<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
-------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
--------------- ---------------
Commission File No. 0-7870
------
EVRO CORPORATION
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Florida 59-3229961
- ------------------------------------------ ---------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7501 W. Irlo Bronson Memorial Hwy., Suite 105, Kissimmee, Florida 34747
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(407) 397-0550
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
3101 SW 34th Avenue 905-427, Ocala, Florida 34474
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
year.)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of November 13, 1995, the
Company had 2,497,957 shares of Common Stock outstanding, no par value.
<PAGE> 2
EVRO CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(Unaudited)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 84,079
Notes receivable (current portion) 175,000
Other receivables 154,724
Inventories - net 222,824
Prepaid expenses 29,530
Net current assets of discontinued operations 0
------------
Total current assets 666,157
------------
PROPERTY AND EQUIPMENT
(less accumulated depreciation of $ 437,895) 3,447,965
------------
INVESTMENTS AND OTHER ASSETS:
Notes receivable (less current portion) 20,000
Investments and loan receivable 231,143
Proprietary technology 118,412
Unamortized goodwill 3,306,733
Other - net 7,644
Net other assets of discontinued operations 0
------------
Total other assets 3,683,932
------------
TOTAL ASSETS $ 7,798,054
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 1,516,219
Accounts payable 515,202
Amounts due to affiliates
The Stellar Companies, Inc. 769,118
American Clinical Labs 13,007
Other current liabilities 900,245
Net current liabilties of discontinued operations 257,897
------------
Total current liabilities 3,971,688
LONG-TERM DEBT:
Long-term debt 1,381,278
Refundable memberships 40,000
Net long-term debt of discontinued operations 0
------------
TOTAL LIABILITIES 5,392,966
------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value
Series C convertible preferred stock 954,000
Series D convertible preferred stock 4,084,153
Series E convertible preferred stock 30,000
Series F convertible preferred stock 138,780
Series I convertible preferred stock 955,469
Common stock, no par value 3,731,962
Unearned compensation (2,444,221)
Accumulated deficit (5,018,453)
------------
2,431,690
Less: Common stock held by Technology Holdings, Inc.
293 common shares at cost (26,602)
------------
TOTAL STOCKHOLDERS' EQUITY 2,405,088
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,798,054
============
</TABLE>
See notes to consolidated financial statements
2
<PAGE> 3
EVRO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
09/30/95 09/30/94 09/30/95 09/30/94
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SALES AND REVENUES
Memberships and other revenues $ 526,374 $ $ 1,041,592 $
Product sales 0 176,278 2,147
------------ ---------- ------------ -------------
526,374 0 1,217,870 2,147
COST OF SALES AND REVENUES 257,871 28,209 740,016 28,483
------------ ---------- ------------ -------------
GROSS MARGIN 268,503 (28,209) 477,854 (26,336)
------------ ---------- ------------ -------------
OPERATING EXPENSES:
Selling, general and administrative 873,141 113,646 2,061,806 257,969
Management and accounting services
provided by The Stellar Companies, Inc. 312,500 287,500 937,500 862,500
Depreciation and amortization 85,204 8,279 213,609 24,839
------------ ---------- ------------ -------------
1,270,845 409,425 3,212,915 1,145,308
------------ ---------- ------------ -------------
OPERATING LOSS OF CONTINUING OPERATIONS (1,002,342) (437,634) (2,735,061) (1,171,644)
OTHER INCOME (EXPENSES)
Interest expense (25,419) (22,017) (112,473) (66,051)
Other-net (6,771) 2,212
------------ ---------- ------------ -------------
NET LOSS OF CONTINUING OPERATIONS (1,034,532) (459,651) (2,845,322) (1,237,695)
LOSS OF DISCONTINUED OPERATIONS (55,476) (88,640)
------------ ---------- ------------ -------------
NET LOSS $ (1,090,008) $ (459,651) $ (2,933,962) $ (1,237,695)
============ ========== ============ =============
NET LOSS PER SHARE $ (0.44) $ (0.98) $ (1.29) $ (2.64)
============ ========== ============ =============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,490,396 468,100 2,276,041 468,100
============ ========== ============ =============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
EVRO CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Held By
Common Stock Technology Holdings, Inc. Preferred Stock
------------ ------------------------- ---------------
Shares $ Shares $ Series C Series D
------ - ------ - -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 59,734,634 $ 4,953 $ $ $ $
Adjustment to reflect reverse
purchase acquisition of EVRO
Corporation (57,536,969) 6,251,957
Issuance of Preferred Series D
Convertible Preferred Stock, no par
value (16,985 shares) (4,084,153) 4,084,153
Issuance of Preferred Series E
Convertible Preferred Stock, no par
value (30,000 shares) (30,000)
Return and cancellation of common
stock issued to STELLAR in exchange
for 1,274 shares of Series F Convertible
Preferred Stock, no par value (500,000) (1,280)
Issuance of 20 shares of Series F
Convertible Preferred Stock to law firm
firm in lieu of The Stellar Companies, Inc.
Proceeds from sale of common stock 224,000 162,500
Proceeds from sale of Series C
Convertible Preferred Stock, no par
value ( 65,500 shares) (67,515) 655,000
Common stock issued pursuant to the
1995 Employee Stock Compensation
Plan 576,000 1,755,500
Series I Convertible Preferred Stock, no
par value, issued pursuant to financial
consulting agreements
Series C Convertible Preferred Stock
issued:
As collateral for note payable
(26,000 shares) (260,000) 260,000
In settlement of litigation (3,900 shares) 39,000
Purchase of common stock by
Technology Holdings, Inc. 293 (26,602)
Stock compensation earned during the
nine months ended September 30, 1995
Loss for the nine months ended
September 30, 1995
----------- ------------- ------- ----------- --------- -----------
Balance - September 30, 1995 2,497,665 $ 3,731,962 $ 293 $ (26,602) $ 954,000 $ 4,084,153
=========== ============= ======= =========== ========= ===========
<CAPTION>
Preferred Stock Additional
--------------- Paid in Unearned Accumulated
Series E Series F Series I Capital Compensation Deficit
-------- -------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ $ $ $ 2,167,804 $ $ (2,084,491)
Adjustment to reflect reverse
purchase acquisition of EVRO
Corporation (2,167,804)
Issuance of Preferred Series D
Convertible Preferred Stock, no par
value (16,985 shares)
Issuance of Preferred Series E
Convertible Preferred Stock, no par
value (30,000 shares) 30,000
Return and cancellation of common
stock issued to STELLAR in exchange
for 1,274 shares of Series F Convertible
Preferred Stock, no par value 1,280
Issuance of 20 shares of Series F
Convertible Preferred Stock to law firm
firm in lieu of The Stellar Companies, Inc. 137,500 (137,500)
Proceeds from sale of common stock
Proceeds from sale of Series C
Convertible Preferred Stock, no par
value ( 65,500 shares)
Common stock issued pursuant to the
1995 Employee Stock Compensation
Plan (1,755,500)
Series I Convertible Preferred Stock, no
par value, issued pursuant to financial
consulting agreements 955,469 (955,469)
Series C Convertible Preferred Stock
issued:
As collateral for note payable
(26,000 shares)
In settlement of litigation (3,900 shares)
Purchase of common stock by
Technology Holdings, Inc.
Stock compensation earned during the
nine months ended September 30, 1995 404,248
Loss for the nine months ended
September 30, 1995 (2,933,962)
--------- --------- --------- ------------- ------------- -------------
Balance - September 30, 1995 $ 30,000 $ 138,780 $ 955,469 $ 0 $ (2,444,221) $ (5,018,453)
========= ========= ========= ============= ============= =============
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
EVRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
09/30/95 09/30/95
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,933,962) $ (1,237,695)
Adjustments to reconcile net loss to net cash utilized by
operating activities:
Discontinued operations 33,164
Depreciation and amortization 213,609 24,839
Compensation for financial consulting services
paid in common stock 404,248
Imputed interest related to reverse purchase of
of EVRO Corporation 17,903
Settlement of litigation by issuance of common
stock 39,000
(Increase) Decrease in other receivables (110,034) 4,711
(Increase) Decrease in inventories (49,905) 25,780
Decrease in prepaid expenses and deposits 39,279 3,548
Increase in accounts payable 302,373 174,235
Increase in other liabilities 339,943
------------ ------------
Net cash used in continuing operations (1,704,382) (1,004,582)
------------ ------------
Net cash used in discontinued operations 2,685
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (30,231)
Costs of acquiring EVRO Corporation (100,000)
Cash acquired in reverse purchase of EVRO
Corporation 2,349
Loan to America's Collectibles Network, Inc. (50,000)
Investment in Channel America Television
Network, Inc. (200,000)
Note receivable 20,795
Other non-current assets (4,425)
------------ ------------
Net cash used in investing activities (361,512) 0
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable 849,784
Repayment of borrowings (67,330)
Proceeds from sale of common stock 162,500 248,249
Proceeds from sale of Series C Convertible
Preferred Stock 587,485
Purchase of EVRO common stock (26,602)
Working capital advances from/to affiliates
The STELLAR Companies, Inc. 643,847 755,481
American Clinical Laboritories, Inc. (11,543)
Repayment of refundable memberships 9,080
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,147,221 1,003,730
------------ ------------
NET INCREASE (DECREASE) IN CASH 84,012 (852)
CASH, BEGINNING OF PERIOD 67 949
------------ ------------
CASH, END OF PREIOD $ 84,079 $ 97
============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 58,559 $ 0
============ ============
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
EVRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The financial statements of EVRO Corporation ("EVRO" and the
"Company") and its subsidiaries as of September 30, 1995, and for the nine
months ended September 30, 1995 and 1994, are unaudited and, in the opinion of
management reflect all adjustments necessary for a fair presentation of such
data. All such adjustments made were of a normal recurring nature, except as
more fully described in Notes 3 and 4 to the Consolidated Financial Statements,
the Company on March 14, 1995, acquired 98% of the issued and outstanding
common shares of The Sports & Shopping Network, Inc., ("TSSN") a Florida
corporation. For financial reporting purposes, this transaction was accounted
for as a reverse purchase acquisition under which the companies were
recapitalized to include the historical financial information of TSSN and the
assets and liabilities of the Company revalued to reflect the market value of
the Company's outstanding shares. As closing occurred on March 14, 1995, the
middle of a month, the accounts of TSSN have been consolidated with the Company
as of February 28, 1995, a date that lies within the date on which the
transaction was initiated and the date of closing. The historical financial
statements prior to February 28, 1995, included herein, are those of TSSN.
The Company's significant accounting policies are described in the notes to the
December 31, 1994 financial statements and there have been no material changes
in significant accounting policies from those described therein. Certain
amounts for the prior year have been reclassified to conform to the 1995
presentation.
The consolidated financial statements include the accounts of EVRO
and its subsidiaries, Technology Holdings, Inc. ("THI"), Treasure Rockhound
Ranches, Inc. ("Treasure Rockhound"), Lintronics Technologies, Inc.
("Lintronics"), Tres Rivers, Inc. ("Tres Rivers"), EVRO Trading Corporation
("EVRO Trading"), The Good Health Channel, Inc. ("Good Health"), and The
Sports & Shopping Network, Inc. All significant intercompany transactions and
accounts have been eliminated in consolidation.
2. BASIS OF ACCOUNTING
The consolidated financial statements of EVRO Corporation and its
subsidiaries have been presented on the basis that they are a going concern,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred
operating losses in 1993, 1994 and during the nine months ended September 30,
1995, of $1,703,000, $1,701,000, and $2,934,000, respectively, which have
adversely reduced the Company's liquidity and capital resources.
Notes payable aggregating approximately $1,021,000 are due and payable
on or before December 31, 1995. (See Note 6; Notes Payable and Long Term
Debt.) In addition, the Company is subject to certain judgments aggregating
$162,000 and accelerated lease payments
6
<PAGE> 7
aggregating $20,000, together with certain expenses. (See Note 7; Litigation.)
The ability of the Company to continue as a going concern is dependent
upon the successful completion of private debt and equity offerings and
attaining future profitable operations.
3. SIGNIFICANT TRANSACTIONS
FORMATION OF TECHNOLOGY HOLDINGS INC. - On January 20, 1995, EVRO Corporation
organized THI as a Florida corporation, and contributed its assets and
liabilities together with 100% of the issued and outstanding common stock of
Lintronics, Treasure Rockhound, Tres Rivers, Performance Holdings, Inc. a
Florida corporation ("Performance") and EVRO Trading, and 60% of the issued
and outstanding common stock of Good Health into THI in exchange for all of the
issued and outstanding stock of THI.
ACQUISITION OF THE SPORTS & SHOPPING NETWORK, INC. - On March 14, 1995, the
Company acquired 98% of the issued and outstanding common shares of The Sports
& Shopping Network, Inc., a Florida corporation, from The STELLAR Companies,
Inc., a Florida corporation ("STELLAR"). In connection with the acquisition of
the controlling interest in TSSN, EVRO agreed to issue 16,759,038 shares of
EVRO's common stock, or approximately 77% of the issued and outstanding stock
of EVRO after issuance of all common shares relating to this transaction. EVRO
issued STELLAR 500,000 shares of common stock at closing and agreed to issue
the remaining shares following completion of an increase in EVRO's authorized
shares of common stock.
On April 19, 1995, EVRO requested that STELLAR return to it the 500,000
shares of common stock. In exchange for returning 500,000 shares of common
stock, EVRO agreed to issue 1,000,000 additional shares of its restricted
common stock immediately following EVRO successfully increasing its authorized
common stock. In addition, EVRO agreed to issue to STELLAR 500 shares of
Series F Convertible Preferred Stock ("Series F Preferred Stock") and, from
time to time, additional Series F Preferred Stock in an amount equal in voting
rights with any subsequent shares of common stock or preferred stock issued by
the Company. The Series F Preferred Stock is convertible, at the option of the
holder, into shares of the Company's restricted common stock following
completion of an increase in EVRO's authorized shares of common stock on a
10,000 for 1 basis. STELLAR has informed the Company that it intends to
convert all Series F Preferred Stock it holds upon EVRO completing the increase
in the authorized shares of common stock. Each share of Series F Preferred
Stock entitles the holder thereof to one thousand votes on each matter with
respect to which a vote is required of the holders of EVRO's common stock. Any
common shares issued to STELLAR pursuant to the conversion of the Series F
Preferred Stock reduces the obligation of EVRO to issue STELLAR the 17,759,038
shares of restricted common stock, as amended, following completion of an
increase in EVRO's authorized shares of common stock. During the period April
1, 1995 through September 30,
7
<PAGE> 8
1995, EVRO issued 576,000 shares of common stock pursuant to the EVRO
Corporation 1995 Employee Stock Compensation Plan and 224,000 shares of common
stock sold for $162,500, net of legal costs aggregating $12,500, in private
placements to accredited investors. The Company issued 20 shares of Series F
Preferred Stock to a law firm in lieu of issuance of such shares to STELLAR. As
of September 30, 1995, STELLAR held 1,280 shares of Series F Convertible
Preferred Stock.
In the event of liquidation or dissolution of the Company, whether
voluntary or otherwise, after payment of the debts and liabilities of the
Company and before any distribution shall be made to the holder of any class of
common stock of the Company, STELLAR shall be entitled to receive $1.00 per
share of Series F Convertible Preferred Stock in cash (an aggregate of $1,274
as of June 30, 1995), subject to the first priority of all holders of the
Company s Series A 10% Convertible Preferred Stock, Series B 8% Preferred
Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred
Stock and Series E Convertible Preferred Stock.
On October 6, 1995, the Company entered into an Escrow/Earn Out Agreement
(the "Escrow/Earn Out Agreement"), by and among Stellar, the Company and the
escrow agent named therein, which agreement provides that 2,126,000 shares of
the 17,759,038 shares to be received by Stellar immediately following the
Company successfully increasing its authorized common stock are to be returned
to the Company in exchange for the Company assuming the obligation for payment
of certain legal and financial consulting services. In addition, the
Escrow/Earn Out Agreement provides for the deposit of 9,000,000 shares of the
remaining 15,633,038 shares of restricted common stock to be issued to STELLAR
into escrow, to be released pro rata upon the Company achieving net earnings of
$5,000,000. Any and all shares held in escrow which are not issued to STELLAR
pursuant to the Escrow/Earn Out Agreement on or before December 31, 2000 shall
be returned to the Company.
Pursuant to the agreement between EVRO and STELLAR, EVRO will offer to
acquire the remaining 2% of TSSN's issued and outstanding shares of common
stock held by its minority shareholders in exchange for EVRO's common stock on
the same basis as was offered to STELLAR for an aggregate of 281,418 shares of
EVRO's common stock.
On January 12, 1995, EVRO purchased the option to acquire TSSN from Boyar
Holdings, Inc. ("BHI"). Pursuant to the Assignment of Option Agreement, EVRO
agreed to issue to BHI 30,000 shares of the Company's Series E Convertible
Preferred Stock ("Series E Preferred Stock") which shall be convertible into
3,000,000 shares of the Company's restricted common stock following completion
of an increase in EVRO's authorized shares of common stock. In the event of
liquidation or dissolution of the Company, whether voluntary or otherwise,
after payment of the debts and liabilities of the Company and before any
distribution shall be made to the holder of any class of common stock of the
Company, the holders of the Series E Preferred Stock shall be entitled to
receive $1.00 per share in cash (an aggregate of $30,000), subject to the first
priority of all holders of the Company s Series A 10% Convertible Preferred
Stock, Series B 8% Preferred Stock, Series C Convertible Preferred Stock, and
Series D Convertible Preferred Stock.
8
<PAGE> 9
In conjunction with the TSSN acquisition, American Clinical Labs, Inc.
("ACL") the holder, as of November 2, 1995, of 527,719 shares of EVRO's common
stock, provided to STELLAR an irrevocable power of attorney and proxy with full
power of substitution, to represent ACL or any assignee thereof at all regular
and special meetings of shareholders, or in connection with any other
shareholder action of EVRO, but only in ACL's capacity as the owner of record
of, and to vote the shares of the common stock of the Company which are owned
by ACL ("the Shares"). This power of attorney is effective to the date the
Shares represent less than five percent (5%) of the Company's issued and
outstanding shares of common stock.
EVRO has formed a wholly-owned subsidiary, THI, which owns all of the
assets that were owned by EVRO prior to the TSSN acquisition. Pursuant to such
acquisition, the holders of record of EVRO's common stock as of March 27, 1995,
were issued a stock dividend consisting of EVRO's Series D Convertible
Preferred Stock ("Series D Preferred Stock"), which will have limited voting
rights. EVRO has the right, but not the obligation, to redeem the Series D
Preferred Stock in exchange for all of THI's issued and outstanding capital
stock. In the event of liquidation or dissolution of the Company, whether
voluntary or otherwise, after payment of the debts and liabilities of the
Company and before any distribution shall be made to the holder of any class of
common stock of the Company, the holders of the Series D Preferred Stock shall
be entitled to receive all of the THI Common Stock owned by the Company,
subject to the first priority of all holders of the Company s Series A 10%
Convertible Preferred Stock, Series B 8% Preferred Stock, and Series C
Convertible Preferred Stock.
THI is entitled to receive on an annual basis that number of shares of
EVRO's voting common stock ("Special Shares") equal to 20% of the average total
assets of THI over a twelve month period (March 14 through the following March
13 each year) divided by Two Dollars($2.00). THI's right to receive the
Special Shares provided is earned pro rata over the applicable twelve month
period. Such entitlement would cease upon the redemption of the Series D
Preferred Stock. STELLAR has the right to purchase from THI any Special Shares
of EVRO's common stock received until June 30, 1997 for an amount equal to the
greater of Two Dollars ($2.00) per share or 50% of the bid price of EVRO's then
publicly traded stock as of the end of the month preceding STELLAR's exercise
of its right to purchase. EVRO is prohibited from pledging, hypothecating or
otherwise encumbering its shares of THI's capital stock.
The Series D Preferred Stock contains a special dividend provision that in
the event such preferred stock is not redeemed by June 30, 1997, EVRO shall, as
of July 1, 1997, declare a stock dividend of its voting common stock payable to
the holders of the Series D Preferred Stock equal to the number of shares of
common stock held by THI as of June 30, 1997. Additional stock dividends shall
be payable to the holders of Series D Preferred Stock each July 1st following
July 1, 1997 until EVRO has redeemed its Series D Preferred Stock. The amount
of such additional stock dividend shall equal the number of shares of EVRO's
common stock transferred to THI during the immediately preceding twelve month
period.
9
<PAGE> 10
ACQUISITION OF AMERICA'S COLLECTIBLES NETWORK, INC.
On April 26, 1995, EVRO entered into a binding Letter of Intent (which
was modified on May 5, 1995) to acquire America's Collectibles Network, Inc.
("ACN") and to merge ACN into TSSN, an EVRO subsidiary, in exchange for a
requisite number of EVRO's preferred stock which shares would be convertible
into 1,850,000 shares of EVRO's restricted common stock upon EVRO successfully
increasing its authorized shares of common stock to at least 35,000,000 shares.
The Company terminated the agreement as ACN would qualify as a significant
subsidiary as defined by the Securities Acts of 1933 and 1934 and that ACN was
unable to provide the Company with required audited financial statements for a
fiscal year period prior to acquisition.
EVRO paid to ACN a $50,000 non-refundable deposit, together with a loan in
the amount of $50,000. The loan is payable on demand on June 2, 1996 without
interest and is secured by ACN s inventories. The non-refundable deposit has
been charged to selling, general and administrative expense in the Consolidated
Statement of Operations during the quarter ended September 30, 1995.
ACQUISITION OF WINSAT COMMUNICATION CORPORATION
On August 25, 1995, the Company executed an agreement to merge WinSAT
Communication Corporation ("WinSAT"), a Florida corporation based in Largo,
Florida, into a wholly-owned subsidiary of the Company to be formed prior to
the merger, in exchange for such number of shares of a yet to be designated
series of preferred stock which shall be convertible into 86,000 shares of
restricted Common Stock upon the date which the Company increases its
authorized shares of Common Stock to at least 35,000,000 shares, and for
$60,000 cash payable as of the date of the merger. The merger agreement may be
terminated by either party after September 30, 1995, if no merger has taken
place as of that date, or may be extended to December 31, 1995. As of November
14, 1995, the merger agreement has not been extended or terminated. The merger
is conditioned upon the continued employment after the merger of Frankie S.
Winsett, President of WinSAT, by WinSAT or the Company.
WinSAT is a small corporation which owns four mobile satellite uplink
facilities and is managed by Frankie S. Winsett. The Company has agreed to
acquire WinSAT primarily to obtain WinSAT's uplink facilities and the services
of Mr. Winsett who has experience in satellite communications and broadcasting
in the television industry. If successful, the acquisition of WinSAT will
provide the Company and TSSN with the capability to broadcast programming
through the four mobile satellite uplink facilities.
ACQUISITION OF CHANNEL AMERICA TELEVISION NETWORK, INC.
On September 18, 1995, and then as amended on October 10, 1995, the
Company completed a transaction to acquire at least 51% of Channel America
Television Network, Inc. ("Channel
10
<PAGE> 11
America"), a Delaware corporation based in Darien, Connecticut, together with
the rights to acquire, through an escrow arrangement, the remaining 49% of
Channel America. For accounting purposes, the acquisition of the 51% interest
in Channel America will be recorded as of October 1, 1995.
STOCK PURCHASE. In accordance with the terms of a Stock Purchase
Agreement dated July 13, 1995, as amended September 18, 1995, October 10, 1995,
and October 26, 1995 by and between Channel America and the Company, and as a
condition precedent to a merger of Channel America into a subsidiary of the
Company, Channel America issued and delivered to the Company 27,500,000 shares
of restricted common stock of Channel America, such that the Company owns a
majority of the voting shares and majority control of Channel America, and will
own at least 51% of the voting shares of Channel America upon completion of the
debt conversion described below, at a purchase price (the "Purchase Price")
equal to $1,000,000. Such purchase price is payable in the form of $200,000 in
cash, which was fully paid by the Company on September 28, 1995, and subsequent
payments of $800,000, with cash payments of $100,000 payable on or before
October 30, 1995 and $300,000 payable on or before November 9, 1995 and
$400,000 in the form of a six month promissory note bearing interest at eight
percent per annum. In the event of default by the Company with respect to
payment of any portion of the Purchase Price, and a failure by the Company to
cure such default, the shares of Channel America s Common Stock owned by the
Company will be reduced pro rata with respect to such unpaid Purchase Price.
MERGER. The Company has issued to Channel America shares of its Series H
Convertible Preferred Stock (the "Convertible Shares") which are convertible
into up to 3,000,000 shares of Common Stock, in accordance with the terms of an
Agreement and Plan of Merger and an Escrow Agreement, both dated as of July 13,
1995, as amended on September 18, 1995, October 10, 1995, and October 26, 1995
by and among Channel America, the Company, an as yet unincorporated subsidiary
of the Company and certain key shareholders (the "Key Shareholders") of Channel
America constituting a majority of the shareholders of Channel America prior to
the stock purchase described above. Such convertible shares shall be held in
escrow until either (a) the termination of the Merger Agreement, at which time
the Convertible Shares shall be returned to the Company, or (b) such time when
the Company (i) increases its number of authorized shares of the Company s
common stock (the "Common Stock") from 2,500,000 shares to 35,000,000 shares
and (ii) registers the shares of Common Stock to be issued to the shareholders
of Channel America upon conversion of the Convertible Shares pursuant to an
effective Registration Statement. The merger is subject to approval by the
shareholders of each of the Company and Channel America in accordance with
applicable law. The parties intend to merge Channel America into an as yet
unincorporated subsidiary of the Company in exchange for up to 3,000,000 shares
of Common Stock of the Company. The Merger Agreement is subject to termination
by the Company or Channel America if no merger has occurred by December 31,
1995.
DEBT CONVERSION. All certificates of merger, all common stock of Channel
America owned by the Key Shareholders (representing the majority of the
remaining 49% of ownership of Channel America not acquired by the Stock
Purchase Agreement), the Convertible Shares, and
11
<PAGE> 12
certain other items, as more fully described in the Escrow Agreement defined
above, shall be held is escrow until such time as an aggregate of 90% of the
note holders and holders of preferred stock of Channel America have agreed to
convert such notes and preferred stock, totaling approximately $7,768,533 in
debt, into restricted common stock of Channel America. Channel America has
reserved 22,838,040 shares of its common stock for such conversion.
Channel America has not completed any filings or proxy solicitations to
its shareholders, which may be required under federal or state securities laws
or Delaware corporation law, with respect to the prospective acquisition of
Channel America by the Company, and may be subject to sanctions and penalties
as a result of such violations.
GENERAL. Channel America currently broadcasts its programming 24 hours
per day through its television network. As of September 21, 1995, Channel
America has 59 affiliates with a potential reach of approximately 16.9 million
US households ( actual reach is approximately 7 million to 12 million
households depending on the time of day). The mix of television stations
comprising the Channel America network includes 10 full power, 8 cable and 41
low power stations.
Channel America supplies its programming from an uplink facility in Los
Angeles, California operated by IDB Communications. Channel America s signal
is received directly by its broadcast affiliates and reaches cable affiliates
via the cable system s head-end where it is then retransmitted to subscribers.
Viewers with satellite dishes can access the network directly by turning to the
proper satellite coordinates.
Channel America also holds licenses to operate four low-power television
stations currently not broadcasting. Channel America has relied mainly on
barter licensing, where it exchanges air time for programming. Additionally,
Channel America maintains a program library consisting of approximately 750
motion pictures and 400 television programs. All titles are in good condition
and are preformatted for television broadcast.
Once the contemplated acquisition is completed, the Company intends to
initially commence broadcasting its Sports & Shopping Network programming, 6
hours per day, seven days per week on Channel America s network. Thereafter,
the Company will expand its shopping channel programming to 12 hours per day,
seven days per week.
Channel America is a public company, listed over-the-counter. Channel
America is not current with respect to its filings with the SEC under the
Securities Exchange Act of 1934, as amended (the Exchange Act"), and has not
yet filed its Form 10-K annual report for the fiscal year ending December 31,
1994 or any periodic filings required thereafter pursuant to the Exchange Act.
12
<PAGE> 13
SALE OF EVRO TRADING CORPORATION
On March 1, 1995 it was determined by THI and the Company that further
funding of EVRO Trading would be halted as no significant products had been
sold nor had a distribution network been established. Subsequently, a dispute
arose between THI and the Company, and the President of EVRO Trading in which
certain claims were asserted by both parties. As a part of a settlement
agreement entered into on March 24, 1995 with the President of EVRO Trading,
THI transferred ownership of 55% of the common stock of EVRO Trading to him in
exchange for an arrangement whereby the Company would maintain a 45% interest
in the common stock of EVRO Trading, with no obligation for additional funding.
Both parties also signed mutual general releases and noncompete agreements in
connections with the settlement. On March 24, 1995, THI also executed a 10 day
secured promissory note ("Note") for $30,776.99 in favor of the President of
EVRO Trading which represents amounts due the President of EVRO Trading and a
consultant for back salary, fees and expenses. The Note was secured by the
remaining 45% of the common stock of EVRO Trading ("Security"). On April 3,
1995, THI defaulted on the Note and surrendered the Security to the President
of EVRO Trading.
SALE OF CERTAIN ASSETS OF THE GOOD HEALTH CHANNEL , INC.
On April 28, 1995, Good Health and THI entered into an Asset Purchase
Agreement (the "Agreement") to sell significantly all of the assets of Good
Health and certain noncompete covenants of Good Health, THI and D. Jerry
Diamond to Better Health Network, Inc., a Florida corporation for consideration
of $25,000 cash and a contingent promissory note of up to $1,575,000. The
promissory note does not accrue interest and is payable from gross revenues of
the buyer in monthly installments equal to 3% of gross revenues of the
preceding calendar month, determined based upon the cash method of accounting,
reduced for sales tax, if any, and adjusted for customer refunds and credits,
until THI has received $100,000 and thereafter equal to 2% of the gross
revenues until THI has received the remaining balance under the note. No gain
or loss will result from this transaction as the carrying value of the assets
approximately equal the cash consideration of $25,000. Any payments received
pursuant to the promissory note will be recognized as income upon receipt.
4. ACCOUNTING FOR ACQUISITION OF THE SPORTS & SHOPPING NETWORK, INC.
For financial reporting purposes, this transaction was accounted for as a
reverse purchase acquisition under which the companies will be recapitalized to
include the historical financial information of TSSN and the assets and
liabilities of the Company revalued to reflect the market value of the
Company's outstanding shares. The market value of the Company's outstanding
shares ($4,084,153) was based on the month end trading range of the Company s
common stock for the three months, December, 1994 and January and February,
1995. The carrying value of EVRO s assets reflect their approximate fair
market value. The cost of the acquisition aggregated $305,000, including a
finders fee of $150,000 and legal costs of $155,000. The excess purchase
13
<PAGE> 14
price, including the costs of acquisition, over and the above the net assets of
EVRO Corporation was allocated to goodwill. The goodwill is being amortized on
a straight line basis over 10 years. No value has been assigned to the
minority shareholders of TSSN as the book value of the net assets of TSSN was
negative as of March 16, 1995.
As closing occurred on March 14, 1995, the middle of a month, the accounts
of TSSN have been consolidated with the Company as of February 28, 1995, a date
that lies within the date on which the transaction was initiated and the date
of closing. The cost of acquisition and net income for the period from
February 28, 1995 to March 14, 1995 were reduced by imputed interest of $17,903
using a 10% annual rate of interest. The historical financial statements
prior to February 28, 1995, included herein, are those of TSSN.
As described in Note 3; Significant Transactions; Acquisition of The
Sports & Shopping Network, Inc., certain elements of the transaction were not
completed as of September 30, 1995, such as the issuance 17,759,038 shares of
EVRO's common stock to STELLAR and the acquisition of the common stock of TSSN
held by the minority shareholders following completion of an increase in EVRO's
authorized shares of common stock. To more clearly reflect the effect of the
acquisition for financial reporting purposes, and to enhance comparability of
the current year's interim financial statements, management has elected to
account for this transaction as if all elements of the transaction had been
completed as of September 30, 1995.
The calculations of loss per share for the three months and nine months
ended September 30, 1995 were based on the weighed average number of shares as
follows: (a) for the period January 1, 1995 through March 14, 1995, the number
of common shares to be issued to STELLAR (500,000 shares) and (b) for the
period from March 14, 1995 through September 30, 1995, the actual number of
EVRO shares outstanding. For the three months and nine months ended September
30, 1994, the weighted average number of shares for each period was based on
the number of EVRO common shares to be issued to STELLAR (500,000 shares)
adjusted for the effect of a November 30, 1994 change in the number of issued
shares of TSSN held by STELLAR.
Condensed Proforma Combined Statements of Continuing Operations for the
three month and nine month periods ended September 30, 1995 and 1994 follow
which have been prepared as if EVRO had been acquired as of the beginning of
each of the respective periods. The proforma weighed average number of shares
used to compute the proforma loss per share was based on the actual number of
EVRO shares outstanding, adjusted for the number of common shares issued to
STELLAR (500,000 shares). For the three months and nine months ended September
30, 1994, the number of EVRO common shares issued to STELLAR (500,000 shares)
were adjusted for the effect of a November 30, 1994 change in the number of
issued shares of TSSN held by STELLAR.
14
<PAGE> 15
Condensed Proforma Combined Statement of Continuing Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
09/30/95 09/30/94 09/30/95 09/30/94
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales and revenues $ 526,374 $ 308,123 $ 1,392,094 $ 790,102
Cost of sales and revenues 257,871 119,151 753,681 452,087
---------- ----------- ----------- -----------
Gross margin 268,503 188,972 638,413 338,015
Operating expenses 1,235,129 526,096 3,410,592 2,178,572
---------- ----------- ----------- -----------
Operating loss of continuing
operations (966,626) (337,124) (2,772,179) (1,840,557)
Other income (expense) (32,309) (41,735) (112,658) (143,089)
---------- ----------- ----------- -----------
Net loss from continuing
operations $ (998,935) $ (378,859) $(2,884,837) $(1,983,646)
========== ========== =========== ===========
Net loss per share from
continuing operations $ (0.40) $ (0.20) $ (1.27) $ (1.18)
========== ========== =========== ===========
Average number of common shares
outstanding 2,490,396 1,911,880 2,276,041 1,674,611
========== ========== =========== ===========
</TABLE>
5. INVENTORIES
As of September 30, 1995, inventories were comprised of sports memorabilia
($208,246) and Cager Classic apparel ($14,578). Inventories are carried at the
lower of cost (determined on a first-in, first-out basis) or market.
Inventories aggregating $127,896 are held by vendors to which the Company has
outstanding accounts payable aggregating $114,039 and is subject to a judgement
of the Supreme Court of the State of California in the amount of $117,492. The
inventory of sports memorabilia has been pledged as security to $1,675,000 of
promissory notes issued by STELLAR pursuant to a private placement offering
dated March 21, 1993.
15
<PAGE> 16
6. NOTES PAYABLE AND LONG TERM DEBT
<TABLE>
<S> <C>
Short term notes payable consists of the following:
Note payable to company at 10% per annum interest, due
December 5, 1995, secured by TSSN common stock $ 550,000
Note payable to an individual at 10% per annum
interest, due October 28, 1995 200,000
Note payable to a partnership at 8% per annum interest,
payable in monthly installments of $4,610 including
interest, with a balloon payment due in July 1996,
having land, buildings and equipment as collateral. 349,626
Note payable to an individual at 15% per annum interest,
due December 5, 1995, as extended, having 26,000
shares of Series C Convertible Preferred Stock as collateral 200,000
Note payable to former lessor, non-interest bearing, payable
in monthly installments of $6,800, in default 40,800
Note payable to a related party at 7% per annum
interest, due December 31, 1995, as extended 30,000
------------
$ 1,370,426
============
Long term debt consists of the following:
Note payable to an individual at 10% per annum interest or
a bank s prime rate, which ever is greater, (currently at 10%
per annum), payable in monthly installments of $9,914
including interest, with a balloon payment due in February
1998, having land, stock of Treasure Rockhound, and 27,500
shares of common stock as collateral $ 429,462
Note payable to individuals at 8% per annum interest, payable
in monthly installments of $3,375 including interest, due in
2001, having land, buildings and equipment as collateral 449,510
Contract payable on purchase of mobile home park at 10% per
annum interest, payable in monthly installments of $3,500
including interest, having the mobile home park as collateral 248,998
Note payable to individuals at 10% per annum interest, due in
2001, having land, buildings and equipment as collateral 252,463
Note payable to a bank at 10.25% per annum interest, payable
in monthly installments of $2,124 including interest, due in
2000, having land as collateral 99,784
Note payable to a bank at 10.45% per annum interest, payable
in monthly installments of $1,504 including interest, due in
1998, having land as collateral 46,854
-----------
1,527,071
Less current portion (145,793)
-----------
$ 1,381,278
===========
</TABLE>
16
<PAGE> 17
On April 10, 1995 the Company borrowed $550,000 from Genesee Cattle Co.
("Genesee"). The promissory note provides that the principal and accrued
interest, to be paid at a rate equal to 10% per annum, was due and payable on
June 24, 1995. Although the Company defaulted under the Genesee note by
failing to repay such outstanding sums on or before June 24, 1995, on October
11, 1995, Genesee agreed to extend the term of the note until December 5, 1995.
The note is secured by all of the common stock of The Sports & Shopping
Network, Inc. held by the Company. The note is also personally guaranteed by
Daniel M. Boyar, the Company s former President and Chief Executive Officer.
In addition, the Company entered into a consulting agreement with Genesee for
financial public relations and promotion services through June 9, 1995. The
agreement provides for compensation to Genesee of $50,000 payable on or before
May 31, 1995. The required payment of the consulting fees has also been
extended to December 5, 1995.
On December 2, 1994, the Company borrowed $200,000 from an individual, as
evidenced by a promissory note. The note provides that the principal balance
and all unpaid interest, accruing thereon at a rate equal to 15% per annum was
payable on June 5, 1995. On June 5, 1995, the term of the note was extended to
August 15, 1995. Although the Company defaulted on the note by failing to
repay the outstanding sums on or before August 15, 1995, on October 6, 1995,
the holder of the note agreed to extend the term of the note until December 5,
1995. The note is secured by 26,000 shares of the Company s Series C
Convertible Preferred Stock, which stock has been issued to the holder of the
note and is being held by the holder of the note as collateral for repayment of
the note.
Maturities of the long term debt over the next five years are as follows:
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------
<S> <C>
1996 $ 145,793
1997 158,620
1998 342,809
1999 69,029
2000 and thereafter 810,820
-------------
$ 1,527,071
=============
</TABLE>
7. LITIGATION
On September 8, 1995, the Company received notice from the Osceola County,
Florida Clerk of Circuit, of a default judgement filed against International
Sports Collectibles, Inc., a wholly
17
<PAGE> 18
owned subsidiary of TSSN, and STELLAR, in favor Dreams Franchise Corporation, a
California corporation, on November 28, 1994 in the amount of $117,492.
On July 6, 1995, the lessor under an equipment lease with Good Health, a
subsidiary of THI which has discontinued operations and sold substantially all
of its assets, demanded immediate payment of the following sum: (i) $1,611 with
respect to past-due rent for June and July, 1995, (ii) certain expenses with
respect to late charges and an equipment purchase option, and (iii) $18,522
with respect to the acceleration by lessor of twenty-three months of payments
remaining under the terms of the lease. The lessor has requested that the
Company make such payments as a guarantor of the lease. The Company has not
made any payments in connection with the foregoing or reached any settlement
with lessor, not has the Company examined any defenses which it may have with
respect to the lease and the payments due thereunder.
On October 5, 1995, the Company, Lintronics and Good Health were served
with a complaint whereby Princess Palm Corporation, as plaintiff is suing for
beach of (i) a lease entered into with Lintronics; (ii) breach of a sublease
with respect to the same property by Good Health; (iii) breach by Good Health
and the Company of a sublease termination agreement due to the failure of the
Company and Good Health of the terms of a promissory note dated June 14, 1995
payable to the plaintiff in the principal amount of $40,800, due to failure to
pay the $6,800 installment due on July 31, 1995 and each installment due and
payable thereafter.
8. COMMON AND PREFERRED STOCK
On January 26, 1995, the Board of Directors of EVRO authorized a 20:1
reverse stock split of its common and preferred stock.
COMMON STOCK - The Company has authorized common stock of 2,500,000 shares
without par value, of which 2,497,665 shares were issued at September 30, 1995,
of which 293 shares were held by THI.
Restricted common shares issued are valued by management for financial
statement reporting purposes at the approximate market price per share less an
appropriate discount to account for the inherent lack of marketability.
In December 1994, the EVRO Corporation adopted a non-qualified 1,000,000
share stock option plan for directors and employees. The stock option plan
provides for the granting of shares at market value and payment to be in cash
or note payable in two years with interest to accrue at an annual rate equal to
that rate of interest from time to time announced by the Internal Revenue
Service as its minimum stated interest rate (determined as of the date of the
note and thereafter annually on the first business day of each succeeding
year). The note is collateralized by the stock exercised under the option.
On January 4, 1995, the Company granted options to purchase 1,000,000 shares
of common stock (50,000 shares after consideration of 20:1 reverse
18
<PAGE> 19
stock split) to its directors and employees at $.125 per share pursuant to the
non-qualified stock option plan. During January, 1995, all options were
exercised for $10,000 in cash and $115,000 in notes receivable.
Effective April 18, 1995, the Company adopted the 1995 Employee Stock
Compensation Plan (the "Plan"). No shares may be issued after April 15, 2000.
The maximum number shares of common stock which may be awarded pursuant to the
Plan is 800,000 shares. Awards of common stock may be made as compensation for
services rendered, directly or in lieu of other compensation payable, or as a
bonus in recognition of past service or performance. As of September 30, 1995,
the Company had awarded 576,000 shares of common stock for legal and financial
consulting work to be completed over a period of two years. The fair market
value of the common stock awards aggregated $1,755,500 based upon the average
of the closing bid and ask prices of the common stock on the date of awards
which averages ranged from $2.22 to $3.72 per share. The compensation is being
allocated over the life of the service contracts. During the three months and
nine months ended September 30, 1995, compensation aggregating $223,271 and
$350,784, respectively, was charged to selling, general and administrative
expense. The unearned compensation at September 30, 1995 of $1,404,716 is
shown as a reduction of stockholders equity. The Company registered 600,000
shares pursuant the Plan with the Securities and Exchange Commission by the
filing of two Form S-8's which became effective on April 25, 1995 and June 7,
1995.
PREFERRED STOCK - The Company has authorized preferred stock of 1,250,000
shares without par value.
Series C Convertible Preferred Stock - The Board of Directors has
established this series with 500,000 shares authorized, with a stated value of
$10.00 per share. This series is to be sold to accredited investors through
private placements.
The Series C Preferred Stock has no voting rights except as provided by
operation of law and shall not bear dividends. As long as the Series C
Preferred Stock is outstanding, the Company cannot without the affirmative vote
or the written consent as provided by law of 80% of the holders of the
outstanding shares, voting as a class, change the preferences, rights or
limitations with respect to the Series C Preferred Stock in any material
respect prejudicial to the holders thereof, or increase the authorized number
of shares of such Series.
Shares of Series C Preferred Stock may be redeemed in whole or in part, at
the option of the Company, at any time on or after April 15, 1996 at a price
equal to the sum of $10.00 per share. Each holder of Series C Preferred Stock
shall have the right on or before April 15, 1997, to convert each share into
fully paid and nonassessable shares of the Company's Common Stock at a
conversion price equal to 50% of the Common Stock's market value. The market
value shall be determined as follows: (a) if at the time of valuation the
Company's Common Stock is listed on any national securities exchange, the
average closing price on such exchange for the ten day period prior to
conversion, or, if listed on more than one exchange, on the exchange on which
the
19
<PAGE> 20
Company's Common Stock shall have the largest total trading volume ; (b) if at
the time of valuation, the Company's Common Stock is publicly traded but not
listed on any national securities exchange, the average of the average closing
bid and asked prices appearing on the National Association of Securities
Dealers, Inc. Automated Quotation System (Nasdaq) for the ten day period
preceding the conversion date or, if not listed on Nasdaq, the average closing
bid and asked prices as reported by the National Quotation Bureau, Inc. or a
comparable general quotation service; or (c) if at the time of valuation the
Company's Common Stock is not publicly traded, the net book per share as
reflected on the Company's audited balance sheet for it's latest fiscal year
ending prior to the valuation date. In the event the Series C Preferred Stock
in called for redemption, the right of conversion shall cease and terminate at
the close of business the day preceding the date fixed for the redemption of
such shares.
At September 30, 1995, the Company had sold 65,500 shares of Series C
Preferred Stock Outstanding for $587,485 in cash, net of sales commissions and
closing costs of $67,515. In addition, the Company issued 26,000 shares of
Series C Preferred Stock to be held as collateral against a $200,000 note
payable due December 5, 1995, as extended, and 3,900 shares of Series C
Preferred Stock in settlement of litigation.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's Common Stock, each holder of Series C
Preferred Stock shall be entitled to receive, out of the net uses of the
Company, the sum of $10.00 in cash for each share of Series C Preferred Stock
held subject to the first priority of all holders of Series A 10% Preferred
Stock and Series B 8% Preferred Stock.
Series D Convertible Preferred Stock - The Board of Directors has established
this series with 16,800 shares authorized, no par value.
Pursuant to the acquisition of TSSN, EVRO will issue one share of Series D
Preferred Stock for each 100 shares of issued and outstanding Common Stock (See
Note 3; Significant Transactions; Acquisition of The Sports and Shopping
Network, Inc.). The Series D Preferred Stock will be issued to all holders of
Common Stock of record as of March 27, 1995, except for STELLAR. The Company
intends to issue the stock certificates on or about August 28, 1995.
The Series D Preferred Stock has no voting rights except as provided by
operation of law and as long as any Series D Preferred Stock remains
outstanding, the Company shall not, without the affirmative vote or written
consent of the holders of a majority of the Series D Preferred Stock:
(a) change the preferences, rights or limitations
with respect to the Series D Preferred Stock, or
increase the authorized number of shares of such
Series, but nothing herein contained shall require
such a vote or consent (i) in connection with any
increase in the total number of authorized shares of
the Corporation's common stock; or (ii) in connection
with the authorization, designation, increase or
issuance of any class or series of stock
20
<PAGE> 21
holding a ranking subordinate to the Series D preferred stock;
(b) cause THI to issue additional capital stock;
(c) pledge, hypothecate or otherwise encumber the THI common
stock held by the Company; or
(d) take any other action which will restrict the Company's
ability to conduct the conversion of the Series D Preferred Stock.
Series E Convertible Preferred Stock - The Board of Directors
has established this series with 30,000 shares authorized, no
par value.
The holder of each of Series E Preferred Stock is
entitled to one vote on each matter with respect to which a
vote is required of the shareholders of the Company's Common
Stock. As long as the Series E Preferred Stock is
outstanding, the Company cannot without the affirmative vote
or the written consent as provided by law of 80% of the
holders of the outstanding shares, voting as a class, change
the preferences, rights or limitations with respect to the
Series E Preferred Stock in any material respect prejudicial
to the holders thereof, or increase the authorized number of
shares of such Series. Series E Preferred Stock shall not
bear dividends.
Each holder of Series E Preferred Stock shall have the
right, at his option, at any time after the Company increases
its authorized common shares, to convert each share into fully
paid and nonassessable shares of the Company's Common Stock at
a conversion ratio of 100 shares of Common Stock for each
share of Series E Preferred Stock.
In the event of liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or otherwise,
after payment of the debts and other liabilities of the
Company and before any distribution shall be made to the
holder of any class of the Company's Common Stock, each holder
of Series E Preferred Stock shall be entitled to receive, out
of the net uses of the Company, the sum of $1.00 in cash for
each share of Series E Preferred Stock held subject to the
first priority of all holders of Series A 10% Convertible
Preferred Stock, Series B 8% Preferred Stock, Series C
convertible Preferred Stock, and Series D Convertible
Preferred Stock.
Series F Convertible Preferred Stock - The Board of Directors
has established this series with 1,680 shares authorized, no
par value.
As of September 30, 1995, the Company had issued 1,280
shares of Series F Preferred Stock to STELLAR (See Note 3;
Significant Transactions; Acquisition of The Sports and
Shopping Network, Inc.). In addition, the Company issued 20
shares of Series F Preferred Stock to a law firm in lieu pf
issuance of such shares to STELLAR. The fair market value of
the underlying restricted common stock aggregated $137,500
based upon the average of the closing bid and ask
21
<PAGE> 22
prices of the common stock on the date of the consulting
agreement, discounted to reflect stock restrictions. The
compensation is being allocated over the life of the service
contracts. During the nine months ended September 30, 1995,
compensation of $12,808 was charged to selling, general and
administrative expense. The unearned compensation at
September 30, 1995 of $124,692 is shown as a reduction of
stockholders' equity.
The holder of each of Series F Preferred Stock is
entitled to 1,000 votes on each matter with respect to which a
vote is required of the shareholders of the Company's Common
Stock. As long as the Series F Preferred Stock is
outstanding, the Company cannot without the affirmative vote
or the written consent as provided by law of 80% of the
holders of the outstanding shares, voting as a class, change
the preferences, rights or limitations with respect to the
Series F Preferred Stock in any material respect prejudicial
to the holders thereof, or increase the authorized number of
shares of such Series. Series F Preferred Stock shall not
bear dividends.
Each holder of Series F Preferred Stock shall have the
right, at his option, at any time after the Company increases
its authorized common shares, to convert each share into fully
paid and nonassessable shares of the Company's Common Stock at
a conversion ratio of 10,000 shares of Common Stock for each
share of Series F Preferred Stock.
In the event of liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or otherwise,
after payment of the debts and other liabilities of the
Company and before any distribution shall be made to the
holder of any class of the Company's Common Stock, each holder
of Series F Preferred Stock shall be entitled to receive, out
of the net uses of the Company, the sum of $1.00 in cash for
each share of Series F Preferred Stock held subject to the
first priority of all holders of Series A 10% Convertible
Preferred Stock, Series B 8% Preferred Stock, Series C
convertible Preferred Stock, Series D Convertible Preferred
Stock and Series E Convertible Preferred Stock.
Series I Convertible Preferred Stock The Board of Directors
has established this series with 7,000 shares authorized, no
par value.
As of September 30, 1995, the Company had issued 5,750
shares of Series I Preferred Stock to two individuals and a
brokerage firm pursuant to financial consulting agreements.
The fair market value of the underlying restricted common
stock aggregated $955,469 based upon the average of the
closing bid and ask prices of the common stock on the date of
the consulting agreement, discounted to reflect stock
restrictions. The compensation is being allocated over the
life of the service contracts. During the nine months ended
September 30, 1995, compensation of $40,656 was charged to
selling, general and administrative expense. The unearned
compensation at September 30, 1995 of $914,813 is shown as a
reduction of stockholders' equity.
The Series I Preferred Stock has no voting rights except
as provided by operation of law and shall not bear dividends.
As long as the Series I Preferred Stock is outstanding, the
Company cannot without the affirmative vote or the written
consent as provided by law of 80% of the
22
<PAGE> 23
holders of the outstanding shares, voting as a class, change
the preferences, rights or limitations with respect to the
Series I Preferred Stock in any material respect prejudicial
to the holders thereof, or increase the authorized number of
shares of such Series.
Each holder of Series I Preferred Stock shall have the
right, at his option, at any time after the Company increases
its authorized common shares, to convert each share into fully
paid and nonassessable shares of the Company's Common Stock at
a conversion ratio of 200 shares of Common Stock for each
share of Series I Preferred Stock.
In the event of liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or otherwise,
after payment of the debts and other liabilities of the
Company and before any distribution shall be made to the
holder of any class of the Company's Common Stock, each holder
of Series I Preferred Stock shall be entitled to receive, out
of the net uses of the Company, the sum of $162.50 in cash for
each share of Series I Preferred Stock held subject to the
first priority of all holders of Series A 10% Convertible
Preferred Stock, Series B 8% Preferred Stock, Series C
Convertible Preferred Stock, Series D Convertible Preferred
Stock, Series E Convertible Preferred Stock, and Series F
Convertible Preferred Stock
8. MATERIAL TRANSACTIONS WITH RELATED PARTIES
During the nine months ended September 30, 1995 and 1994,
STELLAR charged TSSN $937,500 and $862,500, respectively, for
management and accounting services which were accrued to
Amounts Due to Affiliates. For the nine months ended
September 30, 1994, TSSN accrued interest at 7% per annum
($66,000) on to a note payable to STELLAR dated December 31,
1993 in the principal amount of $1,258,000. The accrual was
made directly to Amounts Due to Affiliates. During the nine
months ended September 30, 1995, TSSN made net cash payments
to STELLAR of $294,000. As of September 30, 1995, Amounts due
to STELLAR aggregated $769,000.
During the seven months ended September 30, 1995, The
Company repaid certain advances from ACL, net, aggregating
$11,543. As of September 30, 1995, the advances due to ACL
aggregated $13,007.
During the seven months ended September 30, 1995, THI
paid Dale A. Fullerton, former Chairman of the Board,
President and former majority shareholder of the Company
$26,602 for the purchase of 293 shares of common stock of the
Company to be held by THI. Such amounts were paid pursuant to
a settlement agreement between Fullerton and EVRO Corporation
entered into during June 1994.
23
<PAGE> 24
9. DISCONTINUED OPERATIONS
Lintronics has been engaged in the business of the
development, manufacture and sale of medical scanning devices
used to assist physicians in the detection of breast
abnormalities. During 1993, Lintronics was advised by the U.
S. Food and Drug Administration ("FDA") that the FDA deemed
transillumination devices, including Lintronics' products, to
be non-efficacious and that Lintronics must discontinue the
manufacture and sale of its transillumination products until
further clinical trials are successfully completed under the
FDA's IDE process and determined to be substantially
equivalent to legally marketed products. Following this
determination by the FDA, Lintronics planned to use third
party, foreign, subcontract facilities to manufacture its
product and to use Imaging Technologies, Inc. ("Imaging"), a
foreign subsidiary, wholly-owned by Lintronics to market and
distribute its video breast imaging systems in the foreign
marketplace. Recent developments within the FDA have
indicated a decision to classify all transillumination devices
as a Class III device, according to a report in the January
13, 1995 issue of Federal Register. In that publication,
it was stated that "FDA concluded that the transillumination
devices are not clinically effective for the diagnosis or
detection of breast cancer or other breast abnormalities or
conditions, and that the use of the technique may contribute
to the delay of detection of lesions in the early stages of
cancer, when the disease is most treatable. At this time,
therefore, the distribution of breast transillumination
devices or any multipurpose transillumination device that is
labeled, promoted, or intended for use in the breast is in
violation of the law, regardless of whether the device is
labeled for independent use or adjunctive use with
mammography. FDA has initiated enforcement actions against
manufacturers who have continued to distribute
transilluminators". With this FDA pronouncement, and
Imaging's inability to establish a foreign distribution
network for Lintronics' product line, Lintronics plans to
discontinue its operation with respect to light imaging
devices. The operations of Imaging and EVRO Trading, a
related company, have been reflected as discontinued
operations in the Consolidated Financial Statements for the
three months and nine months ended September 30, 1995 and
Condensed Proforma Combined Statements of Operations for the
three months and nine months ended September 30, 1995 and
1994.
On February 22, 1994, the Company purchased 60% of the
issued and outstanding shares of common stock of Good Health.
Good Health specializes in providing health information
programming designed for physician waiting rooms, and also
provides a unique, out-of-home advertising medium for consumer
and pharmaceutical companies. During 1994, Good Health's
efforts to obtain funding for equipment leasing and sign up
sufficient advertisers to underwrite its programming were
unsuccessful. These shortcomings and the significant losses
generated by the operation caused the Company to begin efforts
to dispose of Good Health in early 1995. Accordingly, the
operations of Good Health have been reflected as discontinued
operations in the Unaudited Consolidated Financial Statements
for the three months and nine months ended September 30, 1995
and Condensed Proforma Combined Statements of Operations for
the three months and nine months ended September 30, 1995 and
1994.
24
<PAGE> 25
10. ADDITIONAL CASH FLOW STATEMENT INFORMATION
The noncash effect of the acquisition of TSSN is summarized below:
<TABLE>
<S> <C>
INCREASE IN ASSETS:
Notes receivable (current portion) $ 30,795
Other receivables 44,690
Prepaid expenses and deposits 18,238
Net current assets of discontinued operations 12,959
------------
Increase in current assets 106,682
Property and equipment 3,456,725
Notes receivable (less current portion) 135,000
Investment in partnership 30,405
Unamortized goodwill 3,308,839
Net other assets of discontinued operations 34,378
------------
Total increase in assets 7,072,029
------------
INCREASE IN LIABILITIES:
Notes payable and current portion of long-term debt 404,619
Accounts payable 186,314
Amounts due to affiliates 24,550
Other current liabilities 353,421
Net current liabilities of discontinued operations 259,125
------------
Increase in current liabilities 1,228,029
Long-term debt 1,721,016
Refundable memberships 30,920
Net long-term debt of discontinued operations 10,260
------------
Total increase in liabilities 2,990,225
------------
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C>
CHANGE IN STOCKHOLDERS' EQUITY:
Issuance of Series D Convertible Preferred Stock (16,985 shares) 4,084,153
Issuance of Series E Convertible Preferred Stock (30,000 shares) 30,000
Common stock 2,137,804
Additional paid in capital (2,167,804)
----------
Total increase in stockholders' equity 4,084,153
----------
Total increase in liabilities and stockholders' equity 7,074,378
----------
CASH ACQUIRED $ 2,349
==========
</TABLE>
Other noncash transactions which occurred during the nine months ended
September 30, 1995 are as follows:
<TABLE>
<S> <C>
Common stock issued pursuant to the 1995
Employee Stock Compensation Plan
(576,000 shares) $(1,755,500)
Preferred stock issued pursuant to Financial
Consulting Agreements:
Series F Convertible Preferred Stock - 20
shares (137,500)
Series I Convertible Preferred Stock - 5750
shares (955,469)
Compensation earned during the nine months
ended September 30, 1995 404,248
Unearned compensation as of September 30,
1995 2,444,221
Issuance of Series C Convertible Preferred
Stock (260,000 shares as collateral for a
note payable and 39,000 shares in settlement
of litigation) $ (299,000)
Common stock 260,000
Selling, general and administrative costs 39,000
</TABLE>
26
<PAGE> 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
GENERAL OVERVIEW
On March 14, 1995, the Company acquired 98% of the issued
and outstanding common shares of The Sports & Shopping
Network, Inc., a Florida corporation, from The STELLAR
Companies, Inc., a Florida corporation ("STELLAR"). In
connection with the acquisition of the controlling interest in
TSSN, EVRO agreed to issue 16,759,038 shares of EVRO's common
stock, or approximately 77% of the issued and outstanding
stock of EVRO after issuance of all common shares relating to
this transaction. EVRO issued STELLAR 500,000 shares of
common stock at closing and agreed to issue the remaining
shares following completion of an increase in EVRO's
authorized shares of common stock.
On April 19, 1995, EVRO requested that STELLAR return to
it the 500,000 shares of common stock. In exchange for
returning 500,000 shares of common stock, EVRO agreed to issue
1,000,000 additional shares of its restricted common stock
immediately following EVRO successfully increasing its
authorized common stock. In addition, EVRO agreed to issue to
STELLAR 500 shares of Series F Convertible Preferred Stock
(Series F Preferred Stock") and, from time to time, additional
Series F Preferred Stock in an amount equal in voting rights
with any subsequent shares of common stock or preferred stock
issued by the Company. The Series F Preferred Stock is
convertible, at the option of the holder, into shares of the
Company's restricted common stock following completion of an
increase in EVRO's authorized shares of common stock on a
10,000 for 1 basis. STELLAR has informed the Company that it
intends to convert all Series F Preferred Stock it holds upon
EVRO completing the increase in the authorized shares of
common stock. Each share of Series F Preferred Stock entitles
the holder thereof to one thousand votes on each matter with
respect to which a vote is required of the holders of EVRO's
common stock. Any common shares issued to STELLAR pursuant to
the conversion of the Series F Preferred Stock reduces the
obligation of EVRO to issue STELLAR the 17,759,038 shares of
restricted common stock, as amended, following completion of
an increase in EVRO's authorized shares of common stock.
During the period April 1, 1995 through September 30, 1995,
EVRO issued 550,000 shares of common stock pursuant to the
EVRO Corporation 1995 Employee Stock Compensation Plan and
224,000 shares of common stock sold for $162,500, net of legal
costs aggregating $12,500, in private placements to
accredited investors. As of September 30, 1995, STELLAR held
1,274 shares of Series F Convertible Preferred Stock.
On October 6, 1995, the Company entered into an
Escrow/Earn Out Agreement (the "Escrow/Earn Out Agreement"),
by and among Stellar, the Company and the escrow agent named
therein, which agreement provides that 2,126,000 shares of the
17,759,038 shares to be received by Stellar immediately
following the Company successfully increasing its authorized
common stock are to be returned to the Company in exchange for
the Company assuming the obligation for payment of certain
legal and financial consulting services. In addition, the
Escrow/Earn Out Agreement provides for the deposit of
9,000,000 shares of the remaining 15,633,038 shares of
27
<PAGE> 28
restricted common stock to be issued to STELLAR into escrow,
to be released pro rata upon the Company achieving net
earnings of $5,000,000. Any and all shares held in escrow
which are not issued to STELLAR pursuant to the Escrow/Earn
Out Agreement on or before December 31, 2000 shall be returned
to the Company.
Pursuant to the agreement between EVRO and STELLAR, EVRO
will offer to acquire the remaining 2% of TSSN's issued and
outstanding shares of common stock held by its minority
shareholders in exchange for EVRO's common stock on the same
basis as was offered to STELLAR for an aggregate of 281,418
shares of EVRO's common stock.
EVRO has formed a wholly-owned subsidiary, THI, which
owns all of the assets that were owned by EVRO prior to the
TSSN acquisition. Pursuant to such acquisition, the holders
of record of EVRO's common stock as of March 27, 1995, will be
issued a stock dividend consisting of EVRO's Series D
Convertible Preferred Stock ("Series D Preferred Stock"),
which will have limited voting rights. EVRO has the right,
but not the obligation, to redeem the Series D Preferred Stock
in exchange for all of THI's issued and outstanding capital
stock.
The Company is currently seeking to raise additional
capital through the sale of the Company's capital stock in one
or more private equity offerings to primarily fund the TSSN
operations. Upon successful completion of the private equity
offerings, the Company intends to redeem its Series D
Preferred Stock in exchange for all of THI's issued and
outstanding capital stock.
For financial reporting purposes, this transaction was
accounted for as a reverse purchase acquisition under which
the companies will be recapitalized to include the historical
financial information of TSSN and the assets and liabilities
of the Company revalued to reflect the market value of the
Company's outstanding shares. The market value of the
Company's outstanding shares ($4,084,153) was based on the
month end trading range of the Company's common stock for the
three months, December, 1994 and January and February, 1995.
The carrying value of EVRO's assets reflect their approximate
fair market value. The cost of the acquisition aggregated
$305,000, including a finders fee of $150,000 and legal costs
of $155,000. The excess purchase price, including the costs
of acquisition, over and the above the net assets of EVRO
Corporation was allocated to goodwill. The goodwill is being
amortized on a straight line basis over 10 years. No value
has been assigned to the minority shareholders of TSSN as the
book value of the net assets of TSSN was negative as of March
16, 1995.
As closing occurred on March 14, 1995, the middle of a
month, the accounts of TSSN have been consolidated with the
Company as of February 28, 1995, a date that lies within the
date on which the transaction was initiated and the date of
closing. The cost of acquisition and net income for the
period from February 28, 1995 to March 14, 1995 were reduced
by imputed interest of $17,903 using a 10% annual rate of
interest. The historical financial statements prior to
February 28, 1995, included herein, are those of TSSN.
28
<PAGE> 29
As described in Note 3; Significant Transactions;
Acquisition of The Sports & Shopping Network, Inc., certain
elements of the transaction were not completed as of September
30, 1995, such as the issuance of the Series D Preferred Stock
to the holders of record of EVRO's common stock as of March
27, 1995 and the issuance 17,759,038 shares of EVRO's common
stock to STELLAR and the acquisition of the common stock of
TSSN held by the minority shareholders following completion of
an increase in EVRO's authorized shares of common stock. To
more clearly reflect the effect of the acquisition for
financial reporting purposes, and to enhance comparability of
the current year's interim financial statements, management
has elected to account for this transaction as if all elements
of the transaction had been completed as of September 30,
1995.
The calculations of loss per share for the three months
and nine months ended September 30, 1995 were based on the
weighed average number of shares as follows: (a) for the
period January 1, 1995 through March 14, 1995, the number of
common shares to be issued to STELLAR (500,000 shares) and (b)
for the period from March 14, 1995 through September 30, 1995,
the actual number of EVRO shares outstanding. For the three
months and nine months ended September 30, 1994, the weighted
average number of shares for each period was based on the
number of EVRO common shares to be issued to STELLAR (500,000
shares) adjusted for the effect of a November 30, 1994 change
in the number of issued shares of TSSN held by STELLAR.
Historic EVRO General Overview
In 1994, Lintronics Technologies, Inc. ("Lintronics"), a
wholly-owned subsidiary of Technology Holdings, Inc. ("THI"),
which is a wholly-owned subsidiary of the Company, planned to
use third party, foreign, subcontract facilities to
manufacture its product and to use Imaging Technologies, Inc.
("Imaging"), a foreign subsidiary, wholly-owned by Lintronics
to market and distribute its video breast imaging systems in
the foreign marketplace. The Company also announced a
potential joint venture with a foreign research and
development firm specializing in light imaging. In January
1995, the FDA made a pronouncement that all transillumination
devices are not clinical effective for the diagnosis or
detection of breast abnormalities or conditions, and that the
use of the technique may contribute to the delay of detection
of lesions in the early stages of cancer when the disease is
most treatable. Therefore, the FDA indicated that it intended
to classify all such devices as a Class III device requiring
substantial clinical trials and additional costs to the
manufacturer. The FDA's decision has forced the Company to
reverse its decision to continue the manufacturing and sale of
its transillumination devices through a foreign network.
In June 1994, the Company formed EVRO Trading Corporation
as a wholly-owned subsidiary for the purpose of establishing
an international distribution network to distribute medical
equipment and supplies. On March 1, 1995 it was determined by
THI and the Company that further funding of EVRO Trading would
be halted as no significant products had been sold nor had a
distribution network been established. Subsequently, a
dispute arose between THI and the Company, and the President
of EVRO Trading in which certain claims were asserted by both
29
<PAGE> 30
parties. As a part of a settlement agreement entered into on
March 24, 1995 with the President of EVRO Trading, THI
transferred ownership of 55% of the common stock of EVRO
Trading to him in exchange for an arrangement whereby the
Company would maintain a 45% interest in the common stock of
EVRO Trading, with no obligation for additional funding. Both
parties also signed mutual general releases and noncompete
agreements in connections with the settlement. On March 24,
1995, THI also executed a 10 day secured promissory note
("Note") for $30,776.99 in favor of the President of EVRO
Trading which represents amounts due the President of EVRO
Trading and a consultant for back salary, fees and expenses.
The Note was secured by the remaining 45% of the common stock
of EVRO Trading ("Security"). On April 3, 1995, THI defaulted
on the Note and surrendered the Security to the President of
EVRO Trading.
The operations of Imaging and EVRO Trading, a related
company, have been reflected as discontinued operations in the
Consolidated Financial Statements for the three months and
nine months ended September 30, 1995.
During 1994, the Company acquired 60% of the issued and
outstanding common stock of The Good Health Channel, Inc.
("Good Health"). Good Health specializes in providing health
information programming designed for physician waiting rooms,
and also provides a unique, out-of-home advertising medium for
consumer and pharmaceutical companies. During 1994, Good
Health's efforts to provide funding for equipment leasing and
sign up sufficient advertisers to underwrite its programming
were unsuccessful. These shortcomings and the significant
losses generated by its operations caused the Company to begin
efforts to dispose of Good Health in early 1995. On April 28,
1995, Good Health and THI entered into an Asset Purchase
Agreement (the "Agreement") to sell significantly all of the
assets of Good Health and certain noncompete covenants of Good
Health, THI and D. Jerry Diamond to Better Health Network,
Inc., a Florida corporation for consideration of $25,000 cash
and a contingent promissory note of up to $1,575,000. The
promissory note does not accrue interest and is payable from
gross revenues of the buyer in monthly installments equal to
3% of gross revenues of the preceding calendar month,
determined based upon the cash method of accounting, reduced
for sales tax, if any, and adjusted for customer refunds and
credits, until THI has received $100,000 and thereafter equal
to 2% of the gross revenues until THI has received the
remaining balance under the note. No gain or loss will result
from this transaction as the carrying value of the assets
approximately equal the cash consideration of $25,000. The
ultimate collection of the contingent promissory note is
uncertain and largely dependent upon the success of Better
Health Network, Inc. in establishing future profitable
operations. Accordingly, the Company has utilized the cost
recovery method of accounting for this transaction. Any
payments received pursuant to the promissory note will be
recognized as income upon receipt. The operations of Good
Health have been reflected as discontinued operations in the
Unaudited Consolidated Financial Statements for the three
months and nine months ended September 30, 1995.
In July, 1994, the Company entered into an Agreement with
Three Rios, Ltd. to acquire a 46-acre recreational vehicle
campground. Prior to the closing of the Agreement, the
Company assigned its rights to acquire the campground to Tres
Rivers, Inc, a Texas corporation ("Tres
30
<PAGE> 31
Rivers"). Tres Rivers incurred losses during the remainder of
1994 related to the acquisition itself as well as costs
related to administrative start-up and ongoing maintenance
and repair. During 1995, Tres Rivers has continued to incur
losses related to maintenance, repair and administrative
costs.
PLAN OF OPERATION
TSSN and its subsidiaries are all considered to be in the
development stage as defined in Financial Accounting Standard
No. 7. TSSN is engaged in the development of a television
shopping network specializing in the marketing of sports
memorabilia, apparel and related merchandise through
satellite, television broadcast stations and cable networks.
In November 1994, TSSN initiated the sale of sports
memorabilia on a limited basis (6 to 21 hours per week)
through a contractual arrangement with ViaTV Network located
in Knoxville, Tennessee. Initially the broadcast was limited
to satellite only homes; however, beginning in January 1995,
TSSN sales programming was broadcast over the Nostalgia
Network for 6 hours per week. While these sales activities
confirmed the viability of TSSN's programming, the operations
were discontinued in late February 1995 until TSSN could
obtain broadcasting capability and distribution at more
favorable economic costs.
TSSN currently has no employees. TSSN's officers are
employees of and are compensated by STELLAR. STELLAR provides
management services pursuant to a Management Services
Agreement (the "Agreement"). STELLAR provides to TSSN
personnel, supplies, equipment, technical office,
administrative and accounting services, management expertise,
and other resources. Fees accrued for these services
aggregated $937,500 and $862,500 for the nine months ended
September 30, 1995 and 1994, respectively. As TSSN initiates
its business plan, Management expects to hire 2 to 6
employees.
On April 26, 1995, EVRO entered into a binding Letter of
Intent (which was modified on May 5, 1995) to acquire
America's Collectibles Network, Inc. ("ACN") and to merge ACN
into TSSN, an EVRO subsidiary, in exchange for a requisite
number of EVRO's preferred stock which shares would be
convertible into 1,850,000 shares of EVRO's restricted common
stock upon EVRO successfully increasing its authorized shares
of common stock to at least 35,000,000 shares. The Company
terminated the agreement as ACN would qualify as a significant
subsidiary as defined by the Securities Acts of 1933 and 1934
and that ACN was unable to provide the Company with required
audited financial statements for a fiscal year period prior to
acquisition.
On August 25, 1995, the Company executed an agreement to
merge WinSAT Communication Corporation ("WinSAT"), a Florida
corporation based in Largo, Florida, into a wholly-owned
subsidiary of the Company to be formed prior to the merger, in
exchange for such number of shares of a yet to be designated
series of preferred stock which shall be convertible into
86,000 shares of restricted Common Stock upon the date which
the Company increases its authorized shares of Common Stock to
at least 35,000,000 shares, and for $60,000 cash payable
31
<PAGE> 32
as of the date of the merger. The merger agreement may be
terminated by either party after September 30, 1995, if no
merger has taken place as of that date, or may be extended to
December 31, 1995. As of November 14, 1995, the merger
agreement has not been extended or terminated. The merger is
conditioned upon the continued employment after the merger of
Frankie S. Winsett, President of WinSAT, by WinSAT or the
Company.
WinSAT is a small corporation which owns four mobile
satellite uplink facilities and is managed by Frankie S.
Winsett. The Company has agreed to acquire WinSAT primarily
to obtain WinSAT's uplink facilities and the services of Mr.
Winsett who has experience in satellite communications and
broadcasting in the television industry. If successful, the
acquisition of WinSAT will provide the Company and TSSN with
the capability to broadcast programming through the four
mobile satellite uplink facilities.
On September 18, 1995, and then as amended on October 10,
1995, the Company completed a transaction to acquire at least
51% of Channel America Television Network, Inc. ("Channel
America"), a Delaware corporation based in Darien,
Connecticut, together with the rights to acquire, through an
escrow arrangement, the remaining 49% of Channel America. For
accounting purposes, the acquisition of the 51% interest in
Channel America will be recorded as of October 1, 1995.
In accordance with the terms of a Stock Purchase
Agreement dated July 13, 1995, as amended September 18, 1995,
October 10, 1995, and October 26, 1995 by and between Channel
America and the Company, and as a condition precedent to a
merger of Channel America into a subsidiary of the Company,
Channel America issued and delivered to the Company 27,500,000
shares of restricted common stock of Channel America, such
that the Company owns a majority of the voting shares and
majority control of Channel America, and will own at least 51%
of the voting shares of Channel America upon completion of the
debt conversion described below, at a purchase price (the
"Purchase Price") equal to $1,000,000. Such purchase price is
payable in the form of $200,000 in cash, which was fully paid
by the Company on September 28, 1995, and subsequent payments
of $800,000, with cash payments of $100,000 payable on or
before October 30, 1995 and $300,000 payable on or before
November 9, 1995 and $400,000 in the form of a six month
promissory note bearing interest at eight percent per annum.
In the event of default by the Company with respect to payment
of any portion of the Purchase Price, and a failure by the
Company to cure such default, the shares of Channel America's
Common Stock owned by the Company will be reduced pro rata
with respect to such unpaid Purchase Price.
The Company has issued to Channel America shares of its
Series H Convertible Preferred Stock (the "Convertible
Shares") which are convertible into up to 3,000,000 shares of
Common Stock, in accordance with the terms of an Agreement and
Plan of Merger and an Escrow Agreement, both dated as of July
13, 1995, as amended on September 18, 1995, October 10, 1995,
and October 26, 1995 by and among Channel America, the
Company, an as yet unincorporated subsidiary of the Company
and certain key shareholders (the "Key Shareholders") of
Channel America constituting a majority of the shareholders of
Channel America prior to the
32
<PAGE> 33
stock purchase described above. Such convertible shares shall
be held in escrow until either (a) the termination of the
Merger Agreement, at which time the Convertible Shares shall
be returned to the Company, or (b) such time when the Company
(I) increases its number of authorized shares of the Company's
common stock (the "Common Stock") from 2,500,000 shares to
35,000,000 shares and (ii) registers the shares of Common
Stock to be issued to the shareholders of Channel America upon
conversion of the Convertible Shares pursuant to an effective
Registration Statement. The merger is subject to approval by
the shareholders of each of the Company and Channel America in
accordance with applicable law. The parties intend to merge
Channel America into an as yet unincorporated subsidiary of
the Company in exchange for up to 3,000,000 shares of Common
Stock of the Company. The Merger Agreement is subject to
termination by the Company or Channel America if no merger has
occurred by December 31, 1995.
All certificates of merger, all common stock of Channel
America owned by the Key Shareholders (representing the
majority of the remaining 49% of ownership of Channel America
not acquired by the Stock Purchase Agreement), the Convertible
Shares, and certain other items, as more fully described in
the Escrow Agreement defined above, shall be held is escrow
until such time as an aggregate of 90% of the note holders and
holders of preferred stock of Channel America have agreed to
convert such notes and preferred stock, totaling approximately
$7,768,533 in debt, into restricted common stock of Channel
America. Channel America has reserved 22,838,040 shares of
its common stock for such conversion.
Channel America has not completed any filings or proxy
solicitations to its shareholders, which may be required under
federal or state securities laws or Delaware corporation law,
with respect to the prospective acquisition of Channel America
by the Company, and may be subject to sanctions and penalties
as a result of such violations.
Channel America currently broadcasts its programming 24
hours per day through its television network. As of September
21, 1995, Channel America has 59 affiliates with a potential
reach of approximately 16.9 million US households (actual
reach is approximately 7 million to 12 million households
depending on the time of day). The mix of television stations
comprising the Channel America network includes 10 full power,
8 cable and 41 low power stations.
Channel America supplies its programming from an uplink
facility in Los Angeles, California operated by IDB
Communications. Channel America's signal is received directly
by its broadcast affiliates and reaches cable affiliates via
the cable system's head-end where it is then retransmitted to
subscribers. Viewers with satellite dishes can access the
network directly by turning to the proper satellite
coordinates.
Channel America also holds licenses to operate four
low-power television stations currently not broadcasting.
Channel America has relied mainly on barter licensing, where
it exchanges air time for programming. Additionally, Channel
America maintains a program library consisting of
approximately 750 motion pictures and 400 television programs.
All titles are in good condition and are preformatted for
television broadcast.
33
<PAGE> 34
The Company intends to initially commence broadcasting
its Sports & Shopping Network programming, 6 hours per day,
seven days per week on Channel America's network. Thereafter,
the Company will expand its shopping channel programming to 12
hours per day, seven days per week.
RESULTS OF OPERATIONS
Following is a discussion of the Company's results of
operations for the three month and nine month periods ended
September 30, 1995 and 1994. The Company's net loss increased
from $460,000 during the three months ended September 30, 1994
to $1,090,000 for the same period in 1995. The Company's net
loss increased from $1,238,000 during the nine months ended
September 30, 1994 to $2,934,000 for the same period in 1995.
Such changes are primarily attributed to (a) the loss from
operations of historic EVRO and its subsidiaries for the
period March 1, 1995 through September 30, 1995 ($571,000),
(b) increased accounting, legal, and financial consulting
services and other costs incurred to support the Company's
acquisition and financing activities ($890,000), (c) the loss
on sale of sports memorabilia in January and February 1995
($131,000) and (d) the amortization of the goodwill relating
to the acquisition of EVRO ($94,000).
Revenues from memberships and other reflect the
operations of historic EVRO and its subsidiaries since
February 28, 1995. Revenues from product sales ($176,000) for
the nine months ended September 30, 1995 reflect the sale of
sports memorabilia through a contractual arrangement with
ViaTV Network located in Knoxville, Tennessee during January
and February. The cost of sales of sports memorabilia was
$160,000. The cost of sales was approximately 30-35% higher
than would normally be expected due to the high costs of
sports memorabilia inventory acquired at the time TSSN and its
subsidiaries were founded and high product costs directly
attributable to the initial low sales volume levels.
Broadcasting and distribution costs (included in selling,
general and administrative costs) were $147,000. Broadcasting
and distribution costs were expensed as incurred with no
allocation to sales backlog.
Selling, general and administrative expenses for the nine
months ended September 30, 1995 are comprised of (a) costs of
$349,000 attributable to TSSN and its subsidiaries (b) costs
of $646,000 attributable to historic EVRO and its subsidiaries,
and (c) corporate costs of $1,066,000, of which $890,000
represent legal, accounting and consulting services and other
costs incurred in support of the Company's acquisition and
financing activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses in 1993, 1994
and for the nine months ended September 30, 1995 of
$1,703,000, $1,701,000, and $2,934,000, respectively, which
have adversely reduced the Company's liquidity and capital
resources. In addition, TSSN will require substantial capital
infusion to fully establish its operations. The Company
anticipates that these
34
<PAGE> 35
losses will continue for some time in the foreseeable future.
The Company is currently experincing a significant deficit in
working capital and TSSN (the Company's primary operating
subsidiary of the future) has operated since its inception
with a negative working capital position. As of September 30,
1995, the Company had currect assets of $666,000 and current
liabilities of $3,972,000, which raises substantial doubts as
to the Company's ability to continue as a going concern unless
it is able to successfully complete a sizable private equiy
offering and attain future profitable operations. The future
success of the Company will depend, among other factors, upon
management's ability to attain and maintain profitable
operations, to obtain favorable financing arrangements, to
retire its current indebtedness and to raise additional
capital.
THI's two remaining operating subsidiaries, Treasure
Rockhound and Tres Rivers, principally meet their cash
requirements from operations. Improvements to the operations
are paid for from cash flow from operations and borrowing.
35
<PAGE> 36
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K
Form 8-K dated Septmeber 18, 1995 reporting a transaction, as
amended on October 10, 1995, to acquire at least 51% of
Channel America Television Network, Inc. A Deleware
Corporation based in Darien, Connecticut, together with the
rights to acquire, through an escrow arrangement, the
remaining 49% of Channel America.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant caused this 10-QSB report to be signed on its
behalf by the undersigned thereunto duly authorized.
EVRO CORPORATION
Date November 21, 1995 By /s/ O. Don Lauher
- ---------------------------------- --------------------------------
O. Don Lauher
Chief Financial Officer
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EVRO CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 84,079
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 222,824
<CURRENT-ASSETS> 666,157
<PP&E> 3,885,860
<DEPRECIATION> 437,895
<TOTAL-ASSETS> 7,798,054
<CURRENT-LIABILITIES> 3,971,688
<BONDS> 0
<COMMON> 2,327,246
0
5,122,897
<OTHER-SE> (5,045,055)
<TOTAL-LIABILITY-AND-EQUITY> 7,798,054
<SALES> 176,278
<TOTAL-REVENUES> 1,217,870
<CGS> 160,302
<TOTAL-COSTS> 740,016
<OTHER-EXPENSES> 3,210,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,473
<INCOME-PRETAX> (2,845,322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,845,322)
<DISCONTINUED> (88,640)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,933,962)
<EPS-PRIMARY> (1.29)
<EPS-DILUTED> (1.29)
</TABLE>
