UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of
1934
Report for Event (date of earliest event reported): August 11,
1997
PETRO UNION, INC.
(Exact name of registrant as specified in its charter)
Colorado 0-20760 84-1091986
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
575 Madison Avenue, Suite 1006, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 605-0470
123 Main Street, Suite 300, Evansville, Indiana 47708
(Former address)
123 N.W. Fourth Street, Suite 3, Evansville, Indiana 47708
(Former address)
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired
1. Index to Financial Statements and Schedules.
2. Independent Auditors' Report.
3. Balance Sheets as of June 30, 1997 and
December 31, 1996.
4. Statements of Operations For The Six Months Ended
June 30, 1997, and For The Years Ended December
31, 1996 and 1995.
5. Statements of Owners, Equity (Deficit) for The Six
Months Ended June 30, 1997, and For The Years
Ended December 31, 1996 and 1995.
6. Statements of Cash Flows For The Six Months Ended
June 30, 1997 and For The Years Ended December
31, 1996 and 1995.
7. Notes To Financial Statements.
(b) Pro Forma Financial Information
1. Explanation of Pro-Forma Financial Statements.
2. PRO-FORMA Consolidated Balance Sheet as of June
30,1997.
3. PRO-FORMA Consolidated Statements of Operations For
The Six Months Ended June 30,1997.
4. Notes To PRO-FORMA Consolidated Financial
Statements (June 30, 1997).
5. PRO-FORMA Consolidated Balance Sheet as of
December 31, 1996.
6. PRO-FORMA Consolidated Statements of Operations For
The Year Ended December 31, 1996.
7. Notes To PRO-FORMA Consolidated Financial
Statements (December 31, 1996).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
PETRO UNION, INC. d/b/a HORIZONTAL
VENTURES, INC.
Date: October 16, 1997 By: /s/ Randeep S. Grewal
Randeep S. Grewal
Its: Chief Executive Officer
<PAGE>
HORIZONTAL VENTURES, INC.
Index to Financial Statements and Schedules
Required by Item 8 and Item 14
ITEM
PAGE
Report of Independent Certified Public Accountants F-2
Balance Sheets as of June 30, 1997 and
December 31, 1996 F-3
Statements of Operations For The Six
Months Ended June 30, 1997, and
For The Years Ended December 31,
1996 and 1995 F-5
Statements of Owners' Equity For
The Six Months Ended June 30, 1997, and
For The Years Ended December 31, 1996 and 1995 F-6
Statements of Cash Flows For The
Six Months Ended June 30, 1997, and
For The Years Ended December 31, 1996 and 1995 F-7
Notes to Financial Statements F-9
Pro-Forma Consolidated Balance Sheets
and Consolidated Statements of
Operations of Petro Union, Inc. and
Subsidiaries as of June 30, 1997 and
December 31, 1996, and for the Six Months
and Year Then Ended F-21
NOTE: Schedules are omitted because of the absence
of the conditions under which they are required, or
because the information required by such omitted
schedules is contained in the financial statements
or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Horizontal Ventures, Inc.
Tulsa, Oklahoma
We have audited the accompanying balance sheets of Horizontal
Ventures, Inc. as of June 30, 1997 and December 31, 1996, and the
related statements of operations, owners equity (deficit), and
cash flows for the six months ended June 30, 1997 and for the years
ended December 31, 1996 and 1995. 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
audits.
We conducted our audits 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 audits
provide 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
Horizontal Ventures, Inc. as of June 30, 1997 and December 31,
1996, and the results of its operations and its cash flows for the
six months ended June 30, 1997 and for the years ended December 31,
1996 and 1995 in conformity with generally accepted accounting
principles.
BATEMAN & CO., INC., P.C.
Houston, Texas
September 26, 1997
F-2
<PAGE>
HORIZONTAL VENTURES, INC. (Note 1)
Balance Sheets
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 10,525 $ 6,458
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $34,747 and $19,907 34,746 83,221
Employees 6,688 3,953
Petro Union, Inc. 9,170 -
Stock subscriptions receivable 570,000 -
---------- ----------
Total current assets 631,129 93,632
---------- ----------
Property and equipment, at cost, net of accumulated depreciation
of $183,522 and $142,418 656,321 734,654
---------- ----------
Other assets:
License agreement, net of accumulated amortization
of $3,333 and $2,667 16,667 17,333
Organization expense, net of accumulated amortization
of $36,573 and $28,985 39,306 46,894
Deposits and prepayments 1,498 8,166
---------- ----------
Total other assets 57,471 72,393
------------ ----------
Total assets $ 1,344,921 $ 900,679
============ ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
LIABILITIES AND OWNERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Short term notes payable $ 60,623 $ 112,020
Current maturities of long term notes 27,372 65,663
Accounts payable and accrued expenses 132,931 161,829
Due to related parties 60,478 -
Customer payments received in advance - 30,000
--------- ---------
Total current liabilities 281,404 369,512
--------- ---------
Noncurrent liabilities:
Long term note payable, net of current maturities 78,544 108,202
Subordinated convertible debentures - 433,231
--------- ---------
Total noncurrent liabilities 78,544 541,433
--------- ---------
Total liabilities 359,948 910,945
--------- ---------
Commitments and contingencies - -
Owners' equity (deficit):
Preferred stock, series A, $.01 par value, 3,000,000 shares
authorized, 3,000,000 and -0- shares issued and outstanding 30,000 -
Common stock, $.01 par value, 1,000,000 shares authorized,
759,460 and 3,690 shares issued and outstanding 7,595 37
Capital in excess of par value 1,972,276 3,445
Capital contributed by limited partners - 818,000
Accumulated deficit (1,024,898) (831,748)
----------- ----------
Total owners' equity (deficit) 984,973 (10,266)
----------- ----------
Total liabilities and owners' equity (deficit) $ 1,344,921 $ 900,679
=========== ==========
</TABLE>
F-4
<PAGE>
HORIZONTAL VENTURES, INC. (Note 1)
Statements of Operations
For The Six Months Ended June 30, 1997,and
For The Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1997 1996 1995
---------- -------------------------
<S> <C> <C> <C>
Revenues $ 129,165 $ 604,475 $ 305,203
Cost of revenues 113,864 367,419 221,208
--------- ----------- ---------
Gross profit 15,301 237,056 83,995
--------- ----------- ---------
General and administrative expenses:
Salaries and wages 53,531 235,701 190,114
Depreciation and amortization 9,777 19,174 17,282
Rentals 4,518 9,891 25,450
Taxes, other than on income 7,006 21,737 24,249
Other administrative expenses 97,254 307,899 234,075
-------- -------- --------
Total general and administrative expenses 172,086 594,402 491,170
-------- -------- --------
Loss from operations (156,785) (357,346) (407,175)
--------- -------- --------
Other income (expense):
Gain (loss) on sale of assets (21,062) 15,091 52
Interest income 5,776 61 1,583
Interest expense (21,079) (34,939) (17,244)
-------- --------- --------
Net other income (expense) (36,365) (19,787) (15,609)
-------- --------- --------
Loss before taxes on income (193,150) (377,133) (422,784)
-------- --------- --------
Provision for taxes on income - - -
Net loss $ (193,150) $ (377,133) $ (422,784)
=========== ============ ===========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HORIZONTAL VENTURES, INC.(Note 1)
Statements of Owners' Equity (Deficit)
For The Six Months Ended June 30, 1997, and
For The Years Ended December 31, 1996 and 1995
</TABLE>
<TABLE>
<CAPTION> Capital
Capital In Contributed
Common Stock Series A Preferred Stock Excess of Accumulated by Limited
Shares Amount Shares Amount Par Value Deficit Partners Total
------ ------ ------ ------ --------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994 1,000 $ 1,000 - $ - $ - $ (31,831) $(30,831)
Cash contributions by
limited partners 760,000 760,000
Stock issued for
services 200 200 200
Net loss (422,784) (422,784)
------- ------- --------- -------- --------- ---------- -------- ---------
Balance, December 31,
1995 1,200 1,200 - - - (454,615) 760,000 306,585
Change in par value from
$1.00 per share to $.01
per share (1,188) 1,188 -
Stock issued for
services 2,490 25 2,257 2,282
Partner's capital interest
issued for services 58,000 58,000
Net loss (377,133) (377,133)
------ ------- --------- ------- ------- --------- ------ ---------
Balance, December 31,
1996 3,690 37 - - 3,445 (831,748) 818,000 (10,266)
Stock issued for
services 30,000 300 300
Stock issued in exchange
for subordinated conver-
tible debentures, and net
assets of limited
partnership 725,770 7,258 1,398,831 (818,000) 588,089
Stock issued for cash and
stock subscription
agreements 3,000,000 30,000 570,000 600,000
Net loss (193,150) (193,150)
------- -------- --------- ------- ----------- ------------ ------- ---------
Balance,
June 30, 1997 759,460 $ 7,595 3,000,000 $ 30,000 $ 1,972,276 $ (1,024,898) $ - $ 984,973
========= ======== ========= ======== ========== ========== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HORIZONTAL VENTURES, INC. (Note 1)
Statements of Cash Flows
For The Six Months Ended June 30, 1997, and
For The Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1997 1996 1995
---------- --------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (193,150) $ (377,133) $ (422,784)
Adjustments to reconcile net loss to net
cash provided (used) by operations:
Depreciation and amortization 93,324 121,708 92,435
(Gain) loss on sale of assets 21,062 (15,091) -
Stock and partners' capital interests issued 300 60,282 200
(Increase) decrease in accounts receivable 48,475 (35,705) (47,516)
(Increase) decrease in accounts receivable, (2,735) (3,953) 14,100
(Increase) in accounts receivable, related p - 1,200 (1,200)
Amortization of deposits and prepayments 6,668 - -
Increase (decrease) in accounts payable and
accrued expenses (28,898) 109,955 51,874
--------- --------- ---------
Net cash (used) by operating activities (54,954) (138,737) (312,891)
--------- --------- ---------
Cash flows from investing activities:
(Increase) in accounts receivable, Petro Union, (9,170) - -
(Increase) in property and equipment (82,980) (381,215) (604,385)
Proceeds from sale of property and equipment 55,181 86,672 -
(Increase) in license agreement and organization - - (75,879)
(Increase) decrease in deposits and prepayments - (8,066) (100)
-------- ---------- ---------
Net cash (used) by investing activities (36,969) (302,609) (680,364)
-------- ---------- ---------
Cash flows from financing activities:
Capital contributed by limited partners - - 760,000
Increase (decrease) in due to related parties 60,478 (36,785) (33,215)
Proceeds from notes payable - 161,959 279,051
Repayments of notes payable (119,346) (150,589) (6,122)
Change in customer payments received in advance (30,000) 30,000 -
Proceeds from subordinated convertible debenture - 433,231 -
Issuance of preferred stock 600,000 - -
Less, (Increase) in stock subscription receiva (570,000) - -
Stock issued for net assets of limited partnersh 972,858 - -
Less, Partners' prior capital contributions (818,000) - -
--------- --------- ---------
Net cash provided by financing activities 95,990 437,816 999,714
--------- --------- ---------
Net increase (decrease) in cash and cash equiv 4,067 (3,530) 6,459
Cash and cash equivalents:
Beginning of period 6,458 9,988 3,529
--------- --------- ---------
End of period $ 10,525 $ 6,458 $ 9,988
========== ========= =========
F-7
<PAGE>
Non-cash financing and investing activities:
Stock issued for services $ 300 2,282 $ 200
Partners' capital interests issued for services - 58,000 -
Stock issued for subordinated convertible debent 433,231 - -
Stock issued for net assets of limited partnersh 972,858 - -
Property and equipment acquired by issuance of
notes payable - 20,159 117,637
Supplementary cash flow data:
Interest paid 20,480 33,886 1,583
Income taxes paid - - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of business and organization - Horizontal
Ventures, Inc. is engaged in contract drilling of oil
and gas wells using directional drilling technology
licensed from Amoco Corporation. The Company is based
in Tulsa, Oklahoma, and offers its services primarily
in the southwestern and midwestern United States.
Horizontal Ventures, Inc. (the "Company") was organized
under the laws of the State of Oklahoma on September 2,
1994. It was engaged in organizational activities
through the end of 1994, and commenced operations in
1995. On December 23, 1994, the Company organized an
Oklahoma limited partnership, Horizontal Ventures 1995
Limited Partnership (the Limited Partnership ), in
which it was the sole general partner. The Limited
Partnership commenced operations in 1995. The Company
retained a 20.83% interest in the Limited Partnership
for its services in forming and managing the entity,
and limited partners received the remaining interests
in exchange for cash contributions of $760,000. As the
sole general partner, the Company maintained
operational control over the activities of the Limited
Partnership. As indicated below, the Limited
Partnership was merged into the Company effective
January 1, 1997 in an exchange of Company stock for the
limited partners interests, which was accounted for
using the companies historical accounting bases,
similar to pooling of interests accounting.
Basis of presentation - The accounting and reporting
policies of the Company conform to generally accepted
accounting principles.
Principles of combination - Pursuant to guidance
contained in Statement of Position Number 78-9 issued
by the Accounting Standards Division of the American
Institute of Certified Public Accountants, the Limited
Partnership is considered to be a wholly-owned
subsidiary of the Company for 1995 and 1996, the
periods during which it existed. Accordingly, the
financial statements for December 31, 1995 and 1996
include the accounts and transactions of the Company
and the Limited Partnership. All significant
intercompany accounts and transactions have been
eliminated in the accompanying consolidated financial
statements. As indicated below, the Limited
Partnership was merged into the Company effective
January 1, 1997, and its assets and liabilities are
thereafter included in the Company s accounts, using
their historical bases similar to pooling of interests
accounting.
Uses of 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 the reported amount of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash equivalents - The Company considers all
highly liquid investments purchased with an original
maturity of three months or less to be cash
equivalents.
F-9
<PAGE>
Fair value of financial instruments and derivative
financial instruments - The Company has adopted
Statement of Financial Accounting Standards number
119, Disclosure About Derivative Financial Instruments
and Fair Value of Financial Instruments. The carrying
amounts of cash, accounts receivable, accounts payable
and accrued expenses, due to related parties, notes
payable, and subordinated convertible debentures
approximate fair value because of the short maturity of
these items. These fair value estimates are subjective
in nature and involve uncertainties and matters of
significant judgment, and , therefore, cannot be
determined with precision. Changes in assumptions
could significantly affect these estimates. At June
30, 1997 and December 31, 1996, the Company had no
derivative financial instruments.
Accounts receivable - The Company provides an allowance
for uncollectible receivables when it is determined
that collection is doubtful. Substantially all of the
Company's trade receivables are from its directional
drilling services.
Concentrations of credit risk - Substantially all of
the Company s accounts receivable are from companies
engaged in the oil and gas business, and concentrated
in the Southwestern United States. Generally, the
Company does not require collateral for its accounts
receivable. The Company has performed services for
only a limited number of customers each period;
therefore, each customer may be considered a major
customer.
Property and equipment - Property and equipment are
stated at cost. Depreciation is provided over
estimated useful lives using the straight line method
of depreciation for financial reporting purposes and
the accelerated cost recovery system for income tax
purposes. Renewals and betterments are capitalized
when incurred. Costs of maintenance and repairs that
do not improve or extend asset lives are charged to
expense.
License agreements and organization expenses - License
agreements and organization expenses are amortized over
a five year life using the straight line method of
amortization. Amortization charged to operations was
$8,254 (1997), $16,510 (1996), and $15,142 (1995).
Environmental expenditures - If and when remediation of
a property is probable and the related costs can be
reasonably estimated, the environmentally-related
remediation costs will be expensed and recorded as
liabilities. If recoveries of environmental costs from
third parties are probable, a receivable will be
recorded. Management is not currently aware of any
required remediation.
Revenue recognition - For financial reporting purposes,
revenues from drilling operations are recognized in the
accounting period which corresponds with the
performance of the service to the customer. The
related costs and expenses are recognized when
incurred.
Federal income tax - The Company follows SFAS No.109, "Accounting
for Income Taxes", which accounts for income taxes using the
liability method. Under SFAS No.
F-10
<PAGE>
109, deferred tax liabilities and assets are
determined based on differences between the financial
statement and tax basis of assets and liabilities using
enacted tax rates expected to be in effect for the year
in which the differences are expected to reverse. The
net change in deferred tax assets and liabilities is
reflected in the statement of operations. The primary
differences between financial reporting and tax
reporting relate to the availability of a net operating
loss carryover, the use of accelerated methods of
depreciation for income tax purposes, and the taxation
of the Limited Partnership s operations to its
individual partners.
NOTE 2 - ACQUISITION OF HORIZONTAL VENTURES 1995 LIMITED
PARTNERSHIP AND RETIREMENT OF SUBORDINATED CONVERTIBLE
DEBENTURES:
In December, 1994, the Company organized a limited
partnership, Horizontal Ventures 1995 Limited Partnership,
in which the Company was the sole general partner, retaining
an interest of 20.83% for its services in organizing the
Limited Partnership. Limited partners contributed $760,000
in 1995 for the limited partners interests. The Limited
Partnership commenced operations in 1995. In 1996, one of
the limited partners performed services for the Company and
the Limited Partnership, and was given credit for an
additional capital contribution of $58,000 for such
services.
Substantially all drilling operations of the combined
entities were conducted through the Limited Partnership,
while the Company s role was to manage the Limited
Partnership and perform administrative functions. Due to
the Company s control over the Limited Partnership, the
Limited Partnership is deemed to be a subsidiary of the
company for the purposes of financial reporting.
On October 4, 1996, the then six limited partners, along
with an officer and shareholder of the Company, loaned the
Company $433,231, evidenced by subordinated convertible
debentures. The debentures bore a stated interest rate of
30% per annum, were unsecured, and were due October 4, 1999.
The holders had the right to convert the debentures into
shares of the Company s common stock within thirty days of
maturity at the rate of 1 share of stock for each $1.00 of
debt.
The Company issued 2,280 shares of its common stock to the
six limited partners as partial consideration for making the
loans. The transaction was valued at $1 per share, or
$2,280.
By agreement with the limited partners, the interest on the
debentures was waived by the limited partners. Accordingly
no interest was accrued and none is reflected in the
accompanying financial statements.
In early 1997, one of the limited partners, International
Publishing Holding, S.A. ( IPH ), a Luxembourg societe
anonyme, acquired all of the limited partners interests and
all of the debentures from the other limited partners and
debenture holders. Then, effective January 1, 1997, the
Company issued 725,770 shares of its common stock to IPH in
exchange for the net assets of the Limited Partnership and
in exchange for cancellation of the subordinated
F-11
<PAGE>
covertible debentures, and the Limited Partnership was merged into the
Company using the companies historical accounting bases
similar to pooling of interests accounting.
The net loss of the respective entities for the years ended
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Horizontal Ventures, Inc. ($123,371) ($53,601)
Horizontal Ventures
1995 Limited Partnership (320,887) (473,879)
---------- ---------
Subtotal (444,258) (527,480)
Less, Horizontal Ventures, Inc.'s
share of partnership
loss, eliminated in consolidation 67,125 104,696
---------- --------
Net loss ($377,133)($422,784)
========== ========
</TABLE>
NOTE 3 - STOCK SUBSCRIPTIONS RECEIVABLE:
On May 28, 1997, the Company issued 3,000,000 shares of its
Series A Preferred Stock at a price of $.20 per share, in
exchange for promissory notes and stock subscription
agreements totaling $600,000. Of the $600,000 total amount
of stock subscriptions, $30,000 was paid prior to June 30,
1997, and the remaining $570,000 was paid at varying dates
between July 1, 1997 and September 8, 1997.
NOTE 4 - PROPERTY AND EQUIPMENT:
A summary of the Company's property and equipment is as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Land and buildings $85,814 $85,814
Drilling equipment 617,194 638,382
Transportation equipment 116,701 135,442
Office and computer
equipment 20,134 17,434
-------- --------
Subtotal 839,843 877,072
Less,Accumulated
depreciation 183,522 142,418
------- -------
Net property and
equipment $656,321 $734,654
======== ========
</TABLE>
Depreciation charged against income was $85,070 (1997),
$105,198 (1996), and $77,293 (1995).
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
The Company is obligated on an operating lease for office
space requiring rentals of $1,106 per month, and expiring in
April, 2000. The Company has an option to renew the lease
for an additional one year period at the market rate.
Aggregate commitments under the lease at June 30, 1997 were
as follows:
F-12
<PAGE>
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Six months ending December 31, 1997 $6,636
Year ending December 31:
1998 13,272
1999 13,272
2000 4,424
----------
Total $37,604
==========
</TABLE>
Rent expense included in the accompanying statements of
operations was $4,518 (1997), $9,891 (1996), and $25,450
(1995).
In October 1994, the Company licensed certain directional
drilling technology from Amoco Corporation, a major oil
corporation. The license requires minimum annual payments
of $15,000 per year or $1,500 per well drilled under the
license, whichever is greater, and the amounts are adjusted
periodically for inflation. The minimum amount had been
adjusted to $1,630 effective January 1, 1996 and $1,639
effective January 1, 1997. The Company incurred license
payments approximating $3,300 for the six months ended June
30, 1997, $19,900 for 1996, and $18,000 for 1995. Quarterly
settlements are required under the license, and Amoco has
the right to terminate the license for non-payment. At June
30, 1997, the Company was delinquent in paying accrued
royalties, and the balance owed was approximately $20,000.
If Amoco were to terminate the Company s license, it could
have an adverse affect on the Company s operations.
NOTE 6 - FEDERAL INCOME TAXES:
The Limited Partnership filed a U.S. Partnership Income Tax
Return for the years ended December 31, 1996 and 1995.
Accordingly, its income (loss) was taxable to (deductible
by) the limited partners. A summary of the principal
differences between book and taxable income is as follows:
<TABLE>
<CAPTION>
Taxed To
-----------------------------------
Limited The
Partners Company Total
------------------------------------
<S> <C> <C> <C>
Six months ended June 30,
1997:
Net (loss) - ($193,150) ($193,150)
Permanent differences 633 633
Timing differences:
Depreciation (31,898) (31,898)
Net operating loss carryover (227,164) (227,164)
-------- --------- ---------
Taxable (loss) - ($451,579) ($451,579)
======== ========= =========
F-13
<PAGE>
Calendar year 1996:
Net (loss) - see Note 2 ($253,762) ($123,371) ($377,133)
Permanent differences 3,747 1,793 5,540
Timing differences:
Depreciation (60,944) (16,038) (76,982)
Net operating loss carryover - (89,548) (89,548)
-------- --------- ---------
Taxable (loss) ($310,959) ($227,164) ($538,123)
========== ========= =========
Calendar year 1995:
Net (loss) - see Note 2 ($369,183) ($53,601) ($422,784)
Permanent differences 2,662 1,799 4,461
Timing differences:
Depreciation (22,682) (5,969) (28,651)
Net operating loss carryover - (31,777) (31,777)
--------- --------- ---------
Taxable (loss) ($389,203) ($89,548) ($478,751)
========= ========= =========
</TABLE>
The Company follows SFAS No. 109, "Accounting for Income
Taxes" in accounting for deferred Federal income taxes.
Pursuant to the requirements of SFAS No. 109, the Company
has recorded deferred tax assets and liabilities, using an
expected tax rate of 35%, as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Deferred tax asset
(liability) attributable to:
Net operating loss carryover $158,000 $79,500
Accumulated depreciation (48,000) (7,700)
---------- --------
Subtotal 110,000 71,800
Less, Valuation allowance (110,000) (71,800)
---------- --------
Net deferred tax asset $ - $ -
========== ========
</TABLE>
At June 30, 1997, the Company had a net operating loss
carryforward for Federal income tax purposes of
approximately $451,600 which will expire, if unused, as
follows:
<TABLE>
<CAPTION>
Expires in: Amount
<S> <C>
2009 $31,800
2010 57,800
2011 137,600
2012 224,400
----------
Total $451,600
==========
</TABLE>
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the
following:
F-14
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- -----------
<S> <C> <C>
Accounts payable, trade $110,481 $123,604
Accrued royalty payable,
Amoco Corporation 20,175 19,900
Payroll taxes accrued
and withheld 344 7,721
Other accrued expenses 1,931 10,604
--------- -----------
Total $132,931 $161,829
========= ===========
</TABLE>
NOTE 8 - NOTES PAYABLE:
At June 30, 1997, the Company was indebted on a short term
note payable to a bank that bears interest at 12% and is
collateralized by substantially all the Company s accounts
receivable and equipment. The note was paid on July 2,
1997.
Details of long term notes payable are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- --------------
<S> <C> <C>
Note to investment company
dated June 9, 1995,
payable $1,006 monthly
including 10.50% interest,
due in June, 2005,
collateralized by
land and building
costing $85,814 $65,162 $67,700
Note to bank dated February 28,
1995, payable $549 monthly
including 9.99% interest,
due in March 2000,
collateralized by vehicle
costing $25,757 16,078 18,500
Note to bank dated October
18, 1996, payable $456
monthly including 12.50%
interest, due in November
2001, collateralized by
vehicle costing $36,830 8,475 19,917
Note to bank dated July 30,
1996, payable $4,000
monthly plus 12% interest,
due in July, 1997,
collateralized by all
remaining equipment 16,201 54,280
Note to bank dated February 28,
1995, payable $400 monthly
including 9.99% interest,
due in March 2000 but paid in
April 1997, collateralized
by vehicle costing $18,741
which was disposed of
in April 1997 - 13,468
--------- ---------
Total 105,916 173,865
Less, Amount due
within one year (27,372) (65,663)
--------- ---------
Net long term
portion $78,544 $108,202
========= =========
</TABLE>
F-15
<PAGE>
Maturities of long term notes are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Due during year
ending December 31:
1997 $21,857 $65,663
1998 11,319 25,160
1999 12,535 20,995
2000 12,346 14,187
2001 12,626 12,627
Thereafter 35,233 35,233
----------- ---------
Total $105,916 $173,865
=========== =========
</TABLE>
NOTE 9 - LITIGATION:
At June 30, 1997, the Company was the plaintiff in a lawsuit
against David J. LaPrade, a shareholder, former officer and
director, and an organizer of the Company, and Mr. LaPrade s
current employer. The Company seeks to recover losses from
alleged breach of fiduciary duty, misappropriating
confidential information and property of the Company, using
it in unfair competition with the Company, interfering with
the Company s existing and prospective relationships with
its customers, interfering with the Company s relationships
with its employees, and conversion of Company property.
Mr. LaPrade has made counterclaims against the Company for
breach of his employment agreement, libel and slander, and
intentional infliction of emotional distress; he seeks
actual damages in excess of $10,000 and punitive damages in
an unspecified amount. Management believes that its claims
against Mr. LaPrade will be successful and that it will
recover damages; moreover, management believes that Mr.
LaPrade s counterclaim will not result in a material
liability to the company. The accompanying financial
statements do not include provision for any loss which might
result from Mr. LaPrade s counterclaim, nor do they include
any asset that might result from the Company s claims
against Mr. LaPrade.
Also at June 30, 1997, the Company was a defendant in a
lawsuit by Dr. Warren G. Gwartney to collect for sums due on
a promissory note in the original principal amount of
$50,000 entered into individually by Mr. LaPrade and another
former officer and employee, A.B.C. Paulsen. The lawsuit
seeks repayment of the $25,000 balance due on the note, plus
interest at 9-3/4% from October 28, 1996, costs and attorney
fees. On September 16, 1997, the Court granted Dr. Gwartney
a summary judgment against Messrs. LaPrade and Paulsen, but
denied summary judgment against the Company. The Company
plans to request the Court to grant summary judgment in its
favor on the basis that there is no written agreement
between the parties to obligate the Company. Management
believes it will be successful in its arguments.
Accordingly, the accompanying financial statements do not
include provision for any loss which might result from Dr.
Gwartney's lawsuit.
At June 30, 1997, the Company had trade accounts receivable
of $69,493 from four debtors, some of whom have refused to
pay. Although no lawsuits have been filed to collect these
debts, management is currently continuing to have
discussions with the debtors in an effort to resolve any
disputes and collect the amounts due. In one case, the
Company has a lien against an oil and
F-16
<PAGE>
gas property, and in another it has received a written promise to pay
the amount due. If continuing efforts are unsuccessful, the Company
intends to pursue its claims through other legal actions,
and believes it will be successful. An allowance for
doubtful accounts of 50% of the balance due has been
provided for any uncollectible amounts, and management
believes it will be adequate to absorb any losses.
NOTE 10 - RELATED PARTY TRANSACTIONS:
From time to time, certain officers, directors, or limited
partners have loaned funds to the Company. At June 30,
1997, the Company was indebted to related parties as
follows:
<TABLE>
<CAPTION>
June 30, 1997
----------------
<S> <C>
Advance from shareholder
and former President,
not evidenced by a promissory
note, unsecured, currently due $2,500
Loan from shareholder, former
officer, and former limited
partner, evidenced by a
promissory note dated April 1,
1997, due December 31, 1998,
bearing interest at 8%, unsecured 57,978
----------------
Total $60,478
================
</TABLE>
NOTE 11 - Advertising:
The Company expense the production costs of advertising the
first time the advertising takes place. The Company has not
engaged in direct response advertising through June 30,
1997. There was no prepaid advertising reported as assets
at December 31, 1996 or June 30, 1997. Advertising expense
approximated $3,500 (1997), $7,900 (1996), and $6,900
(1995).
NOTE 12 - MERGER WITH PETRO UNION, INC.:
On June 13, 1997, the Company entered into an agreement with
Petro Union, Inc. ( Petro Union ) under which all of the
outstanding common and preferred shares of the Company would
be acquired by Petro Union. Petro Union is also engaged in
performing contract drilling services using the licensed
Amoco technology, and its stock had been listed on the
NASDAQ SmallCap Market, and although currently de-listed,
application has been made with NASDAQ for it to be re-
listed. Petro Union was subject to supervision in the U.S.
Bankruptcy Court for the Southern District of Indiana under
Chapter 11 of the U.S. Bankruptcy Code, and the agreement
with the Company was part of Petro Union s Plan of
Reorganization. On August 28, 1997, the Bankruptcy Court
approved the Plan, the principal points of which are as
follows:
- - The par value of Petro Union stock is to be converted from
$.125 par value to no par value.
- - All secured debt is to be paid according to the terms
previously contracted for.
- - Unsecured creditors in class C-1 are to receive 20,000
shares of new Petro Union no par value stock in
satisfaction of their claims, and unsecured creditors in
class C-2 are to receive 80,000 shares of new Petro Union
no par value stock in satisfaction of their claims.
F-17
<PAGE>
The priority post-petition promissory note of Pembrooke
Holding Co., in the amount of $150,000 is to be paid with
$100,000 in cash and the issuance of 49,999 shares of new
Petro Union no par value stock valued at $50,000.
Existing shareholders are to receive new Petro Union no par
value stock in the ratio of 1 new share for each 220
shares of old stock.
Randeep C. Grewal, CEO of Horizontal Ventures, Inc. and
Richard D. Wedel, President of Petro Union are to receive
70,000 shares each of new Petro Union no par value stock
valued at $20,000 each, or $40,000 in total.
IPH agreed to loan $200,000 to Petro Union secured by 50%
interest in certain nonproducing limestone reserves; the
loan will then be converted into 40,000 shares of new
Petro Union no par value stock.
Petro Union will issue 590,000 shares of new no par value
stock for all the outstanding common and preferred stock
of Horizontal Ventures, Inc.
After the Plan is implemented, Horizontal Ventures
shareholders will own approximately 63% of the new Petro
Union no par value stock.
Following are summary balance sheets of Petro Union, Inc.,
based on Form 10-Q for the six months ended June 30, 1997
and Form 10-K for the year ended December 31, 1996 filed
with the Securities and Exchange Commission:
F-18
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Assets:
Current assets $156,267 $185,141
Properties and equipment 4,205,701 4,237,267
---------- ------------
Total assets $4,361,968 $4,422,408
=========== ============
Liabilities:
Liabilities not subject to compromise:
Current liabilities 296,589 298,265
Long term notes payable 16,416 16,416
----------- -----------
Total liabilities not
subject to compromise 313,005 314,681
Liabilities subject
to compromise 24,601,847 24,601,847
---------- -----------
Total liabilities 24,914,852 24,916,528
---------- -----------
Stockholders equity (deficit):
Common stock and
paid in capital 16,268,331 16,253,331
Accumulated deficit (36,821,215) (36,747,451)
Total stockholders
equity (deficit) (20,552,884) (20,494,120)
------------ ------------
Total liabilities
and stockholders
equity $4,361,968 $4,422,408
============ ============
</TABLE>
Had the acquisition of Horizontal Ventures taken place on
June 30, 1997, the summary pro-forma consolidated balance of
the combined enterprises, after giving effect to the
transactions in the Plan of Reorganization and the merger
agreement, would be as follows, using accounting principles
applicable to a reverse merger:
<TABLE>
<CAPTION>
June 30, 1997
--------------
<S> <C>
Assets:
Current assets $770,343
Properties and equipment 4,862,022
Other assets 57,471
---------------
Total assets $5,689,836
===============
Liabilities:
Current liabilities $427,993
Non-current liabilities 94,960
---------------
Total liabilities 522,953
---------------
Stockholders equity:
Common stock 6,191,781
Accumulated deficit (1,024,898)
Total stockholders equity 5,166,883
---------------
Total liabilities and
stockholders equity $5,689,836
===============
</TABLE>
F-19
<PAGE>
Pro-forma summary statements of operations, combining Petro
Union, Inc., and Horizontal Ventures, Inc., are as follows,
assuming the merger had occurred January 1, 1996:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
----------------------------------
Petro Horizontal
Union Ventures,
Inc. Inc. Pro-Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues $189,918 $129,165 $319,083
Cost of revenues 93,140 113,864 207,004
--------- ----------- ---------
Gross profit 96,778 15,301 112,079
General and
administrative
expenses (a) 128,208 172,086 300,294
--------- ----------- -----------
(Loss) from
operations (31,430) (156,785) (188,215)
Other income
(expense) (40,651) (36,365) (77,016)
--------- ------------ ------------
(Loss)
before tax (72,081) (193,150) (265,231)
Provision for taxes - - -
--------- ----------- ------------
Net (loss) ($72,081) ($193,150) ($265,231)
========= =========== ============
Year Ended December 31, 1996
-----------------------------------------
Petro Horizontal
Union, Ventures,
Inc. Inc. Pro-Forma
---------- ----------- ---------
Revenues $403,968 $604,475 $1,008,443
Cost of revenues 239,008 367,419 606,427
---------- ----------- ----------
Gross profit 164,960 237,056 402,016
General and
administrative
expenses (a) 354,299 594,402 948,701
---------- ----------- ---------
(Loss) from
operations (189,339) (357,346) (546,685)
Other
income (expense) (81,462) (19,787) (101,249)
----------- ------------- ---------
(Loss) from
continuing
operations
before tax (270,801) (377,133) (647,934)
Provision for
taxes - - -
---------- ---------- ----------
Net (loss) from
continuing
operations (270,801) (377,133) (647,934)
----------- ---------- ----------
Loss from discontinued
operations (24,092,791) - (24,092,791)
------------- ---------- -----------
Net (loss) ($24,363,592) ($377,133) ($24,740,725)
============== ========== ============
</TABLE>
a - Includes $40,000 in additional expense for issuance
of stock for services.
F-20
<PAGE>
EXPLANATION OF PRO-FORMA FINANCIAL STATEMENTS:
The following pro-forma statments reflect the balance sheets
and statements of operations of Petro Union, Inc. adjusted
to show the pro-forma effects of:
- The implementation of its Plan of Reorganization, as
approved by the U.S. Bankruptcy Court for the Southern
District of Indiana on August 28, 1997, and
- The acquisition of all of the outstanding stock of
Horizontal Ventures, Inc., which has been accounted for
as a reverse merger, using the historical cost bases of
the respective companies.
F-21
<PAGE>
PETRO UNION, INC. AND SUBSIDIARIES
(A Debtor In Possession)
PRO-FORMA Consolidated Balance Sheet
June 30, 1997
<TABLE>
<CAPTION>
Petro Union, Inc.
------------------- Horizontal
Per Form Pro-Forma As Ventures,
10-Q Adjustments Adjusted Inc. PRO-FORMA
----------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 8,467 A $ 100,000 $ 108,467 $ 10,525 $ 118,992
Restricted cash, certificates
of deposit 30,747 30,747 30,747
Accounts receivable:
Trade 117,053 (1) (117,053) - 34,746 34,746
Employees 6,668 6,688
Related parties 9,170 9,170
Stock subscriptions receivable 570,000 570,000
---------- ----------- ---------- ---------- ---------
Total current assets 156,267 139,214 631,129 770,343
---------- ----------- ---------- ---------- ---------
Properties and
equipment, net 4,205,701 4,205,701 656,321 4,862,022
----------- ----------- ---------- --------- ----------
Other assets 57,471 57,471
----------- ----------- ----------- --------- ----------
Total assets $ 4,361,968 $ (17,053) $ 4,344,915 $ 1,344,921 $ 5,689,836
============ =========== ============= =========== ===========
</TABLE>
F-22
<PAGE>
PETRO UNION, INC. AND SUBSIDIARIES
(A Debtor In Possession)
PRO-FORMA Consolidated Balance Sheet
June 30, 1997
<TABLE>
<CAPTION>
Petro Union, Inc.
------------------- Horizontal
Per Form Pro-Forma As Ventures,
10-Q Adjustments Adjusted Inc PRO-FORMA
---------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise:
Current liabilities:
Short term notes payable and
current maturities of long term
notes, pre-petition $ 6,700 $ 6,700 $ 87,995 $ 94,695
Short term note payable, post-
petition 150,000 (3) (150,000) - -
Accounts payable, trade,
post- petition 23,488 23,488 132,931 156,419
Accrued taxes, pre-petition 14,306 14,306 14,306
Other accrued expenses 102,095 102,095 102,095
Due to related parties 60,478 60,478
Customer payments received
in advance -
---------- ----------- --------- --------- ----------
Total current liabilities 296,589 146,589 281,404 427,993
--------- ----------- --------- --------- ---------
Long term note payable, net of
portion due within one year,
pre-petition 16,416 16,416 78,544 94,960
--------- ---------- --------- --------- ----------
Liabilities subject to compromise:
Accounts payable and accrued
expenses 296,968 (6) (296,968) - - -
Advances from
related parties 52,088 (6) (52,088) - -
Advance on joint
venture agree 230,000 B (230,000) - -
Amounts arising from guaranties
of discontinued
operations 24,022,791 (6) (24,022,791) - -
Total liabilities subject to
compro 24,601,847 - - -
------------ ------------ ------------ ------------ ------------
Total liabilities 24,914,852 163,005 359,948 522,953
------------ ----------- ------------ ----------- -----------
Commitments and contingencies -
Stockholders' equity (deficit):
Common stock 2,192,243 C 38,850,882 41,043,125 (34,851,344) 6,191,781
Capital in excess of
par value 14,076,088 (2) (14,076,088) - -
Accumulated deficit (36,821,215)(5) (40,000) (36,861,215) 35,836,317 (1,024,898)
---------------- ----------- ------------ ----------- -----------
(20,552,884) 4,181,910 984,973 5,166,883
Less, Stock subscription rece - - - -
--------------- ----------- ----------- ----------- ----------
Total stockholders'
equity (20,552,884) 4,181,910 984,973 5,166,883
--------------- ----------- ---------- ------------ ---------
Total liabilities and stockholders'
equity (deficit) $ 4,361,968 $ (17,053) $ 4,344,915 $ 1,344,921 $ 5,689,836
=============== =========== ========== =========== ===========
</TABLE>
F-23
<PAGE>
PETRO UNION, INC. AND SUBSIDIARIES
(A Debtor In Possession)
PRO-FORMA Consolidated Statements of Operations
For The Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Petro Union, Inc.
--------------------- Horizontal
Per Form Pro-Forma As Ventures, PRO-
10-Q Adjustments Adjusted Inc. FORMA
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 189,918 $ 189,918 $ 129,165 $ 319,083
Cost of revenues 93,140 93,140 113,864 207,004
----------- ---------- --------- ----------
Gross profit 96,778 96,778 15,301 112,079
General and administrative expenses 88,208 (5) 40,000 128,208 172,086 300,294
----------- ----------- --------- ----------
-
Income (loss) from continuing ope 8,570 (31,430) (156,785) (188,215)
----------- ----------- --------- ----------
Other income (expense):
Other (37,651) (37,651) (21,062) (58,713)
Interest income - - 5,776 5,776
Interest expense (3,000) (3,000) (21,079) (24,079)
------------ ----------- --------- --------
Net other income (expense) (40,651) (40,651) (36,365) (77,016)
------------ ----------- --------- --------
Net loss from continuing operations
before taxes on income (32,081) (72,081) (193,150) (265,231)
------------ ----------- --------- ----------
Provision for taxes on income - - -
Net loss from discontinued
operations (32,081) (72,081) (193,150) (265,231)
------------ ----------- --------- ----------
Discontinued operations:
Loss from discontinued operations - - -
-------------- ----------- ---------- ---------- ------------
Net loss $ (32,081) $ (40,000) $ (72,081) $ (193,150) $ (265,231)
============== ============ =========== =========== =============
Loss per share $ (0.018) $ (0.1758) $ (0.2652)
============== =========== ============
Weighted average number of
common shares used to
compute loss per share 17,537,945 409,999 999,999
============== =========== ===========
</TABLE>
F-24
<PAGE>
PETRO UNION, INC. AND SUBSIDIARIES
(A Debtor In Possession)
Notes To PRO-FORMA Consolidated Financial Statements
June 30, 1997
Note 1 - Explanation of pro-forma financial statments and pro-forma adjust-
ments:
The accompanying pro-forma financial statements reflect
the balance sheets and statements of operations of Petro Union,
Inc. adjusted to show the pro-forma effects of:
- The implementation of its Plan of Reorganization, as approved by
the U.S. Bankruptcy Court for the Southern District of Indiana on
August 28, 1997, and
- The acquisition of all of the outstanding stock of Horizontal
Ventures, Inc., which has been accounted for as a reverse merger,
using the historical cost bases of the respective companies.
The adjustments to individual items are described as follows:
(1) - Offset of Accounts receivable from joint venturer ($117,053) against
Advance on joint venture.
(2) - Conversion of stock to no par value ($14,076,088)
(3) - Payment of Pembrooke note with $100,000 in cash and 49,999 shares of
common stock. ($50,000)
(4) - Loan of $200,000 from IPH, then conversion of said loan to 40,000
shares of common stock.
(5) - Issuance of 70,000 shares each to Richard D. Wedel and Randeep C.
Grewal for services, estimated to have a value of $20,000 each,
or $40,000 in total.
(6) - Issuance of 20,000 shares to Class C-1 creditors and 80,000 shares to
Class C-2 creditors in full satisfaction of pre-petition liabilities.
($24,484,794)
(7) - Issuance of 590,000 shares for 100% of outstanding stock of Horizontal
Ventures, Inc., presented herein on a consolidated basis, ie, the
assets and liabilities of HVI are presented. ($984,973), accounted
for as a reverse acquisition.
<TABLE>
<CAPTION>
<S> <C>
A - Details of adjustment to Cash:
(3) - Payment of Pembrooke note (100,000)
(4) - Loan from IPH 200,000
---------
100,000
=========
B - Details of adjustment to Advance on joint venture agreement:
(1) - Offset of account receivable (117,053)
(6) - Issuance of stock for remainder of ba (112,947)
----------
(230,000)
==========
C - Details of adjustment to Common stock:
(2) - Conversion of stock to no par value 14,076,088
(3) - Issuance of stock in
partial satisfaction of
Pembrooke note 50,000
(4) - Conversion of IPH loan into common st 200,000
(5) - Issuance of shares to Messrs.
Grewal and Wedel 40,000
(6) - Issuance of shares to creditors
in full satisfaction
of balances due 24,484,794
-----------
38,850,882
===========
</TABLE>
F-25
<PAGE>
PETRO UNION, INC. AND SUBSIDIARIES
(A Debtor In Possession)
PRO-FORMA Consolidated Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
Petro Union, Inc.
-------------------- Horizontal
Per Form Pro-Forma As Ventures,
10-K Adjustments Adjusted Inc PRO-FORMA
---------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 22,132 A $100,000 $122,132 $ 6,458 $ 128,590
Restricted cash,
certificates of deposit 30,747 30,747 30,747
Accounts receivable:
Trade 132,262 (1) (117,053) 15,209 83,221 98,430
Employees 3,953 3,953
Related parties - -
Stock subscriptions
receivable - -
--------- ---------- -------- --------- ---------
Total current assets 185,141 168,088 93,632 261,720
--------- ---------- -------- --------- ---------
- -
Properties and
equipment, net 4,237,267 4,237,267 734,654 4,971,921
--------- ----------- --------- -------- ----------
- -
Other assets - 72,393 72,393
--------- ----------- --------- -------- ----------
Total assets $ 4,422,408 $ (17,053) $ 4,405,355 $ 900,679 $ 5,306,034
=========== =========== =========== ========= ============
F-26
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise:
Current liabilities:
Short term notes payable and
current maturities of
long term notes,
pre-petition $ 6,700 $ 6,700 $ 177,683 $ 184,383
Short term note payable,
post-petition 150,000 (3) (150,000) - -
Accounts payable, trade,
post-petition 31,164 31,164 161,829 192,993
Accrued taxes,
pre-petition 14,306 14,306 14,306
Other accrued
expenses 96,095 96,095 96,095
Due to related parties - -
Customer payments
received
in advance 30,000 30,000
--------- --------- --------- --------
Total current
liabilities 298,265 148,265 369,512 517,777
---------- --------- --------- --------
Long term note payable,
net of portion due
within one year,
pre-petition 16,416 16,416 541,433 557,849
---------- --------- --------- --------
Liabilities subject to compromise:
Accounts payable and accrued
expenses 296,968 (6) (296,968) - -
Advances from
related parties 52,088 (6) (52,088) - -
Advance on joint
venture agreement 230,000 B (230,000) - -
Amounts arising from
guaranties
of discontinued
operations 24,022,791 (6) (24,022,791) - -
------------- --------- --------- -----------
Total liabilities
subject to compro 24,601,847 - -
------------- ---------- --------- ------------
Total liabilities 24,916,528 164,681 910,945 1,075,626
------------- ---------- --------- ------------
Commitments and contingencies -
Stockholders' equity (deficit):
Common stock 2,192,243 C 38,850,882 41,043,125 (35,980,969) 5,062,156
Capital in excess
of par value 14,076,088 (2) (14,076,088) - -
Accumulated deficit (36,747,451)(5) (40,000) (36,787,451) 35,955,703 (831,748)
-------------- ------------ ---------- -----------
(20,479,120) 4,225,674 (25,266) 4,230,408
Less, Stock
subscription
receivable (15,000) (15,000) (15,000) -
------------- ----------- ---------- ----------
Total stockholders'
equity(deficit) (20,494,120) 4,240,674 (10,266) 4,230,408
------------- ---------- --------- ------------
Total liabilities and
stockholders'
equity (deficit)$ 4,422,408 $ (17,053) $ 4,405,355 $ 900,679 $ 5,306,034
============ ========== =========== ========== =============
- - - - -
</TABLE>
F-27
<PAGE>
PETRO UNION, INC. AND SUBSIDIARIES
(A Debtor In Possession)
PRO-FORMA Consolidated Statements of Operations
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
Petro Union, Inc.
--------------------- Horizontal
Per Form Pro-Forma As Ventures, PRO-
10-K Adjustments Adjusted Inc. FORMA
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 403,968 $ 403,968 $ 604,475 $ 1,008,443
Cost of revenues 239,008 239,008 367,419 606,427
---------- ---------- --------- -----------
Gross profit 164,960 164,960 237,056 402,016
General and administrative
expenses 314,299 (5) 40,000 354,299 594,402 948,701
------------ ----------- ---------- -----------
-
Loss from continuing operations (149,339) (189,339) (357,346) (546,685)
------------ ----------- ---------- -----------
Other income (expense):
Other (64,200) (64,200) 15,091 (49,109)
Interest income 1,636 1,636 61 1,697
Interest expense (18,898) (18,898) (34,939) (53,837)
------------ ----------- ----------- -----------
Net other income (expense) (81,462) (81,462) (19,787) (101,249)
------------ ----------- ----------- -----------
Net loss from continuing operations
before taxes on income (230,801) (270,801) (377,133) (647,934)
Provision for taxes on income - - -
------------ --------- ----------- ----------
Net loss from continuing operati (230,801) (270,801) (377,133) (647,934)
------------ ---------- ----------- ----------
Discontinued operations:
Loss from discontinued
operation (24,092,791) (24,092,791) (24,092,791)
------------- ----------- ------------- ------------ ------------
-
Net loss $ (24,323,592) $ (40,000) $ (24,363,592) $ (377,133) $ (24,740,725)
============== ============== ============= ============ ==============
Loss per share $ (1.3960) $ (59.4235) $ (24.7408)
============== ============= ==============
Weighted average number of common
shares used to
compute loss per share 17,423,621 409,999 999,999
============= ============ ==============
</TABLE>
F-28
<PAGE>
PETRO UNION, INC. AND SUBSIDIARIES
(A Debtor In Possession)
Notes To PRO-FORMA Consolidated Financial Statements
December 31, 1996
Note 1 - Explanation of pro-forma financial statments and pro-forma adjust-
ments:
The accompanying pro-forma financial statements reflect the balance sheets and
statements of operations of Petro Union, Inc. adjusted to show the pro-forma
effects of:
- The implementation of its Plan of Reorganization, as approved by
the U.S. Bankruptcy Court for the Southern District of Indiana on
August 28, 1997, and
- The acquisition of all of the outstanding stock of Horizontal
Ventures, Inc., which has been accounted for as a reverse merger,
using the historical cost bases of the respective companies.
The adjustments to individual items are described as follows:
(1) - Offset of Accounts receivable from joint venturer ($117,053) against
Advance on joint venture.
(2) - Conversion of stock to no par value ($14,076,088)
(3) - Payment of Pembrooke note with $100,000 in cash and 49,999 shares of
common stock. ($50,000)
(4) - Loan of $200,000 from IPH, then conversion of said loan to 40,000 shares
of common stock.
(5) - Issuance of 70,000 shares each to Richard D. Wedel and Randeep C.
Grewal for services, estimated to have a value of $20,000 each, or
$40,000 in total.
(6) - Issuance of 20,000 shares to Class C-1 creditors and 80,000 shares to
Class C-2 creditors in full satisfaction of pre-petition liabilities.
($24,484,794)
(7) - Issuance of 590,000 shares for 100% of outstanding stock of
Horizontal Ventures, Inc., presented herein on a consolidated basis,
ie, the assets and liabilities of HVI are presented. ($984,973),
accounted for as a reverse acquisition.
<TABLE>
<CAPTION>
<S> <C>
A - Details of adjustment to Cash:
(3) - Payment of Pembrooke note (100,000)
(4) - Loan from IPH 200,000
---------
100,000
=========
B - Details of adjustment to Advance on joint venture agreement:
(1) - Offset of account receivable (117,053)
(6) - Issuance of stock for remainder of ba (112,947)
----------
(230,000)
===========
C - Details of adjustment to Common stock:
(2) - Conversion of stock to no par value 14,076,088
(3) - Issuance of stock in partial
satisfaction of
Pembrooke note 50,000
(4) - Conversion of IPH loan into common st 200,000
(5) - Issuance of shares to Messrs. Grewal and
Wedel 40,000
(6) - Issuance of shares to
creditors in full satisfaction
of balances due 24,484,794
------------
38,850,882
============
</TABLE>
F-29
