Exhibit 3
PETROSUN EXPLORATION AND PRODUCTION, INC.
(A Wholly-Owned Subsidiary of Cronus Corporation)
(A Development Stage Enterprise)
Audited Financial Statements
For the period from April 4, 1996 (Inception)
to March 31, 1997
____________
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Petrosun Exploration and Production, Inc.
We have audited the accompanying balance sheet of Petrosun Exploration
and Production, Inc. (a wholly-owned subsidiary of Cronus Corporation and a
development stage enterprise) as of March 31, 1997, and the related statements
of loss, changes in stockholder's deficit and cash flows for the period April
4, 1996 (Inception) to March 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Petrosun Exploration and
Production, Inc. (a wholly-owned subsidiary of Cronus Corporation and a
development stage enterprise) as of March 31, 1997, and the results of its
operations and its cash flows for the period April 4, 1996 (Inception) to
March 31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses and has
deficits 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.
January 8, 1998
PETROSUN EXPLORATION AND PRODUCTION, INC.
(A Wholly-Owned Subsidiary of Cronus Corporation)
(A Development Stage Enterprise)
BALANCE SHEET
March 31, 1997
____________
ASSETS
Cash $ 100
Receivable from related entity 14,715
Receivables from non-operating investors,
(net of allowance of $69,041) 3,633
Unproved oil and gas properties 17,690
Total assets $ 36,138
LIABILITIES AND STOCKHOLDER'S DEFICIT
Due to parent $ 523
Accounts payable 151,272
Investment in joint venture 46,408
Total liabilities 198,203
Stockholder's equity:
Common stock (.001 par value), 25,000,000 shares
authorized, 2,000,000 shares issued and outstanding
2,000
Additional paid in capital 20,382
Deficit accumulated during development stage
(184,447)
Total stockholder's deficit (162,065)
Total liabilities and stockholder's deficit
$ 36,138
(The accompanying notes are an integral part of the financial statements.)
PETROSUN EXPLORATION AND PRODUCTION, INC.
(A Wholly-Owned Subsidiary of Cronus Corporation)
(A Development Stage Enterprise)
STATEMENT OF LOSS
For the period from April 4, 1996 (Inception) through March 31, 1997
____________
Revenues $ -0-
Expenses:
Loss on investment in joint venture 110,782
Valuation allowance of receivable from
non-operating investors 69,041
General and administrative 4,623
Total expenses 184,447
Net loss before income taxes (184,447)
Income tax expense -0-
Net loss $ (184,447)
(The accompanying notes are an integral part of the financial statements.)
PETROSUN EXPLORATION AND PRODUCTION, INC.
(A Wholly-Owned Subsidiary of Cronus Corporation)
(A Development Stage Enterprise)
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
For the period from April 4, 1996 (Inception) through March 31, 1997
____________
Deficit
Accumulated
Common Stock Additional During
Par Paid in Development
Shares Value Capital Stage Total
Balance April 4, 1996 -0- $ -0- $ -0- $ -0- $ -0-
Contributed leases, April 1996
($.001 per share) 2,000,000 2,000 15,187 17,187
Contributed cash, August 1996 5,195 5,195
Net loss (184,447) (184,447)
Balance March 31, 1997
2,000,000 $ 2,000 $ 20,382 $ (184,447) $ (162,065)
(The accompanying notes are an integral part of the financial statements.)
PETROSUN EXPLORATION AND PRODUCTION, INC.
(A Wholly-Owned Subsidiary of Cronus Corporation)
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
For the period from April 4, 1996 (Inception) through March 31, 1997
____________
Cash flows from operating activities:
Net loss $ (184,447)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in accounts payable 94,462
Loss on investment in joint venture 110,782
Valuation of receivables from non-operating investors
69,041
Increase in due to parent 523
Increase in receivable from related entity (14,715)
Increase in receivables from non-operators (72,674)
Total adjustments 187,419
Total cash provided by operating activities 2,972
Cash flows from investing activities:
Purchase of oil and gas leases (6,146)
Cash advanced to joint venture (1,921)
Total cash used in investing activities (8,067)
Cash flows from financing activities:
Capital contribution 5,195
Total cash provided by financing activities 5,195
Increase in cash 100
Cash, beginning of period -0-
Cash, end of period $ 100
Non-Cash Investing and Financing Activities:
During 1997, $11,544 of oil and gas leases were contributed, at their
respective fair market values, to the Company resulting in an increase in
common stock, additional paid in capital, unproved oil and gas properties,
and investment in joint venture. During 1997, the Company recorded a
$56,810 increase in investment in joint venture through the assumption of
accounts payable.
(The accompanying notes are an integral part of the financial statements.)
PETROSUN EXPLORATION AND PRODUCTION, INC.
(A Wholly-Owned Subsidiary of Cronus Corporation)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Going Concern
Petrosun Exploration and Production, Inc. (the Company), was incorporated in
Arizona in April, 1996. The Company was purchased by Cronus Corporation
(Cronus), a Nevada Corporation, on March 31, 1997, and is involved in
exploration and production of oil and natural gas. The Company is in its
development stage and has not commenced production of oil and natural gas.
As shown in the accompanying financial statements, the Company has incurred
losses during the development stage and has deficits 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.
At the date of these financial statements, these properties have not begun
production and the Company has zero revenues. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
2. Summary of Significant Accounting Policies
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.
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.
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.
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.
During 1997, the Company's share of the joint ventures losses exceeded the
related carrying amount. The excess totaled $46,408 at March 31, 1997 and
has been reflected as a liability because the Company has guaranteed the
joint ventures obligations.
3. Accrued Litigation Settlement
During the period ended March 31, 1997, the Company incurred various
expenses relating to the exploration and drilling of various oil leases.
Due to the Company's inability to raise sufficient cash, these debts were
not paid and two vendors have sued the Company and its management. On March
14, 1997 one vendor received a judgment of $19,989 against the Company. In
February, 1997 the Company executed an agreement with the second vendor to
make scheduled payments, but failed to make such payments. At March 31,
1997 the Company has included $77,800 in accounts payable to this company.
4. Income Taxes
The Company has approximately $180,000 in operating loss carryforwards. No
deferred tax asset has be recognized at March 31, 1997 because the Company
is unsure as to or if when the net operating loss carry forwards may be
realized.
5. Unproved 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. Joint interest agreements result from an agreement among two or
more working interest owners whereby the Company is designated as the
operator for the development and operation of the jointly owned property.
The Company's direct ownership is included in the financial statements
through it's proportional share of expenses, revenues and assets.
6. Related Party Transactions
Until March 30, 1997, the Company was owned by a single shareholder. On
March 31, 1997, 100% of the outstanding stock in the Company was exchanged
for restricted, unregistered common stock in Cronus Corporation, a public
company. The previous shareholder is currently a key employee of the
Company. On April 15, 1997, the Company executed an employment agreement
with this key employee at an annual salary of $60,000 plus performance
bonuses, as specified in the agreement.
At March 31, 1997, the Company had net advances of $14,715 to Grayhawk Oil
and Gas (Grayhawk). Grayhawk is owned by the Company's previous sole
shareholder.
7. Investment in Joint Venture
Through the execution of three operating agreements, the Company conveyed a
59.4% working interest and a 47.5% revenue interest in an unproven oil and gas
joint venture to three non-operating investors. Operating expenses of the
joint venture totaled $272,694 for the period April 4, 1996 through March 31,
1997. The Company's share of the operating expenses totaled $110,782 and there
were no revenues for the period. Cash paid on behalf of the joint venture
exceeded contributions from non-operating investors by $72,674 for the
period ended March 31, 1997. This amount has been recorded as receivables
from non-operating investors in the accompanying balance sheet. The Company
does not expect to receive payment from the investors and has recorded a
valuation allowance of $69,041 at March 31, 1997. During the period April 4,
1996 through March 31, 1997, the Company contributed to the joint venture,
cash of $1,921 and oil and gas leases with a book value of $5,643.
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENT OF THE COMPANY'S SUBSIDIARY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] MAR-31-1997
[CASH] 100
[SECURITIES] 0
[RECEIVABLES] 18,348
[ALLOWANCES] 69,041
[INVENTORY] 0
[CURRENT-ASSETS] 18,448
[PP&E] 17,690
[DEPRECIATION] 0
[TOTAL-ASSETS] 36,138
[CURRENT-LIABILITIES] 198,203
[BONDS] 0
[COMMON] 2000
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 36,138
[SALES] 0
[TOTAL-REVENUES] 0
[CGS] 0
[TOTAL-COSTS] 4,623
[OTHER-EXPENSES] 69,041
[LOSS-PROVISION] 110,782
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 0
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (184,447)
[EPS-PRIMARY] (.011)
[EPS-DILUTED] (.011)
</TABLE>
