460,259
Loss from operations (536,008) (460,259)
Other expenses:
Equity in net loss of subsidiaries 46,924
Amortization of goodwill 129,207
Goodwill valuation adjustment 439,952
Interest expense 5,377 24,044
Loss on sale of subsidiaries 607
Total other expenses 574,536 71,575
Net loss before income taxes and extraordinary item
(1,110,544) (531,834)
Income tax provision 50
Net loss before extraordinary item
(1,110,594) ( 531,834)
Extraordinary item - gain on forgiveness of debt
(net of applicable income taxes of -0-)
2,930,134
Net income (loss) $ 1,819,540 $ (531,834)
Earnings (loss) per common share:
Loss before extraordinary item $ (.08) $ (.06)
Extraordinary item .22
Net income (loss) $ .14 $ (.06)
Earnings per share - assuming dilution:
Loss before extraordinary item $ (.08) $ (.06)
Extraordinary item .22
Net income (loss) $ .14 $ (.06)
(The accompanying notes are an integral part of the
financial statements.)
CRONUS CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' DEFICIT
For the years ended December 31, 1997 and 1996
Common Stock Additional Receivable
Par Paid in From Sale of Accumulated
Treasury
Shares Value Capital Common Stock Deficit Stock
Total
Balance at December 31, 1995
10,646,762 $10,647 $500 $(3,054,017)
$(3,042,870)
Sale of subsidiaries $(3,364)
(3,364)
Stock issued to consultants
1,035,000 1,035 154,215
155,250
Stock options exercised
2,000,000 2,000
2,000
Net loss for the year ended December 31, 1996
(531,839)
(531,839)
Balance at December 31, 1996
13,681,762 13,682 154,715 (3,585,856) (3,364)
(3,420,823)
Retire treasury stock
(3,114,000) (3,114) 3,114
- -0-
Exchange of stock for note payable
70,744 71 35,257
35,328
Exercise of stock warrants
500,000 500
500
Exchange of stock for note payable
550,000 550 26,950
27,500
Sale of stock
200,000 200 99,800
100,000
Sale of stock
60,000 60 29,940
30,000
Exchange of stock for note payable
120,000 120 59,880
60,000
Sale of stock
400,000 400 99,600
100,000
Exchange of stock for note payable
814,600 815 387,755
388,570
Purchase of Petrosun Exploration and Production, Inc.
600,000 600 263,371
263,971
Purchase of Strategic Consulting, Inc.
500,000 500 219,477
219,977
Receivable from sale of common stock
400,000 400 175,581 (175,981)
- -0-
Stock issued to consultant
500,000 500 249,500
250,000
Net income for the year ended December 31, 1997
1,819,540
1,819,540
Balance at December 31, 1997
15,283,106 $15,284 $1,801,826 $(175,981) $(1,766,316)
$(250) $(125,537)
(The accompanying notes are an integral part of the
financial statements.)
CRONUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
1997 1996
Cash flows from operating activities:
Net income (loss) ,m $ 1,819,540 $(531,839)
Adjustments to reconcile net income (loss) to net cash used
in operating
activities:
Depreciation and depletion 3,511 1,094
Amortization of prepaid consulting fees 93,750
Amortization and valuation of goodwill 569,159
Extraordinary gain (2,930,134)
Stock issued for professional fees 155,250
Loss on sale of subsidiaries 607
Equity in net loss of subsidiaries 46,929
Change in operating assets and liabilities:
Stockholder receivable 2,000 (2,000)
Accounts payable 27,611 16,111
Accrued interest (19,688) 24,044
Deposits (1,102)
Accrued payroll and related taxes 175,768 187,228
Accounts receivable (10,338)
Other current assets 377
Receivable from related company (4,497)
Revenue distribution 4,536
Drilling advance 26,300 -0-
Total adjustments (2,061,645) 428,161
Net cash used in operating activities
(242,105) (103,678)
Cash flows from investing activities:
Purchase of mining claims (5,998) (137,532)
Proceeds from sale of subsidiaries 100
Advances to subsidiary (51,000)
Purchase of equipment (2,942) (5,471)
Cash advanced to joint venture (5,900)
Purchase of oil and gas properties (326,628) -0-
Net cash used in investing activities
(341,468) (193,903)
Cash flows from financing activities:
Stock options exercised 2,000
Borrowings on notes payable to stockholders and officers
208,130 320,328
Increase in bank overdraft 4,518
Borrowings on other notes payable 162,243
Principal payments on notes payable to officers and
shareholders (46,000)
Proceeds from sale of common stock 230,500
Net cash provided by financing activities
559,391 322,328
Net increase (decrease) in cash (24,182) 24,747
Cash and cash equivalents, beginning of year
25,377 630
Cash and cash equivalents, end of year $ 1,195 $ 25,377
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ -0- $ -0-
Taxes 50 -0-
(The accompanying notes are an integral part of the
financial statements.)
CRONUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Going Concern
The consolidated financial statements include the accounts
of Cronus Corporation and its wholly-owned subsidiaries
Petrosun Exploration and Production, Inc. and Strategic
Consulting, Inc., collectively referred to as the
Company.
Cronus Corporation, formerly Thunderstone Group, Inc.,
formerly Diversified American Industries, Inc., formerly TR-
3 Industries, Inc., was incorporated in the State of Nevada
in 1979. The Company is primarily engaged in the
acquisition and sale of privately held corporations.
Strategic Consulting, Inc. (SCI), an Arizona Corporation,
provides personal and corporate consulting services. SCI
had no operations during 1997.
Petrosun Exploration and Production, Inc., (Petrosun)
operates oil and gas wells in northern Louisiana.
As shown in the accompanying financial statements, the
Company has incurred recurring losses from operations and
has a deficit in working capital and net worth. As a
result, the Company has been unable to pay its debts and has
issued common stock to meet its obligations as they come
due. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Management is working to obtain additional financing through
the issuance of stock and long-term debt. This inflow of
cash will be used to fund ongoing exploration and
development of various oil and gas properties. The
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts
of the company and its subsidiaries after elimination of all
significant intercompany accounts and transactions, and
include the results of operations of purchased businesses
from the dates of acquisition.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with a
purchased maturity of three months or less to be
cash equivalents.
Oil and Gas Properties
The Company uses the successful efforts method of accounting
for oil and gas producing activities. Costs to acquire
mineral interests in oil and gas properties, to drill and
equip exploratory wells that find proved reserves, and to
drill and equip development wells are capitalized. Costs to
drill exploratory wells that do not find proved reserves,
geological and geophysical costs, and costs of
carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually
significant are periodically assessed for impairment of
value, and a loss is recognized at the time of
impairment by providing an impairment allowance. Other
unproved properties are amortized based on the Company's
experience of successful drilling and average holding
period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and
abandonment costs and estimated salvage values, are
depreciated and depleted by the unit-of-production method.
Support equipment and other property and equipment are
depreciated over their estimated useful lives.
On the sale or retirement of a complete unit of a proved
property, the cost and related accumulated depreciation,
depletion, and amortization are eliminated from the property
accounts, and the resultant gain or loss is recognized. On
the retirement or sale of a partial unit of proved property,
the cost is charged to accumulated depreciation, depletion,
and amortization with a resulting gain or loss recognized in
income.
On the sale of an entire interest in an unproved property
for cash or cash equivalent, gain or loss on the sale is
recognized, taking into consideration the amount of any
recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property
is sold, the amount received is treated as a reduction of
the cost of the interest retained.
Equipment
Equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the
related assets.
Investment in Joint Venture
The investment in joint venture is accounted for using the
equity method. Under the equity method, the original
investment is recorded at cost and is reduced to reflect a
pro rata share of losses and distributions received, and
increased to reflect a pro rata share of income and
contributions made. At December 31, 1997 the Company's
share of the joint venture's losses exceeded the carrying
amount. This excess has been reflected as a liability
because the Company has guaranteed the joint venture's
obligations.
Income Taxes
Income taxes are recognized during the year in which
transactions enter into the determination of financial
statement income, with deferred taxes being provided
for temporary differences between amounts of assets and
liabilities for financial reporting purposes and such
amounts as measured by tax laws.
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
The Company reports that the carrying amount of cash and
cash equivalents, accounts receivable, receivables from
related companies, drilling advances, bank overdraft,
accrued expenses, accounts payable and notes payable
approximate fair value due to the short maturity of these
instruments.
It is not practicable to estimate the fair value of the
Company's investment in joint venture without incurring
excessive cost. However, management believes that the
carrying amount approximates fair value at December
31, 1997.
Advertising
The cost of advertising is expensed when the advertisement
first takes place. The Company does not participate in
direct response advertising that requires the capitalization
and amortization of related costs.
Stock-Based Compensation
The Company accounts for its employee-based compensation
arrangements under the provisional of APB No. 25, Accounting
for Stock Issued to Employees, and intends to continue to do
so.
Per Share Data
Earnings (net loss) per share is computed based on the
weighted average number of shares outstanding during the
year.
3. Investment in Mining Claims
During 1996, the Company purchased various mining claims in
southern Arizona for $130,504. The future realization of
the cost of these mining claims is dependent upon the claims
becoming proven reserves. A proven reserve is the
estimated quantity of mineral which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under
existing economic and operating conditions. Currently,
these claims are considered unproven.
Based on current estimates, management does not feel a
valuation allowance against the cost of these claims is
currently necessary. However, it is at least reasonably
possible that these estimates will change in the near term
due to one or more future events. The effect of the change
would be material to these financial statements.
In order to estimate any possible environmentally related
liability, a phase 1 environmental site assessment was
performed on each of the mining claims. The assessment
revealed no evidence of recognized environmental conditions.
4. Investments in Subsidiaries
AGAA and TGII
On February 27, 1996, the Company sold its 100% owned
subsidiaries AGAA and TGII to Applied Logic, Inc. in return
for 3,114,000 shares of Company stock, 500,000 shares of
Applied Logic stock, and a note receivable of $500,000. The
Company recorded treasury stock of $3,114 and a net gain on
sale of $3,114 relating to the transaction. Management has
determined the note to be uncollectible and the stock of
Applied Logic to have no value, and accordingly wrote off
these assets during 1996 against the gain on sale.
Subsequent to the sale of AGAA and TGII to Applied Logic,
the Company changed its name from Thunderstone Group, Inc.
to Cronus Corporation and Applied Logic changed its name to
Thunderstone Group, Inc. The Company's equity in AGAA's and
TGII's net losses during the period January 1, 1996 through
February 27, 1996 was zero.
PBAA
On July 18, 1996, the Company sold the assets of its 100%
owned subsidiary PBAA for $100 cash and 250,000 shares of
Company stock. The Company recorded treasury stock of $250
and a loss of $3,721 relating to this transaction. The
Company's equity in PBAA's losses totaled $46,929 during
the period January 1, 1996 through July 18, 1996.
Petrosun
During 1997, the Company purchased 100% of the outstanding
common stock of Petrosun Exploration and Production, Inc.,
an Arizona corporation, in exchange for 600,000 restricted
shares of the Company's common stock valued at $263,971. In
connection with the purchase, the Company assumed
preexisting debt to creditors of Petrosun in the amount of
$198,203. The excess of the purchase price over the value
of net assets acquired totaled $426,036.
Strategic Consulting
During 1997, the Company purchased 100% of the outstanding
stock of Strategic Consulting, Inc. The purchase price
consisted of 1,000,000 shares of restricted Cronus stock
with a fair market value of $439,952 and $220,000 cash.
Of the purchase price, $220,000 cash and 500,000 shares of
stock will be paid in 1998; therefore $439,976 has been
recorded as a current liability at December 31, 1997. The
excess of the purchase price over the net book value
of the assets acquired totaled $659,952.
The following represents the unaudited pro forma results of
consolidated operations as if the above-noted business
combinations had occurred at the beginning of 1997 and 1996.
1997 1996
Revenues $ 16,729 $ -0-
Net income (loss) $ 1,819,540 $ (716,281)
Pro forma income (loss) per common share
$ .14 $ (.06)
The unaudited pro forma results are not necessarily
indicative of the results that would have been attained had
the acquisitions occurred at the beginning of 1996, or of
the results which may occur in the future.
5. Goodwill
The Company has classified as goodwill the cost in excess of
fair value of the net assets of companies acquired in
purchase transactions. Goodwill is being amortized on a
straight-line method over five years. Amortization charged
to continuing operations amounted to $129,207 and $-0- for
1997 and 1996, respectively. At each balance sheet date,
the Company evaluates the realization of goodwill based upon
expectations of non-discounted cash flows and operating
income for each subsidiary having a material goodwill
balance. Based on its most recent analysis, the Company
recorded a fourth quarter charge of $439,952. The
unamortized balance of goodwill totaled $516,829 at
December 31, 1997.
6. Notes Payable
A summary of notes payable to stockholders and officers at
December 31, 1997 follows:
Unsecured demand note payable to a Director bearing interest
at 10% annually. $ 5,000
Unsecured note payable to a shareholder, bearing interest at
10%, due July, 1998. 18,729
Unsecured notes payable to a company partially owned by a
Director, bearing interest at 8%, due June, 1998. 56,400
$ 80,129
Accrued interest on notes payable to stockholders and
officers totaled $4,356 at December 31, 1997.
A summary of other notes payable at December 31, 1997
follows:
Note payable bearing interest at 8%, due June 1998,
unsecured. $ 30,000
Note payable bearing interest at 8% due April 1999 unsecured
16,000
Note payable bearing interest at 10%, due July 1998,
unsecured.
15,000
Notes payable bearing interest at 10%, due August through
December 1998, unsecured. 101,243
$ 162,243
A summary of other notes payable maturities at December 31,
1997 follows:
1998 $ 146,243
1999 16,000
$ 162,243
7. Receivable From Sale of Common Stock
During 1997, the Company issued 400,000 shares of
restricted, unregistered common stock valued at $175,981.
The stock was issued to the shareholders of Tiger Energy
Corporation (Tiger) for the purchase of 25% of Tiger's
outstanding stock. Tiger stock was not issued to Cronus
until January 15, 1998; therefore, the related receivable
has been recorded as an increase to stockholders' deficit at
December 31, 1997. Subsequent to December 31, 1997, the
Company purchased an additional 25% of Tiger's outstanding
stock by issuing 400,000 additional shares of Cronus stock.
8. Extraordinary Item
Cronus, d.b.a. TR-3 Industries, Inc. was in Chapter 7
bankruptcy from 1982 through 1992. The Company had no
operations and substantially no assets through November
1995. At December 31, 1996, Cronus was subject to a
number of lawsuits, judgments and claims (some of which
involve substantial amounts) arising out of the conduct of
its business prior to 1983. These liabilities not
discharged in the Chapter 7 bankruptcy totaled $2,930,134 at
December 31, 1996.
In August 1997, the fifteen year statute of limitations
expired on these liabilities. Accordingly, the Company
removed the liabilities from the balance sheet and
recorded an extraordinary gain of $2,930,134.
9. Income Taxes
The Company's deferred tax assets consist of the following:
December 31, 1997 1996
Current:
Net operating loss carryforwards $ 164,000 $ 107,000
Accrued officer salaries 93,000 53,000
Liabilities not discharged in bankruptcy -0- 103,000
Non-Current:
Goodwill 125,000 -0-
Total deferred tax assets 382,000 263,000
Valuation reserve (382,000) (263,000)
Net deferred tax assets $ -0- $ -0-
The valuation allowance increased $119,000 in the year ended
December 31, 1997 to fully offset deferred tax balances.
Temporary differences between the net operating losses for
financial reporting and income tax purposes primarily relate
to accrued officer salaries and goodwill amortization.
At December 31, 1997, the Company has a net operating loss
carryforwards for federal and state income tax purposes of
approximately $680,000. These federal and state
carryforwards will begin to expire in 2010 and 2000,
respectively, if not previously utilized. Utilization of
the Company's net operating loss carryforwards may be
subject to limitations due to the "change in ownership"
provisions of the Internal Revenue Code of 1996, as amended,
as a result of the Company's issuances of equity securities.
These carryforwards, therefore, may expire prior to being
fully utilized. Future financings may cause additional
changes in ownership and further limitations on the use of
federal net operating loss carryforwards.
10. Related Party Transactions
During 1997, the Company executed three employment contracts
with officers and directors that provide for minimum annual
compensation of $295,000 and expire in 1999 through 2003.
Certain officers also receive an overriding royalty interest
of .5% to 1.0% in all oil and gas leaseholds operated by the
Company. The contracts contain provisions where a portion
of the compensation is to be deferred until the Company is
generating sufficient income, as described in the agreement.
At December 31, 1997, $388,246 has been included in accrued
payroll and related taxes resulting from these agreements.
During 1997, the Company issued 500,000 shares of
restricted, unregistered common stock to a Director for
consulting services to be provided over a two-year term
beginning April, 1997. In connection with this transaction,
the Company has included prepaid consulting fees of $156,250
at December 31, 1997.
During 1997, an officer exercised options to purchase
550,000 shares of common stock. As payment for the options,
the Company canceled $27,500 of notes payable to the
officer.
During 1997, the Company issued to officers and Directors
3,400,000 options to purchase restricted, unregistered
common stock.
During July 1996, the Company entered into employment
contracts with two key personnel that provide for minimum
annual compensation of $223,000 and expire in July, 2000 and
2002. The contracts contain provisions whereby $112,000 of
annual compensation shall be deferred until July 1997, or
until such time as management determines the Company has
generated sufficient cash flow. At December 31, 1996,
$212,297 of salaries and related taxes have been included in
accrued salaries and related payroll taxes on the
accompanying balance sheet.
In December 1996, an officer exercised options to purchase
2,000,000 shares of restricted, unregistered common stock
for $0.001 per share.
The Company granted an officer options to purchase 550,000
shares of restricted, unregistered, common stock in
connection with the Stock Option Plan described below. The
options may be exercised on an installment basis during
the period February, 1997, through July, 1997, in accordance
with the terms of the agreement. The options were granted
at the estimated market price of $0.05 per share on the date
of the grant, July 22, 1996, and expire July 22, 2001.
During 1996, the Company paid $42,174 to officers of the
Company for consulting services, of which $23,930 has been
expensed and $18,244 has been capitalized in investment in
mining claims.
In January 1996, the Company issued 1,035,000 shares of
unrestricted stock as payment for professional services.
Current officers and directors have received 320,000 shares
under this offering for accounting and legal services
totaling $48,000.
11. Stock Option Plan
During 1995, the Company adopted a non-compensatory
incentive stock option plan (the Plan). The Plan provides
for the granting of incentive stock options by the Board to
directors, officers and key employees of the Company.
Under the terms of the Plan, options granted have an
exercise price of 110% of the fair market value of the
underlying stock at the date of grant. Further, the
options have a vesting period of one year and expire five
years from the date of grant.
During 1997, the Company granted various officers and
Directors options to purchase a total of 3,400,000 shares of
restricted, unregistered common stock. The options were
granted at an exercise price ranging from $.31 to $.50 per
share, approximately fair value at the grant date.
In July 1996, the Company granted an officer options to
purchase 550,000 shares of restricted, unregistered common
stock in connection with the Plan. The options were granted
at $.05 per share, approximately their fair value at the
grant date.
The Company granted an officer options to purchase 2,000,000
shares of restricted, unregistered common stock in
connection with the Plan. The options were granted at the
estimated market price of $.001 per share on the date of the
grant, December 15, 1995. These options were exercised
during 1996.
A summary of stock option activity during 1997 follows:
Number of Per share Total
Shares Average Price
Shares under option at
December 31, 1996 550,000 $ .05 $ 27,500
Granted 3,400,000 .47 1,605,000
Exercised (550,000) .05 (27,500)
Shares under option at
December 31, 1997 3,400,000 $ .47 $ 1,605,000
Shares exercisable at
December 31, 1997 2,433,333 $ .47 $ 1,153,333
The Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25) and related interpretations in
accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for
under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123),
requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under
APB No. 25, because the exercise price of the Company's
stock options equals or exceeds the fair market value of the
underlying stock on the dates of grant, no compensation
expense is recognized.
Pro forma information regarding net income (loss) and net
income (loss) per share is required by SFAS No. 123, and
such information has been determined as if the Company has
accounted for its employee stock options under the fair
value method of that statement. The fair value for these
options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted
average assumptions for 1997 and 1996: risk-free interest
rate of 5.5%, dividend yield of 0%, volatility factor of the
expected market price of the Company's common stock of 1.002
and .1611, and a weighted-average expected life of the
options of 4 years.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of trade options which have
no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of
highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have
characteristics significantly different from those traded
options, and because changes in the subjective input
assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the
related vesting period. The Company's pro forma
information follows:
1997 1996
Net income (loss) as reported $ 1,819,540 $ (531,834)
Pro forma compensation expense for stock options:
1997 grants 273,695
1996 grants 72,720
Pro forma net income (loss) $ 1,545,845 $ (604,554)
Pro forma income (loss) per share $ .11 $ (.06)
Pro forma compensation expense presented may not be
representative of future pro forma expense, when
amortization of multiple years of awards may be reflected.
12. Non-Cash Investing and Financing Transactions
The Company executed the following non-cash transactions
during 1997:
Issue common stock in exchange for notes payable.
$ 511,398
Issue common stock to a related party for consulting
services. 250,000
Issue common stock to purchase 100% of common stock of
Petrosun. 426,036
Issue common stock to purchase 100% of common stock of
Strategic Consulting. 439,952
Receivable from sale of common stock. 175,981
Retire treasury stock (3,114)
$ 1,800,253
The Company executed the following non-cash transactions
during 1996:
Three subsidiaries were sold during 1996 resulting in an
increase in treasury stock of $3,364 and a net loss of $607.
On January 24, 1996, the Company issued 1,035,000 shares of
registered, unrestricted common stock to advisors, officers
and consultants for $0.15 per share (Note 7). The Company
recorded professional fee expense of $155,250, common stock
of $1,035 and $154,215 of additional paid in capital
relating to this transaction.
13. Earnings Per Share
For the year ended December 31, 1997
Income Shares Per-Share
Basic EPS:
Income available to common
stockholders $ 1,819,540 13,405,994 $ .14
Effect of dilutive securities -
stock options -0- 83,700
Diluted EPS:
Income available to common stockholders plus
assumed conversion $ 1,819,540 13,489,694 $ .14
Options to purchase 2,900,000 shares of common stock at $.50
per share were outstanding during 1997 but were not included
in the computation of diluted EPS because the option's
exercise price was greater than the average market price of
the common shares. The options, which expire June 2000
through February 2002 were still outstanding at December
31, 1997.
For the year ended December 31, 1996
Income(Loss) Shares Per-Share
Basic EPS:
Income available to common
stockholders $ (531,834) 8,641,173 $ (.06)
Effect of dilutive securities -
stock options -0- -0-
Diluted EPS:
Income available to common stockholders plus
assumed conversion $ (531,834) 8,641,173 $ (.06)
Options to purchase 550,000 shares of common stock at $.05
per share were outstanding during 1996, but were not
included in the computation of diluted EPS because the
effect would be antidilutive.
14. Commitments and Contingencies
The Company was subject to a number of lawsuits, judgments
and claims (some of which involved substantial amounts)
arising out of the conduct of its business prior to 1983. In
the opinion of management, applicable statute of limitations
bar these claims. However, if not barred, these liabilities
could be material to the financial statements.
Future commitments in connection with employment agreements
executed during 1997 with officers of the Company follows:
December 31
1998 $ 295,000
1999 250,000
2000 235,000
2001 195,000
2002 175,000
Thereafter 58,333
$1,208,333
15. Subsequent Events
In March 1998 the Company executed an agreement whereby the
Company sold a 50% working interest and a 40% net revenue
interest in various leases for $40,000. Further, the
purchaser agreed to share in future costs of drilling and
extracting oil and gas from various leased property
specified in the agreement.
In February 1998, the Company purchased 100% of the
outstanding shares of Triple J Resources Pty. Ltd. (JJJ),
for $100,000 and 1,500,000 shares of restricted,
unregistered common stock. JJJ was purchased from a company
controlled by the previous owner of SCI (see notes 1 and 4).
JJJ had no assets or liabilities at the date of the
transaction. However, JJJ holds the rights to prospect a
specific oil and gas concession in Australia. JJJ has
executed a "Farmout" agreement whereby 50% working interest
has been transferred to an unrelated party who will fund and
perform the work program required by the Australian
government.
In March 1998, the Company executed various joint venture
agreements in order to fund the exploration and drilling of
various oil and gas leases.
In January 1998, the Company issued 400,000 shares of
restricted, unregistered common stock in exchange for an
additional 25% of the outstanding stock of Tiger Energy
Corporation.
In March 1998, the Company issued 2,450,000 share of
restricted, unregistered, common stock in exchange for 100%
of the outstanding stock of Rancho El Laurel, S.A. (Rancho)
a Costa Rican corporation. The principle asset of Rancho
is ownership of 5,000 acres of hardwood forest in Costa
Rica.
CRONUS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
CONSOLIDATING BALANCE SHEET
December 31, 1997
ASSETS Petrosun
Exploration Strategic
Consolidating Cronus Production Consulting
Consolidated Adjustments Corporation Inc. Inc.
Current assets:
Cash and cash equivalents
$ 1,195 $ 1,195
Other current assets
3,356 3,356
Accounts receivable
10,338 10,388
Prepaid consulting fees
125,000 125,000
Total current assets
139,889 125,000 14,889
Oil and gas properties, using successful efforts accounting:
Proved properties
217,728 217,728
Unproved properties
121,390 121,390
Wells and related equipment
5,200 5,200
Total oil and gas properties
344,318 344,318
Less accumulated amortization and depletion
(1,543) (1,543)
Net oil and gas properties
342,775 342,775
Other assets:
Prepaid consulting
31,250 31,250
Deposits
1,802 1,802
Equipment, net
5,351 5,351
Receivable from related corporation
19,212 19,212
Investment in mining claims
143,530 143,530
Intercompany receivable (payable)
301,649 (301,649)
Investment in PetroSun
$ (186,712) 186,712
Investment in Strategic Consulting
(659,952) 659,952
Goodwill, net
516,829 516,829
Total other assets
717,974 (329,835) 1,330,246 (282,437)
Total assets
1,200,638 (329,835) 1,455,246 75,277
LIABILITIES AND Petrosun
STOCKHOLDERS' EQUITY (DEFICIT) Exploration Strategic
Consolidating Cronus Production Consulting
Consolidated Adjustments Corporation Inc. Inc.
Current liabilities:
Drilling advance
$ 26,300 $ 26,300
Bank overdraft
4,518 4,518
Accrued payroll and related taxes
392,162 391,142 1,020
Accounts payable
171,347 15,555 155,792
Revenue distribution
4,536 4,536
Accrued interest
4,356 4,356
Other current liabilities
439,976 439,976
Notes payable to officers and shareholders
80,129 23,729 56,400
Notes payable-other, net of noncurrent portion
146,243 116,243 30,000
Total current liabilities
1,269,567 995,519 274,048
Notes payable-other, noncurrent
16,000 16,000
Investment in joint venture
40,508 40,508
Total liabilities
1,326,075 1,011,519 314,556
Stockholders' equity:
Common stock
15,284 $ (2,000) 15,284 2,000
Additional paid in capital
1,801,826 (20,382) 1,801,826 20,382
Receivable from sale of common stock
(175,981) (175,981)
Accumulated deficit
(1,766,316) (307,453) (1,197,152) (261,711)
Less 250,000 shares in treasury, at cost
(250) (250) -
Total stockholders' equity (deficit)
(125,437) (329,835) 443,727 (239,329)
Total liabilities and stockholders' equity (deficit)
$ 1,200,638 $ (329,835) $ 1,455,246 $ 75,227
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1997
Petrosun
Exploration Strategic
Consolidating Cronus Production Consulting
Consolidated Adjustments Corporation Inc. Inc.
Revenues:
Oil and gas sales
$ 10,193 $ 10,193
Other income
2,000 2,000
Total income
12,193 $ 12,193
Operating expenses:
Lease operation and exploration
63,953 63,953
Salaries and related taxes
272,440 272,440
Professional fees
151,932 151,932
Depreciation and depletion
3,511 1,968 1,543
Other general and administrative
56,365 33,431 22,934
Total operating expenses
548,201 459,771 88,430
Loss from operations
(536,008) (459,771) (76,237)
Loss from operations
(536,008) (459,771) (76,237)
Other expenses:
Equity in loss of subsidiary
$ (77,259) 77,259
Interest expense
5,377 4,355 1,022
Valuation of goodwill
439,952 439,952
Amortization of goodwill
129,207 129,207
Total other expenses
574,536 491,900 81,614 1,022
Net loss before taxes and extraordinary item
(1,110,544) (491,900) (541,385) (77,259)
Income tax provision
50 50
Loss before extraordinary item
(1,110,594) (491,900) (541,435) (77,259)
Extraordinary item
2,930,134 2,930,134
Net income (loss)
$ 1,819,540 $ (491,900) $ 2,388,699 $ (77,259)
CRONUS CORPORATION AND SUBSIDIARIES
UNAUDITED SUPPLEMENTARY INFORMATION
____________
CRONUS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL RESERVE INFORMATION (Unaduited)
For the year ended December 31, 1997
Capitalized Costs Relating to Oil and Gas Producing
Activities at December 31, 1997
Unproved oil and gas properties $ 121,390
Proved oil and gas properties 217,728
Support equipment and facilities 5,200
344,318
Less accumulated depreciation and depletion (1,543)
Net capitalized costs $ 342,775
Costs Incurred in Oil and Gas Producing Activities for the
Year Ended December 31, 1997
Property acquisition costs
Proved $ 217,728
Unproved 118,786
Exploration 1,572
$ 338,086
Results of Operations for Oil and Gas Producing Activities
for the Year Ended December 31, 1997
Oil and gas sales $ 10,193
Production costs (62,381)
Depreciation and depletion (3,511)
Exploration (1,572)
Results of operations for oil and gas Producing
activities (excluding corporate overhead)
$ (57,271)
Reserve Information
The following estimates of proved and proved developed
reserve quantities and related standardized measure of
discounted net cash flow are estimates only, and do not
purport to reflect realizable values or fair market values
of the Company's reserves. The Company emphasizes that
reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those
of producing oil and gas properties. Accordingly, these
estimates are expected to change as future information
becomes available. All of the Company's reserves are
located in the United States.
Proved reserves are estimated reserves of crude oil
(including condensate and natural gas liquids) and natural
gas that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected
to be recovered through existing wells, equipment, and
operating methods.
The standardized measure of discounted future net cash flows
is computed by applying year-end prices of oil and gas (with
consideration of price changes only to the extent provided
by contractual arrangements) to the estimated future
production of proved and developed oil and gas reserves,
less estimated future expenditures (based on year-end costs)
to be incurred in developing and producing the proved
reserves, less estimated future income tax expenses
(based on year-end statutory tax rates, with consideration
of future tax rates already legislated) to be incurred on
pretax net cash flows less tax basis of the properties and
available credits, and assuming continuation of existing
economic conditions. The estimated future net cash flows
are then discounted using a rate of 10 percent a year to
reflect the estimated timing of the future cash flows.
Oil Gas
(Bbls) (Mcf)
Proved developed and undeveloped reserves
Beginning -0- -0-
Purchase 1,126,510 25,133,272
Production (211) (6,236)
End of year 1,126,299 25,127,036
Proved developed reserves
Beginning of year -0- -0-
End of year 173,886 2,868,764
Standardized measure of discounted future net cash flows at
December 31, 1997
Future cash inflows $ 9,397,254
Future production costs (469,803)
Future income tax expense (2,142,574)
6,784,877
10% annual discount for estimated timing of cash flows
(4,278,175)
Standardized measures of discounted future net cash flows
relating to proved oil and gas reserves $ 2,506,702
EXHIBITS.
1. The Company's Articles of Incorporation, as amended.
2. The Company's By-Laws, incorporated by reference from
the 1995 10-KSB filed on April 15, 1997.
3. The Company's Executive long-term Stock Investment Plan,
incorporated by reference from the Proxy Statement filed on
January 15, 1998.
4. Employment Contract of Jonathan Roberts.
5. Employment Contract of Kevin Sherlock.
6. Reorganization agreement with PetroSun Exploration &
Production, Incorporated, incorporated by reference from the
Form 8-K filed on June 16, 1997.
8. Employment Contract of Gordon M. LeBlanc, Jr.,
incorporated by reference from the Form 8-K filed on June
16, 1997.
9. Consulting Contract with George Hennessey, incorporated
by reference from the 1996 10-KSB filed on October 15, 1997.
10. Contract for the sale of gas products to Louisiana
Intrastate Gas.
11. List of subsidiaries.
12. Consent of Auditors.
Exhibit 1. The Company's Articles of Incorporation, as
amended.
ARTICLES OF INCORPORATION
OF
CRONUS CORPORATION
AS AMENDED
* * * *
We, the undersigned, have voluntarily associated ourselves
together for the purpose of forming a corporation under the
laws of the State of Nevada relating to private
corporations, and to that end do hereby adopt articles of
incorporation as follows:
ARTICLE ONE. [Name]. The name of the corporation is:
Cronus Corporation
ARTICLE TWO. [Location]. The address of the corporation's
principal office is Suite 1400 First National Bank Building,
One East First Street, in the city of Reno, County of
Washoe, State of Nevada. The initial agent for service of
process at that address is Nevada Agency and Trust Company.
ARTICLE THREE. [Purposes]. The purposes for which the
corporation is organized are to engage in any activity or
business not in conflict with the laws of the State of
Nevada or of the United States of America, and without
limiting the generality of the foregoing, specifically:
I. [Omnibus]. To have and to exercise all of the powers
now or hereafter conferred by the laws of the State of
Nevada upon corporations organized pursuant to the laws
under which the corporation is organized and any and
all acts amendatory thereof and supplemental thereto.
II. [Develop, Manufacture And Sell]. To carry on the
business of developing, manufacturing and selling resin
glaze and polish, and formulating glazes and polishes of
every form and description.
III. [Real Property]. To purchase, or in any way acquire
for investment or for sale or otherwise, lands, contracts,
for the purchases or sale of lands, buildings, improvements,
and any other real property of any kind or any interest
therein, and as the consideration for same to pay cash or to
issue the capital stock, debenture bonds, mortgage bonds, or
other obligations of the corporation, and to sell, convey,
lease, mortgage, deed of trust, turn to account, or
otherwise deal with all or any part of the property of the
corporation; to make and obtain loans upon real estate,
improved or unimproved, and upon personal property, giving
or taking evidences of indebtedness and securing the payment
thereof by mortgage, trust deed, pledge or otherwise; and to
enter into contracts to buy or sell any property, real or
personal; to buy or sell mortgages, trust deeds, contracts,
and evidences of indebtedness; to purchase or otherwise
acquire, for the purpose of holding or disposing of the
same, real or personal property of every kind and
description, including the good will, stock, rights, and
property of any person, firm, association, or corporation;
and to draw, make, accept, endorse, discount, execute and
issue promissory notes, bills of exchange, warrants,
bonds, debentures and other negotiable or transferable
instruments, or obligations of the corporation, from time to
time, for any of the objects or purposes of the corporation
without restriction or limit as to amount.
IV. [Carrying On Business Outside State]. To conduct and
carry on its business or any branch thereof in any state or
territory of the United States or in any foreign country
in conformity with the laws of such state, territory, or
foreign country, and to have and maintain in any state,
territory, or foreign country a business office, plant,
store or other facility.
V. [Purposes To Be Construed As Powers]. The purposes
specified herein shall be construed both as purposes and
powers and shall be in no wise limited or restricted by
reference to, or inference from, the terms of any other
clause in this or any other article, but the purposes and
powers specified in each of the clauses herein shall be
regarded as independent purposes and powers, and the
enumeration of specific purposes and powers shall not be
construed to limit or restrict in any manner the meaning of
general terms or of the general powers of the corporation;
nor shall the expression of one thing be deemed to exclude
another, although it be of like nature not expressed.
ARTICLE FOUR. [Capital Stock]. The corporation shall have
authority to issue an aggregate of 40,000,000 shares of
capital stock having a par value of $0.001 per share.
The holders of shares of capital stock of the corporation
shall not be entitled to preemptive or preferential rights
to subscribe to any unissued stock or any other securities
which the corporation may now or hereafter be authorized to
issue.
The corporation's capital stock may be issued and sold from
time to time for such consideration as may be fixed by the
Board of Directors, provided that the consideration so fixed
is not less than par value.
The stockholders shall possess cumulative voting rights at
all shareholders' meetings called for the purpose of
electing a Board of Directors.
ARTICLE FIVE. [Directors]. The affairs of the corporation
shall be governed by a Board of Directors of three (3) or
more persons. All decisions of the Board must have majority
consent of the Directors. The names and addresses of the
members of the first Board of Directors are:
NAME AND ADDRESS TITLE
Thomas J. Neavitt President
2207 Crestview Circle
Brea, CA 92621
Franklin C. Cook Vice-President
2390 Lorain Road
San Marino, CA 91108
Jack A. Birnbaum Vice-President
2226 Shadetree Circle
Brea, CA 92621
Robert L. Meester Director
1831 Calle Don Guillermo
La Habra, CA 90631
R. Wright Director
8440 Fountain Ave., #105
Los Angeles, CA 90069
Gene Keefner Director
2674 Dawson Avenue
Signal Hill, CA 90806
William Buck Director
937 N. Miller Drive
Tucson, Arizona 85710
ARTICLE SIX. [Incorporators]. The name and address of each
incorporator of the company is as follows:
NAME ADDRESS
Thomas J. Neavitt 2207 Crestview Circle
Brea, CA 92621
Franklin C. Cook 2390 Lorain Road
San Marino, CA 91108
Jack A. Birnbaum 2226 Shadetree Circle
Brea, CA 92621
ARTICLE SEVEN. [Period of Existence]. The period of
existence of the corporation shall be perpetual.
ARTICLE EIGHT. [Assessment of Stock]. The capital stock of
the corporation, after the amount of the subscription price
or par value has been paid in, shall not be subject to pay
debts of the corporation, and no paid up stock and no stock
issued as fully paid up shall be assessable or assessed.
ARTICLE NINE. [By-Laws]. The initial By-Laws of the
corporation shall be adopted by its Board of Directors. The
power to alter, amend or repeal the By-Laws, or to adopt new
By-Laws, shall be vested in the Board of Directors, except
as otherwise may be specifically provided in the By-Laws.
ARTICLE TEN. [Stockholders' Meetings]. Meetings of
stockholders shall be held at such place within or without
the State of Nevada as may be provided by the By-Laws of the
corporation. Special meetings of the stockholders may be
called by the President or any other executive office of the
corporation, the Board of Directors, or any member thereof,
or by the record holder or holders of at least ten percent
(10%) of all shares entitled to vote at the meeting. Any
action otherwise required to be taken at a meeting of the
stockholders, except election of directors, may be taken
without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by stockholders having at
least a majority of the voting power.
ARTICLE ELEVEN. [Contracts of Corporation]. No contract or
other transaction between the corporation and any other
corporation, whether or not a majority of the shares of the
capital stock of such other corporation is owned by this
corporation, and no act of this corporation shall in any way
be affected or invalidated by the fact that any of the
directors of this corporation are pecuniarily or otherwise
interested in, or are directors or officers of such other
corporation. Any director of this corporation, ndividually,
or any firm of which such director may be a member, may be a
party to, or any be pecuniarily or otherwise interested in
any contract or transaction of the corporation; provided,
however, that the fact that he or such firm is so interested
shall be disclosed or shall have been known to the Board of
Directors of this corporation, or a majority thereof;
and any director of this corporation who is also a director
or officer of such other corporation, or who is so
interested, may be counted in determining the existence of a
quorum at any meeting of the Board of Directors of this
corporation that shall authorize such contract or
transaction, with like force and effect as if he were not so
interested.
ARTICLE TWELVE. [Indemnification]. The Corporation shall
indemnify any person who incurs expenses or liabilities by
reason of the fact that he or she is or was an officer,
director or employee of the Corporation or is or was serving
at the request of the Corporation as a director, officer or
employee of another corporation, partnership, joint venture,
trust or other enterprise. This indemnification shall be
mandatory in all circumstances in which indemnification
is permitted by law.
ARTICLE THIRTEEN. [Limitation of Liability]. To the
fullest extent permitted by Law, as it exists or may
hereinafter be amended, a director of the Corporation
shall not be liable to the Corporation or its stockholders
for monetary damages for any action taken or any failure to
take any action as a director. No repeal, amendment or
modification of this article, whether direct or indirect,
shall eliminate or reduce its effect with respect to any act
or omission of a director of the Corporation occurring prior
to such repeal, amendment or modification.
IN WITNESS WHEREOF, the undersigned incorporators have
hereunto fixed their signatures at Orange, California, this
8th day of August, 1979.
/s/
Thomas J Neavitt
/s/
Franklin C. Cook
/s/
Jack A. Birnbaum
Exhibit 4. Employment Contract of Jonathan Roberts.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into and
dated for reference purposes as of May 15, 1997, by and
between Cronus Corporation, a Nevada corporation having a
principal place of business at 7660 E. Broadway, Suite 210,
Tucson, Arizona (hereinafter referred to as the "Company"),
and Jonathan Roberts, an individual residing at 660 S.
Freeman Road, Tucson, Arizona (hereinafter referred to as
"Employee"). Company and Employee are sometime collectively
referred to as "the Parties".
RECITALS
A. WHEREAS, the Company desires to employ Employee and
Employee desires to work for the Company in the capacity and
on the terms and conditions hereinafter provided.
B. WHEREAS, Employee will be one of the key personnel of
the Company with the primary responsibility for the
management and administration of all phases of the
operations of Cronus Corporation.
NOW, THEREFORE, in consideration of the mutual covenants and
promises herein, the Parties hereto agree as follows:
AGREEMENT
1. EMPLOYMENT
1.1 Office and Duties. The Company agrees to employ
Employee and Employee agrees to work for the Company in the
capacity of President of Cronus Corporation. Employee shall
have those duties as are normally associated with his office
and such other duties pertaining to such office as may
from time to time be assigned to him. While employed
hereunder, Employee shall devote his time, effort, skill and
attention to the affairs of Cronus, and shall faithfully and
diligently promote the business and interest of Cronus.
Employee may make personal investments in business entities
or purchase shares of stock traded upon a recognized U.S.
securities exchange, provided that such investments or
purchases are not in companies which compete, directly or
indirectly, with Cronus, and do not otherwise interfere or
conflict with Employee's performance of this Agreement.
Employee shall not, without the prior written consent of the
Company, directly or indirectly, during the term of this
Agreement, engage in any business activity, directly or
indirectly, competitive with or adverse to the Company's
business or interests, whether alone, as a partner, or as an
officer, director, employee or shareholder of any other
corporation, or otherwise.
1.2 Term. The term of employment hereunder commences as of
the date written above and shall continue for 6 years,
unless sooner terminated in accordance with the provisions
hereof.
1.3 Location. The duties which Employee shall be required
to perform under this Agreement shall be structured such
that he can perform said duties in Tucson, Arizona.
Employee shall not be required to relocate from Tucson,
Arizona, without his consent.
2. COMPENSATION.
2.1 Base Salary. The Company shall continue to pay
Employee during the term of his employment hereunder a base
salary of $175,000 per annum. Employee may receive annual
increases and bonuses based on performance, at the
discretion of the Board of Directors. The base salary
shall be due and payable in equal bi-weekly installments.
The Company acknowledges that it owes Employee approximately
$262,083 in deferred compensation to date. Employee agrees
to continue to defer $100,000 of annual salary until company
is, in the opinion of the Board of Directors, generating
sufficient income, or until December 1, 1997, whichever
occurs first. Additionally, Employee will be granted a 1.0%
over-riding royalty interest (ORRI) covering all oil and gas
leaseholds, owned, operated and/or managed by Cronus or any
subsidiary, which may be converted to a carried working
interest at the employee's option.
2.2 Employment Benefits.
(a) Employee shall be entitled to receive or to participate
in such disability, life, accidental death and dismemberment
and other similar plans as shall be generally available to
salaried employees of the Company. Employee's participation
in such plans will be in accordance with and subject to the
terms and provisions of the plans.
(b) Employee shall receive reimbursements of business
expenses and other perquisites in accordance with and
subject to Company policy.
(c) Employee shall receive four weeks of vacation time per
year plus one additional week for every three years of
service under this contract.
2.3 Bonus. Employee shall be entitled to participate in
any incentive compensation plan hereafter adopted by the
Company.
3. EXPENSES AND PRIOR AGREEMENTS
3.1 Reimbursement of Expenses. During the term of this
agreement, the Company shall reimburse Employee for all
reasonable and necessary expenses related to the performance
of the Employee's duties under this agreement, upon
submission of detailed vouchers thereof in accordance with
the Company's standard practices. The Company agrees to
indemnify Employee for the use of Employee's credit in
obtaining goods and services for the Company, including
but not limited to any use of Employee as a guarantor for
the rental of office space and for the initial establishment
of a corporate credit card.
3.2 Upon execution of this agreement, the employment
agreement dated November 15, 1995 between Diversified
American Industries Inc. (a prior name of the Company) and
employee will be terminated and have no further effect with
the exception of any options for shares of the Company's
stock, which options shall continue in full effect.
4. TERMINATION
4.1 Termination of Employment. The employment of Employee
shall terminate prior to the expiration of the term
specified in Section 1.2 upon the occurrence of any of the
following events:
(a) The death of Employee.
(b) Employee's disability pursuant to Section 4.2.
(c) Company's termination for cause of Employee pursuant to
Section 4.3.
(d) Employee's resignation from his employment with
Company.
4.2 Disability. If, by reason of any physical or mental
disability, Employee is unable to satisfactorily perform his
duties under this Agreement for six consecutive months, or
six months in any single calendar year, his services
hereunder may be terminated by the Company upon two months'
notice ("Notice Period") to be given to Employee at any time
after the period of six continuous months of disability and
while such disability continues. If, prior to the
expiration of the Notice Period, Employee recovers from his
prior disability and returns to the active discharge of his
duties, the Notice Period shall be deemed canceled and
Employee's employment shall continue as if the same had
been uninterrupted. If Employee does not so recover from
his disability and return to his duties, then his employment
shall terminate at the expiration date of the Notice Period.
During the period of Employee's disability and until the
expiration date of the Notice Period, Employee shall
continue to earn all compensation provided in Section 2
hereof as if he had not been disabled. In the event a
dispute arises between Employee and the Company concerning
Employee's physical or mental ability to continue or return
to the performance of his duties as President of Cronus,
Employee agrees to submit himself to examination by a
competent physician mutually agreeable to both parties, and
such physician's opinion on Employee's ability to perform
the duties of President will be final and binding.
Physician means a medical doctor licensed to practice in the
state of Arizona.
4.3 Termination For Cause. Employee may be terminated for
cause only by reason of one or more of the following
occurrences:
(a) Employee's conviction, by a court of competent
jurisdiction, of any crime (other than minor civil offenses
such as traffic infractions), whether or not committed
during the term or in the course of employment under this
Agreement;
(b) Employee's willful misconduct, breach of his fiduciary
duties to the Company, or commission of an act of fraud
upon, or an act materially evidencing dishonesty;
(c) Employee's willful and material failure to observe or
perform his duties under this Agreement; or
(d) Employee's habitual neglect of the faithful performance
of his duties under this Agreement.
If the basis for termination is pursuant to paragraphs
4.3(c) or (d) above, Employee may be terminated only if he
has been given at least sixty (60) days notice of the
alleged failure or neglect and during such period he has
failed to remedy same.
4.4 Consequences of Termination.
(a) In the event that Employee's employment under this
Agreement is terminated for any reason other than that set
forth at Section 4.1, the Company shall remain obligated to
pay Employee the compensation set forth in Section 2.1
hereof for a period of four years. Provided, however, that
if Employee owes any debt to the Company, Employee hereby
authorizes Company to deduct from his bi-weekly paychecks an
amount equal to the bi-weekly repayment of such debt at the
time of termination.
(b) In the event that Employee's employment under this
Agreement is terminated for any reason set forth at Section
4.1(c), the Company shall remain obligated to pay Employee
the compensation set forth in Section 2.1 hereof for a
period of four years. Provided, however, that if Employee
owes any debt to the Company, Employee hereby authorizes
Company to deduct from his bi-weekly paychecks an amount
equal to the bi-weekly repayment of such debt at the time
of termination.
(c) In the event that Employee's employment hereunder shall
terminate as a result of Employee's resignation as set forth
at Section 4.1(d), or Employee's death as set forth at
Section 4.1(a), Employee's base salary, as identified at
Section 2.1, shall cease to accrue and be due him after the
effective date of said resignation.
(d) In the event that Employee's employment hereunder shall
terminate pursuant to any of the provisions of this Section
4, the rights of the Employee under the employee benefit
plans or other plans referred to in Section 2.2 and
under any incentive compensation plan adopted pursuant to
Section 2.3, shall be determined in accordance with the
terms and provisions of such plans and options.
(e) In the event Employee's employment terminates, all
provisions of this Agreement shall remain in effect except
as otherwise specifically provided in this Section 4.4.
5. OTHER COVENANTS OF EMPLOYEE
5.1 Employee shall not at any time or in any manner make or
cause to be made any copies, pictures, duplicates,
facsimiles or other reproductions, recordings or any
abstracts or summaries of any reports, studies, memoranda,
correspondence, manuals, recordings, internal financial
statements, cost data or business projections, plans or
other written, printed or otherwise recorded materials of
any kind whatever belonging to or in the possession of the
Company or its subsidiaries. Employee shall have no right,
title or interest in any such material, and Employee agrees
that he will not, without the prior written consent of the
Company, remove any such material from any premises of the
Company or its subsidiaries and that he will surrender all
such material to the Company immediately upon the
termination of his employment or at any time prior thereto
upon the request of the Company.
5.2 Without the prior written consent of the Company,
Employee shall not at any time (whether during or after his
employment with the Company) use for his own benefit, or for
the benefit of or purposes of any other person, firm,
partnership, association, corporation or business
organization, entity or enterprise ("Entity"), or disclose
(except in the performance of his duties hereunder) in any
manner to any other Entity, any trade secrets, confidential
information, data know-how or knowledge (including but not
limited to, that relating to service techniques, patents,
software, manufacturing processes, purchasing organizations
and methods, sales organizations and methods, inventory and
financial information, market development and expansion
plans, medical therapies, methodologies and its markets,
client lists, medical programs and customer and supplier
identities and relationships) belonging to, or relating
to the affairs of, the Company or its subsidiaries.
5.3 During the term of this Agreement, Employee shall not
in any manner induce, attempt to induce or assist others to
induce or attempt to induce (1) any employee, agent,
representative or other person associated with the Company
or any of its subsidiaries to terminate his or her
association with the Company or such subsidiary, nor in any
manner prohibited under Arizona law interfere with the
relationship between the Company or such subsidiary and
any such persons, or (2) any customer or supplier of the
Company or any of its subsidiaries to terminate its or his
or her association with the Company or such subsidiary, or
do anything to interfere, as prohibited under Arizona law,
with the relationship between the Company or such subsidiary
and any customer or supplier.
5.4 Employee acknowledges and agrees that the Company's
remedy at law for any breach of any Employee's obligations
under any of Sections 4.1 through 4.4 would be inadequate,
and agrees and consents that temporary and permanent
injunctive relief may be granted in any proceeding that may
be brought to enforce any provision of such sections,
without the necessity of proof of actual damage. It is the
intent of the Employee and the Company that the provisions
of Section 4.1 and 4.4 be given the fullest effect
consistent with applicable law, and that they survive the
termination of this Agreement.
6. GENERAL PROVISIONS
6.1 Representations and Warranties.
(a) Employee represents and warrants to the Company that
(1) he is free to accept employment hereunder; (2) he has no
prior or other obligations or commitments of any kind to
anyone that would hinder or interfere with his acceptance
of, or the exercise of his best efforts, as an employee of
the Company and to perform his duties as President of Cronus
Corporation; and (3) when executed and delivered, this
Agreement will constitute his legal and binding obligation.
6.2 Entire Agreement/Amendments. This Agreement sets forth
the entire agreement and understanding of the parties
concerning the subject matter hereof and supersedes all
prior agreements, arrangements and understandings between
Employee and the Company concerning the subject matter.
This Agreement may not be amended or modified except by a
written document specifically referring to this Agreement
and executed by the parties hereto.
6.3 Notices.
(a) Any notices or other communication required or
permitted to be given hereunder shall be in writing and may
either be delivered personally to the addressee or be
mailed, first class, postage prepaid and shall be deemed
given when so delivered personally, or if mailed, 5 days
after the time of mailing, or if by facsimile, then one
business day after the sending of the facsimile, as follows:
If to the Company:
Cronus Corporation
7660 E. Broadway, Suite 210
Tucson, Arizona 85710
If to the Employee:
Jonathan Roberts
660 S. Freeman Road
Tucson, Arizona 85748
(b) In the event that a dispute arises between the parties
with respect to this Agreement and litigation results,
service of process is sufficient if made pursuant to the
provisions of this Section 6.3.
(c) Either party may change the address to which any such
notices or communications are to be delivered to it by
giving written notice to the other party in the manner
provided in Section 6.3(a) hereof.
6.4 Assignments; Binding Effect.
(a) Employee acknowledges that the services to be rendered
by him are unique and personal. Accordingly, Employee may
not assign any of his rights or delegate any of his duties
or obligations under this Agreement. This Agreement shall
be binding upon and, to the extent herein permitted, shall
inure to the benefit of Employee's heirs, legatees and legal
representatives.
(b) The Company may assign this Agreement or its rights
hereunder; provided, however, such an assignment shall not
relieve the Company of any of its obligations herein. This
Agreement shall be binding upon and, to the extent herein
permitted, shall inure to the benefit of the Company's
successors and assigns.
6.5 Waivers. The failure of either party hereto at any
time, or from time to time, to require performance of any of
the other party's obligations under this Agreement shall in
no manner affect the right to enforce any provision of this
Agreement at a subsequent time, and the waiver of any rights
arising out of any breach shall not be construed as a waiver
of any rights arising out of any subsequent breach.
6.6 Severability. The parties intend that this Agreement
be enforceable to the extent of its provisions. The parties
agree that each provision hereof is a separate and distinct
agreement and independent of the others, so that if any
provision hereof is held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision
hereof.
6.7 Applicable Law. The provisions of this Agreement shall
be governed and interpreted in accordance with the laws of
the State of Arizona.
6.8 Venue. The parties hereby agree that any dispute
between them regarding this Agreement will be resolved in
Pima County Superior Court, Tucson, Arizona, and the parties
hereby consent to the jurisdiction of said court.
IN WITNESS HEREOF, the parties hereto have executed this
Agreement as of the date first above written.
EMPLOYEE: EMPLOYER:
CONUS CORPORATION
_________________ ____________________
Jonathan Roberts By: Kevin M. Sherlock,
Member, Board of Directors
Exhibit 5. Employment Contract of Kevin Sherlock.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into and
dated for reference purposes as of May 1, 1997, by and
between Cronus Corporation, a Nevada corporation having a
principal place of business at 7660 E. Broadway, Suite 210,
Tucson, Arizona (hereinafter referred to as the "Company"),
and Kevin Sherlock, an individual residing at 43 E. 2nd
Street, Tucson, Arizona (hereinafter referred to as
"Employee"). Company and Employee are sometime
collectively referred to as "the Parties".
RECITALS
A. WHEREAS, the Company desires to employ Employee and
Employee desires to work for the Company in the capacity and
on the terms and conditions hereinafter provided.
B. WHEREAS, Employee will be one of the key personnel of
the Company with the primary responsibility of assisting the
president of the Company and to act as the secretary of
Cronus Corporation.
NOW, THEREFORE, in consideration of the mutual covenants and
promises herein, the Parties hereto agree as follows:
AGREEMENT
1. EMPLOYMENT
1.1 Office and Duties. The Company agrees to employ
Employee and Employee agrees to work for the Company in the
capacity of Secretary of Cronus Corporation. Employee shall
have those duties as are normally associated with his office
and such other duties pertaining to such office as may
from time to time be assigned to him. While employed
hereunder, Employee shall devote his time, effort, skill and
attention to the affairs of Cronus, and shall faithfully and
diligently promote the business and interest of Cronus.
Employee may make personal investments in business entities
or purchase shares of stock traded upon a recognized U.S.
securities exchange, provided that such investments or
purchases are not in companies which compete, directly or
indirectly, with Cronus, and do not otherwise interfere or
conflict with Employee's performance of this Agreement.
Employee shall not, without the prior written consent of the
Company, directly or indirectly, during the term of this
Agreement, engage in any business activity, directly or
indirectly, competitive with or adverse to the Company's
business or interests, whether alone, as a partner, or as an
officer, director, employee or shareholder of any other
corporation, or otherwise.
1.2 Term. The term of employment hereunder commences as of
the date written above and shall continue for 4 years,
unless sooner terminated in accordance with the provisions
hereof.
1.3 Location. The duties which Employee shall be required
to perform under this Agreement shall be structured such
that he can perform said duties in Tucson, Arizona.
Employee shall not be required to relocate from Tucson,
Arizona, without his consent.
2. COMPENSATION.
2.1 Base Salary. The Company shall pay Employee during the
term of his employment hereunder a base salary of $60,000
per annum. Employee may receive annual increases and
bonuses based on performance, at the discretion of the Board
of Directors. The base salary shall be due and payable in
equal bi-weekly installments. The Company acknowledges that
it owes Employee $8,000 in deferred compensation to date.
Employee agrees to defer $2,000 of monthly salary until
company is, in the opinion of the Board of Directors,
generating sufficient income, or until December 1, 1997,
whichever occurs first. Additionally, Employee will be
granted a 0.5% over-riding royalty interest (ORRI)
covering all oil and gas leaseholds, owned, operated and/or
managed by Cronus or any subsidiary, which may be converted
to a carried working interest at the employee's option.
2.2 Employment Benefits.
(a) Employee shall be entitled to receive or to participate
in such disability, life, accidental death and dismemberment
and other similar plans as shall be generally available to
salaried employees of the Company. Employee's
participation in such plans will be in accordance with and
subject to the terms and provisions of the plans.
(b) Employee shall receive reimbursements of business
expenses and other perquisites in accordance with and
subject to Company policy.
(c) Employee shall receive four weeks of vacation time per
year plus one additional week for every three years of
service under this contract.
2.3 Bonus. Employee shall be entitled to participate in
any incentive compensation plan hereafter adopted by the
Company.
3. EXPENSES AND PRIOR AGREEMENTS
3.1 Reimbursement of Expenses. During the term of this
agreement, the Company shall reimburse Employee for all
reasonable and necessary expenses related to the performance
of the Employee's duties under this agreement, upon
submission of detailed vouchers thereof in accordance with
the Company's standard practices. The Company agrees to
indemnify Employee for the use of Employee's credit in
obtaining goods and services for the Company.
3.2 Upon execution of this agreement, the consulting
agreement dated May 24, 1995 between Company and Employee
will be terminated and have no further effect.
4. TERMINATION
4.1 Termination of Employment. The employment of Employee
shall terminate prior to the expiration of the term
specified in Section 1.2 upon the occurrence of any of the
following events:
(a) The death of Employee.
(b) Employee's disability pursuant to Section 4.2.
(c) Company's termination for cause of Employee pursuant to
Section 4.3.
(d) Employee's resignation from his employment with
Company.
4.2 Disability. If, by reason of any physical or mental
disability, Employee is unable to satisfactorily perform his
duties under this Agreement for six consecutive months, or
six months in any single calendar year, his services
hereunder may be terminated by the Company upon two months'
notice ("Notice Period") to be given to Employee at any time
after the period of six continuous months of disability and
while such disability continues. If, prior to the
expiration of the Notice Period, Employee recovers from his
prior disability and returns to the active discharge of his
duties, the Notice Period shall be deemed canceled
and Employee's employment shall continue as if the same had
been uninterrupted. If Employee does not so recover from
his disability and return to his duties, then his employment
shall terminate at the expiration date of the Notice Period.
During the period of Employee's disability and until the
expiration date of the Notice Period, Employee shall
continue to earn all compensation provided in Section 2
hereof as if he had not been disabled. In the event a
dispute arises between Employee and the Company concerning
Employee's physical or mental ability to continue or return
to the performance of his duties as President of Cronus,
Employee agrees to submit himself to examination by a
competent physician mutually agreeable to both parties, and
such physician's opinion on Employee's ability to perform
the duties of President will be final and binding.
Physician means a medical doctor licensed to practice in the
state of Arizona.
4.3 Termination For Cause. Employee may be terminated for
cause only by reason of one or more of the following
occurrences:
(a) Employee's conviction, by a court of competent
jurisdiction, of any crime (other than minor civil offenses
such as traffic infractions), whether or not committed
during the term or in the course of employment under this
Agreement;
(b) Employee's willful misconduct, breach of his fiduciary
duties to the Company, or commission of an act of fraud
upon, or an act materially evidencing dishonesty;
(c) Employee's willful and material failure to observe or
perform his duties under this Agreement; or
(d) Employee's habitual neglect of the faithful performance
of his duties under this Agreement.
If the basis for termination is pursuant to paragraphs
4.3(c) or (d) above, Employee may be terminated only if he
has been given at least sixty (60) days notice of the
alleged failure or neglect and during such period he has
failed to remedy same.
4.4 Consequences of Termination.
(a) In the event that Employee's employment under this
Agreement is terminated for any reason other than that set
forth at Section 4.1, the Company shall remain obligated to
pay Employee the compensation set forth in Section 2.1
hereof for a period of four years. Provided, however,
that if Employee owes any debt to the Company, Employee
hereby authorizes Company to deduct from his bi-weekly
paychecks an amount equal to the bi-weekly repayment of such
debt at the time of termination.
(b) In the event that Employee's employment under this
Agreement is terminated for any reason set forth at Section
4.1(c), the Company shall remain obligated to pay Employee
the compensation set forth in Section 2.1 hereof for a
period of four years. Provided, however, that if Employee
owes any debt to the Company, Employee hereby authorizes
Company to deduct from his bi-weekly paychecks an amount
equal to the bi-weekly repayment of such debt at the time
of termination.
(c) In the event that Employee's employment hereunder shall
terminate as a result of Employee's resignation as set forth
at Section 4.1(d), or Employee's death as set forth at
Section 4.1(a), Employee's base salary, as identified at
Section 2.1, shall cease to accrue and be due him after the
effective date of said resignation.
(d) In the event that Employee's employment hereunder shall
terminate pursuant to any of the provisions of this Section
4, the rights of the Employee under the employee benefit
plans or other plans referred to in Section 2.2 and
under any incentive compensation plan adopted pursuant to
Section 2.3, shall be determined in accordance with the
terms and provisions of such plans and options.
(e) In the event Employee's employment terminates, all
provisions of this Agreement shall remain in effect except
as otherwise specifically provided in this Section 4.4.
5. OTHER COVENANTS OF EMPLOYEE
5.1 Employee shall not at any time or in any manner make or
cause to be made any copies, pictures, duplicates,
facsimiles or other reproductions, recordings or any
abstracts or summaries of any reports, studies, memoranda,
correspondence, manuals, recordings, internal financial
statements, cost data or business projections, plans or
other written, printed or otherwise recorded materials of
any kind whatever belonging to or in the possession of the
Company or its subsidiaries. Employee shall have no right,
title or interest in any such material, and Employee agrees
that he will not, without the prior written consent
of the Company, remove any such material from any premises
of the Company or its subsidiaries and that he will
surrender all such material to the Company immediately upon
the termination of his employment or at any time prior
thereto upon the request of the Company.
5.2 Without the prior written consent of the Company,
Employee shall not at any time (whether during or after his
employment with the Company) use for his own benefit, or for
the benefit of or purposes of any other person, firm,
partnership, association, corporation or business
organization, entity or enterprise ("Entity"), or disclose
(except in the performance of his duties hereunder) in any
manner to any other Entity, any trade secrets, confidential
information, data know-how or knowledge (including but not
limited to, that relating to service techniques, patents,
software, manufacturing processes, purchasing organizations
and methods, sales organizations and methods, inventory and
financial information, market development and expansion
plans, medical therapies, methodologies and its markets,
client lists, medical programs and customer and supplier
identities and relationships) belonging to, or relating
to the affairs of, the Company or its subsidiaries.
5.3 During the term of this Agreement, Employee shall not
in any manner induce, attempt to induce or assist others to
induce or attempt to induce (1) any employee, agent,
representative or other person associated with the Company
or any of its subsidiaries to terminate his or her
association with the Company or such subsidiary, nor in any
manner prohibited under Arizona law interfere with the
relationship between the Company or such subsidiary and
any such persons, or (2) any customer or supplier of the
Company or any of its subsidiaries to terminate its or his
or her association with the Company or such subsidiary, or
do anything to interfere, as prohibited under Arizona law,
with the relationship between the Company or such subsidiary
and any customer or supplier.
5.4 Employee acknowledges and agrees that the Company's
remedy at law for any breach of any Employee's obligations
under any of Sections 4.1 through 4.4 would be inadequate,
and agrees and consents that temporary and permanent
injunctive relief may be granted in any proceeding
that may be brought to enforce any provision of such
sections, without the necessity of proof of actual damage.
It is the intent of the Employee and the Company that the
provisions of Section 4.1 and 4.4 be given the fullest
effect consistent with applicable law, and that they survive
the termination of this Agreement.
6. GENERAL PROVISIONS
6.1 Representations and Warranties.
(a) Employee represents and warrants to the Company that
(1) he is free to accept employment hereunder; (2) he has no
prior or other obligations or commitments of any kind to
anyone that would hinder or interfere with his acceptance
of, or the exercise of his best efforts, as an employee of
the Company and to perform his duties as Secretary of Cronus
Corporation; and (3) when executed and delivered, this
Agreement will constitute his legal and binding obligation.
6.2 Entire Agreement/Amendments. This Agreement sets forth
the entire agreement and understanding of the parties
concerning the subject matter hereof and supersedes all
prior agreements, arrangements and understandings
between Employee and the Company concerning the subject
matter. This Agreement may not be amended or modified
except by a written document specifically referring to this
Agreement and executed by the parties hereto.
6.3 Notices.
(a) Any notices or other communication required or
permitted to be given hereunder shall be in writing and may
either be delivered personally to the addressee or be
mailed, first class, postage prepaid and shall be deemed
given when so delivered personally, or if mailed, 5 days
after the time of mailing, or if by facsimile, then one
business day after the sending of the facsimile, as follows:
If to the Company:
Cronus Corporation
7660 E. Broadway, Suite 210
Tucson, Arizona 85710
If to the Employee:
Kevin Sherlock
43 E. 2nd Street
Tucson, Arizona 85705
(b) In the event that a dispute arises between the parties
with respect to this Agreement and litigation results,
service of process is sufficient if made pursuant to the
provisions of this Section 6.3.
(c) Either party may change the address to which any such
notices or communications are to be delivered to it by
giving written notice to the other party in the manner
provided in Section 6.3(a) hereof.
6.4 Assignments; Binding Effect.
(a) Employee acknowledges that the services to be rendered
by him are unique and personal. Accordingly, Employee may
not assign any of his rights or delegate any of his duties
or obligations under this Agreement. This Agreement shall
be binding upon and, to the extent herein permitted, shall
inure to the benefit of Employee's heirs, legatees and legal
representatives.
(b) The Company may assign this Agreement or its rights
hereunder; provided, however, such an assignment shall not
relieve the Company of any of its obligations herein. This
Agreement shall be binding upon and, to the extent herein
permitted, shall inure to the benefit of the Company's
successors and assigns.
6.5 Waivers. The failure of either party hereto at any
time, or from time to time, to require performance of any of
the other party's obligations under this Agreement shall in
no manner affect the right to enforce any provision of this
Agreement at a subsequent time, and the waiver of any rights
arising out of any breach shall not be construed as a waiver
of any rights arising out of any subsequent breach.
6.6 Severability. The parties intend that this Agreement
be enforceable to the extent of its provisions. The parties
agree that each provision hereof is a separate and distinct
agreement and independent of the others, so that if any
provision hereof is held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision
hereof.
6.7 Applicable Law. The provisions of this Agreement shall
be governed and interpreted in accordance with the laws of
the State of Arizona.
6.8 Venue. The parties hereby agree that any dispute
between them regarding this Agreement will be resolved in
Pima County Superior Court, Tucson, Arizona, and the parties
hereby consent to the jurisdiction of said court.
IN WITNESS HEREOF, the parties hereto have executed this
Agreement as of the date first above written.
EMPLOYEE: EMPLOYER:
CRONUS CORPORATION
______________ _____________________
Kevin Sherlock By: Jonathan Roberts,
President, and
Member, Board of
Directors
Exhibit 10. Contract for the sale of gas products to
Louisiana Intrastate Gas.
THIS AGREEMENT, effective as of August 6, 1997, by and
between PETROSUN EXPLORATION AND PRODUCTION, INC.,
hereinafter referred to as "Seller", and LOUISIANA
INTRASTATE GAS COMPANY L.L.C., hereinafter referred to as
"Buyer".
WHEREAS, Seller owns oil, gas and mineral leases, or mineral
servitudes, or fee lands or operating rights therein which
are or may be productive of gas, and Seller has the right to
sell such gas for its own account or for the account of
others, or both; and
WHEREAS, Seller desires to sell gas to Buyer and Buyer
desires to purchase such gas from Seller.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto do
hereby covenant and agree as follows:
l. Commitment: Subject to all the terms, conditions and
limitations herein set forth, Seller agrees to sell and
deliver or cause to be delivered to Buyer on an "as, if and
when available basis", and Buyer agrees to purchase and
receive or cause to be received from Seller on an "as, if
and when needed basis" during the term hereof all of
Seller's gas available for sale from Seller's interest from
various wells located in or near the Lake End Field, Red
River Parish, Louisiana. It is understood and agreed that
delivery is limited to 800 MMBtu per day into LIG's six inch
(6") Lake End to Hanna pipeline segment. For volumes of gas
in excess of 800 MMBtu per day, it is understood and agreed
that Seller will provide facilities necessary to connect
Seller's well or wells to a mutually agreeable point or
points on LIG's eight inch (8") pipeline segment. It is
understood and agreed that Seller's commitment is limited to
the term of the Contract as hereinafter set out and applies
to Seller's extant rights, titles and interests in the gas
committed herein. It is also understood and agreed that
Seller warrants that the gas committed hereunder is free
from any commitment made by, through, or under Seller in
conflict with this Contract for its duration, and without
limiting the warranty of Seller as to gas delivered as
provided in the General Terms and Conditions attached hereto
in Exhibit "A", Seller represents that to the best of its
knowledge the gas committed hereunder is free from any
commitment made by, through, or under any other party in
conflict with this Contract for its duration.
2. Delivery Point: The point(s) of delivery and measurement
of gas purchased and sold pursuant to this Contract shall be
at the inlet side of the metering facilities of Buyer to be
located on LIG's pipeline in or near Section 20, Township
11 North, Range 9 West, Red River Parish, Louisiana. Title
to and responsibility for all gas shall pass from Seller to
Buyer at said point(s) of delivery.
3. Delivery Pressure: The gas shall be delivered by Seller
at the point(s) of delivery at such pressure as may be
necessary to effect the delivery of such gas into LIG's
transmission line against the pressure existing therein from
time to time, however, LIG's six inch (6") transmission line
will not exceed 350 pounds per square inch gauge, LIG's
eight inch (8") transmission line will not exceed 720 pounds
per square inch gauge; provided, further, that neither
Seller nor Buyer shall be obligated to install compression
equipment for delivery of gas into LIG's pipeline, but
either Seller or Buyer shall have the right to install such
compression equipment and operate the same at its own cost
and expense.
4. Price: The price shall be per MMBTU on a dry basis, and
inclusive of all taxes and any other adjustments equal to
the dollar amount shown in the Natural Gas Week published by
The Oil Daily Co., Suite 500, 1401 New York Ave., N.W.,
Washington, D.C. 20005 (telephone 800/621-0050) from the
first week's publication for the month in which the gas is
delivered under the category Louisiana-Gulf Coast-Onshore-
Intrastate-Wellhead-Spot Bid Week in the table labeled "Gas
Price Report," less $0.10 provided that if said referenced
price is no longer published, Seller and Buyer shall
renegotiate the price payable hereunder as soon as
practicable, and in default of agreement to a renegotiated
price either Seller or Buyer may terminate this Contract
upon thirty (30) days prior written notice, with the price
last in effect continuing until the date of termination.
5. Meter Administration Fee: Seller agrees to pay Buyer a
Meter Administration Fee of six hundred dollars ($600) per
month per meter, for each and every month during the term of
this Contract.
6. Term of Contract: The term of this Contract shall be
from the date of initial delivery through August 31, 1998,
and shall continue from month to month until terminated by
either party with thirty (30) days prior written notice.
7. Facilities: Seller shall provide the gathering and
production facilities necessary to connect Seller's well or
wells with the delivery point(s) above specified. Seller
shall install pressure control equipment standard to the
industry embodying a pressure controller to sense Buyer's
transmission line pressure which will allow unattended
operation of said transmission system at varying flow
conditions. Buyer shall construct and Buyer shall operate
or cause to be operated only such measurement station
facilities as Buyer may find necessary in practice for the
measurement of the gas purchased hereunder.
8. Addresses:
Invoices/Statements/Payments:
Louisiana Intrastate Gas Company L.L.C 5555 San Felipe,
Suite 2100, Houston,
TX 77056, Attn: Gas Accounting
Notices and Correspondence:
Louisiana Intrastate Gas Company L.L.C. 5555 San Felipe,
Suite 2100,
Houston, TX 77056, Attn: Gas Supply
Invoices/Statements/Payments:
PetroSun Exploration and Production, Inc. 8129 North 87th
Place, Scottsdale,
AZ 85258
Notices and Correspondence:
PetroSun Exploration and Production, Inc. 8129 North 87th
Place, Scottsdale,
AZ 85258
9. General Terms and Conditions: This Contract is subject
to Louisiana Intrastate Gas Company L.L.C.'s General Terms
and Conditions applicable to Gas Purchase Contracts, a copy
of which is attached hereto and made a part hereof as
Exhibit "A".
If the above accurately reflects our agreement and
understanding, please execute both originals and return for
our execution. One (1) fully executed copy will be returned
for your file.
ACCEPTED AND AGREED TO THIS 9TH DAY OF AUGUST, 1997.
PETROSUN EXPLORATION AND PRODUCTION, INC.
BY: GORDON M. LEBLANC, JR., PRESIDENT
ACCEPTED AND AGREED TO THIS 21ST DAY OF AUGUST, 1997.
LOUISIANA INTRASTATE GAS COMPANY L.L.C.
BY: ITS PRESIDENT
GENERAL TERMS AND CONDITIONS
APPLICABLE TO
GAS PURCHASE CONTRACT
INDEX
Section Subject
1. Definition of Terms
2. Quality
3. Metering and Measurement
4. Billing and Payment
5. Force Majeure
6. Default
7. Warranty
8. Easements
9. Miscellaneous
GENERAL TERMS AND CONDITIONS
1. DEFINITION OF TERMS
l.l The word "day" shall mean a period of twenty-four (24)
consecutive hours beginning and ending at eight o'clock A.M.
Local Time.
1.2 The word "month" shall mean a period beginning at eight
o'clock A.M. on the first day of a calendar month and ending
at eight o'clock A.M. on the first day of the next
succeeding calendar month.
1.3 The word "year" shall mean a contract year (rather than
a calendar year unless the context clearly contemplated a
calendar year) which shall mean a period of three hundred
sixty-five (365) consecutive days, the first such contract
year beginning at eight o'clock A.M. on the day of first
delivery of gas hereunder, provided however, that any such
year which contains a date of February 29 shall consist of
three hundred sixty-six (366) consecutive days.
1.4 The term "Calendar Quarter" shall mean three
consecutive months commencing each January 1, April 1, July
1, and October 1.
1.5 The word "gas" shall mean natural gas including both
gas well gas and casinghead gas of the quality described in
Paragraph 2 hereof.
1.6 The term "casinghead gas" excludes gas cap gas and
shall mean gas produced in association with crude petroleum
from an oil well, all or substantially all of which is
indigenous to the oil strata from which such crude petroleum
oil is produced, together with gas lift gas produced with
oil, whether originally produced from the same oil strata or
not.
1.7 The term "gas well gas" shall mean all other gases,
including gas cap gas, or the mixture of hydrocarbon gases
produced from Seller's leases other than what is included
within the definition of casinghead gas.
1.8 The term "cubic foot of gas" shall mean the volume of
gas which would occupy one cubic foot of space when such gas
is at a temperature of sixty degrees Fahrenheit (60oF) and a
pressure of 15.025 pounds per square inch absolute.
Computation of volume shall be made in accordance with the
provisions of Louisiana R.S. 55:151-156 known as the
"Standard Gas Measurement Law" of the State of Louisiana.
1.9 The letters "MCF" shall denote one thousand (1,000)
cubic feet of gas.
1.10 The term "British Thermal Unit" or "BTU" shall mean
the amount of heat required to raise the temperature of one
pound of pure water from fifty-eight and five-tenths degrees
Fahrenheit (58.5oF) to fifty-nine and five-tenths degrees
Fahrenheit (59.5oF).
l.l1 The term "MMBTU" shall denote one million (1,000,000)
British thermal units.
1.12 The term "heating value" means the gross number of
British thermal units produced by the combustion at constant
pressure, of the amount of gas saturated with water vapor
which would occupy a volume of one (1) cubic foot at
a temperature of sixty degrees Fahrenheit (60oF), under a
pressure equivalent to that of thirty inches (30") of
mercury at thirty-two degrees Fahrenheit (32oF) and under
gravitational force (acceleration 980.665 cm. per sec. per
sec.) with air of the same temperature and pressure as the
gas, when the products of combustion are cooled to the
initial temperature of the gas in air, and when the water
formed by combustion is condensed to the liquid state,
expressed at a pressure base of 15.025 psia on a dry basis.
1.13 The term "Buyer's transporter" shall mean the party or
parties, if any, designated by Buyer, to receive and handle
gas deliverable hereunder for Buyer's account.
2. QUALITY
2.1 Buyer may, but shall not be obligated to, purchase gas
delivered hereunder if said gas fails to comply with the
following quality requirements:
a. Heating Value: Such gas shall have a total heating
value, determined as hereinafter provided, of not less than
nine hundred fifty (950) BTU's per cubic foot. If the
heating value of any gas tendered by Seller for delivery
shall be below nine hundred fifty (950) BTU's per cubic
foot, Buyer shall have the option to either:
(1) Accept delivery of such gas.
(2) Refuse to accept delivery of such gas until Seller
shall restore the total heating value required for delivery.
If Buyer refuses to accept delivery and Seller is unable or
fails to restore the total heating value, then upon ninety
(90) days written notice from Seller of its desire to
withdraw from this Contract such sources of gas deficient in
heating value it shall be privileged to do so unless Buyer
thereupon elects to continue to purchase gas hereunder.
b. Freedom of Objectionable Matter: The gas to be delivered
by Seller hereunder:
(1) Shall be commercially free from dust, gums, water,
crude oil, impurities and other objectionable substances
which may become separated from the gas and interfere with
its transmission through Buyer's pipeline system.
(2) Shall be commercially free from hydrogen sulfide
containing not more than one (1) grain of hydrogen sulfide
per one hundred (100) cubic feet.
(3) Shall not contain more than twenty (20) grains of total
sulfur per one hundred (100) cubic feet.
(4) Shall not contain more than two-tenths of one percent
(.2 of 1%) of oxygen by volume, nor more than four percent
(4%) of total inert gases including a maximum of two percent
(2%) carbon dioxide (CO2).
c. Dehydration: The gas shall be dehydrated to contain not
more than seven (7) pounds of water per one million
(1,000,000) cubic feet of gas.
d. Delivery Temperature: The gas shall be delivered at a
temperature not less than forty degrees Fahrenheit (40oF)
nor greater than one hundred twenty degrees Fahrenheit
(120oF).
3. METERING AND MEASUREMENT
3.1 The volume unit of the gas delivered under this
Contract shall be one thousand (1,000) cubic feet.
3.2 Unit of Volume: The unit of volume, for purposes of
measurement, shall be one (1) cubic foot of gas at a
temperature of sixty degrees Fahrenheit (60oF) and at a
pressure of fifteen and twenty-five thousandths (15.025)
pounds per square inch absolute, as defined in the 1950
Standard Gas Measurement Law of the State of Louisiana.
3.3 Measurement Equipment: Buyer shall install, maintain,
own and operate orifice meters of standard make accepted by
the industry with flange type connections and chart cycles
not to exceed eight (8) days, and any other auxiliary
measuring equipment necessary in order to accomplish
accurate measurement of the gas to be delivered hereunder;
such measurement equipment including electronic gas
measurement devices, to be installed and operated in
accordance with the American National Standard publication,
Orifice Metering of Natural Gas ANSI/API 2530 "A.G.A. Report
No. 3", as amended from time to time, or by any other method
commonly used in the industry and mutually acceptable.
Buyer shall be responsible for the calculation of volumes
received at the delivery point.
Buyer shall give reasonable notice to Seller of the
scheduling of measurement tests so that Seller may have a
representative present to observe the test.
3.4 Temperature and Specific Gravity:
a. The temperature of the gas in Buyer's meters shall be
determined by Buyer by means of a recording thermometer
installed at each point of delivery or other mutually
agreeable method. The arithmetical average of the hourly
temperatures recorded during periods of flow only during
each day shall be deemed the gas temperatures, and shall be
used in computing the volumes of gas delivered hereunder.
In the absence of a recording thermometer, the temperature
shall be assumed to be sixty degrees Fahrenheit (60oF).
b. The specific gravity of the gas shall be determined by
Buyer at each point of delivery with a density type of gas
balance or by such other method as shall be agreed upon
between the parties. If the density type gas balance method
is used, the specific gravity of the gas delivered shall be
determined once monthly or as often as is found necessary in
practice. The regular monthly test shall determine the
specific gravity at each delivery point to be used in
computation for the measurement of gas delivered at each
such delivery point until the next regularly scheduled test
or until changed by a special test; the special test to be
applicable from the date made until the next regularly
scheduled test.
3.5 Determination of Heating Value: The heating value per
cubic foot of gas shall be determined monthly or as Buyer or
Seller may deem necessary in practice that the parties
mutually agree upon. The heating value under the standard of
Section 1.12 as applied pursuant to this Section shall be
used to determine the total BTU content of all gas delivered
hereunder. The gross British thermal unit content per cubic
foot of gas delivered hereunder shall be determined by Buyer
by the use of a spot sample taken during such month to be
analyzed on a gas chromatography; or at Buyer's option, by
the use of a continuous sampler (of an approved type to be
analyzed on a gas chromatography), or at Buyer's option, by
the arithmetical average of the records of a recording
calorimeter of an approved type which, at Buyer's option,
may be installed, operated and maintained at the place of
measurement of the gas, or the BTU value may be determined
by application of the American Gas Association (AGA) Report
No. 5 Fuel Gas Energy Metering, using the applicable
specific gravity and applying the inert value of N2 and CO2
from an applicable spot or continuous sample. Use of either
a calorimeter or the AGA Report No. 5 method will result in
a daily BTU value. The BTU value may be determined by
such other methods upon which the parties may mutually
agree. Seller shall be permitted to witness the testing of
samples. Monthly billings will be reckoned by multiplying
the measured volume by the average BTU content per cubic
foot as shown by the installed calorimeter or as shown by
the sample tested. Based upon such determination,
calculations shall then be made to determine the gross
British thermal unit content per cubic foot of gas at 14.7
psia and sixty degrees Fahrenheit (60oF), adjusted to a
pressure base of 15.025 psia on a dry basis.
3.6 Deviation from Boyle's Law: Appropriate correction
shall be made for any deviation from Boyle's Law. Correction
of volumes for deviation from Boyle's Law shall be made in
accordance with the methods and formulas prescribed in the
American Gas Association's manual Supercompressibility
Factors for Natural Gas NX-19 for the determination of
supercompressibility factors for natural gas as last amended
and superseded.
3.7 Atmospheric Pressure: For purposes of measurement and
meter calibration, the atmospheric pressure shall be assumed
to be constant at fourteen and seven-tenths (14.7) pounds
per square inch.
3.8 Check Measuring Equipment: Seller may, at its option,
install and operate check measuring equipment to check the
accuracy of Buyer's measurements; such equipment to be of
the same or similar type as that installed by Buyer.
Seller may install such check measuring equipment on Buyer's
meter run. Seller shall install and operate such check
measuring equipment so that it will not interfere with the
operation of Buyer's facilities. Each party shall give
reasonable notice to the other of tests so that the other
party may conveniently (but, at its expense), have its
representative present. If such notice has been given and
the other party is not present at the time specified, the
party giving the notice may proceed as though the other
party were present.
3.9 Corrections: If upon any such test, Buyer's meter(s) is
(are) found to be inaccurate:
a. By less than one percent (1%), previous readings thereof
shall be considered correct, but such meter shall be
adjusted at once to read correctly.
b. By one percent (1%) or more, such meter shall be
adjusted at once to read correctly and previous readings
thereof shall be corrected to zero error for the period of
time during which said meter was known or agreed by the
parties to be inaccurate, and in the event the extent of
such period of inaccuracy is not known or agreed upon, then
such corrections shall be made for a period of one-half
(1/2) of the elapsed time since the date of the last
preceding test. In the event Buyer's meter is out of
service or registering inaccurately, and the inaccuracy
cannot be calculated, the volume of gas delivered hereunder
shall be estimated, (1) by using the registration of any
check meter or meters, if installed and accurately
registering, or, in their absence, (2) by correcting the
error if the percentage of error is ascertainable by
calibration, test, or mathematical calculation, or, if
neither such method is feasible, (3) by estimating the
quantity of delivery by deliveries during a period under
similar conditions when the meter was registering
accurately, or (4) by any other method agreed upon.
3.10 Preservation of Charts, etc.: All test data, charts,
and other similar records shall be preserved by Buyer for a
period of at least two (2) years and shall, upon the request
of Seller, be sent to Seller for inspection at any
reasonable time. All such test data, charts and any other
similar records sent to Seller shall be returned to Buyer's
transporter within thirty (30) days.
4. BILLING AND PAYMENT
4.1 No later than the twenty-fifth (25th) day of each
calendar month after deliveries of gas are commenced
hereunder, or the first working day thereafter, Buyer shall
render a statement to Seller showing the amount of gas
delivered during the preceding month, together with a check
in the amount due therefor and with sufficient information
to explain and support any adjustments made by Buyer with
respect to the value of gas delivered in determining the
amounts stated as due. If Buyer requires an allocation
statement to determine the actual volumes sold under the
Contract, or the amount to be paid to Seller for gas sold
under the Contract, Seller shall be responsible for
supplying Buyer with a written allocation statement no later
than the tenth (lOth) day of the month for gas delivered
hereunder during the preceding month. Buyer shall be
entitled to rely on such allocation statement as accurately
setting forth the information stated therein. If such
allocation statement is not received by the tenth (lOth) day
of such month, then payment may be delayed one day for each
day past the tenth (lOth) that said allocation statement is
late.
4.2 Should Buyer fail to pay the full amount due Seller
when the same is due, as herein provided, interest thereupon
shall accrue at the rate of twelve percent (12%) per annum
from the date when such payment is due until the same is
paid. If such failure to pay continues for sixty (60) days,
Seller may suspend deliveries of gas hereunder, but the
exercise of such right shall be in addition to any and all
other remedies available to Seller.
4.3 Upon request, Buyer, or Buyer's transporter, shall make
available to Seller for checking and calculation all volume
and temperature (and heating value where applicable) charts
used in the measurement of gas delivered hereunder no
earlier than twenty (20) days after the last chart for
each billing period is removed from the meters. Such charts
shall be returned to Buyer, or Buyer's transporter, within
thirty (30) days.
4.4 Each party shall have the right at all reasonable times
to examine the books, records, and charts of the other party
to the extent necessary to verify the accuracy of any
statement, charge, computation or demand made under or
pursuant to any of the provisions of this Contract within
the previous two (2) years.
5. FORCE MAJEURE
5.1 In the event of either party hereto being rendered
unable, wholly or in part, by force majeure to carry out its
obligations hereunder, it is agreed that on such party's
giving notice and full particulars of such force majeure in
writing or by telegraph to the other party as soon as
practicable after the occurrence of the cause relied on,
then the obligations of the party giving such notice, so far
as they are affected by such force majeure, shall be
suspended during the continuance of any inability so caused,
but for no longer period, and such cause shall as far as
possible be remedied with all reasonable dispatch. The
occurrence of a cause of force majeure shall not excuse the
payment of money for gas delivered.
5.2 The term "force majeure" as employed herein and for all
purposes relating hereto shall mean acts of God, strikes,
lockouts or other industrial disturbances, acts of the
public enemy, wars, blockades, insurrections, riots,
epidemics, landslides, lightning, earthquakes, fires,
storms, hurricane warnings, crevasses, floods, washouts,
arrests and restraints of governments and people, civil
disturbances, explosions, breakage or accident to machinery
or lines of pipe, the necessity for making repairs or
alterations to machinery or lines of pipe, freezing
of wells or lines of pipe, partial or entire failure of
wells, inability of any party hereto to obtain necessary
materials, supplies or permits due to existing or future
rules, regulations, orders, laws or proclamations of
governmental authorities (both Federal and State), including
both civil and military, and any other causes whether of the
kind herein enumerated or otherwise, not within the control
of the party claiming suspension and which by the exercise
of due diligence such party is unable to prevent or
overcome; such term shall likewise include (a) in those
instances where either party, or its transporter, hereto is
required to obtain servitudes, rights-of way grants, permits
or licenses to enable such party to acquire, the inability
of such party to acquire, or the delays on the part of such
party in acquiring, at reasonable cost and after the
exercise of reasonable diligence, such servitudes, rights-of
way grants, permits or licenses, and (b) in those instances
where either party, or its transporter, hereto is required
to furnish materials and supplies for the purposes of
constructing or maintaining facilities, or is required to
secure permits or permissions from any governmental agency
to enable such party to fulfill its obligations hereunder,
the inability of either party to acquire, or the delays on
the part of such party, or its transporter, in acquiring at
reasonable cost and after the exercise of reasonable
diligence, such materials and supplies, permits and
permissions.
5.3 If the gas covered hereby is to be handled by a third
party, whether as transporter or under the independent
contract, before or after delivery to or for the account of
Buyer, any cause affecting said third party which would be a
cause of force majeure if directly affecting Buyer or Seller
shall be excused as force majeure hereunder.
5.4 It is understood and agreed that the settlement of
strikes or lockouts shall be entirely within the discretion
of the party having the difficulty, and that the above
requirements that any force majeure shall be remedied
with all reasonable dispatch shall not require the
settlement of strikes or lockouts by acceding to the demands
of the opposing party when such course is inadvisable
in the discretion of the party having the difficulty.
6. DEFAULT
6.1 It is covenanted and agreed that if either party hereto
shall fail to perform any of the covenants or obligations
imposed upon it under and by virtue of this Contract, then
in such event the other party hereto may at its option
terminate this Contract by proceeding as follows: The party
not in default shall give written notice to the party in
default stating specifically the cause or causes for
terminating this Contract and declaring it to be the
intention of the party giving the notice to terminate same;
thereupon the party in default shall have thirty (30)
days after the giving of the aforesaid notice in which to
remedy or remove the cause or causes stated in the notice
for terminating this Contract, and if within said period of
thirty (30) days the party in default does so remedy or
remove said cause or causes and fully indemnify the party
not in default for any and all consequences of such breach,
then such notice shall be withdrawn and this Contract shall
continue in full force and effect. In case the party in
default does not so remedy or remove the cause or causes and
indemnify the party giving the notice in any and all
consequences of such breach, within said period of thirty
(30) days, then at the option of the party giving the
notice, this Contract shall become null and void from and
after the expiration of said period. Any cancellation of
this Contract pursuant to this provision by Buyer shall be
without prejudice to the right of Seller to collect any
amounts then due Seller for natural gas delivered prior to
the time of cancellation, provided that the same shall be
taken in accordance with the applicable provisions of this
Contract for quantities and rate of flow, and without waiver
of any remedy to which the party not in default may be
entitled for violations of this Contract.
7. WARRANTY
7.1 Each Seller to the extent of its interest hereby
warrants title to all gas delivered hereunder and each such
Seller warrants that all of its such gas is owned by Seller
free from all liens and adverse claims including liens to
secure payment of production taxes, severance taxes and
other taxes. Seller shall at all times have the obligation
to pay all royalties due and payable to the mineral and
royalty owners under Seller's leases. Seller agrees to
indemnify Buyer and save Buyer harmless from all suits,
actions, debts, accounts, damages, costs, losses and
expenses arising from or out of adverse claims of any or
all persons to said gas or to royalties, taxes which Seller
is obligated to pay hereunder, license fees, or charges
thereon which are applicable before the title to the gas
passes to Buyer. If any Seller's title or right to sell the
gas committed hereunder is questioned or involved in any
action, Buyer may withhold payment (without interest) of
sums due hereunder to such Seller up to the amount of the
claim until title or right to sell is freed from such
question or such action is finally determined or until such
Seller shall have furnished a corporate warranty
satisfactory to Buyer conditioned to save Buyer harmless
with respect to such claim. In no event may Buyer pay any
adverse claimant without the consent of Seller or an order
of a court of competent jurisdiction authorizing such
payment.
8. EASEMENTS
8.1 To the extent that Seller has the right to do so under
its leases, Seller hereby grants to Buyer's transporter the
right to install, maintain and operate on the lands held by
Seller any and all pipelines, measuring equipment and other
facilities required to enable Buyer's transporter to take
delivery of gas under this Contract in accordance with the
terms thereof. All such pipelines, measuring equipment and
other facilities shall be installed so as not to interfere
with Seller's operations on its leases as of the time such
pipelines, measuring equipment and other facilities may be
installed.
9. MISCELLANEOUS
9.1 Seller shall be responsible for and shall indemnify
Buyer against all liabilities and claims arising out of the
handling of gas delivered through Seller's facilities up to
the point of delivery. Buyer shall be responsible for and
shall indemnify Seller against all liabilities and claims
arising out of the receipt and further handling of gas
delivered hereunder through the facilities of Buyer's
transporter at the point of delivery thereof and thereafter.
9.2 No waiver by either party of one or more defaults by
the other in the performance of any of the provisions of
this Contract shall operate or be construed as a waiver of
any other or further default or defaults, whether of a like
or of a different character.
9.3 This Contract shall be binding upon and inure to the
benefit of the heirs, legal representatives, successors and
assigns of the respective parties hereto, shall constitute a
real right and covenant running with the lands and leasehold
estates covered hereby, and shall be binding upon any
purchaser of the properties of Seller which are subject to
this Contract.
9.4 No prohibition against assignment without the consent
of the other party, or other language of similar import
elsewhere herein contained, shall prohibit any party to this
Contract from using this Contract as security for its
indebtedness or from making any assignment, pledge or
mortgage in connection therewith or prohibit or limit Buyer
from assigning this Contract to an affiliate.
9.5 Seller shall not be required or obligated to drill,
rework or deepen any well and Seller shall not be required
or obligated to operate any well which in Seller's judgment,
exercised in good faith, it would be uneconomical for Seller
to so operate.
9.6 Seller agrees to complete its wells in a workmanlike
manner and in accordance with the rules, regulations and
orders of any regulatory body having jurisdiction and to
keep its wells in good condition.
9.7 Seller agrees at its expense to install and to properly
maintain and operate at Seller's wells or on Seller's
gathering lines such drips, separators, dehydrators, or any
other equipment as may be reasonably necessary to remove
from the gas delivered hereunder all free water and all
objectionable solids and all liquid hydrocarbons, distillate
and condensate capable of being removed from the gas by
means of wellhead separators generally used in the industry,
and Seller agrees to so install, maintain and operate such
heaters and other devices as a reasonably prudent operator
would deem necessary to prevent the freezing of wells or
gathering lines and to assure the continuous delivery of gas
conforming to the quality provisions hereof.
9.8 It is hereby agreed by and between the parties that all
aspects of the Contract, including interpretation of its
provisions and any disputes arising hereunder are to be
governed solely and exclusively by Louisiana Law.
END OF EXHIBIT "A"
Exhibit 11. List of Subsidiaries.
Sunorc, Inc., a wholly owned subsidiary, incorporated in
Arizona on December
5, 1995.
Big Bug Acquisition Company, a wholly owned subsidiary, was
incorporated in Arizona on August 6, 1996. Big Bug was then
merged with PetroSun Exploration & Production, Incorporated
on July 14, 1997. The resulting company, which is a wholly
owned subsidiary, took the name PetroSun Exploration &
Production, Incorporated.
Strategic Consulting and Administration, Inc., a wholly
owned subsidiary, incorporated in Arizona on September 7,
1990.
Triple "J" Resources Pty., Ltd., a wholly owned subsidiary,
was incorporated in Queensland, Australia on July 27, 1994.
The Company owns 50% of the outstanding shares of Tiger
Energy Corporation, which was incorporated in Nevada on July
25, 1997.
Exhibit 12. Consent of Auditors.
ADDISON, ROBERTS & LUDWIG, P.C.
Certified Public Accountants
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the inclusion of our report dated June
10, 1998, in the annual report of Cronus Corporation on Form
10-KSB for the year ended December 31, 1997.
/s/
Addison, Roberts & Ludwig, P.C.
Tucson, Arizona
June 10, 1998
2910 North Swan Road, Suite 204
Tucson, Arizona 85712
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