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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition
period from to
Commission File No. 0-7870
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EVRO Corporation
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(Name of Small Business Issuer in Its Charter)
Florida 59-3229961
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1509 South Florida Avenue, Suite 3, Lakeland, Florida 33803
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(Address of Principal Executive Offices) (Zip Code)
523 Douglas Avenue, Altamonte Springs, Florida 32714
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(Former Address) (Zip Code)
Issuer's telephone number (941) 683-3333
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Securities registered under Section 12(b) of the Exchange Act:
Name of each Exchange
Title of Each Class on Which Registered
None NASDAQ
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock (No par value)
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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The Exhibit Index appears on page 88.
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were: $1,635,962.
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 29, 1996 totaled $4,592,850 (computed by reference
to the closing bid price on March 29, 1996 ($2.22).
The number of shares outstanding of registrant's common stock, no par
value, at March 29, 1996, was 2,497,665 shares.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
EVRO Corporation, a Florida corporation ("EVRO") operates three
separate businesses - a home shopping business, an entertainment business and a
recreational vehicle ("RV") campground business. EVRO operates the home
shopping business through two subsidiaries, The Sports & Shopping Network,
Inc., a Florida corporation ("TSSN") and The Shopping Connection, Inc., a
Florida corporation ("TSC"). Both TSSN and TSC are based in Orlando, Florida.
EVRO operates its entertainment business through its partially owned
subsidiary, Channel America Television Network, Inc. ("Channel America"), a
Delaware corporation based in Darien, Connecticut. EVRO operates its RV
campground business through its wholly owned subsidiary, Technology Holdings,
Inc., a Florida corporation ("THI").
HISTORICAL OPERATIONS
EVRO was organized February 5, 1946, under the name of Moreno-Cripple
Creek Corporation, which name was changed to Moreno Uranium Corporation on
March 12, 1954, to EnviroSearch Corp. on March 10, 1970, to EVRO Financial
Corp. on September 17, 1986, and finally to EVRO Corporation on March 1, 1994.
During 1990, EVRO entered into the RV campground business by acquiring
all of the stock of Treasure Rockhound Ranches, Inc., a Texas corporation
("Treasure Rockhound"). EVRO expanded this business in 1994, by acquiring a
46-acre RV campground in Glen Rose, Texas. EVRO formed a wholly owned
subsidiary, Tres Rivers, Inc. ("Tres Rivers"), a Texas corporation, to acquire
all of the assets of Three Rios, Ltd., the former owner of the RV campground
located in Glen Rose, Texas.
During 1992, EVRO acquired Lintronics Technologies, Inc., a Florida
corporation ("Lintronics") that manufactured breast-imaging devices, used to
detect breast abnormalities. EVRO expanded into other health related fields by
acquiring a majority interest in TGHC, Inc., a Florida corporation ("TGHC"),
formerly known as The Good Health Channel, Inc., that was engaged in the
business of providing health information programming designed for physician
waiting rooms. EVRO also formed EVRO Trading Corp., a Florida corporation
("EVRO Trading") in June 1994, and Lintronics formed Imaging Technologies, Inc.
("Imaging"), a foreign corporation, to manufacture and export Lintronics'
breast- imaging devices as well as other medical products. EVRO discontinued
its health related businesses in December 1994 and there has been no activity
in such businesses other than ordinary winding-up activities.
On January 20, 1995, EVRO organized THI and contributed all of its
then existing assets to THI, including 100% of the issued and outstanding
common stock of Treasure Rockhound and Tres Rivers. In connection with such
transfer, THI assumed all of the then existing liabilities of EVRO as of March
14, 1995.
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During 1995, EVRO expanded its business operations by entering into
the home shopping and entertainment business. On March 14, 1995, EVRO acquired
98.35% of the issued and outstanding shares of the common stock of The Sports &
Shopping Network, Inc., a Florida corporation ("TSSN"), a development stage
company that owns and operates a television shopping network. EVRO
subsequently acquired the remaining shares of the issued and outstanding shares
of the common stock of TSSN and currently owns 100% of the common stock of
TSSN.
EVRO further expanded its home shopping and entertainment business in
October 1995 by acquiring Channel America.
MATERIAL ACQUISITIONS - 1995
TSSN ACQUISITION
During 1994, The Stellar Companies, Inc. ("Stellar"), the former owner
of 98.35% of the shares of the common stock of TSSN (the "TSSN Shares"),
granted Boyar Holdings, Inc. ("BHI") an option to acquire the TSSN Shares (the
"TSSN Option"). On January 12, 1995, EVRO purchased the TSSN Option from BHI,
pursuant to the terms of the Assignment of Option Agreement by and between BHI
and EVRO. As consideration for the transfer of the TSSN Option, EVRO issued to
BHI 30,000 shares of EVRO's Series E Preferred Stock which is convertible into
3,000,000 shares of EVRO's common stock at such time as the shareholders of
EVRO approve an increase in the authorized shares of EVRO's common stock.
On March 14, 1995, EVRO exercised the TSSN Option and acquired the
TSSN Shares from Stellar in exchange for EVRO's agreement to issue 16,759,038
shares of its common stock to Stellar (the "TSSN Acquisition"). As EVRO only
had 2,500,000 shares of common stock authorized at the time of the exercise of
the TSSN Option, EVRO and certain of its shareholders agreed to use their best
efforts to cause EVRO's authorized common stock to be increased as soon as was
practicable. Pending such increase in EVRO's authorized common stock, EVRO
issued Stellar 500,000 shares of its authorized but then unissued shares of
common stock. On the date that EVRO's shareholders approved the increase of
the number of shares of EVRO's common stock, EVRO was required to issue
16,259,038 (16,759,038 - 500,000) shares of its common stock to Stellar,
representing the balance of the shares of EVRO's common stock that EVRO was
obligated to issue to Stellar under the TSSN Acquisition agreement. Pursuant
to the TSSN Acquisition agreement, EVRO acquired on January 15, 1995, the
remaining 1.65% of TSSN's issued and outstanding shares of common stock held by
its minority shareholders in exchange for an aggregate of 28.1418 shares of
EVRO's Series F Convertible Preferred Stock. EVRO has no further obligation to
the minority shareholders of TSSN who consented to transfer their shares of the
common stock of TSSN to EVRO. If EVRO issues Special Shares (as defined
herein) to THI, only Stellar, and not the minority shareholders of TSSN, have
the option described below to purchase those shares from THI.
In conjunction with the TSSN Acquisition, ACL, which then held 587,219
shares of EVRO's common stock ("the ACL Shares"), granted Stellar an
irrevocable proxy to vote the ACL Shares, effective March 14, 1995 and expiring
on the date the ACL Shares represent less than five percent of EVRO's issued
and outstanding shares of common stock.
Prior to consummating the TSSN Acquisition, EVRO formed a wholly owned
subsidiary, THI, and transferred to THI all of the assets that were owned by
EVRO prior to the TSSN
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Acquisition. Pursuant to the TSSN Acquisition agreement, 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"). EVRO has the right, but not the obligation, to redeem the Series
D Preferred in exchange for all of THI's issued and outstanding capital stock.
The creation of THI and the authorization and issuance of EVRO's
Series D Preferred was done for the purpose of preserving the value of EVRO's
then existing assets for the holders of EVRO's common stock at the time of the
TSSN Acquisition. Due to the significant difference in the historical business
of EVRO and that of TSSN, EVRO insisted on the creation of THI as a condition
of the TSSN Acquisition. By creating THI and issuing a stock dividend of the
Series D Preferred Stock to EVRO's then existing common shareholders of EVRO,
those shareholders would, upon liquidation of EVRO, be granted a preference in
liquidation in an amount equal to the value of THI's assets. Alternatively,
upon the redemption of the Series D Preferred prior to a liquidation of EVRO,
the holders of EVRO's common stock prior to the TSSN Acquisition would receive
all of the value of THI.
As additional consideration for entering the TSSN Acquisition
agreement, Stellar agreed to cause EVRO to contribute $455,000 to THI from the
proceeds that EVRO would receive from EVRO's then contemplated private debt or
equity offerings, which obligation has been satisfied by EVRO. Upon the
completion of EVRO's current financing activities, it is EVRO's intention to
redeem its Series D Preferred in exchange for all of THI's issued and
outstanding common stock.
Additionally, THI is entitled to receive, on an annual basis, that
number of shares of EVRO's voting common stock (the "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. The phrase
"total assets" is defined to mean the amount set forth on the consolidated
balance sheet of THI as total assets, including, without limitation, the
current assets, property and equipment (net of accumulated depreciation),
investments and other assets (net of accumulated amortization and adjustments).
The phrase "average total assets" is defined to mean the sum of the "total
assets" (as defined above) of THI as set forth on the balance sheets of THI
during each of the quarters ending March 31, June 30, September 30 and December
31 during each applicable twelve month period and dividing such sum by four.
THI ratably earns the Special Shares over each applicable twelve month period.
THI's entitlement to the Special Shares shall cease upon EVRO's redemption of
its Series D Preferred. As of December 31, 1995, THI has earned 426,417
Special Shares.
In connection with the agreement between The Stellar Companies, Inc.
("Stellar"), the former owner of TSSN, and EVRO, Stellar acquired the option to
purchase the Special Shares from THI for an amount equal to the greater of (a)
two dollars per share; or (b) 50% of the bid price of EVRO's common stock as of
the end of the month preceding Stellar's exercise of its option. Stellar paid
no additional consideration for the option to purchase the Special Shares from
THI. Stellar's option to acquire the Special Shares shall terminate June 30,
1997. Stellar has not been granted "registration rights" with respect to the
Special Shares.
The following example is provided to illustrate the application of the
contractual provisions of the TSSN Acquisition agreement related to the
obligation of EVRO to issue Special Shares. The following illustration
presumes that EVRO has not redeemed its Series D Preferred prior to March 13,
1996, as such event terminates the obligation of EVRO to issue Special Shares
as discussed more fully above.
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EXAMPLE: Assume that during the period from March 14, 1995 to March
13, 1996, THI's average total assets were $5,274,324, then the number
of shares of EVRO common stock; i.e., the Special Shares, that would
be issued to THI would total 527,432 shares [(20% x $5,274,324) /
$2.00].
Stellar has the option to purchase the Special Shares from THI on or
before June 30, 1997 by paying THI the greater of (a) two dollars per
share; or (b) 50% of the bid price of EVRO's common stock as of the
end of the month preceding Stellar's exercise of its option. The bid
price of EVRO's common stock on March 29, 1996, was $2.22,
consequently the option price would be $2.00. If Stellar were to
exercise its option to acquire all of the Special Shares, it would be
required to pay THI $1,054,864.
The Special Shares that Stellar may acquire upon the exercise of its
option will be restricted securities, and such Special Shares can be
transferred by Stellar either pursuant to the limitations imposed by
Rule 144 or without limitation through an effective registration
statement relating to such securities.
To the extent that EVRO redeems the Series D Preferred by issuing
shares of THI to the holders thereof, the common shareholders of EVRO who do
not also own shares of the Series D Preferred will be diluted, as EVRO will
receive no consideration for the issuance of the Series D Preferred shares. To
the extent that Special Shares are issued to THI and Stellar exercises its
option to acquire the Special Shares from THI, Stellar will benefit from such
transaction to the extent that the market price of the shares of EVRO's common
stock is greater than the option price that Stellar must pay THI for the
Special Shares.
EXAMPLE: Assume that the "bid" price of EVRO's common stock on June
30, 1996, was $3.75 and the "ask" price $4.00. Applying the formula
set forth above, if Stellar exercises its option to acquire the
Special Shares on June 30, 1996, the option price will be $2.00 per
share (the greater of $2.00 or 50% of the bid price of EVRO's common
stock). Stellar would receive a benefit unavailable to other
shareholders of EVRO as it would be able to acquire shares of the
common stock of EVRO at a substantial discount to the "ask" price of
the shares of EVRO; however, the shares acquired by Stellar would be
restricted securities, as that term is defined in Rule 144(a)(3),
promulgated by the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, and as a result thereof, are not
freely transferable by Stellar.
If the Series D Preferred has not been redeemed by June 30, 1997, the
holders thereof shall be entitled to receive a special dividend of shares of
EVRO's common stock in an aggregate amount equal to the number of Special
Shares held by THI as of June 30, 1997. As long as the Series D Preferred
remains outstanding, additional stock dividends shall be payable by EVRO to the
holders of the Series D Preferred, beginning July 1, 1998, and continuing each
July 1st thereafter until EVRO has redeemed its Series D Preferred, in an
annual amount equal to the number of Special Shares transferred to THI during
the immediately preceding applicable twelve month period.
For financial reporting purposes, the business combination between
TSSN and EVRO has been accounted for as a reverse purchase acquisition under
which TSSN and EVRO have been recapitalized to include the historical financial
information of TSSN and the assets and liabilities of EVRO revalued to reflect
the market value of EVRO's outstanding shares.
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There have been subsequent amendments to the TSSN Acquisition
agreement, the first of which occurred on April 19, 1995, when Stellar agreed
to return the 500,000 shares of restricted common stock previously issued to
Stellar at the closing of EVRO's purchase of TSSN. EVRO asked Stellar to amend
the TSSN Acquisition agreement in order to make the 500,000 shares of common
stock available to EVRO for issuance by EVRO pursuant to its 1995 Employee
Stock Compensation Plan. Stellar agreed to return the 500,000 shares of common
stock to EVRO in exchange for EVRO's agreement to increase, by 1,000,000
shares, the number of shares of EVRO's common stock that EVRO would issue to
Stellar at such time as EVRO increased its authorized shares of common stock.
Consequently, the number of shares that EVRO was obligated to issue to Stellar
for the shares of TSSN increased from 16,759,038 to 17,759,038.
The then existing members of the Board of Directors of EVRO
unanimously approved the amendment to the TSSN Acquisition agreement increasing
the number of shares to be issued to Stellar. As originally negotiated, the
TSSN Acquisition agreement contemplated that Stellar would own 77.1% of the
shares of EVRO's common stock after the closing of the TSSN Acquisition
agreement. As a result of the return by Stellar to EVRO of the 500,000 shares
of common stock previously issued to Stellar and EVRO's subsequent issuance
thereof, Stellar requested that EVRO agree to issue sufficient additional
shares so that it would receive the same percentage ownership that it had the
contractual right to receive prior to the April 19, 1995 amendment. The
resulting agreement by the Board of Directors to agree to issue an additional
1,000,000 shares to Stellar reflects the compromise reached between Stellar and
EVRO. The percentage of the common stock of EVRO to be owned by Stellar, after
giving effect to the agreement to issue an additional 1,000,000 shares of
common stock as a result of the April 19, 1995 amendment to the TSSN
Acquisition agreement and after also giving effect to EVRO's issuance of an
additional 500,000 shares of the common stock returned to EVRO by Stellar,
decreased from 77.1% to 76.4% of EVRO's common stock. On the date that the
TSSN Acquisition agreement was amended, April 19, 1995, the bid price of EVRO's
common stock was $3.12 and its ask price was $3.25.
In addition, the April 19, 1995 amendment to the TSSN Acquisition
agreement required EVRO to issue to Stellar 500 shares of its Series F
Preferred. Each share of Series F Preferred entitles the holder thereof with
the right to cast 1,000 votes on any matter requiring the approval of common
shareholders. In the event that EVRO issued additional voting securities prior
to the time that EVRO had increased the number of shares of its authorized
shares of common stock, EVRO agreed to issue additional shares of its Series F
Preferred to Stellar in an amount equal in voting rights with any subsequent
voting shares of common or preferred stock issued by EVRO. For example, if
EVRO issued 300,000 shares of its common stock, EVRO would be required to issue
300 shares of its Series F Preferred to Stellar.
The shares of EVRO's Series F Preferred are convertible, at the option
of Stellar, into shares of EVRO's restricted common stock, on a 1 for 10,000
basis, following an increase in the number of EVRO's authorized shares of
common stock. Any common stock issued to Stellar as a result of its
conversion of Series F Preferred into EVRO's common stock reduces EVRO's
obligation to issue the 17,759,038 shares of restricted common stock that EVRO
is obligated to issue Stellar. As of April 26, 1996, Stellar held 1,198.4303
shares of Series F Preferred.
Pending an increase in EVRO's authorized capital stock, the Series F
Preferred was intended to grant voting rights to Stellar similar to those
voting rights held by Stellar prior to the April 15, 1995 amendment to the TSSN
Acquisition agreement. More specifically, the grant to Stellar of 500 shares
of Series F Preferred gave Stellar 500,000 votes (500 shares of Series F
Preferred with each
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share having 1,000 votes per share), the number of votes that Stellar had prior
to returning 500,000 shares of common stock to EVRO. The Series F Preferred
also granted Stellar the right to convert the Series F Preferred into common
shares at a conversion ratio of 10,000 to 1. By converting the Series F
Preferred, Stellar could increase its voting power ten fold, however, any
shares of common stock issued to Stellar upon Stellar's conversion of the
Series F Preferred decreases, on a one for one basis, EVRO's obligation to
issue the 17,759,038 shares of common stock EVRO is obligated to issue to
Stellar under the TSSN Acquisition agreement as amended.
On October 6, 1995, the TSSN Acquisition agreement was further amended
to provide that Stellar would, upon the conversion by Stellar of its shares of
Series F Preferred, return 2,126,000 shares of the 17,759,038 shares of common
stock to be received by Stellar upon EVRO increasing its shares of authorized
common stock. Additionally, Stellar agreed to deliver 9,000,000 shares of the
common stock to be issued to Stellar upon its conversion of the Series F
Preferred to the law firm of Scolaro, Shulman, Cohen, Lawler & Burstein, P.C.
("Scolaro, Shulman"), who agreed to hold the shares in escrow, and would
release the 9,000,000 shares, on a pro rata basis, upon EVRO and its sports and
shopping-related subsidiaries achieving net earnings of $5,000,000. Any and
all shares held in escrow which are not released by the escrow agent to Stellar
on or before December 31, 2000, are to be returned to EVRO. Stellar suggested
that the TSSN Acquisition agreement be amended to reduce the number of shares
that Stellar would receive under the TSSN Acquisition agreement (2,126,000) and
to subject an additional 9,000,000 shares to a risk of forfeiture if EVRO's
earnings did not meet certain benchmarks, in order to facilitate EVRO's capital
raising efforts.
On February 26, 1996, EVRO and Stellar amended the October 6, 1995
amendment to the TSSN Acquisition agreement to provide that upon the conversion
by Stellar of its shares of Series F Preferred, Stellar would return only
1,350,000 shares of the 17,759,038 shares of common stock to be received by
Stellar upon EVRO increasing its shares of authorized common stock rather than
the 2,126,000 shares that Stellar had earlier agreed to return in the October
6, 1995 amendment. EVRO agreed to this amendment as the basis for Stellar
agreeing to the October 6, 1995 amendment was Stellar's understanding that EVRO
would be required to issue 2,126,000 shares of its common stock or common stock
equivalents to various third parties to assist EVRO in its fund raising
efforts. As EVRO was only required to issue 1,350,000 shares to such third
parties, the amount of shares to be forfeited by Stellar to EVRO was reduced
accordingly.
The acquisition of TSSN resulted in no immediate tax consequences to
EVRO, except that it is likely that EVRO will lose a portion of the tax
benefits that it might otherwise have realized from its net operating losses
due to the fact that, as a result of the TSSN Acquisition an ownership change
will occur, as such term is defined for federal income tax purposes, thereby
limiting EVRO's ability to utilize its net operating loss carryforwards.
CHANNEL AMERICA ACQUISITION
The acquisition agreements between EVRO and Channel America, initially
signed on July 13, 1995, provided that EVRO would acquire 100% of the issued
and outstanding shares of the capital stock of Channel America. EVRO executed
agreements with Channel America on October 10, 1995, in which EVRO agreed to
pay $1,000,000 to Channel America and to issue 48,000 shares of EVRO's Series H
Convertible Preferred Stock ("Series H Preferred Stock"). Channel America
issued 27,500,000 shares of its common stock to EVRO, which represented 51% of
the issued and outstanding shares of Channel America's voting stock, after
giving effect to the anticipated issuance
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of additional shares of Channel America's common stock to its creditors
pursuant to the anticipated conversion of Channel America's indebtedness
described below. Of the $1,000,000 purchase price, $600,000 has been paid as
of March 29, 1996 and, the balance was paid by EVRO's delivery of its
promissory note, bearing interest at eight percent per annum, the principal and
accrued interest of which was due on April 7, 1996. The note has been extended
to May 16, 1996 in exchange for EVRO's agreement to issue to Channel America
50,000 shares of its common stock. EVRO has the option to extend the note for
an additional 30 days by paying to Channel America an additional 50,000 shares
and $50,000. In the event that EVRO is deemed to be in default in the payment
of any portion of the purchase price, the percentage of Channel America's
shares acquired by EVRO will be reduced pro rata with respect to the percentage
of the purchase price actually paid. EVRO is not in default of the
note, as extended, and EVRO will not be in default of the note unless
it fails to make the cash payments due under the note in a timely manner. The
Company believes that Channel America would extend the maturity date of the
note if requested to do so by the Company as Channel America has previously
granted numerous extensions.
Since October 10, 1995, EVRO has made working capital advances
directly to Channel America, or to creditors of Channel America, in the amount
of $1,349,000. Channel America is obligated to repay the advances on demand.
EVRO issued, on October 10, 1995, 48,000 shares of its Series H
Preferred Stock to Channel America, for the benefit of shareholders of Channel
America other than EVRO, and delivered such shares to Scolaro, Shulman, in its
capacity as the escrow agent for the shareholders of Channel America. The
Series H Preferred is convertible into 3,764,588 shares of EVRO's common stock.
The Series H preferred stock will be held in escrow, pending the conversion, by
the holders of an aggregate of 90% of the sum of [i] the face amount of the
notes previously issued by Channel America; and [ii] the stated value of the
outstanding preferred stock of Channel America. The face amount of the notes
and the stated value of the preferred shares is $7,768,533, and, as of December
31, 1996, the holders of 49% of the debt and equity, representing $3,773,229,
had converted their debt or equity into shares of Channel America's common
stock. Another approximate $2,618,000 (34%) has committed, but has not yet
converted. The Series H Preferred will be held in escrow, pending (a) the
conversion of an aggregate of 90% of Channel America's notes payable and
preferred stock; (b) EVRO increasing its authorized shares; and (c) EVRO
registering the shares of common stock underlying the Series H Preferred Stock
with the Securities and Exchange Commission. The acquisition of the remaining
49% minority interest of Channel America in exchange of the Company's common
stock is not contingent upon the full payment of the $400,000 promissory note
discussed above.
BUSINESS OF EVRO - HOME SHOPPING AND ENTERTAINMENT BUSINESS.
CHANNEL AMERICA
GENERAL
The current business focus of EVRO is to expand its home shopping and
entertainment business by expanding its broadcast television network and its
home shopping programming. EVRO's partially owned subsidiary, Channel America,
currently operates a broadcast television network. As of March 29, 1996,
Channel America had 79 affiliates that broadcast its television network, with a
potential reach of approximately 32.7 million US households, including 9.2
million direct cable homes and 4.6 million satellite homes. The mix of
television stations comprising the Channel America network includes 13 full
power, 9 cable and 57 low power stations.
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Channel America generates revenues from affiliate fees, a limited
number of direct response clients who pay the network on a per-inquiry basis
for orders generated through their commercials, and from paid programming.
Channel America also generates non-cash revenues from barter transactions where
it acquires programming in exchange for airtime on the network. Channel
America's primary expenses are costs associated with formatting and
transmitting its programming to its affiliates, principally "master control
services", uplink costs and satellite communication fees. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION".
CURRENT PROGRAMMING
Channel America, which began broadcasting in October 1988, provides
syndicated and first-run programming and movies 24 hours a day, seven days a
week. Currently, its programming consists of the following:
Public domain movies: "Classic" black and white movies including movies
starring Fred Astaire, Cary Grant, John Wayne, Roy Rogers, Gene Autry and The
Three Stooges. Channel America owns approximately 790 movies in its library.
This aspect of its programming accounts for approximately 30% of its air time.
Vintage Television: Vintage Television is comprised of shows for which, in
most cases, the copyright has expired. Channel America has approximately 170
hours of 1950's television which include series such as Sherlock Holmes and
Ozzie & Harriet. This aspect of its programming accounts for approximately 10%
of its air time.
Sports and Exercise Programming. This programming represents first run sports,
including basketball and soccer events and series such as Scuba World and Golf
Doctor. This aspect of its programming accounts for approximately 15% of its
air time.
Talk and Entertainment Shows. These are shows that have not appeared on any
other network before Channel America. Among the talk and entertainment shows
on the network are programs such as "Shirley", "The David Spatz Show" and
"Hollywood Update with Barry Zevan". This type of programming accounts for
approximately 12% of Channel America's air time.
Children's Shows. Children's programming includes shows such as Kosmic Korner
and Roger Rock Videos and constitutes approximately 12% of Channel America's
airtime.
Paid Programming. The predominant number of paid programmer hours are
purchased by infomercial program providers, music program providers (e.g.
variety, gospel, country-western) and religious program providers. Combined,
such programming currently constitutes approximately 20% of airtime.
FUTURE PROGRAMMING -- THE "HOMETOWN NETWORK"
Channel America has adopted a new strategy that it hopes will
distinguish it in the television market place. This strategy involves a
programming and marketing approach geared to making the network more attractive
to present and prospective affiliates, viewers and ultimately to national and
local advertisers. Management envisions Channel America as becoming the
"hometown network"
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and expects its affiliates to become the "hometown channel," with the network
offering stations a structure and programming that is consistent with this
identity. The key component of this strategy is "localizable" programming, in
which a locally introduced segment may be inserted into the network program
thereby providing the program with a local flavor. The secondary component of
this strategy is to "brand" each program block with a sponsor, similar to 1950
type programming where the television show often had an advertiser's name
associated with the television show.
Another aspect of the hometown network will be national events or
competitions which will have corresponding local events or competitions
coordinated by the affiliates and customized for the affiliate markets.
Channel America has tested this format in certain markets with shows
titled the "Hometown Matinee" and "The Round-Up". The Hometown Matinee
consisted of two features with hosted wrap-arounds and both national and
localizable giveaways. The Round-up consisted of a serialized western and
feature, again with hosted wrap-arounds and both national and localizable
giveaways. Management believes that classic movies can attract an audience if
re-packaged for both viewers and advertisers.
Channel America has limited experience in localizable programming and
the development of original programming in general. Accordingly, and because
of Channel America's continuing liquidity problems, there can be no assurance
that the Hometown Matinee and Afternoon Round-Up will continue beyond its
limited distribution or that Channel America will produce any future
programming to implement its hometown strategy or, if produced, that such
programming will be successful. Channel America will continue to air
non-localizable programming throughout the network schedule, including
syndicated programming, sports and other events, movies and original
programming created by independent producers.
Channel America intends to pursue programming relationships with
independent producers and syndicators in order to bring first run programming
to the Channel America network. Channel America hopes to pursue a network
programming relationship with a movie or television studio that would also use
the network to test programs, formats and talent. The studio could also feed
programming not presently in syndication to Channel America for broadcast over
the network. Channel America also intends to expand its original production
efforts if and when it has its own production facility/broadcast center or in
conjunction with another television production entity. However, there can be
no assurance that Channel America will be successful in developing a
programming relationship, or ever have its own production facility/broadcast
center or enter into such programming relationships.
As previously mentioned, it is EVRO's intention to expand Channel
America's programming by incorporating TSSN's home shopping shows. It is
estimated that TSSN's programming will constitute approximately 25% of Channel
America's programming by late 1996. EVRO also intends to further diversify
Channel America's programming by introducing game shows and high-tech animation
programming. To that end, EVRO has entered into negotiations with SBI
Communications, Inc. to develop a "bingo" game show and EVRO has entered into a
joint venture agreement with MIT-F/x, Inc. to develop computer animated
television movies and multi-episode programming.
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<PAGE> 12
AFFILIATES
In order to distribute Channel America's programming, it must enter
into agreements with broadcast stations and/or cable system operators.
Typically, affiliation agreements entered into by Channel America have a one
year term, with automatic, successive one-year renewals in the absence of
written cancellation by either party. In most instances, the agreements are
cancelable by the affiliate upon 30 days notice. Historically, the affiliate
stations generally paid a monthly fee of $250 during the first 12 months and
$500 during the balance of the two-year term. In many instances, Channel
America waived all or a portion of the monthly fees for specified periods of
time to attract affiliates in desirable markets. Currently, Channel America
has had to waive the fee entirely. These waivers and discounts are offered to
affiliates that Channel America believes provide good opportunities for revenue
generation through the sale of advertising and enhancement of the network's
image as a national network. In addition, Channel America retains six minutes
of the 12 minutes of the advertising time that is available every hour.
Although most of Channel America's affiliates have signed agreements, there can
be no assurance that an affiliate, even if contractually bound, will continue
to air Channel America's programming for the full term of the agreement, or
that Channel America will have the resources to take action against those
affiliates who refuse to honor their obligations.
By waiving affiliation fees and providing programming through a barter
system by which affiliates are able to obtain quality programming without any
significant cash outlay, Channel America believes that it will be successful in
signing additional affiliates.
As of March 29, 1996, Channel America had 79 affiliates consisting of
13 full power television stations, 57 low power television ("LPTV") stations
and 9 local cable systems currently on the air. Each station is located in an
"Area of Dominant Influence" ("ADI"), a geographic market design that defines
and measures each television market based on the number of households in each
market. A full power television station is a station whose signal can be
received in all areas of an ADI, while a LPTV station's signal can only be
reached in a portion of an ADI. Twelve of the thirteen full power stations and
31 of the LPTV stations are also carried on local cable systems. Although most
stations in the Channel America network are LPTVs, with a local broadcast
radius of 15-25 miles, Channel America has increased its focus on signing full
power independent television stations and direct cable affiliates to its
network.
Many of the affiliates only broadcast a portion of Channel America's
programming.. In addition, the affiliates that are not carried on local cable
systems cannot be viewed by cable subscribers who do not disconnect the cable
receiving device. Channel America will continue to market its network to new
affiliates in areas not now being served by the network. Although Channel
America has increased its focus on seeking full power television stations, it
will continue to add LPTVs or additional cable systems in those markets in
which it is impossible to attract a full power station.
MARKETING AND DISTRIBUTION
In order for a network to be able to transmit its programming to an
affiliate, the network must be able to format its programming in such a manner
to be able to transmit the programming to a communications satellite for
further distribution to the affiliates. The formatting process, known as the
"master control" services is generally performed in-house by the network. On
September 15,
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<PAGE> 13
1992, Channel America entered into a five-year agreement with IDB
Communications Group, Inc. ("IDB"), to provide master control services. IDB
also has uplink transmission facilities located in Los Angeles, California,
that transmits the formatted programming of Channel America to a communications
satellite for further distribution to its affiliates. Channel America was
delinquent in paying for the services provided by IDB in the approximate amount
of $400,000, renegotiated the terms of the initial agreement and is currently
obligated to pay a monthly fee of $42,790 for IDB's primary services, which
includes payments towards the delinquent amounts owed IDB. The monthly payment
under the IDB contract increases to $44,950 from September 1996 through
September 1997. Additional services are provided by IDB at an hourly rate
ranging from $65 per hour to $187.50 per hour.
Channel America has entered into an agreement with AT&T to provide
satellite transmission services to Channel America at a cost of $130,000 per
month. Channel America is currently 60 days past due on its payments to AT&T.
Channel America's signal is received by its broadcast and cable
affiliates, who then transmit it to their respective viewers, however, viewers
with satellite dishes can access the network directly by turning to the proper
satellite coordinates.
COMPETITION
Competition for viewers among companies providing programming services
via broadcast and cable networks is intense. Channel America competes for
advertising revenues and sources with other broadcast networks, cable
programming services, local over-the-air television stations, and the print
media, most of which have significantly greater financial, production and
operational resources.
GOVERNMENT REGULATIONS
The distribution of television programming through the Channel America
network is subject to FCC regulations. The Federal Communications Act, and the
rules promulgated pursuant thereto, require that prior to the transfer of
control or assignment of a broadcast network, the proposed transfer or
assignment must receive the approval of the FCC. A transfer of control occurs
when any individual stockholder, family group or any group in privity gains or
loses affirmative or negative control. Affirmative control means control of
more than 50% of the voting stock; negative control consists of control of
exactly 50% of the voting stock. Channel America monitors compliance with
these requirements.
Cable television is regulated by both the FCC and municipalities and
counties. As defined by the FCC, cable television originates from a cable
system facility consisting of closed transmission paths and associated signal
generation, reception and control equipment that is designed to provide cable
service, which includes video programming, to multiple subscribers within a
community. Many municipal governments require that local cable operators
originate their own programming, which is referred to as "community access"
television or "local origination" television. Broadcast television generates
revenues from advertising sales, paid programming and direct response
advertising. Cable television generates revenues from advertising sales,
subscriber payments and direct response advertising.
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<PAGE> 14
TSSN AND TSC
GENERAL
The other aspect to EVRO's home shopping and entertainment business is
its television shopping network that EVRO operates through its wholly owned
subsidiaries, TSSN and TSC. TSSN specializes in marketing sports memorabilia,
apparel and related merchandise and TSC specializes in jewelry and other
collectibles, and both will sell their respective products through Channel
America's network. Television shopping, as a form of business activity, has
been the subject of rapid development and expansion over the last decade and
may, by the turn of the century, become a major component of retailing in the
world marketplace. Television shopping began with the offering of a variety of
products by such companies as QVC and Home Shopping Network, each of which
began as a start-up venture that have seen their respective annual sales expand
to more than $1 billion currently. Others, including major conventional
retailers, are entering the business. It is this marketplace, now estimated as
having annual retail sales of more than $2.5 billion, in which TSSN and TSC
intend to participate, by taking advantage of perceived strategic advantages
that it can market in competition with the current market leaders.
It is management's opinion that barriers to entry in this market have
been significantly reduced due to the anticipated expansion of basic cable
channels which will be provided to the viewing public. It is estimated that
500 or more channels will be available to the more than 60 million cable
households who tune in each day. As a result, a window of opportunity exists
to create an entertaining shopping show which will be attractive to television
executives and home shoppers alike. Television executives will be challenged
to identify low cost yet entertaining programs to retain and expand their
audiences. In that regard, TSSN's business plan is to focus its prime time
telecast hours to capitalize on the marketing of sports-related products from
sporting goods manufacturers, as well as highlighting its own sports
memorabilia and apparel line, whereas TSC initially intends to limit its
programming to the sale of jewelry and related products. During off-peak hours,
TSSN will provide sports products of general interest to appeal to the broad
range of viewers in these time slots. TSSN and TSC will also seek to provide a
source of income to the stations that carry their broadcast by offering a
percentage of the gross revenues that it generates from their viewing
audiences.
TSSN intends to supply a TV program designed to capture the attention
of sports enthusiasts with accurate up-to-the-minute information on all major
sporting events as well as providing the opportunity to shop for a wide variety
of sporting goods at discounted prices. TSSN will also offer the serious
collector sports memorabilia not easily acquired other than on TSSN. TSSN
anchor sales personnel will explain the qualities of products they are selling
and help the viewer understand how to use them to best help their game or
sport. TSSN will strive to keep a strong and loyal viewership by utilizing
all-star athletes as anchors as much as possible. TSSN intends to use sports
legends extensively in connection with the sale of its memorabilia. TSSN plans
to use special graphics to update the scores of major professional and amateur
events, which will allow the sales anchors to continue selling products while
the scores are being updated and create prospective customers from viewers who
tune in to catch a score update.
TSSN will seek to provide a broad range of products to satisfy the
diverse needs of its viewers at prices below its competition. EVRO believes
this effort will be successful as a result of its ability to source product
directly from major wholesalers, thereby enabling savings to be passed on to
the consumer. TSSN has acquired "Cager Classic," a trademarked apparel line
with products that are
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<PAGE> 15
planned to be marketed and distributed nationally to department stores, sports
stores, college bookstores and catalog merchandisers after its initial
introduction on TSSN. The apparel and sports collectibles owned by TSSN will
be marketed by their brand names to ensure maximum brand development for each
product.
TSSN has a capability to bring to its viewers sports memorabilia and
collectibles that have been created solely for its use. Through an agreement
with Yes! Entertainment, an unaffiliated manufacturer specializing in "talking
books" produced with audio disc technology previously owned by a TSSN
subsidiary, TSSN has retained the right to the exclusive use of that technology
in connection with the marketing of recordings related to the activities of
notable sports figures and specific sports events. This patented product will
allow the sports fan to hear the excitement and relive the thrill of events
such as Hank Aaron breaking Babe Ruth's home run record or Wilt Chamberlain
scoring 100 points in a single game.
TSSN expects to create a series of broadcasts which will be unusual
and entertaining, yet complement studio broadcasts. In the coming year, TSSN
hopes to create a series of remote broadcasts directly from the sites of major
sporting events or sporting goods shows. This ability will allow TSSN viewers
to see sports celebrities, while at the same time staying current with respect
to the new products and technologies that are introduced for marketing in
particular sports activities.
MARKETING AND COMPETITION
The home shopping television programming business is highly
competitive, dependent upon and subject to technology advancements and requires
the availability of substantial capital. The annual sales of Home Shopping
Network and QVC represent 80% or more of the aggregated retail sales of the
television home shopping market. In 1993, Home Shopping Network had gross
sales of over $1 billion and QVC had gross sales of over $1.2 billion. Home
Shopping Network is currently broadcasting to just over 60 million homes, and
QVC is in just under 53 million homes. Both stations sell sports memorabilia,
on a limited basis, mostly in the form of collectible cards, (baseball,
football, basketball and hockey). QVC also sells baseball cards and other
assorted memorabilia and generally concentrates on higher quality products at
higher prices than Home Shopping Network. In addition, there are a number of
smaller companies which offer shop at home programming on satellite and
directly to broadcasting stations and cable networks on a part-time basis. The
financial and operating resources of more established providers of television
shopping services are far superior to those of TSSN and TSC, potentially
enabling them to outbid TSSN or TSC for available broadcast time. Moreover, if
TSSN's or TSC's programming orientation or other methodologies by which it will
seek to secure broadcast space are successful, it can expect to find larger
providers offering similar products at highly competitive prices and margins
within the market segment staked out by TSSN and TSC.
Other forms of competition include sporting goods stores, department
stores, specialty shops, pro shops and mail order catalogues. In recent years,
new mega-stores, located in large metropolitan areas, such as Sports Authority
(owned by K-Mart) have begun to offer sports products at discounted prices.
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<PAGE> 16
PATENTS AND TRADEMARKS
TSSN holds three federally registered trademarks supporting its "Cager
Classic" sports apparel line, including "Cager Classic," "America's Game" and
"Billy Baseline." In addition, TSSN owns the exclusive rights to the audio
disk technology used in connection with the production of "talking collectible
cards" dealing with notable sports figures or specific sports events. The
technology is protected by patents held by Yes! Entertainment.
BUSINESS OF EVRO - RV CAMPGROUND BUSINESS.
THI
THI was formed in January 1995 as a wholly owned subsidiary of EVRO.
THI owns all of the assets that were owned by EVRO prior to March 14, 1995, the
date that EVRO acquired TSSN (the "TSSN Acquisition"), and constitute EVRO's RV
Campground business, which is operated through its wholly-owned subsidiaries,
Treasure Rockhound and Tres Rivers.
TREASURE ROCKHOUND AND TRES RIVERS
Treasure Rockhound operates nine recreational ranches in four
southwestern states. Its private membership organization, Camper Ranch Club of
America ("Camper Ranch Club"), is now in its 23rd year of offering its
approximately 4,600 dues-paying members, primary RV travelers, daily or long
term leases on improved campsites at its various ranch locations. Treasure
Rockhound owns approximately 5,200 acres and leases approximately 13,000 acres
from individuals, cities, states and the federal government.
Treasure Rockhound caters to a growing trend in which RV travelers
search out remote locations in naturally pristine areas of the country.
Ranches are located in valleys, on mountains or near lakes or rivers and offer
RV travelers a different climate and culture in which to enjoy their leisure
time. Members of the Camper Ranch Club have year-round access to all of the
fully managed Treasure Rockhound ranches which provide electric and water
hookups for their convenience and the opportunity to explore the natural beauty
surrounding all ranch locations.
Tres Rivers is a 46 acre RV campground in Glen Rose, Texas located
approximately 55 miles southwest of Dallas/Fort Worth. Tres Rivers' RV
facilities can accommodate approximately 500 RVs. Tres Rivers also offers tent
camping, cabin rentals and meeting and entertainment facilities. Located on a
scenic junction of three rivers, Tres Rivers offers various water recreation
opportunities.
Treasure Rockhound and Tres Rivers compete with all other RV
campgrounds in the southwest United States. Treasure Rockhound and Tres Rivers
advertise in various recreational and camper magazines and Treasure Rockhound
has expanded and improved several of its ranches in an effort to attract new
interest to Camper Ranch Club. Tres Rivers also has improved its facilities in
an attempt to expand its business. EVRO believes that Treasure Rockhound and
Tres Rivers will continue to hold its market share in the highly competitive
recreational camping business.
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<PAGE> 17
EMPLOYEES
The following table sets forth the employees of EVRO and its
subsidiaries as of March 29, 1996.
<TABLE>
<CAPTION>
Company Full Time Part Time Total
<S> <C> <C> <C>
EVRO 2 2
TSSN/TSC 5 5
Channel America 8 8
THI 5 5
Treasure Rockhound 17 20 37
Tres Rivers 6 3 9
Total 43 23 66
</TABLE>
MANAGEMENT AGREEMENT WITH STELLAR
Stellar provides management, financial, administrative and marketing
services to TSSN pursuant to a Management and Services Agreement, wherein
Stellar is obligated to provide to TSSN personnel, supplies, equipment,
administrative and accounting services, management expertise, and other
resources. During the twelve months ended December 31, 1995, and 1994, Stellar
billed TSSN $1,150,000 and $760,000, respectively, for such management and
accounting services performed on TSSN's behalf, based upon estimated time and
charges incurred by Stellar on TSSN's behalf. Management believes that the
fees charged to TSSN by Stellar approximates the costs that would have been
incurred by TSSN if it had operated on a stand alone basis.
As of December 31, 1995, Stellar was owed $430,000 by EVRO principally
for amounts owed to Stellar under the management agreement between TSSN and
Stellar, which amounts do not bear interest.
ITEM 2. DESCRIPTION OF PROPERTIES.
EVRO's and THI's principal offices are located at 1509 South Florida
Avenue, Suite 3, Lakeland Florida 33803. These premises, comprising
approximately 2,500 square feet, are leased by Treasure Rockhound under a
three-year lease. Treasure Rockhound also leases, on a month to month basis, a
1,500 square foot office facility at 3701 Waukegan Drive, Conroe, Texas 77301.
Treasure Rockhound owns approximately 5,200 acres and leases
approximately 13,000 acres from individuals, states and the federal government.
Only a portion of these acres are utilized by Camper Ranch Club. To a large
extent, much of the land could be leased to ranchers or sold;
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<PAGE> 18
however, EVRO is not aggressively seeking buyers at this time as it is the goal
of EVRO to expand the ranches in the future. Tres Rivers owns a 46-acre
recreational vehicle campground located in Glen Rose, Texas.
THI owns a 160 space mobile home park located in Alliance, Nebraska
and a 46 acre tract of unimproved real estate located in Boulder, Colorado.
Channel America's principal offices are located at 397 Boston Post
Road, Darien, Connecticut 06820. These premises, comprising approximately
3,000 square feet, are leased by Channel America under a three-year lease.
EVRO feels that its leased facilities are adequate for its current level of
activity.
ITEM 3. LEGAL PROCEEDINGS
Genesee Cattle Co. has threatened to file a lawsuit against EVRO,
seeking to collect $298,000, the sum of the amounts due under a promissory note
issued by EVRO ($248,000) and a consulting agreement between Genesee Cattle Co.
and EVRO ($50,000). EVRO has accrued the amount owed to Genesee Cattle Co. and
intends to satisfy its obligations to Genesee Cattle Co. at such time as EVRO
has available cash resources.
EVRO is the subject of an informal private inquiry which has been
initiated by the staff of the SEC. The actions under examinations apparently
involve the sale by EVRO of shares of its common stock at prices lower than
that described in its private placement memorandum dated December 17, 1992; its
failure to modify favorable press statements when EVRO became aware that the
initial statements were no longer accurate; the allegedly improper registration
of shares under Form S-8 registration statements; and the allegedly improper
reliance upon the transactional exemption afforded by Regulation S, in
connection with several separate offers and sales of shares of its common
stock. The staff of the SEC has yet to file a formal complaint against EVRO
and EVRO's management does not believe that EVRO has violated the federal
securities laws.
On September 8, 1995, the Company received notice from the Osceola
County, Florida Clerk of Circuit Court, of a default judgement filed against
International Sports Collectibles, Inc., a wholly owned subsidiary of TSSN, and
Stellar, in favor Dreams Franchise Corporation, a California corporation, on
November 28, 1994 in the amount of $117,492. This liability has been recorded
and is included in accounts payable as of December 31, 1995.
There are various judgments and lawsuits pending against inactive
subsidiaries of EVRO, including TGHC, Inc. f/k/a Good Health Channel, Inc.;
and Lintronics, however, EVRO has no responsibility for such judgments.
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<PAGE> 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During EVRO's 1995 fiscal year, no matters were submitted to a vote of
EVRO's shareholders.
[Balance of Page Intentionally Left Blank]
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<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(A) PRICE RANGE OF COMMON STOCK
The following table shows the high and low closing bid prices as
represented by Nasdaq for EVRO's Common Stock for the calendar quarters
indicated. EVRO's Common Stock is traded on Nasdaq Small Cap Market under the
symbol "EVRO".
The quotations represent prices between dealers in securities, do not
include retail markup, markdowns or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1994 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $2.56 $0.88
Second Quarter $1.31 $0.63
Third Quarter $1.13 $0.50
Fourth Quarter $0.53 $0.16
1995 HIGH LOW
---- ---- ---
First Quarter $2.63 $1.19
Second Quarter $3.75 $1.19
Third Quarter $3.06 $0.75
Fourth Quarter $2.69 $1.03
</TABLE>
The prices for 1994 do not reflect a 1:20 reverse stock split effective
January 26, 1995.
(B) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of March 29, 1996, the number of shareholders of record of EVRO's
common stock was approximately 2,400.
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<PAGE> 21
(C) DIVIDENDS
EVRO has never paid cash dividends on its common stock. Payment of
dividends is within the discretion of EVRO's Board of Directors and will depend
on, among other factors, earnings, capital requirements and the operating and
financial condition of EVRO. At the present time, EVRO anticipates retaining
future earnings, if any, in order to finance the development of its business
activities. The holders of EVRO's common stock as of the record date of March
27, 1995, were issued a stock dividend consisting of EVRO's Series D
Convertible Preferred Stock ("Series D Preferred Stock") which has 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.
EVRO is required to pay a stock dividend to the holders of its Series
D Preferred Stock as more fully discussed above. As of December 31, 1995, the
accrued dividend totaled 426,417 shares of common stock payable to the holders
of EVRO's Series D Preferred Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW OF EVRO PRIOR TO THE TSSN AND CHANNEL AMERICA ACQUISITIONS
In anticipation of the closing of the TSSN acquisition in March 1995,
EVRO formed a wholly owned subsidiary, THI, and EVRO contributed to THI all of
the assets that were owned by EVRO prior to the TSSN acquisition. Pursuant to
the agreement between EVRO and Stellar (the former owner of TSSN) setting forth
the terms of the TSSN acquisition (the "TSSN Acquisition Agreement"), 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 Preferred, which has limited
voting rights. EVRO has the right, but not the obligation, to redeem the
Series D Preferred in exchange for all of THI's issued and outstanding capital
stock.
EVRO previously had two business segments, a health related business
segment and a recreational business segment. EVRO operated the health related
business segment through Lintronics, TGHC, Imaging, and EVRO Trading. During
the last quarter of EVRO's 1994 fiscal year, EVRO discontinued the business
operations of its health related business segment (other than winding-up
activities), effective as of December 31, 1994.
EVRO's recreational business segment is comprised of the ownership and
operation of RV campground facilities and EVRO conducts such operations out of
its subsidiaries, Treasure Rockhound and Tres Rivers.
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<PAGE> 22
RESULTS OF OPERATIONS
The following is a discussion of EVRO's results of operations for 1994
and 1995. EVRO's net loss increased from $1,703,000 in 1994 to $7,899,000 in
1995. The increase is primarily attributable to (1) the loss from operations
of $1,078,000 of THI (historic EVRO) for the period March 1, 1995 through
December 31, 1995 including the amortization of goodwill of $170,000 (this loss
was incurred in the business historically operated by EVRO), (2) the loss from
operations of $1,096,000 of Channel America for the period October 1, 1995
through December 31, 1995 including the amortization of goodwill of $141,000,
(3) increase in corporate overhead of $1,590,000, including accounting, legal
and financial consulting services and other costs to support EVRO's
acquisitions and financial activities of $1,265,000, (4) the loss on the sale
of sports memorabilia in January and February 1995 of $231,000, (5) an
uninsured jewelry and gem stone inventory theft loss of $538,000, and (6)
interest and other financing costs associated with 1995 borrowings of $857,000,
and (7) costs associated with convertible debenture modifications and defaults
of $1,318,000, partially offset by a reduction in management and accounting
services of $390,000.
EVRO's net loss per share decreased from $(3.62) in 1994 to $(3.37) in
1995. The decrease in loss per share in 1995 from that reported for 1994
reflects the change in the average common shares outstanding caused by the
issuance of additional shares of common stock.
Revenues, listed as "Rental, memberships, and other revenues" on
EVRO's Consolidated Statements of Operations, in the amount of $1,070,000,
reflect the operations of EVRO's RV campgrounds (historic EVRO and its
subsidiaries) since March 1, 1995. Programming and advertising revenues, in
the amount of $389,000, reflect the operations of Channel America since October
1, 1995. Revenues from product sales totaling $177,000, reflect sales of
sports memorabilia through a contractual arrangement with VIA TV Network
located in Knoxville, Tennessee during January and February 1995. EVRO
received revenues from the sale of sports memorabilia during November and
December 1994 through Via TV of $49,000. The increased revenues received from
product sales in 1995 resulted from additional cable distribution on the
Nostalgia Network.
Cost of sales and revenues is comprised of the costs associated with
the RV campgrounds, totaling $734,000; Channel America, totaling $685,000; and,
sports memorabilia, totaling $260,000 (inclusive of a provision for inventory
obsolescence and write down to market value of $95,000). The cost of sales
associated with the sports memorabilia was approximately 30-35% higher than
would normally be expected due to product selection and high product costs
directly attributable to the initial low sales volume levels. Channel America
incurred a negative gross margin of $296,000 for the period October 1, 1995
through December 31, 1995, primarily attributable to unsold advertising time.
Selling, general and administrative expenses for the year ended
December 31, 1995 totaled $951,000 for RV campground operations, $552,000 for
operations of Channel America, $1,833,000 for the shopping operations, and
$1,590,000
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<PAGE> 23
for corporate expenses and consulting services and other costs incurred in
support of EVRO's acquisition and financing activities. The Company incurred,
in its shopping operations, an uninsured jewelry theft loss of $538,000 which
had an adverse effect on the Company's working capital and financial condition.
The jewelry theft loss is not expected to further impact future shopping
operations. EVRO is currently reviewing all of its insurance requirements and
policies to assure that its insurance coverage is adequate.
During the years ended December 31, 1994 and 1995, Stellar billed TSSN
$1,150,000 and $760,000, respectively, for management and accounting services
performed on TSSN's or EVRO's behalf. Stellar charged TSSN based upon
estimated time and charges incurred by Stellar on EVRO's behalf. Management
believes that the fees charged to EVRO and TSSN approximate the costs that
would have been incurred by TSSN if it had operated on a stand alone basis.
For the year ended December 31, 1994, TSSN accrued interest at 7% per annum
($80,444) on a note payable to Stellar dated December 31, 1993 in the principal
amount of $1,258,116. The note and accrued interest was satisfied by TSSN's
issuance of common shares to Stellar.
Interest expense of $1,048,464 for the year ended December 31, 1995
includes (a) additional consideration of $559,000 on certain loans paid by
issuance of 50,000 shares of Series C Convertible Preferred Stock and 1,000
shares of Series I Convertible Preferred Stock, and (b) amortization of loan
costs incurred in connection with issuance of the convertible debentures of
$6,000. Costs associated with convertible debenture modifications and defaults
were comprised of (1) penalty principal added to the face value of the
Debentures of $170,000 resulting from the Company not obtaining shareholder
approval for an increase in the Company's authorized common stock by certain
dates, (2) the adjustment of liability on debentures in default from the
adjusted face values to their mandatory redemption values, and (3) the write
off of related loan costs regarding debentures in default of $175,000.
EVRO's subsidiary, TGHC, received a promissory note in
exchange for the sale of substantially all of the assets of TGHC. As the
ultimate collection of the contingent promissory note is uncertain and largely
dependent upon the success of the acquiring entity, Better Health Network,
Inc., establishing future profitable operations, EVRO utilized the cost
recovery method of accounting for this transaction. The payments received
pursuant to the promissory note, which are based on a percentage of the sales
generated by Better Health Network, will be recognized as income upon receipt.
As of December 31, 1995 no income had been recognized by EVRO.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long
Lived Assets and for Long-Lived Assets to Be Disposed of", in March, 1995.
SFAS No. 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of . SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. Adoption
of SFAS No. 121 is not expected to have a material impact on the Company's
Consolidated Financial Statements.
-23-
<PAGE> 24
PLAN OF OPERATION
TSSN AND TSC
TSSN and TSC are 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 marketing its products through satellite,
television broadcast stations and cable networks. TSSN anticipates that it
will recommence broadcasting of its shopping programming in 1996. Initially,
TSSN will market jewelry, gemstones, non-sports collectibles and other general
merchandise through TSC. The marketing of sports memorabilia, apparel and
related merchandise by TSSN will begin shortly thereafter.
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, in management's opinion, the viability
of TSSN's programming, the operations were discontinued in late February 1995
until TSSN could independently obtain broadcasting capability and distribution
at more favorable economic costs. In January 1996, TSC initiated the sale of
jewelry, gem stones and non-sports collectibles on a limited basis. The
shopping broadcast was limited primarily to satellite only homes. In mid-March
1996, EVRO temporarily discontinued the operations of TSC at its
Altamonte Springs, Florida television studio facility in order to relocate and
consolidate its shopping program operations with the operations of Channel
America. EVRO anticipates that it will operate from facilities located in
California, however, EVRO has yet to obtain such a facility. Upon the
consolidation of EVRO's television operations at one studio facility, TSSN will
relaunch its shopping programming on Channel America during late evening hours,
seven days a week.
CHANNEL AMERICA
Channel America, a broadcast television network, enhances EVRO's
business plan by affording EVRO a means to distribute TSSN's programming, and,
additionally, expands EVRO's entertainment business to include a television
network. Channel America currently broadcasts its programming 24 hours per day
through its television network which, as of March 29, 1996, is comprised of 79
affiliates with a potential reach of approximately 32.7 million US households,
including 9.2 million direct cable homes and 4.6 million satellite homes. EVRO
intends to initially commence broadcasting the programming of TSC, 6 hours per
day, seven days per week on Channel America's network. Thereafter, EVRO
anticipates expanding such programming to 12 hours per day, seven days per
week.
-24-
<PAGE> 25
CASH REQUIREMENTS. EVRO is currently unable to meet its cash
requirements and will need approximately $15,000,000, $12,750,000 net of
commissions and closing costs, to continue the execution of its business plan
through the next twelve months as partially described in the sections captioned
"Outlook" and "Liquidity and Capital Resources" discussed below, and also
including (1) $6,000,000 to satisfy its existing cash needs for the repayment of
current liabilities; (2) $950,000 for its anticipated cash needs in the next
twelve months; (3) $450,000 to complete payments to Channel America; (4)
$1,550,000 for working capital to be utilized in the operations of Channel
America; (5) $2,000,000 for working capital for TSSN; (6) $300,000 for THI's
debt and operations; and (7) $1,500,000 to finance the acquisition of a RV park
and campground. The Company plans to obtain funds to satisfy its cash
requirements from the issuance of its capital stock or from issuance of its debt
securities. While the Company has retained Sands Brothers & Co. Ltd. to assist
EVRO in its capital raising efforts, the Company currently has no binding
commitment to receive either debt or equity financing and no assurance can be
given that EVRO will be successful in obtaining additional equity or debt
funding.
EXPECTED PURCHASE OF EQUIPMENT FROM WINSAT. In furtherance of TSSN's
plans to acquire the ability to transmit its programming, EVRO, on April 26,
1995, entered into an agreement to merge TSSN with America's Collectibles
Network, Inc. ("ACN"), which agreement was subsequently terminated due to ACN's
inability to obtain audited financial statements. Upon the termination of the
ACN agreement, EVRO, again, in an effort to obtain the ability to transmit its
programming, on August 25, 1995, executed an agreement to merge with WinSAT
Communication Corporation ("WinSAT"), a Florida corporation based in Largo,
Florida, into a wholly owned subsidiary of EVRO, in exchange for $60,000 cash
and the requisite number of shares of EVRO's preferred stock (of a series of
preferred stock to be designated) which preferred stock will be convertible
into 86,000 shares of EVRO's common stock on the date that EVRO increases its
authorized shares of common stock. While the original agreement lapsed, on
January 13, 1996, EVRO executed a new agreement with WinSAT to purchase the
assets of WinSAT, principally three mobile satellite uplink facilities valued
at $620,000 for (1) $30,000 in cash; (2) the requisite number of shares of
EVRO's preferred stock (of a series of preferred stock to be designated) which
shall be convertible into 230,000 shares of EVRO's common stock on the date
that EVRO increases its authorized shares of common stock; and (3) the
assumption of a note payable for $130,000. The closing of the asset purchase
agreement was conditioned upon TSC entering into an employment agreement with
Frankie S. Winsett, the President of WinSAT. WinSAT currently owns two uplink
trucks. The January 13, 1996 agreement has also lapsed, however, EVRO is
presently negotiating a modified transaction with WinSAT. EVRO entered into
the asset purchase agreement with 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. The acquisition of
the uplink facilities together with the employment agreement with Mr. Winsett
will provide EVRO and TSC with the capability to broadcast programming through
the mobile satellite uplink facilities.
-25-
<PAGE> 26
OUTLOOK
EVRO has established the following objectives to achieve profitable
operations in 1996, assuming EVRO is successful in its capital raising efforts:
1. Strengthen its management team, including recruiting
experienced Chief Executive Officers for both EVRO and Channel
America;
2. Consolidate the operations of Channel America and TSSN/TSC
into a television studio facility in California. This
consolidation will provide for considerable cost savings as it
will allow for the use of common uplink and transponder
facilities, as well as reducing related overhead costs;
3. Obtain Nielsen ratings of Channel America's programming to
facilitate the sale of advertising time to national
advertisers;
4. Enhance the programming of Channel America through joint
ventures with partners such as MIT-F/x, Inc. to distribute a
computer animated television series called W.I.N.G.S. Angela
and SBI Communications to broadcast an interactive live
television bingo game show; and
5. To further diversify the geographic regions and seasonal
variations of its RV park division, the Company is currently
negotiating the purchase of a fully developed RV park and
campground in the northeast United States, which includes
approximately 400 sites.
LIQUIDITY AND CAPITAL RESOURCES
EVRO has incurred operating losses in 1994 and 1995, of $1,703,000 and
$7,899,000, respectively, which have adversely reduced EVRO's liquidity and
capital resources. In addition, TSSN and Channel America will require a
substantial capital infusion to fully establish their respective operations.
EVRO anticipates that it will continue to incur losses throughout its 1996
fiscal year.
In October and November, 1995 EVRO issued $1,000,000 of its 8.5%
Convertible Debentures due October 31, 2000 and $500,000 of 9.5% Convertible
Debentures due November 27, 2000 (the "1995 Debentures"). The holders of the
1995 Debentures can convert any or all of the original principal amounts of the
1995 Debentures into shares of EVRO's common stock, at a conversion price per
share equal to 50%-65% of the average closing bid price of EVRO's common
-26-
<PAGE> 27
stock during the five business days immediately preceding the conversion date
or immediately preceding the date the 1995 Debenture was acquired, whichever is
lower.
The 1995 Debentures, as amended, provided for additional common stock
of EVRO to be issued, if EVRO failed to timely obtain shareholder authorization
to increase its authorized shares of common stock necessary to satisfy EVRO's
conversion obligation under the 1995 Debentures. Since EVRO did not timely
obtain authorization to issue additional shares, EVRO recorded additional
principal due on the 1995 Debentures of $170,000 as of December 31, 1995.
The 1995 Debentures provided that EVRO would be required to redeem the
1995 Debentures, for cash, at their common stock equivalent value ($3,068,567),
if EVRO had not increased its authorized common stock on or before a date 90
days after the 1995 Debentures were issued. Consequently, due to the failure
of EVRO to increase its authorized common stock on a timely basis, EVRO became
obligated to redeem the 1995 Debentures for cash, during the first quarter of
1996. EVRO has obtained extensions from the mandatory redemption provisions
from the holders of approximately 46% of the 1995 Debentures and is negotiating
with the remaining holders for similar extensions.
During the period January 11, 1996 through February 8, 1996, EVRO
issued additional 8.5% Convertible Debentures aggregating $3,040,000 (the "1996
Debentures"). The 1996 Debentures have conversion provisions similar to the
1995 Debentures, and, as of April 26, 1996, the common stock equivalent value
of the 1996 Debentures aggregated $4,881,653. As of April 26, 1996, EVRO is
currently negotiating the extension of the mandatory redemption dates with all
of the 1996 Debenture holders, having obtained extensions from the holders of
approximately 20% of the 1996 Debenture holders.
On November 1, 1995, pursuant to a Stock Purchase Agreement, EVRO sold
to an accredited investor, 50,000 shares of Series C Preferred for $500,000.
The buyer has an option, for a period of six months following the date of
issuance, to put the shares back to EVRO at a redemption price of $10.00 per
share. As security for the agreement by EVRO to buy back any shares put to
EVRO, EVRO has pledged all common shares of Channel America owned by EVRO and
40 shares of EVRO's Series J Convertible Preferred Stock ("Series J
Preferred"), representing the equivalent of 2,000,000 common shares upon
conversion. In addition, EVRO entered into a five-year consulting agreement,
as amended, with Southern Resource Management, Inc., of which the investor is
president. The amended agreement provides for payments of $100,000 on
February 8, 1996; $25,000 on March 15, 1996; and $125,000 each on November 1,
1996, 1997, 1998 and 1999. EVRO shall deliver to the consultant, on or before
March 15, 1996, either a letter of credit in the amount of $400,000 or a
"Satisfaction Payment" of $400,000 in cash. EVRO has pledged 60 shares of
EVRO's Series L Preferred, representing the equivalent of 3,000,000 common
shares upon conversion, as security for payment of the Satisfaction Payment of
$400,000. In addition, D. Jerry Diamond and Daniel M. Boyar personally
guaranteed the obligations of EVRO pursuant to the Stock Purchase Agreement and
Consulting Agreement. The Company paid to Southern Resource Management, Inc.,
$100,000 on February 8, 1996 and $190,000 on March 25, 1996. However, the
Company has not
-27-
<PAGE> 28
delivered to Southern Resource Management, Inc., the aforementioned letter of
credit or "Satisfaction Payment." Thus, the Company is in default under the
terms of the agreement and Southern Resource Management, Inc. may elect to
accelerate all of the payments as a result of the default.
During the first quarter of 1996, the Company sold 15,000 shares of
Series C Preferred Stock and 17 shares of Series K Preferred Stock for
$787,500, net of sales commissions of $212,500.
EVRO used the $4,472,000 that it received from the issuance of its
Debentures and sale of preferred stock in the following manner: (1)
repayment of a bridge loan which was utilized to fund the initial deposit on
Channel America acquisition ($252,000); (2) additional payments to Channel
America for its acquisition ($400,000); (3) advances to Channel America for
payment of amounts due on its satellite and transmission contracts
($1,005,000); (4) other advances to or payments on behalf of Channel America
($345,000); (5) legal and accounting fees incurred to complete certain filings
with the Securities and Exchange Commission ($244,000); (6) debt service and
working capital to fund the operations of THI ($432,000); (7) payment to
Stellar for management and accounting services ($60,000); (8) working capital
for operations of TSSN and TSC ($500,000); (9) working capital for corporate
overhead operations ($344,000); (10) repayment of outstanding debt, the
proceeds of which were previously used for working capital purposes ($350,000);
(11) consulting services ($290,000); and (12) the redemption of previously
issued shares of EVRO's Series C Preferred ($250,000).
EVRO is currently experiencing a significant deficiency in working
capital and Channel America and TSSN (EVRO's primary future operating
subsidiaries) have operated since their inception with a negative working
capital position. As of December 31, 1995, EVRO had current assets of $297,201
and current liabilities of $10,976,956, or a working capital deficiency of
$10,679,755. EVRO is currently in default on various notes payable aggregating
approximately $5,500,000. These factors raise substantial doubts as to EVRO's
ability to continue as a going concern unless it is able to successfully
complete a sizable private equity offering and attain future profitable
operations. The future success of EVRO 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.
EVRO intends to schedule a shareholders meeting at which EVRO will
ask its shareholders to increase the number of shares of EVRO's authorized
common and preferred stock. If the shareholders of EVRO do not approve the
increase in EVRO's authorized common stock, the holders of EVRO's Debentures
will likely demand the repayment of amounts owed to them in cash rather than
convert such Debentures into shares of EVRO's common stock as EVRO will not be
able to issue additional common shares. Thus, it is critical to the success of
EVRO that the shareholders of EVRO's common stock increase the authorized
shares of EVRO's common stock. Not only are the increased shares needed for
possible issuance to Debenture holders, but, such shares are also required to
raise additional capital for EVRO. On the other hand, if the shareholders of
EVRO fail to increase the authorized shares of EVRO's preferred stock, EVRO
does not envision that such action will
-28-
<PAGE> 29
materially impact EVRO, although it will limit EVRO's ability to engage in
certain financing transactions requiring the issuance of preferred stock. If
the shareholders of EVRO do not approve an increase in EVRO's common stock,
EVRO will likely seek to renegotiate the terms of its existing Debentures to
extend the maturity date thereof, however, there can be no assurance that the
Debenture holders would extend the terms of the Debentures in which case, if
payment of a substantial amount of the Debentures were demanded, EVRO would
likely be unable to meet such request.
Despite the inability of EVRO to establish positive cash flow from its
operations it has been able to raise capital through the issuance of its
debentures and its preferred stock, however, there can be no assurance that
EVRO will be able to continue to issue its securities.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements and Schedules are attached hereto as required
by Rule 14(a)-3(b).
<TABLE>
<CAPTION>
Page No.
<S> <C>
Independent Auditor's Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Balance Sheet as of December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Operations for Years Ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Stockholders' Equity
for Years Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Cash Flow for Years Ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
[Balance of Page Left Intentionally Blank.]
-29-
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
EVRO Corporation
Altamonte Springs, Florida
We have audited the accompanying consolidated balance sheet of EVRO
Corporation and subsidiaries ("Company") as of December 31, 1995 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. We
did not audit the financial statements of a wholly owned subsidiary, which
statements reflect total assets of $161,499 as of December 31, 1995, and total
revenues of $1,483,034 for the year then ended. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to such amounts is based solely on the report of the
other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audit and the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of EVRO Corporation and
subsidiaries as of December 31, 1995 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
the notes to the financial statements, which also addresses management's plans,
the Company's recurring losses from operations, as well as certain loan and
convertible debenture note defaults, raise substantial doubt about its ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Alessandri & Alessandri
May 2, 1996
Tampa, Florida
-30-
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
The Sports & Shopping Network, Inc.
We have audited the consolidated statements of operations, stockholders'
equity, and cash flows of The Sports & Shopping Network, Inc. (a Florida
corporation), now known as EVRO Corporation, for the year ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
On March 14, 1995, The Sports & Shopping Network, Inc. acquired EVRO
Corporation in a transaction accounted for as a reverse purchase acquisition.
The financial statements of EVRO Corporation included in the Form 10-KSB for
the year ended December 31, 1994 represent those of The Sports & Shopping
Network, Inc.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, stockholders' equity, and
cash flows of The Sports & Shopping Network, Inc., now known as EVRO
Corporation, for the year ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ Hohl & Foley
May 13, 1995
Tampa, Florida
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<PAGE> 32
EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
Current Assets:
<S> <C>
Cash $ 33,351
Notes and other receivables 40,899
Inventories 77,814
Prepaid expenses 145,137
--------------
Total current assets 297,201
Property, Equipment, and Program Library
(less accumulated depreciation of $678,580) 5,324,614
Other Assets
Goodwill (less accumulated amortization of $358,305) 11,707,191
Other - net 1,161,275
--------------
TOTAL ASSETS $ 18,490,281
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt $ 1,886,637
Notes payable - related parties 251,982
Convertible debentures 1,853,183
Accounts payable 3,725,601
Accrued liabilities 2,817,607
Amounts due to affiliates 441,946
--------------
Total current liabilities 10,976,956
Long-Term Debt:
Convertible debentures 790,000
Long-term debt 1,444,309
Other 559,765
--------------
TOTAL LIABILITIES 13,771,030
==============
Minority interest 212,780
==============
Preferred Stock - Series C subject to
repurchase agreement 500,100
--------------
Stockholders' Equity:
Preferred stock, no par value, 1,250,000 shares
authorized, 338,559 shares issued and outstanding
with liquidation preference value of $17,438,338 11,550,958
Common stock, no par value, 2,500,000 shares
authorized, 2,497,665 shares issued and outstanding 5,382,476
Accumulated deficit (11,306,156)
==============
5,627,278
Less:
Unearned compensation (1,504,725)
Subscription receivable (115,000)
Common stock held by subsidiary - 416 shares (1,182)
--------------
TOTAL STOCKHOLDERS' EQUITY 4,006,371
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,490,281
==============
</TABLE>
See notes to consolidated financial statements
-32-
<PAGE> 33
EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
----------
12/31/95 12/31/94
-------- --------
<S> <C> <C>
Sales and Revenues
Rental, memberships and other revenues $ 1,070,471 $
Programming and advertising 388,925
Product sales 176,566 48,898
-------------- --------------
1,635,962 48,898
Cost of Sales and Revenues 1,679,730 73,325
-------------- --------------
Gross Margin (43,768) (24,427)
-------------- --------------
Operating Expenses:
Selling, general and administrative 4,166,790 414,526
Management and accounting services 760,000 1,150,000
Depreciation and amortization 545,521 33,186
-------------- --------------
5,472,311 1,597,712
-------------- --------------
Loss from Operations (5,516,079) (1,622,139)
Other Income (Expenses)
Interest expense (1,048,464) (81,024)
Costs associated with convertible debenture
modifications and defaults (1,318,183)
Other-net (15,920)
-------------- --------------
Net Loss $ (7,898,646) $ (1,703,163)
============== ==============
Net Loss Per Share $ (3.37) $ (3.62)
============== ==============
Average Number of Common Shares
Outstanding 2,342,215 470,809
============== ==============
</TABLE>
See notes to consolidated financial statements
-33-
<PAGE> 34
EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Preferred Paid in Accumulated
Shares $ Stock Capital Deficit
------ - ----- ------- -------
<C> <C> <C> <C> <C> <C>
Balance - December 31, 1993 5,000 $ 5,000 $ $ 1,325,177 $ (1,704,347)
Adjustment pursuant to stock split 54,995,000 (440) 440
Exercise of warrants 356,500 30 178,220
Sale of common stock 630,000 52 244,948
Common stock issued in satisfacton of note
payable to The Stellar Companies, Inc. 1,729,908 144 1,338,560
Common stock issued in satisfacton of advances
made to Stellar 2,018,226 167 403,478
Loss for the year ended December 31, 1994 (1,703,163)
----------- ---------- ---------- ------------ ------------
Balance - December 31, 1994 59,734,634 4,953 0 3,490,823 (3,407,510)
Adjustment to reflect reverse purchase acquisition
of EVRO Corporation (57,536,969) 7,574,976 (3,490,823)
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) 30,000
Return and cancellation of common stock issued
to Stellar (500,000)
Series F Convertible Preferred Stock, no par value
issued:
To Stellar or its designee (1,300 shares) (1,300) 1,300
For payment of consulting services (24.4 shares) 170,000
Proceeds from sale of common stock 224,000 162,500
Common stock issued pursuant to the 1995
Employee Stock Compensation Plan 576,000 1,755,500
Proceeds from sale of Series C Convertible
Preferred Stock, no par value (65,500 shares) 587,485
<CAPTION>
Common
Unearned Notes Stock Held
Compensation Receivable by THI
------------ ---------- ------
<C> <C> <C> <C>
Balance - December 31, 1993 $ $ $
Adjustment pursuant to stock split
Exercise of warrants
Sale of common stock
Common stock issued in satisfacton of note
payable to The Stellar Companies, Inc.
Common stock issued in satisfacton of advances
made to Stellar
Loss for the year ended December 31, 1994
---------- -------- --------
Balance - December 31, 1994 0 0 0
Adjustment to reflect reverse purchase acquisition
of EVRO Corporation (115,000)
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)
Return and cancellation of common stock issued
to Stellar
Series F Convertible Preferred Stock, no par value
issued:
To Stellar or its designee (1,300 shares)
For payment of consulting services (24.4 shares) (170,000)
Proceeds from sale of common stock
Common stock issued pursuant to the 1995
Employee Stock Compensation Plan (1,755,500)
Proceeds from sale of Series C Convertible
Preferred Stock, no par value (65,500 shares)
</TABLE>
(Continued on following page)
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<PAGE> 35
EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DEMBER 31, 1995
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Preferred Paid in Accumulated
Shares $ Stock Capital Deficit
------ - ----- ------- -------
<S> <C> <C> <C> <C> <C>
Recision of sale of Series C Convertible
Preferred Stock, (42,000 shares) (375,985)
Series C Convertible Preferred Stock issued:
As collateral for note payable (26,000 shares) 0
In settlement of litigation (3,900 shares) 39,000
Pursuant to a loan financing agreement
(50,000 shares) 500,000
Series H Convertible Preferred Stock, no par value,
issued into escrow pursuant to Plan of Merger with
Channel America (48,000 shares) 6,000,000
Series I Convertible Preferred Stock, no par value,
issued:
Pursuant to consulting agreements (5,750 shares) 382,193
Pursuant to a loan agreement (1,000 shares) 58,750
Series J Convertible Preferred Stock, no par value,
issued as collateral pursuant an agreement to
to repurchase certain Series C Convertible
Preferred Stock and a consulting agreement
(100 shares) 0
Series M Convertible Preferred Stock, no par value,
issued:
Services rendered by related party (15,000 shares) 74,062
Collateral for unpaid legal fees (25,000 shares) 0
Purchase of common stock by a subsidiary
(416 shares)
Stock compensation earned during 1995
Loss for the year ended December 31, 1995 (7,898,646)
--------- ----------- ------------ ----------- ------------
Balance - December 31, 1995 2,497,665 $ 5,382,476 $ 11,550,958 $ 0 $(11,306,156)
========= =========== ============ ===========
<CAPTION>
Common
Unearned Notes Stock Held
Compensation Receivable by THI
------------ ---------- ------
<S> <C> <C> <C>
Recision of sale of Series C Convertible
Preferred Stock, (42,000 shares)
Series C Convertible Preferred Stock issued:
As collateral for note payable (26,000 shares)
In settlement of litigation (3,900 shares)
Pursuant to a loan financing agreement
(50,000 shares)
Series H Convertible Preferred Stock, no par value,
issued into escrow pursuant to Plan of Merger with
Channel America (48,000 shares)
Series I Convertible Preferred Stock, no par value,
issued:
Pursuant to consulting agreements (5,750 shares) (382,193)
Pursuant to a loan agreement (1,000 shares)
Series J Convertible Preferred Stock, no par value,
issued as collateral pursuant an agreement to
to repurchase certain Series C Convertible
Preferred Stock and a consulting agreement
(100 shares)
Series M Convertible Preferred Stock, no par value,
issued:
Services rendered by related party (15,000 shares) (74,062)
Collateral for unpaid legal fees (25,000 shares)
Purchase of common stock by a subsidiary
(416 shares) (1,182)
Stock compensation earned during 1995 877,030
Loss for the year ended December 31, 1995
------------ ------------ ----------
Balance - December 31, 1995 $ (1,504,725) $ (115,000) $ (1,182)
============ ============ ==========
</TABLE>
See notes to consolidated financial statements
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<PAGE> 36
EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
------------------
12/31/95 12/31/94
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (7,898,646) $ (1,703,163)
Adjustments to reconcile net loss to net cash utilized by
operating activities:
Depreciation and amortization 545,521 33,186
Use of program rights 49,948
Compensation for financial consulting services
paid in common and preferred stock 877,030
Additional consideration paid on loans with
preferred stock 558,750
Costs associated with convertible debenture
modifications or defaults 1,318,183
Write off of placement costs of preferred stock
to be rescinded 44,015
Write off of funds expended on abandoned acquisition 100,000
Settlement of litigation by issuance of common
stock 39,000
Other, net 25,806
Decrease in current assets 236,300 91,516
Increase in accounts payable and accrued liabilities 1,010,424 199,009
-------------- --------------
Net cash used in operating activities (3,093,669) (1,379,452)
-------------- --------------
Cash Flows From Investing Activities:
Acquisition of equipment, net (94,275) (62,152)
Cash acquired in acquisition of EVRO Corporation 9,102
Funds expended on abandoned acquisition (100,000)
Funds expended to acquire Channel America Television
Network, Inc. (123,993)
Other non-current assets (53,738)
============== ==============
Net cash used in investing activities (362,904) (62,152)
============== ==============
Cash Flows From Financing Activities:
Convertible debentures 1,132,857
Notes payable 1,057,402
Repayment of debt (529,584)
Proceeds from sale of common and preferred stock 1,250,085 423,250
Working capital advances from/to affiliates, net 292,125 1,017,472
Deferred RV lot rental 279,074
Other 7,898
============== ==============
Net cash provided by financing activities 3,489,857 1,440,722
-------------- --------------
Net Increase (Decrease) in Cash 33,284 (882)
Cash, Beginning of Period 67 949
-------------- --------------
Cash, End of Period $ 33,351 $ 67
============== ==============
Supplemental Disclosures:
Interest paid $ 58,559 $ 81,024
============== ==============
</TABLE>
See notes to consolidated financial statements
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<PAGE> 37
EVRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BASIS OF ACCOUNTING
The consolidated financial statements of EVRO Corporation, a Florida
corporation, and its subsidiaries ("EVRO" or the "Company") 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 and, accordingly, no adjustments have been recorded because of this
uncertainty. The Company has incurred net losses during 1994 and 1995 of
$1,703,000 and $7,899,000, respectively, which have adversely reduced the
Company's liquidity and capital resources. At December 31, 1995, the Company
had current assets of $297,000 and current liabilities of $10,977,000 or a
working capital deficit of $10,680,000.
The Company is in default on $1,853,183 of convertible debentures
which were outstanding as of December 31, 1995. As also described in Note 10 -
Convertible Debentures and Subsequent Events, during the period January 11,
1996 through February 8, 1996, the Company had issued additional 8.5%
Convertible Debentures aggregating $3,040,000. These Debentures provided that
in the event authorization for issuance of the common stock is not obtained
before 75 days from date of issue, the Company is required to redeem the
Debentures at an amount equal to the value of the common stock into which the
Debentures would have been convertible at the date of redemption. As of April
26, 1996, the common stock equivalent value of these newly issued Debentures
aggregated $4,881,653. As of April 26, 1996, the Company was negotiating the
extension of the mandatory redemption dates with all of the Debenture holders.
EVRO intends to schedule a shareholders meeting at which EVRO will
ask its shareholders to increase the number of shares of EVRO's authorized
common and preferred stock. If the shareholders of EVRO do not approve the
increase in EVRO's authorized common stock, the holders of EVRO's Debentures
will likely demand the repayment of amounts owed to them in cash rather than
convert such Debentures into shares of EVRO's common stock as EVRO will not be
able to issue additional common shares.
The Company is also in default of a note payable in the amount of
$550,000 due June 24, 1995 which has as collateral all the common stock, held
by the Company, of The Sports & Shopping Network, Inc, a Florida corporation
and majority owned subsidiary ("TSSN"). As of December 31, 1995, the Company
was in default of a consulting contract regarding the payment of $625,000 in
fees. This obligation is collateralized by 60 shares of Series J Convertible
Preferred Stock ("Series J Preferred Stock") which is convertible into
3,000,000 shares of the common stock of the Company, and by the personal
guarantees of a Director and the Special Legal Counsel to the Board of
Directors. In addition, Channel America Television Network, Inc., a Delaware
corporation and majority owned subsidiary ("Channel America") is in default on
notes payable aggregating $830,309.
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<PAGE> 38
In addition, TSSN and its subsidiaries are considered to be
development stage companies as defined in Financial Accounting Standard No. 7
which will require substantial capital infusion to fully establish their
operations. As more fully described below, management of the Company believes
that it has put into place a business plan that will provide for positive
operating results and allow for the settlement of its liabilities in a timely
manner, however, should existing creditors demand immediate payment, at the
present time the Company does not have a readily available source of additional
capital nor a source of long term financing to allow for the repayment of those
creditors. Although the Company has plans in process which it believes will
allow it to obtain additional and other financing, there can be no assurance
that such plans will be implemented successfully.
The Company's current business focus is to develop and expand its home
shopping and entertainment business. The Company plans to attain future
profitable operations by developing and/or expanding (1) sources of supply of
products that it will sell at retail; (2) the ability to acquire and/or produce
and broadcast television shopping and entertainment programming; and (3) a
distribution network for such programming.
The consolidated financial statements include the accounts of EVRO and
its subsidiaries, Technology Holdings, Inc., a Florida corporation ("THI"),
TSSN, The Shopping Connection, Inc., a Florida corporation ("TSC"), and
Channel America. THI is a holding company with two wholly owned operating
subsidiaries, Treasure Rockhound Ranches, Inc., a Texas corporation ("Treasure
Rockhound") and Tres Rivers, Inc., a Texas corporation ("Tres Rivers"). THI
has one wholly owned inactive subsidiary, Lintronics Technologies, Inc.
("Lintronics"), whose operations were terminated in 1994. As of December 31,
1994, THI terminated the operations of Imaging Technologies, Inc. ("Imaging"),
an indirect wholly-owned subsidiary, and TGHC, Inc. ("TGHC"), formally known
as The Good Health Channel Inc., a majority owned subsidiary, both Florida
corporations, which corporations were abandoned in 1995. During 1995, THI
transferred EVRO Trading Corporation, a Florida corporation and wholly-owned
subsidiary ("EVRO Trading") to its President for the value of debts owed him.
The operations of EVRO Trading were also terminated as of December 31, 1994.
TSSN has two wholly-owned subsidiaries, International Sports Collectibles, Inc.
and Microsonics International, Inc., both Florida corporations and an 80% owned
subsidiary, Centennial Sports Promotions, Inc., a Missouri corporation.
Channel America has one wholly-owned subsidiary, Channel America LPTV License
Subsidiary, Inc., whose operations were discontinued in 1992.
The Company, on March 14, 1995, acquired 98.35% of the issued and
outstanding common shares of TSSN. 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.
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<PAGE> 39
On October 10, 1995, the Company acquired Channel America as more
fully described in Note 6, Acquisition of Channel America Television Network,
Inc. For accounting purposes, the acquisition was recorded as of October 1,
1995 using the purchase method of accounting.
2. HISTORY AND OPERATIONS
FORMATION OF TECHNOLOGY HOLDINGS, INC. - On January 20, 1995, the
Company organized THI, and contributed substantially all of its assets and
liabilities together with 100% of the issued and outstanding common stock of
Treasure Rockhound, Tres Rivers, Lintronics, Imaging, and EVRO Trading, and
the 60% of the issued and outstanding common stock of TGHC, which the Company
owned, into THI in exchange for all of the issued and outstanding stock of
THI.
Treasure Rockhound operates nine recreational vehicle ("RV")
campgrounds in four southwestern states through its private organization,
Camper Ranch Club of America ("Camper Ranch Club"). Camper Ranch Club offers
its members daily or long-term leases on improved campsites at its various
locations. Treasure Rockhound also operates a mobile home park in the Midwest.
During 1994, the Company acquired a 46-acre RV campground in Texas. The
campground was acquired by the Company's subsidiary, Tres Rivers.
THE SPORTS & SHOPPING NETWORK, INC. AND THE SHOPPING CONNECTION, INC.
- - On March 14, 1995, the Company acquired 98.35% of the issued and outstanding
common shares of TSSN. TSSN, together with the Company's newly formed
wholly-owned subsidiary, TSC, is engaged in the development of a television
shopping network. TSSN specializes in the marketing of sports memorabilia,
apparel and related merchandise and TSC specializes in the marketing of jewelry
and other collectibles through satellite and television broadcast and cable
affiliates, including Channel America.
CHANNEL AMERICA TELEVISION NETWORK, INC. - During 1995, the Company
executed certain agreements with Channel America for the acquisition of 100% of
the issued and outstanding shares of the common stock of Channel America.
Channel America currently operates a broadcast television network, which
provides programming 24 hours per day. Channel America has relied mainly on
barter licensing, wherein it exchanges air time for programming. Channel
America maintains a program library consisting of approximately 750 public
domain motion pictures and 400 television programs.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of
EVRO include the accounts of EVRO and its majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the 1994 financial
statements to conform to 1995 classifications.
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<PAGE> 40
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION - The Company, through its subsidiary Channel
America, derives a portion of its operating revenues from paid programming,
affiliate fees, and per-inquiry fees. Channel America also generates non-cash
revenues from barter transactions. Paid programming represents revenue earned
for broadcasting customer generated programming and to a lesser extent, paid
spot advertising (e.g. 30-second commercials). Affiliate fees are monthly
charges to affiliated stations for the right to belong to the broadcast
network. The Company may from time to time waive all or a portion of such fees
to attract and maintain affiliates. Per inquiry fees represent fees generated,
on a direct response basis, when a customer uses air time to sell directly to
viewers who then place orders with the customer. Barter (nonmonetary)
transactions generally are used by the Company to acquire programming. In a
typical barter transaction, the Company is given programming rights in exchange
for air time. The estimated fair value of programming rights is recognized as
revenue and programming expense when the air time is used. As is the general
accounting practice in this industry, no gain or loss is recognized on barter
transactions. Therefore, barter transactions increase both revenue and
expenses, but do not affect net income or cash flow. Although the Company does
not receive any cash in barter transactions, such transactions alleviate cash
expenditures by the Company to acquire programming.
Revenues from dues, rentals and memberships are recognized during the
period of service.
Revenues from the sale of merchandise are recognized as shipment
occurs. Costs of broadcasting the shopping programming are recognized as
incurred.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents are comprised of
cash and highly liquid investments with a maturity of three months or less when
purchased. The Company had no cash equivalents at December 31, 1995.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company provides for an
allowance for doubtful accounts when, in the opinion of management, there is
uncertainty as to the ability to collect an amount receivable.
INVENTORIES - Inventories are carried at the lower of cost determined
on a first-in first-out basis or market.
PROGRAM RIGHTS - Program rights relate to rights purchased for
broadcast materials. The costs are amortized over the estimated number of
future showings unless the program is licensed for an unlimited number of
showings in which case it is amortized over the contract period.
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<PAGE> 41
PROPERTY AND EQUIPMENT - Furniture, fixtures, equipment, and program
library are stated at cost. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives which range from 5 to
11 years. The cost of replacements, renewals and repairs, which neither add
materially to the value of the property, nor appreciably prolong its life are
charged to expense as incurred.
GOODWILL - Goodwill resulting from acquisitions is stated at cost less
accumulated amortization. Amortization is calculated using the straight-line
method over the estimated useful life. Generally, between fifteen and forty
years has been identified as the estimated useful life of goodwill. EVRO has
adopted a policy requiring periodic review and evaluation to determine whether
there has been a permanent impairment in the value of goodwill. This policy
includes, but is not limited to, evaluation of factors such as current
operating results, expected cash flows, business trends, and the market
valuation of the outstanding common shares and common shares to be issued upon
conversion of the convertible securities of EVRO. The calculation methodology
provides for the recognition of a permanent impairment of goodwill if the
market valuation of the outstanding common stock and common stock to issued
upon conversion of convertible securities, after deduction for the value of all
other assets, is less than the goodwill amount, and any diminution in the
market value has been determined to be of a permanent nature and not caused by
fluctuation of normal market activity.
INCOME TAXES - The provision (benefit) for income taxes is based on
the pre-tax earnings (loss) reported in the consolidated financial statements,
adjusted for transactions that may never enter into the computation of income
taxes payable. A deferred tax liability or asset is recognized for the
estimated future tax effect attributable to temporary differences in the
recognition of income and expenses for financial statement and income tax
purposes. A valuation allowance is provided in the event that the tax benefits
are not expected to be realized.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per common share is based
upon the weighted average number of common shares outstanding during the
period.
The calculation of loss per share for the year ended December 31,
1995 is based on the weighted 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 The Stellar Companies, Inc., a Florida corporation ("Stellar")
(500,000 shares) and (b) for the period from March 14, 1995 through December
31, 1995, the actual number of EVRO shares outstanding. For the year ended
December 31, 1994, the weighted average number of shares is 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.
The common shares issuable under convertible preferred stock,
debentures and warrants have not been included in the determination of the loss
per common share as they would be antidilutive.
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<PAGE> 42
4. ACQUISITION OF THE SPORTS & SHOPPING NETWORK, INC.
On March 14, 1995, the Company acquired 98.35% of the issued and
outstanding common shares of TSSN from Stellar. In connection with the
acquisition of the controlling interest in TSSN, the Company agreed to issue
16,759,038 shares of its common stock to Stellar (the "TSSN Acquisition"). The
common shares to be issued to Stellar, when issued, will represent 77.09% of
the outstanding shares of the Company's common stock, calculated on a fully
diluted basis. As the Company only had 2,500,000 shares of common stock
authorized at the time of closing of the TSSN Acquisition, the Company and
certain of its shareholders agreed to use their best efforts to cause the
Company's authorized common stock to be increased as soon as practicable.
Pending such increase in the Company's authorized common stock, the Company
issued Stellar 500,000 restricted shares of its authorized, but then unissued
common stock. Once the Company increases the number of its authorized common
stock, the Company shall be required to issue 16,259,038 (16,759,038 - 500,000)
shares of its common stock to Stellar, representing the balance of the
Company's common stock to be issued to Stellar under the TSSN Acquisition
agreement, before consideration of the April 19, 1995 amendment discussed
below.
On April 19, 1995, Stellar agreed to return the 500,000 shares of
restricted common stock previously issued to Stellar at the closing of the
Company's purchase of TSSN. The Company asked Stellar to amend the TSSN
Acquisition agreement in order to make the 500,000 shares of common stock
available to the Company for issuance by the Company pursuant to its 1995
Employee Stock Compensation Plan. Stellar agreed to return the 500,000 shares
of common stock to the Company in exchange for the Company's agreement to
increase, by 1,000,000 shares, the number of shares of the Company's common
stock that the Company would issue to Stellar at such time as the Company
increases its authorized shares of common stock. Consequently, the number of
shares that the Company is obligated to issue to Stellar for the shares of TSSN
increased from 16,759,038 to 17,759,038.
In addition, the April 19, 1995 amendment to the TSSN Acquisition
agreement required the Company to issue to Stellar 500 shares of Series F
Convertible Preferred Stock ("Series F Preferred Stock"). Each share of Series
F Preferred Stock entitles the holder thereof with the right to cast 1,000
votes on any matter requiring the approval of common shareholders. In the
event the Company issues voting securities prior to the time that the Company
has increased the number of shares of its authorized shares of common stock,
the Company has agreed to issue additional Series F Preferred Stock to Stellar
in an amount equal in voting rights with any subsequent voting shares of common
or preferred stock issued by the Company. For example, if the Company issued
300,000 shares of its common stock, the Company would be required to issue 300
shares of Series F Preferred Stock to Stellar. During the period April 1, 1995
through December 31, 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. Accordingly, the
Company issued 780 additional shares of Series F Preferred Stock to Stellar.
In addition the Company issued 20 shares of Series F Preferred
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<PAGE> 43
Stock to a law firm in lieu of issuance of such shares to Stellar. As of
December 31, 1995, Stellar held 1,280 shares of Series F Preferred Stock.
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 the Company'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 the Company completing the
increase in the authorized shares of common stock. Any common shares issued to
Stellar as a result of its conversion of Series F Preferred Stock into the
Company's common stock reduces the Company's obligation to issue to Stellar the
17,759,038 shares of restricted common stock.
On October 6, 1995, the TSSN Acquisition agreement was further amended
to provide that Stellar would, upon the conversion of the Series F Preferred
Stock, return 2,126,000 shares of the 17,759,038 shares of common stock to be
received by Stellar upon the Company increasing its shares of authorized common
stock. Additionally, Stellar agreed to deliver 9,000,000 shares of the common
stock to be issued to Stellar upon conversion of the Series F Preferred Stock
to the law firm of Scolaro, Shulman, Cohen, Lawler & Burstein, P.C. ("Scolaro,
Shulman") who agreed to hold the shares in escrow, and will release the
9,000,000 shares, on a pro rata basis for each $1,000,000 of net earnings,
cumulatively to $5,000,000, earned by the Company and its subsidiaries
excluding THI. Any and all shares held in escrow which are not released by the
escrow agent to Stellar on or before December 31, 2000, are to be returned to
the Company. On February 26, 1996, the Company agreed to reduce the shares to
be returned to the Company from 2,126,000 to 1,350,000 shares, the actual
number of equivalent common shares issued in satisfaction of certain consulting
agreements. The amendments to the TSSN Acquisition agreement to reduce the
number of shares that Stellar would receive under the TSSN Acquisition
agreement (1,350,000) and to subject an additional 9,000,000 shares to a risk
of forfeiture if the Company's earnings did not meet certain benchmarks were
made to facilitate the Company's capital raising efforts.
Pursuant to the agreement between the Company and Stellar, the Company
acquired on January 15, 1996, the remaining 1.65% of TSSN's issued and
outstanding shares of common stock held by its minority shareholders in
exchange for an aggregate of 281,418 shares of the Company's Series F Preferred
Stock.
The Company purchased the option to acquire TSSN from Boyar Holdings,
Inc. ("BHI") on January 12, 1995. Pursuant to the Assignment of Option
Agreement, the Company 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 the Company's authorized shares of
common stock.
In conjunction with the TSSN acquisition, American Clinical Labs,
Inc., a Florida corporation ("ACL") the holder of 587,219 shares of the
Company's common stock, provided to Stellar an irrevocable 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
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<PAGE> 44
the Company, 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 as of
March 14, 1995 ("the Shares"). This irrevocable proxy shall be effective from
March 14, 1995 to the date the Shares represent less than five percent (5%) of
the Company's issued and outstanding shares of common stock.
The Company has formed a wholly-owned subsidiary, THI, which owns all
of the assets that were owned by the Company prior to the TSSN acquisition.
Pursuant to such acquisition, the holders of record of the Company's common
stock as of March 27, 1995, were issued a stock dividend consisting of the
Company's Series D Convertible Preferred Stock ("Series D Preferred Stock"),
which have limited voting rights. The Company 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. As of December 31, 1995, the net book
value of THI, including net working capital advances of $607,000 from EVRO
since March 14, 1995, is approximately $3,876,000. The Company is prohibited
from pledging, hypothecating or otherwise encumbering its shares of THI's
capital stock.
The creation of THI and the authorization and issuance of the
Company's Series D Preferred Stock was done for the purpose of preserving the
value of the Company's then existing assets for the holders of the Company's
common stock at the time of the TSSN acquisition. Due to the significant
difference in the historical business of the Company and that of TSSN, the
Company insisted on the creation of THI as a condition of the TSSN acquisition.
Pursuant to the TSSN Acquisition agreement, the Company has contributed
$455,000 to THI. Upon the successful completion of private debt or equity
offerings, the Company intends to redeem the Series D Preferred Stock in
exchange for all of THI's issued and outstanding common stock.
The TSSN Acquisition agreement also provides that THI shall be
entitled to receive, on an annual basis, that number of shares of the Company's
voting common stock (the "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). The phrase "total assets" is
defined to mean the amount set forth on the consolidated balance sheet of THI
as total assets, including, without limitation, the current assets, property
and equipment (net of depreciation), investments and other assets (net of
amortization and adjustments). The phrase "average total assets" is defined to
mean the sum of the "total assets" (as defined above) of THI as set forth on
the balance sheets of THI during each of the quarters ending March 31, June 30,
September 30, and December 31 during each applicable twelve month period and
dividing the sum by four. THI ratably earns the Special Shares over each
applicable twelve month period. THI's entitlement to the Special Shares shall
cease upon the redemption of the Series D Preferred Stock. As of December 31,
1995, THI had earned 426,417 shares of the Company's common stock which have
yet to be issued.
Stellar has the option to purchase the Special Shares from THI for an
amount equal to the greater of Two Dollars ($2.00) per share or 50% of the bid
price of the Company's common stock as of the end of the month preceding
Stellar's exercise of its option. Stellar's option to acquire the Special
Shares shall terminate June 30, 1997. Stellar has not been granted
registration rights with respect to the Special Shares.
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<PAGE> 45
The Series D Preferred Stock contains a special dividend provision
that in the event such preferred stock is not redeemed by June 30, 1997, the
Company 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 the Company has
redeemed its Series D Preferred Stock. The amount of such additional stock
dividend shall equal the number of shares of the Company's common stock
transferred to THI during the immediately preceding twelve month period.
5. 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 were recapitalized
to include the historical financial information of TSSN. The assets and
liabilities of the Company were revalued to reflect the market value of the
Company's outstanding common shares. The market value of the Company's
outstanding common shares ($4,084,000) 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 immediately prior to
the acquisition of TSSN reflect their approximate fair market value. The costs
of acquisition aggregated $305,000, including a finders fee of $150,000 and
legal costs of $155,000. The excess ($3,596,000) of market value of the
Company's outstanding common shares, together with the costs of acquisition
over and above the net assets of EVRO immediately prior to the acquisition of
TSSN, was allocated to goodwill. The goodwill is being amortized on a straight
line basis over 15 years, the estimated life of the membership list of the
Company's RV campgrounds. 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 December 31, 1995.
As closing occurred in the middle of a month on March 14, 1995, the
transaction has been recorded as of February 28, 1995, a date that lies within
the date on which the transaction was initiated and the date of closing.
Accordingly, the financial statements for the year ended December 31, 1995
reflect the operations of TSSN for the year ended December 31, 1995 and the
operations of EVRO for the period March 1, 1995 through December 31, 1995. The
cost of acquisition and net income for the period from February 28, 1995 to
March 14, 1995 have been reduced by imputed interest of $17,903 using a 10%
annual rate of interest. The historical financial statements for 1994 are
those of TSSN.
6. ACQUISITION OF CHANNEL AMERICA TELEVISION NETWORK, INC.
During 1995, the Company executed agreements with Channel America, for
the acquisition of 100% of the issued and outstanding shares of the common
stock of Channel America for a purchase price of $7,000,000, comprised of cash
of $1,000,000 and $6,000,000 of the Company's
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<PAGE> 46
Series H Convertible Preferred Stock ("Series H Preferred"). The cash portion
of the purchase price was paid in installments of which $300,000 was paid as of
December 31, 1995; $300,000 was paid on March 25, 1996; and $400,000 was paid
by a promissory note bearing interest of 8% per annum, which is due and payable
April 7, 1996. The Company has agreed to pay to Channel America an additional
50,000 shares of common stock or its equivalent in preferred stock to extend
the note to May 15, 1996. In addition, the Company may further extend the
note to June 15, 1996 by payment of an additional 50,000 shares of common stock
or its equivalent in preferred stock, together with $50,000 in cash. The
Company is not in default of the note, as extended, and the Company will not be
in default of the note unless it fails to make the cash payments due under the
note in a timely manner. The Company believes that Channel America would extend
the maturity date of the note if requested to do so by the Company as Channel
America has previously granted numerous extensions.
The Company has made working capital advances to Channel America of
$690,811 as of December 31, 1995 together with $658,569 of additional working
capital advances between January 1, 1996 and April 26, 1996. Channel America
is obligated to repay the advances on demand.
On October 10, 1995, Channel America issued 27,500,000 shares of its
common stock to the Company for the $1,000,000 of the purchase price. The
27,500,000 shares of Channel America common stock will represent at least 51%
of the issued and outstanding shares of Channel America when it completes the
conversion of the outstanding notes payable and preferred stock into common
stock as described below.
The Company issued into escrow $6,000,000 (48,000 shares) of its
Series H Preferred for the remaining 49% of the common shares of Channel
America. Under the terms of the agreements, as amended, between the companies,
the Series H Preferred is convertible into a maximum of 3,000,000 shares of the
Company's common stock, unless the market price of such common shares was less
than $2.00 per share as of December 31, 1995. If the market price of the
Company's common stock was less than $2.00 per share at December 31, 1995, then
the number of common shares would be increased to attain the ascribed value of
$6,000,000. At December 31, 1995, the average of the closing bid and ask
prices for the Company's common stock was $1.5938. Accordingly, the Company
shall issue, upon conversion of the Series H Preferred, 3,764,588 shares of
the Company's common stock to the minority shareholders of Channel America.
The Series H Preferred will be held in escrow, pending (a) the conversion of an
aggregate of 90% of Channel America's notes payable and preferred stock (which
totaled $7,769,000 as of June 30, 1995) into shares of Channel America's common
stock; (b) the Company increasing the number of its authorized shares of common
stock; and (c) the Company registering the shares of common stock underlying
the Series H Preferred with the Securities and Exchange Commission. The
acquisition of the remaining 49% minority interest of Channel America in
exchange of the Company's common stock is not contingent upon the full payment
of the $400,000 promissory note discussed above.
For accounting purposes, the Company's acquisition of Channel America
was recorded as of October 1, 1995, using the purchase method of accounting and
the assets and liabilities of Channel America were revalued to reflect their
fair values as of the date of acquisition. Channel America owns a program
library consisting of approximately 790 public domain motion pictures and 380
television programs. Management revalued the program library at estimated
replacement cost
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<PAGE> 47
using, in part, evaluations by representatives of a distributor of films in the
public domain and a film editing firm. Management believes that the value so
determined is reasonable.
The conversion of an aggregate of 90% of Channel America's note and
preferred stock holders into shares of Channel America's common stock was a
significant consideration in the Company's decision to acquire Channel America.
Before the closing of the agreements on October 10, 1995, Channel America
provided to the Company written acceptances from note and preferred stock
holders whereby the holders accepted the Conversion Plan to convert their notes
and preferred stock into Channel America's common stock. The written
acceptances represented in excess of 80% of the total notes payable and
preferred stock outstanding as of June 30, 1995. As of December 31, 1995,
note and preferred stock holders aggregating $3,773,000, or 49% of the notes
payable and preferred stock outstanding as of June 30, 1995, had been converted
into shares of Channel America's common stock. In addition, note and preferred
stock holders aggregating $2,618,000, or 34% of the notes payable and preferred
stock outstanding as of June 30, 1995, had committed, but had not yet converted
into additional shares of Channel America's common stock. The Company recorded
the conversion of both groups of debt and equity holders as if their conversion
had occurred on October 1, 1995.
The goodwill amount of $8,311,878, which includes transaction costs of
$350,000 relating to the acquisition, represents the purchase price plus net
liabilities assumed over and above the aggregate fair value of the assets
acquired. The goodwill will be amortized on a straight line basis over 15
years. The affiliate stations of the Channel America Television Network, as of
October 1, 1995, was comprised of 62 affiliates with a potential reach of
approximately 17.1 million US households, including 4.5 million direct cable
homes and 4.6 million satellite homes. The critical mass of the affiliates
distribution has generally grown over time. The intangible assets acquired,
representing principally the affiliate franchises, are scarce assets. The
acquisition of Channel America coupled with the implementation of TSSN's
business plan and the development of new business via the cross promotion of
franchises and products of TSSN and Channel America will result in further
appreciation of the intangible asset values over time. Management believes
that the Company will benefit from these intangible assets for an
indeterminable period of time. Although accounting principles allow for up to
a 40 year amortization period, management selected a more conservative 15 year
life as the appropriate amortization period given the relatively short historic
operating life of Channel America. A minority interest of $212,780 was
recorded as of October 1, 1995, which represents the par value and paid in
capital of the unconverted preferred stock.
As closing occurred in the middle of the month on October 10, 1995,
the transaction has been recorded as of October 1, 1995, a date which lies
within the date on which the transaction was initiated and the date of closing.
Accordingly, the financial statements of EVRO for the year ended December 31,
1995 reflect the operations of Channel America for the entire three month
period. The cost of acquisition and net income for the period from October 1,
1995 to October 10, 1995 has been reduced by imputed interest of $1,600 using a
10% annual rate of interest.
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<PAGE> 48
7. INVENTORIES
Inventories are comprised of sports memorabilia ($71,254) and Cager
Classic apparel ($6,560). Inventories are carried at the lower of cost
(determined on a first-in, first-out basis) or market. At December 31, 1995,
inventories were adjusted by $95,105 to their estimated market value with a
corresponding charge to cost of sales. Inventories aggregating $57,553 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 $1,605,000 of promissory notes issued by Stellar
pursuant to a private placement offering dated March 21, 1993.
8. PROPERTY AND EQUIPMENT
Property, equipment and program library is comprised of the following:
<TABLE>
<S> <C>
Land and improvements $1,972,546
Building and structures 1,531,179
Machinery and equipment 476,533
Furniture and fixtures 78,277
Vehicles 62,049
Program library 1,882,610
----------
6,003,194
Less - Accumulated depreciation and amortization (678,580)
----------
Total property and equipment, net $5,324,614
==========
</TABLE>
9. OTHER ASSETS
GOODWILL - Goodwill is summarized below by acquisition:
<TABLE>
<CAPTION>
1995 1995 1994
Year Acquisition Unamortized Amortization Amortization Life
---- ----------- ----------- ------------ ------------ ----
<S> <C> <C> <C> <C> <C>
1992 Microsonics $ 109,110 $ 15,587 $ 15,587 10
1992 TSSN 1,508 216 216 10
1995 EVRO, reverse purchase 3,426,088 169,504 0 15
1995 Channel America 8,170,485 141,393 0 15
------------- --------- ---------
$11,707,191 $ 326,700 $ 15,803
============= ========= =========
</TABLE>
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<PAGE> 49
Goodwill resulting from the current year acquisitions is discussed in
Note 5 - Accounting for Acquisition of The Sports & Shopping Network, Inc., and
Note 6 - Acquisition of Channel America Television Network, Inc.
OTHER -NET - Other assets are comprised of the following:
<TABLE>
<S> <C>
Prepaid consulting contract $ 479,167
Unamortized loan costs 186,468
LPTV station licenses 159,900
Proprietary technology, net 114,329
Note receivable 20,000
Trademarks 3,254
Deposits:
AT&T Skynet 125,000
Stock purchase agreement 50,000
Office leases 9,708
Telephone and utilities 8,000
Other 5,449
----------
Total other assets - net $1,161,275
==========
</TABLE>
CONSULTING CONTRACT - On November 1, 1995 the Company entered into an
agreement with a company to provide advice and counsel regarding various
television production and advertising issues, to assist in the selection of
health related products to offer for sale, to introduce potential hosts for
health related programming, and to provide other advice as the consultant may
be reasonably considered qualified to render, including advice regarding stock
related activities. The term of the agreement is for a five year period ending
October 31, 2000 and provides for annual consulting fees of $125,000 or an
aggregate of $625,000.
This agreement is being amortized on a straight-line basis over five
years. The unamortized balance of $604,167 is included in these financial
statements as prepaid expenses ($125,000) and as other assets ($479,167).
LOAN COSTS - In October and November, 1995, the Company issued
convertible debentures with a face value of $1,500,000. The costs associated
with the issuance of these debentures aggregated $367,143 and are being
amortized over sixty months, the life of the debentures. Amortization of loan
fees during 1995 was $5,675. Loan costs incurred of $175,000 related to
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<PAGE> 50
convertible debentures in default were written off and included in costs
associated with convertible debenture modifications and defaults.
PROPRIETARY TECHNOLOGY - Microsonics owns the right to use the
technology of certain patents relating to microphonographic and microrecord
products to be used in the sale of "notable figure" cards and "notable item"
cards and related players. The cost of these rights is being amortized over 10
years which is the estimated life of the related products that the Company
intends to market. Amortization was $16,332 for both 1995 and 1994.
10. CONVERTIBLE DEBENTURES AND SUBSEQUENT EVENT
In October and November, 1995 the Company issued $1,000,000 of 8.5%
Convertible Debentures due October 31, 2000 and $500,000 of 9.5% Convertible
Debentures due November 27, 2000 (the "Debentures"). The debentures were
issued to individuals and corporations located outside of the United States.
The holders of the Debentures are entitled, at their option, at any time
commencing 41 days after issue to convert any or all of the original principal
amounts of the Debenture into shares of common stock of the Company, at a
conversion price per share equal to 50%-65% of the market price of the
Company's common stock. Market price is defined as the average closing bid
price for the five business days immediately preceding the conversion date or
immediately preceding the debenture subscription date, whichever is lower.
The Debentures, as amended, provide that a penalty of 10% to 20% of
the face value of the Debentures be added to principal in the event that the
Company does not obtain shareholder authorization to increase its authorized
shares of common stock necessary to satisfy the Company's conversion obligation
under the Debentures by certain dates. The Company has not obtained the
authorization for the issuance of this common stock and accordingly recorded
additional principal due on the Debentures of $170,000 as of December 31, 1995.
As of December 31, 1995, the common stock equivalent value of the Debentures,
including additional principal, aggregated $3,069,000.
The Debentures provide that in the event authorization for issuance of
the Common Stock is not obtained before 90 days from date of issue, the Company
is required to redeem the Debentures at an amount equal to the value of the
common stock into which the Debentures would have been convertible at the date
of redemption. The Company has obtained extensions of the mandatory redemption
dates for Debentures with adjusted principal amounts of $550,00 until May 15,
1996 and $240,000 until June 1, 1996. Debentures with an adjusted principal
value of $880,000 are in default. Accordingly, the Company has adjusted the
liability of the Debentures in default from their face value, including
additional principal, to the common stock equivalent value of $1,853,183 as of
the respective mandatory redemption dates with a corresponding charge of
$973,183 to costs associated with convertible debenture modifications and
defaults.
Costs associated with convertible debenture modifications and defaults
were comprised of (1) additional principal on the Debentures of $170,000, (2)
adjustment of liability on debentures in
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<PAGE> 51
default to common stock equivalent value of $973,183, and (3) write off of
related loan costs of debentures in default of $175,000.
During the period January 11, 1996 through February 8, 1996, the
Company had issued additional 8.5% Convertible Debentures aggregating
$3,040,000. These Debentures provided that in the event authorization for
issuance of the Common Stock is not obtained before 75 days from date of issue,
the Company is required to redeem the Debentures at an amount equal to the
value of the common stock into which the Debentures would have been convertible
at the date of redemption. As of April 26, 1996, the common stock equivalent
value of these newly issued Debentures aggregated $4,881,653. As of April 26,
1996, the Company was negotiating the extension of the mandatory redemption
dates with all of the Debenture holders. .
[Balance of Page Intentionally Left Blank.]
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<PAGE> 52
11. NOTES PAYABLE
Notes and mortgage notes payable, as of December 31, 1995, are
comprised of the following:
<TABLE>
<CAPTION>
Related
Parties Other
------- -----
<S> <C> <C>
Note payable to a company at 10% per annum interest, due December 5,
1995, having as collateral TSSN common stock. $ $ 550,000
Mortgage payables to banks and individuals (7) at 10-10.52% per annum
interest, payable in monthly installments including interest aggregating
$17,714, due February, 1998 through 2001, having as collateral land,
buildings, and equipment located at the Company's RV campgrounds, stock 1,898,813
of Treasure Rockhound, and 27,500 shares of the Company.
Note payable to an individual at 15% per annum interest, due May 31,
1996, as extended, having as collateral 26,000 shares of Series C 200,000
Convertible Preferred Stock.
Notes payable to banks at 11-14% per annum interest, payable in monthly
installments including interest aggregating $614, due February, 1998
through August, 2000, having as collateral equipment located at the RV 16,320
campgrounds.
Notes payable to former lessor and supplier, non-interest bearing,
payable in monthly installments of $13,583. 57,466
Note payable to a corporation at 7% per annum interest, due December 31,
1995, as extended, without collateral. 30,000
Debt of Channel America:
Senior convertible debentures payable at 10% per annum interest,
principal and interest due March 31, 1995 having as collateral all
tangible and intangible assets of Channel America. 5,000
Subordinated notes payable at 10% per annum interest, due December 196,825 295,239
31, 2000.
Fixed rate notes payable at 10% per annum, due August 31, 1996,
having as collateral certain broadcast stations and construction 20,157 48,498
permits owned by Channel America.
Five year notes payable at 10% per annum interest, due 1995 to 2000. 230,118
Two year notes payable at 10% per annum interest, due 1995 and 1996. 30,000
Fixed rate note payable on demand at 15% interest per annum. 4,492
--------------- -----------
Total notes and mortgage payables 251,982 3,330,946
Less current portion 251,982 1,886,637
--------------- -----------
Long term notes and mortgages $ 0 $ 1,444,309
=============== ===========
</TABLE>
On April 10, 1995, the Company borrowed $550,000 from Genesee Cattle
Company ("Genessee"). The promissory note bears interest at the rate of 10%
per annum. The note was originally due and payable on June 24, 1995. Genessee
agreed to extend the term of the note until December 5, 1995. As of April 26,
1996, the Company has paid $350,000 of principal on the note.
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<PAGE> 53
The note is currently in default. The note has as collateral all of the common
stock of TSSN held by the Company. The note is also personally guaranteed by
Daniel M. Boyar, Special Legal Counsel to the Board of Directors. In addition,
the Company entered into a consulting agreement with Genessee for financial
public relations and promotion services. Payment under the terms of this
agreement, as amended, required a payment of $50,000 on December 5, 1995. The
Company is in default on payment under this agreement.
On December 2, 1994, the Company borrowed $200,000 from an individual.
The promissory note provides for interest at the rate of 15% per annum. The
note was originally due and payable on June 5, 1995. The individual agreed to
various extensions to May 31, 1996. The note has as collateral 26,000 shares
of the Company's Series C Preferred Stock.
Channel America is in default with respect to its long-term debt and,
accordingly, the entire amount has been classified as current liabilities. As
more fully described in Note 6 - Acquisition of Channel America Television
Network, Inc., the conversion of an aggregate of 90% of Channel America's note
and preferred stock holders into shares of Channel America's common stock was a
determinative item in the Company's decision to acquire Channel America. The
following debt of Channel America was outstanding as of December 31, 1995, for
which the holders had accepted the Conversion Plan to convert their notes into
Channel's America's common stock. The debt was considered to have been
converted in the recording of the acquisition of Channel America.
<TABLE>
<CAPTION>
Related
Parties Other
------- -----
<S> <C> <C>
Senior convertible debentures payable at 5% per annum interest, principal
and interest due September 30, 1996 having as collateral all tangible and
intangible assets of Channel America $ 62,500 $ 500,000
Senior convertible debentures payable at 10% per annum interest,
principal and interest due March 31, 1995 having as collateral all
tangible and intangible assets of Channel America 50,000 25,000
Subordinated notes payable at 10% per annum interest, due December 31,
2000 320,770 787,171
Fixed rate notes payable at 10% per annum, due August 31, 1996, having as
collateral certain broadcast stations and construction permits owned by
Channel America collateral 80,754 39,247
Five year notes payable at 10% per annum interest, due 1995 to 2000
78,360
Two year notes payable at 10% per annum interest, due 1995 and 1996
408,906
--------- ----------
Total notes payable $ 922,930 $1,429,778
========= ==========
</TABLE>
-53-
<PAGE> 54
According to the Conversion Plan, the total notes payable of $2,352,708
summarized above, together with accrued interest of $226,841, convert into
7,962,060 shares of common stock of Channel America.
Maturities of long term debt over the next five years are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31 Amount
----------- ------
<S> <C>
1996 $2,138,619
1997 204,020
1998 324,082
1999 93,346
2000 822,861
----------
$3,582,928
==========
</TABLE>
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable at December 31, 1995 are comprised of the following:
<TABLE>
<S> <C>
Satellite transponder and uplink contracts $1,959,067
Inventory 616,912
Consulting 300,000
Legal and accounting 169,523
Overhead 434,244
Campgrounds 221,855
Rent 24,000
----------
Total accounts payable $3,725,601
==========
</TABLE>
[Balance of Page Intentionally Left Blank.]
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<PAGE> 55
Accrued liabilities at December 31, 1995 are comprised of the
following:
<TABLE>
<S> <C>
Consulting $ 799,025
Payroll and benefits 662,682
Payroll and benefits - related parties 70,101
Obligation to repurchase 42,000 shares
of Series C Preferred Stock (Note 16) 450,000
Legal and accounting 308,396
Interest 239,063
LPTV stations 159,900
Litigation settlement 30,000
Campgrounds 32,559
Broadcasting 36,050
Other 29,831
----------
Total accrued liabilities $2,817,607
==========
</TABLE>
CONSULTING CONTRACT - As more fully described in Note 9 - Other
Assets, the Company entered into a five year consulting agreement, as amended,
which provides for annual consulting fees of $125,000 or an aggregate of
$625,000. The amended agreement provides that the fees are payable $100,000 on
February 8, 1996; $25,000 on March 15, 1996; and $125,000 on each of November
1, 1996, 1997, 1998 and 1999. The Company paid $100,00 on February 8, 1996 and
$190,000 on March 25, 1996. The amended agreement also required the Company to
deliver to the consultant a letter of credit of "Satisfaction Payment" in the
amount of $400,000 on or before March 15, 1996. The Company did not deliver
the letter of credit or "Satisfaction Payment" and accordingly has accrued the
consulting fees in full as of December 31, 1995. As a result of the default,
the consultant may elect to accelerate the scheduled payments.
With respect to this obligation, collateral has been provided
consisting of 60 shares of Series J Preferred Stock, which is convertible into
3,000,000 shares of the common stock of the Company, and by the personal
guarantees of a Director and the Special Legal Counsel to the Board of
Directors.
13. INCOME TAXES
The provision (benefit) for income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory federal income
tax rate to pre-tax income as a result of the following differences at December
31:
-55-
<PAGE> 56
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Income tax provision (benefit)-34% $(2,391,000) $(579,075)
Increase (decrease) in rates resulting from:
Non-deductible items 1,500 1,201
State and local taxes, net (297,000) (61,697)
Valuation allowance for recognized deferred tax assets 2,686,500 639,571
----------- ---------
Effective tax rates $ 0 $ 0
=========== =========
</TABLE>
On a consolidated basis, EVRO had deferred tax assets of approximately
$12,756,000 at December 31, 1995, which includes the deferred tax assets of
Channel America of $8,773,000. In addition, the deferred tax assets were
reduced in 1995 by $2,024,000 which represents a reduction of the deferred tax
assets as a result of net operating loss carryforwards which will not be
available due to the change in control caused by the merger in 1995. Also, the
deferred tax assets of Channel America may not be available due to its issuance
of substantial additional stock. At December 31, 1994, the deferred tax assets
totaled approximately $1,244,000 and were those of TSSN. All of the deferred
tax assets primarily result from unused net operating losses.
The Company will need to realize significant profits to utilize the
net operating losses, all of which may not be available as described above, and
may be further limited due to the organization, capitalization and acquisition
costs incurred. Because of these uncertainties, a valuation allowance was
established in the same amounts as the deferred tax assets because the benefit
is more likely than not to be lost.
Accumulated net operating losses total approximately $13,103,000 which
expire as shown below, and do not include those of Channel America:
<TABLE>
<S> <C> <C> <C>
1997 $ 93,000 2006 $ 18,000
1999 $259,000 2007 $ 906,000
2000 $413,000 2008 $2,339,000
2001 $311,000 2009 $2,811,000
2003 $ 23,000 2010 $5,930,000
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
On September 15, 1992, the Company entered into a five year agreement
with IDB Communications Group, Inc., which provided stereo tape play-back of
Channel America
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<PAGE> 57
programming, uplink transmission facilities to Spacenet II and occasional
downlink turnaround service which enables the Company to selectively choose
programming from other satellites and transmit it back to Spacenet II for
transmission to the Company's network. At December 31, 1995, $885,590 due to
IDB is included in accounts payable. Under the agreement, the Company was
required to pay a monthly fee for primary services of $42,790 through September
15, 1996, plus a 50% surcharge until certain deferred amounts are repaid in
full. Additional services such as downlink turnaround service and other
services will be provided by IDB at an hourly rate ranging from $65 per hour to
$188 per hour during the term. If the agreement is terminated or a change in
control of the Company occurs prior to the expiration of the agreement, the
entire unpaid balance due under the agreement plus the $400,000 previously due
to IDB shall become immediately payable.
On March 31, 1995, the Company entered into a four-year satellite
communication agreement with AT&T, whereby the Company incurred monthly service
charges of $125,000 until December 31, 1995. Thereafter, the monthly rate will
be $131,500. The Company was required to pay a $125,000 deposit.
On September 8, 1995, the Company received notice from the Osceola
County, Florida Clerk of Circuit Court, of a default judgement filed against
International Sports Collectibles, Inc., a wholly owned subsidiary of TSSN, and
Stellar, in favor Dreams Franchise Corporation, a California corporation, on
November 28, 1994 in the amount of $117,492. This liability has been recorded
and is included in accounts payable as of December 31, 1995.
The Company is the subject of an informal private inquiry which has
been initiated by the staff of the Securities and Exchange Commission. The
actions under examination apparently involve the sale by the Company of shares
of its common stock at prices lower than that described in its private
placement memorandum dated December 17, 1992; its failure to modify favorable
press statements when the Company became aware that the initial statements were
no longer accurate; the allegedly improper registration of shares under Form
S-8 registration statements; and the allegedly improper reliance upon the
transactional exemption afforded by Regulation S, in connection with several
offers and sales of shares of its common stock. No allegations have been made
and management believes that its actions were proper.
15. MINORITY INTEREST
Minority Interest represents the par value and paid in capital of the
unconverted preferred stock of Channel America. The preferred stock provides
for payment of annual dividends in the amount of six percent (6%) per annum
through December 31, 1996, and seventeen percent (17%) per annum thereafter.
The preferred stock is redeemable by Channel America, at its option, at any
time at a redemption price of 105% of its par value, provided that the
subordinated notes payable due December 31, 2000 have been fully paid. Upon
failure of Channel America to pay two consecutive dividends, the holders of the
preferred stock have the right to gain control of the Board of Directors of
Channel America and convert their shares of preferred stock into an aggregate
of fifty percent
-57-
<PAGE> 58
(50%) of the Company's outstanding common stock. As of December 31, 1995,
Channel America has failed to pay the 1995 dividend which aggregates
approximately $13,000 for the unconverted preferred stock.
As more fully described in Note 6 - Acquisition of Channel America
Television Network, Inc., the conversion of an aggregate of ninety percent
(90%) of Channel America's notes payable and preferred stock into shares of
Channel America's common stock was a significant consideration in the Company's
decision to acquire Channel America. As of December 31, 1995, 32,710 shares
of preferred stock were outstanding ($327,100) for which the holders had
accepted the Conversion Plan to convert their preferred stock into Channel's
America's common stock and were eliminated in the recording of the acquisition
of Channel America.
16. COMMON AND PREFERRED STOCK
On January 26, 1995, the Board of Directors of EVRO authorized a 1:20
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 December 31,
1995, of which 27,500 shares have been issued as collateral. As of December
31, 1995, THI held 416 common shares. The Company is filing a Proxy Statement
to obtain shareholder approval of an increase of its authorized common shares
to 100,000,000 shares. Upon approval of the increase in authorized common
shares, the Company expects to issue approximately 27,650,00 shares of common
stock pursuant to the conversion of convertible preferred stock and convertible
debentures outstanding as of December 31, 1995.
Restricted common shares issued for services 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, which amount management believes reasonably approximates the
value of the services received.
THE SPORTS & SHOPPING NETWORK, INC. - The Statement of Stockholders'
Equity for the period January 1, 1994 through February 28, 1995, reflects the
historic transactions of TSSN.
Change in Authorized Shares and Stock Split - On January 13, 1994,
the Board of Directors of TSSN amended its Articles of Incorporation to
increase its authorized capital stock from 5,000 shares of common stock to
60,300,000 shares of common stock. The Board of Directors also authorized a
stock split of the Company's common stock equal to 11,000 shares for 1 share,
and changed the par value from $1.00 per share to $.000082918 per share.
Warrants - On January 15, 1994, the Board of Directors of Stellar
granted warrants to the holders of certain Stellar common stock. The warrants
entitled the holders to purchase one (1)
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share of common stock at $.50 per share for every two (2) shares of Stellar
common stock held. Stellar shareholders exercised warrants to purchase 356,000
shares of common stock with cash proceeds of $178,250. All remaining warrants
expired on February 18, 1994.
NON-QUALIFIED STOCK OPTION PLAN - In December 1994, EVRO adopted a
non-qualified 50,000 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
50,000 shares of common stock to its directors and employees at $2.50 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. The notes receivable have been classified as subscriptions
receivable and shown as a reduction of Stockholders' Equity.
1995 EMPLOYEE STOCK COMPENSATION PLAN - 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 of 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 year ended December 31, 1995,
compensation pursuant to these service contracts aggregating $569,620 was
charged to selling, general and administrative expense. The unearned
compensation at December 31, 1995 of $1,185,880 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.
PROVISION FOR LOSS ON PURCHASE CONTRACT - On October 19, 1992, the
Company's wholly-owned subsidiary Treasure Rockhound, entered into an
employment agreement with Dale A. Fullerton. Mr. Fullerton was a former
Chairman of the Board, President and the largest shareholder of the Company.
In addition to a monthly salary, Mr. Fullerton was granted an option to
acquire 5,000 shares (as adjusted for the reverse stock split) of the common
stock of the Company for $10,000.
In August, 1993 the Company terminated Mr. Fullerton for violating the
terms of his employment agreement. In June, 1994 the parties to the employment
agreement entered into a Settlement Agreement ("Agreement"). The Company
entered into the Agreement, not as an
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admission of any wrongdoing on its part, but to avoid the substantial legal
costs and management time to prepare a legal defense. Under the Agreement, Mr.
Fullerton was paid amounts due to him pursuant to a promissory note, severance
pay totaling $160,000, and permitted him to exercise his option to acquire
5,000 shares of common stock. The Agreement provided that Mr. Fullerton has
the right, but not the obligation, to sell the 5,000 shares (100,000 shares
before the reverse stock split of January 1995) to the Company over a 120 month
period beginning in August, 1994 for an aggregate of $456,032. Due to the
right granted to Mr. Fullerton, the Company has classified the related shares
of common stock outside Stockholders' Equity. The discounted difference
between the repurchase price of the stock and the current value of the
Company's common stock is included in accounts payable ($22,016) and other debt
($240,692).
STOCK PURCHASE AGREEMENT - On September 18, 1995, the Company granted
a lender warrants to purchase 200,000 common shares at $1.00 per share. If the
market price (bid price per share) is less than $2.00 per share at the time of
the exercise of the warrants by the buyer, the purchase price per share shall
be reduced to one half of the market price of the common shares on the exercise
date. The warrnats lapse one year from date of grant. The stock purchase
agreement provides that the underlying common shares shall be registered in
nine months from the date of grant or as soon thereafter as possible, if the
buyer exercises the warrants after such time.
PREFERRED STOCK - The Company has authorized preferred stock of
1,250,000 shares without par value. As of December 31, 1995, the following
series of preferred stock were authorized and outstanding.
<TABLE>
<CAPTION>
Liquidation
Recorded Preference
Value Value
----- -----
<S> <C> <C> <C>
Series A Preferred Stock, $20 par value, 100,000 shares authorized,
no shares issued or outstanding $ 0 $ 0
Series C Convertible Preferred Stock, $10 stated value, 500,000
shares authorized, 195,400 shares issued and outstanding of which
26,000 shares were issued as collateral 1,626,585 1,954,000
Series D Convertible Preferred Stock, no par value, 17,000 shares
authorized and 16,984.9 shares issued and outstanding 4,084,153 3,876,139
Series E Convertible Preferred Stock, no par value, 30,000 shares
authorized, issued and outstanding 30,000 30,000
</TABLE>
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<TABLE>
<S> <C> <C>
Series F Convertible Preferred Stock, no par value, 1,680 shares
authorized, 1,324.4494 shares issued and outstanding 171,300 1,324
Series H Convertible Preferred Stock, no par value, 100,000 shares
authorized, 48,000 shares issued and outstanding 6,000,000 6,000,000
Series I Convertible Preferred Stock, no par value, 7,000 shares
authorized, 6,750 shares issued and outstanding 440,943 1,096,875
Series J Convertible Preferred Stock, no par value, 100 shares
authorized, issued and outstanding which were issued for collateral 0 5,000,000
Series K Convertible Preferred Stock, no par value, 100 shares
authorized, no shares issued or outstanding 0 0
Series L Convertible Preferred Stock, no par value, 100 shares
authorized, no shares issued or outstanding 0 0
Series M Convertible Preferred Stock, no par value, 40,000 shares
authorized, issued and outstanding of which 25,000 shares were
issued for collateral 74,062 400,000
----------- -----------
Total Preferred Stock, 795,980 shares designated; 338,559.3494
shares of designated series issued and outstanding of which 51,100
shares were issued for collateral 12,427,043 18,358,338
Less Series C Convertible Preferred Stock:
Shares subject to agreement to rescind sale thereof (42,000
shares) (375,985) (420,000)
Shares subject to repurchase agreement (50,000 shares) (500,100) (500,000)
----------- -----------
Adjusted Preferred Stock $11,550,958 $17,438,338
=========== ===========
</TABLE>
Series B Preferred Stock was canceled by the Board of Directors during
1995. Series G Preferred Stock has not been designated nor issued. Series K
and L Preferred Stock have been designated by the Board of Directors, but, no
shares were issued as of December 31, 1995
SERIES C CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with 500,000 shares authorized, with a stated value of
$10.00 per share. This series was primarily created to be sold to accredited
investors through private placements.
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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 is defined to be the average closing price of the Company's common stock
for the ten day period prior to conversion.
At December 31, 1995, the Company had sold 115,500 shares of Series C
Preferred Stock outstanding for $1,087,585 in cash, net of sales commissions
and closing costs of $67,515. In addition, the Company issued 50,000 shares of
Series C Preferred Stock as additional consideration for a loan in the amount
of $550,000 and 3,900 shares of Series C Preferred Stock in settlement of
litigation. The shares issued as additional consideration for a loan and in
settlement of litigation were valued and recorded for financial statement
reporting purposes at their approximate market price per share less an
appropriate discount to account for the inherent lack of marketability, with a
corresponding charge to operations. 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 May 31, 1996, as extended. No accounting recognition is given
to shares issued as collateral until the collateral agreement is exercised and
the stock is transferred in settlement of the obligation.
With respect to the sale of 42,000 shares of Series C Preferred Stock
at $10.00 per share or an aggregate of $420,000, sold on May 31, 1995, the
Company has agreed to rescind the sale at its sales price plus interest of
$30,000. The recision was made due to the Company's inability to obtain an
increase in its authorized common shares on a timely basis. For financial
statement purposes, the liability of $450,000, including accrued interest, has
been included in accrued liabilities. The related sales commissions and
closing costs of $44,015 have been charged against interest expense. As of
April 26, 1996, the Company had repaid $250,000 of the purchase price.
In connection with the sale of 50,000 shares of Series C Preferred
Stock included above, the Company granted the buyer a put, whereby the Company
would be required to redeem the 50,000 shares at $10.00 per share. Due to the
put granted to the buyer, the Company has classified the related 50,000 shares
of Series C Preferred Stock outside of Stockholders' Equity as being subject to
a repurchase obligation. The payment of this obligation has as collateral a
pledge of all of Channel
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America's common stock held by the Company, 40 shares of Series J Preferred
Stock which is convertible into 2,000,000 shares of the common stock of the
Company, and the personal guarantees of a Director and the Special Legal
Counsel to the Board of Directors.
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 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.
SERIES D CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with no par value and 17,000 shares authorized of which
16,984.9 shares are issued and outstanding as of December 31, 1995.
This series was established for the purpose of preserving the value of
the Company's then existing assets for the holders of the Company's common
stock at the time of the TSSN acquisition. Pursuant to the acquisition of
TSSN, EVRO issued one share of Series D Preferred Stock for each 100 shares of
issued and outstanding common stock (See Note 4 - Acquisition of The Sports and
Shopping Network, Inc.). The Series D Preferred Stock were issued to all
holders of common stock of record as of March 27, 1995, except for Stellar.
The Company issued the stock certificates on or about August 28, 1995. The
Series D Preferred Stock was recorded at a value of $4,084,153, which
represents the value net assets of THI at the date of acquisition.
The Company 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. As of December 31, 1995, the net book value of THI, including
net working capital advances of $607,000 from EVRO since March 14, 1995, is
approximately $3,876,000. Series D Preferred Stock is not convertible into
common stock of the Company.
The Series D Preferred Stock has limited 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 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.
The TSSN Acquisition agreement also provides that THI shall be
entitled to receive, on an annual basis, that number of shares of the Company's
voting common stock (the "Special Shares")
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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). The phrase "total assets" is defined to mean the amount set forth on
the consolidated balance sheet of THI as total assets, including, without
limitation, the current assets, property and equipment (net of depreciation),
investments and other assets (net of amortization and adjustments). The phrase
"average total assets" is defined to mean the sum of the "total assets" (as
defined above) of THI as set forth on the balance sheets of THI during each of
the quarters ending March 31, June 30, September 30, and December 31 during
each applicable twelve month period and dividing the sum by four. THI ratably
earns the Special Shares over each applicable twelve month period. THI's
entitlement to the Special Shares shall cease upon the redemption of the Series
D Preferred Stock. As of December 31, 1995, THI is entitled to receive be
426,417 shares of EVRO common 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, the
Company 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 the Company has
redeemed its Series D Preferred Stock. The amount of such additional stock
dividend shall equal the number of shares of the Company's common stock
transferred to THI during the immediately preceding twelve month period. No
dividends are payable to the holders of the Series D Preferred Stock in the
event that the Series D Preferred Stock is redeemed by the Company on or before
June 30, 1997.
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 D
Preferred Stock shall be entitled to receive all of the THI common stock held
by the Company subject to the first priority of all holders of all prior series
of preferred stock.
SERIES E CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with 30,000 shares authorized, no par value. The
series was used to purchase the option to acquire TSSN from BHI. The shares
were recorded at their preference value of $1.00 per share with a corresponding
charge against common stock.
The holder of each share 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.
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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 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 all prior series of preferred stock.
SERIES F CONVERTIBLE PREFERRED STOCK - The Board of Directors has
established this series with 1,680 shares authorized, no par value. This
series was created pursuant to the April 19, 1995 amendment to the TSSN
Acquisition agreement for issuance to Stellar (See Note 4 - Acquisition of The
Sports and Shopping Network, Inc.).
As of December 31, 1995, the Company had issued 1,280 shares of Series
F Preferred Stock to Stellar. In addition, the Company issued 20 shares of
Series F Preferred Stock to a law firm in lieu of issuance of such shares to
Stellar. Further, the Company issued 24.4494 shares of Series F Preferred
Stock to two companies pursuant to consulting agreements.
The 1,300 shares of Series F Preferred Stock were recorded at their
preference value of $1.00 per share with a corresponding charge to common
stock. The Series F Preferred Stock issued pursuant to consulting agreements
were recorded at the average of the closing bid and ask prices of the common
stock on the date of the consulting agreements, discounted to reflect stock
restrictions, with a corresponding charge to operations.
The holder of each share 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
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Series F Preferred Stock shall be entitled to receive 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 all prior series of preferred stock.
SERIES H CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with 100,000 shares authorized, no par value. This
series was primarily created to be used in connection with acquisitions,
including the acquisition of Channel America (See Note 6 - Acquisition of
Channel America Television Network, Inc.).
The Series H Preferred Stock has no voting rights except as provided
by operation of law and shall not bear dividends. As long as the Series H
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 H Preferred Stock in any material
respect prejudicial to the holders thereof, or increase the authorized number
of shares of such Series.
Shares of Series H Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at any time on or after June 30, 1996 at a
price equal to the sum of $125.00 per share. Each holder of Series H Preferred
Stock shall have the right, at his option, at any time, but not later than June
30, 1997, 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 price equal to the greater of the common stock's per
share market value or $2.00. The Shares being converted shall be multiplied by
125 before determining the common shares to be received. Market value is
defined to be the average closing price per share of the Company's common stock
for the ten day period prior to conversion. As more fully described in Note 6
- - Acquisition of Channel America Television Network, Inc., the purchase
agreements, as amended, provide that in the event the per share market value of
the Company's common stock was less than $2.00 per share, then the number of
common shares would be increased to attain the ascribed value of $6,000,000. At
December 31, 1995, the average of the closing bid and ask prices for the
Company's common stock was $1.5938. Accordingly, the Company shall issue upon
conversion of the related Series H Preferred Stock, 3,764,588 shares of the
Company's common stock. As of December 31, 1995, the Company had issued
48,000 shares into escrow in connection with the acquisition of Channel
America. Such shares were ascribed a value of $6,000,000 as discussed above.
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 H
Preferred Stock shall be entitled to receive the sum of $125.00 in cash for
each share of Series H Preferred Stock held subject to the first priority of
all holders of all prior series of preferred stock and Series I Convertible
Preferred Stock.
SERIES I CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with 7,000 shares authorized, no par value. This
series was primarily created to be used for compensation of persons under
consulting agreements.
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As of December 31, 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 Company also issued 1,000 shares of Series I
Preferred Stock as additional consideration for a loan in the amount of
$250,000. The value of the shares issued pursuant to the consulting agreements
and loan was determined based upon the average of the closing bid and ask
prices of the underlying restricted common stock on the date of the respective
agreements, discounted to reflect stock restrictions. With respect to the
consulting agreements, the compensation is being allocated over the life of the
consulting contracts. The contracts expire in July and October 1997. During
the year ended December 31, 1995, compensation and loan costs of $122,000 were
charged to operations. The unearned compensation at December 31, 1995 of
$319,000 is shown as a reduction of stockholders' equity. Management believes
that the values ascribed as compensation pursuant to the consulting contracts
are reasonable.
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 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.
Shares of Series I 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 of $162.50 per share. 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 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 all prior series of preferred stock, except for Series H
Preferred Stock which was issued subsequent to Series I Preferred Stock.
SERIES J CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with 100 shares authorized, no par value.
This series was intended to be sold to accredited investors through
private placements. However, 60 shares of Series J Preferred Stock was used as
collateral for a put granted to the buyer of 50,000 shares of Series C
Preferred Stock (see Series C Convertible Preferred Stock of this Note) and 40
shares of the Series J Preferred Stock was used as collateral for an obligation
pursuant to a five year consulting contract (see Note 9 - Other Assets; Other -
Net; Consulting Contract).
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No accounting recognition is given to shares issued as collateral until the
collateral agreement is exercised and the stock is transferred in settlement of
the obligation.
The Series J Preferred Stock has no voting rights except as provided
by operation of law does not bear dividends, and is not redeemable. As long as
the Series J 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 J 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 J 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 50,000 shares of common stock for each
share of Series J Preferred Stock. The Series J Preferred Stock automatically
converts to common shares on June 30, 1997.
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 J
Preferred Stock shall be entitled to receive the sum of $50,000 in cash for
each share of Series J Preferred Stock held subject to the first priority of
all holders of all prior series of preferred stock.
SERIES M CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with 40,000 shares authorized, no par value.
The Company issued 25,000 shares of Series M Preferred Stock to a law
firm (of which a director of the Company is a partner) as security for
outstanding legal fees in excess of $250,000. No accounting recognition is
given to shares issued as collateral until the collateral agreement is
exercised and the stock is transferred in settlement of the obligation. The
Company also issued 15,000 shares of Series M Preferred Stock to Daniel M.
Boyar, Special Legal Counsel to the Board of Directors and a former Director,
President and Chief Executive Officer, for the exclusive services rendered by
him to the Company (see Note 14 - Related Party Transactions). The value of
the 15,000 shares issued for compensation ($74,062) was determined based upon
the average of the closing bid and ask prices of the underlying restricted
common stock on the date of the agreement, discounted to reflect stock
restrictions, with a corresponding charge to operations. Management believes
that the value ascribed as compensation is reasonable.
The holder of each share of Series M Preferred Stock is entitled to 10
votes on each matter with respect to which a vote is required of the
shareholders of the Company's common stock. As
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long as the Series M 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 M Preferred Stock in any
material respect prejudicial to the holders thereof, or increase the authorized
number of shares of such Series. The shares do not bear dividends and are not
redeemable.
Each holder of Series M 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 shares of common stock for each share
of Series M Preferred Stock. The Series M Preferred Stock automatically
converts to common stock on June 30, 1997.
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 M
Preferred Stock shall be entitled to receive the sum of $10.00 in cash for each
share of Series M Preferred Stock held subject to the first priority of all
holders of all prior series of preferred stock.
17. RELATED PARTY TRANSACTIONS
THE STELLAR COMPANIES, INC. - In March 1995, EVRO acquired 98.35%
of the shares of the common capital stock of TSSN, from Stellar in exchange for
EVRO's agreement to issue shares of its common stock. The agreement between
EVRO and Stellar has been subsequently amended and is discussed more fully
elsewhere herein.
During 1995 and 1994, Stellar charged TSSN $760,000 and $1,150,000,
respectively, for management and accounting services which were accrued to
Amounts Due to Affiliates - The Stellar Companies, Inc. Stellar charged TSSN
based upon estimated time and charges incurred by Stellar on TSSN's behalf.
Management asserts that the fees charged to TSSN approximate the costs that
would have been incurred by TSSN if it had operated on a stand alone basis.
During 1995 and 1994, TSSN paid to Stellar $454,969 and $428,116, respectively.
At December 31, 1995, Stellar was owed $430,302 by TSSN, which amounts do not
bear interest.
TSSN issued a note payable to Stellar, as of December 31, 1993 in the
amount of $1,258,116 in satisfaction of the balance of the Amounts Due to
Affiliates - The Stellar Companies, Inc. The note provided for interest at 7%
per annum and was payable in cash or by the issuance of 1,729,908 (as adjusted
for stock split) shares of common stock, at the option of TSSN.
On November 30, 1994, TSSN satisfied the note payable and accrued
interest of $80,588.36 by issuance of 1,729,908 shares of common stock to
Stellar. In addition, TSSN issued 2,018,226 shares of common stock in
satisfaction of additional advances by Stellar aggregating $403,645.
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During 1994, a founder of Stellar, former officer and former director
of Stellar raised certain claims with respect to inventory of TSSN held in part
by the individual. Due to the claims outstanding, TSSN transferred the
inventory of sports memorabilia and lithographs of jazz greats at a cost of
$231,333, together with liabilities of $73,365 to Stellar which was offset
against $157,968 of advances from Stellar.
AMERICAN CLINICAL LABORATORIES, INC. - ACL is a shareholder of the
Company who, as of March 29, 1996, owned 400,018.8 shares of the Company's
common stock and 6,041.988 shares of Series D Preferred Stock. The Company's
Series D Preferred Stock is redeemable, at the Company's option, by the Company
tendering to the holders of the Series D Preferred Stock all of the Company's
shares of THI. In the event the Company redeems its Series D Preferred Stock in
exchange for all of the outstanding common stock of THI, ACL will control 36% of
the common stock of THI. ACL and THI share a common management team, the
members of which are employees of either ACL or THI. The compensation paid to
the employees of either THI and ACL who provide services to both ACL and THI,
together with related payroll taxes, insurance, automobile allowances and other
reimbursed expenditures associated with such employees, are allocated between
ACL and THI, based upon the percentage of time that the employees expend on
behalf of either ACL and THI. The services are billed at cost, without a
mark-up. During the period March 1, 1995 through December 31, 1995, ACL billed
THI $84,000 and THI billed ACL $69,000 for management services. During the
period, THI paid to ACL, $12,906 in addition to the net amount due for
management services. As of December 31, 1995, THI owed ACL $11,644.
OTHER - Daniel M. Boyar, President of BHI, served as Director,
President and Chief Executive Officer of the Company from March 14, 1995
through October 3, 1995 for compensation of $93,500, which was accrued but not
paid in 1995. Effective October 1, 1995, the Company engaged Mr. Boyar as
Special Legal Counsel for the Board of Directors of the Company. The
professional services agreement, which expires on March 14, 1997, as amended,
provides for a legal fee at the rate of $180,000 per annum. Fees aggregated
$45,000 for 1995 and were accrued but not paid as of December 31, 1995. The
agreement provides that in addition to the base fee, the Company shall pay to
Boyar a cash bonus equal to 5% of any gross funds received by the Company, in
excess of $4,000,000. "Gross funds" is defined to be the sum of: (a) the
amounts received by the Company from the issuance of its debt or equity
securities to persons introduced to the Company by Mr. Boyar; and (b) the net
fair market value of the assets acquired by the Company in business
combinations with acquisition candidates introduced to the Company by Mr.
Boyar. As of December 31, 1995 the amount received by the Company from
persons, and the net fair market value of assets acquired from acquisition
candidates, introduced to the Company by Mr. Boyar aggregated $3,625,000.
Consequently, Mr. Boyar was not, as of December 31, 1995, entitled to a bonus.
EVRO also issued Mr. Boyar 15,000 shares of its Series M Preferred Stock for
services rendered.
During 1995, Scolaro, Shulman provided legal services to EVRO totaling
approximately $250,000. EVRO agreed to issue to Scolaro, Shulman 25,000 shares
of EVRO's Series M Preferred Stock as security for the payment of such fees.
Each share of Series M Preferred is convertible into 10 shares of EVRO's common
stock and has voting rights equal to 10 shares of EVRO's common stock. At any
time after EVRO increases its authorized shares of common stock, Scolaro,
Shulman may put its shares of Series M Preferred to EVRO at a price of $10.00
per share. If EVRO is unable
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<PAGE> 71
or unwilling to fulfill its obligations under the put, Scolaro, Shulman shall
have the right to retain all 25,000 shares of its Series M Preferred and shall
further be entitled to receive all legal fees due and owing from EVRO or any of
its subsidiaries. Stephen H. Cohen, who is both EVRO's secretary and a
director, is a partner with Scolaro, Shulman. While the Board believes that
the agreement reached with Scolaro, Shulman is fair to EVRO, there can be no
assurance that the agreement is as favorable to EVRO as one that might have
been negotiated in an arms-length transaction.
18. BUSINESS SEGMENTS
The Company has identified its major lines of business to be the RV
campgrounds, broadcasting and shopping.
<TABLE>
<CAPTION>
RV
Campgrounds Broadcasting Shopping Corporate Total
----------- ------------ -------- --------- -----
<S> <C> <C> <C> <C> <C>
Sales and revenues $ 1,070,471 $ 388,925 $ 176,566 $ 0 $ 1,635,962
Cost of sales and revenues 734,104 685,256 260,370 0 1,679,730
----------- ------------ ----------- ----------- -----------
Gross margin 336,367 (296,331) (83,804) 0 (43,768)
Operating expenses 950,885 552,396 1,833,317 1,590,192 4,926,790
Depreciation and amortization 277,337 235,542 32,642 0 545,521
----------- ------------ ----------- ----------- -----------
Income (loss) from operations (891,855) (1,084,269) (1,949,763) (1,590,192) (5,516,079)
Other items 185,765 11,751 10,395 2,174,656 2,382,567
----------- ------------ ----------- ----------- -----------
Net income (loss) $(1,077,620) $ (1,096,020) $(1,960,158) $(3,764,848) $(7,898,646)
============ ============ =========== =========== ==========
Identifiable assets $ 6,977,963 $ 10,279,123 $ 374,857 $ 858,339 $18,490,282
=========== ============ =========== =========== ===========
</TABLE>
[Balance of Page Intentionally Left Blank]
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<PAGE> 72
19. ADDITIONAL CASH FLOW STATEMENT INFORMATION
The noncash effect of the acquisition of TSSN and Channel America is
summarized below:
<TABLE>
<CAPTION>
CHANNEL
INCREASE IN ASSETS: TSSN AMERICA
---- -------
<S> <C> <C>
Notes and other receivables $ 81,141 $ 41,713
Prepaid expenses 18,788 86,506
------------ -----------
Increase in current assets 99,929 128,219
Property , equipment, and program library 3,487,891 1,882,957
Unamortized goodwill 3,595,592 8,311,878
Other assets 168,617 242,400
------------ -----------
Total increase in assets 7,352,029 10,565,454
------------ -----------
INCREASE IN LIABILITIES:
Notes payable and current portion of long-term debt 428,638 874,783
Accounts payable 654,495 2,910,863
Amounts due to affiliates 24,550
Accrued liabilities 145,995 443,035
------------ -----------
Increase in current liabilities 1,253,678 4,228,681
Long-term debt 1,731,276
Other liabilities 292,024
------------ -----------
Total increase in liabilities 3,276,978 4,228,681
------------ -----------
Minority interest 212,780
-----------
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
Issuance of Series H Convertible Preferred Stock
(48,000 shares) 6,000,000
Common stock 3,460,823
Additional paid in capital (3,490,823)
------------ -----------
Total increase in stockholders' equity 4,084,153 6,000,000
------------ -----------
Total increase in liabilities and stockholders' equity 7,361,131 10,441,461
------------ -----------
CASH ACQUIRED (INVESTED) $ 9,102 $ (123,993)
============ ===========
</TABLE>
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<PAGE> 73
Other noncash transactions which occurred during the twelve months
ended December 31, 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 Consulting Agreements:
Series F Convertible Preferred Stock - 24.4 shares (170,000)
Series I Convertible Preferred Stock - 5750 shares (382,193)
Series M Convertible Preferred Stock - 15,000 shares (74,062)
Compensation earned during the year ended December 31, 1995 877,030
Unearned compensation as of December 31, 1995 1,504,725
Issuance of Series F Convertible Preferred Stock
to Stellar and its designee - 1,300 shares $ (1,300)
Common stock 1,300
Issuance of Preferred Stock in consideration of loan agreements:
$ (500,000)
Series C Convertible Preferred Stock - 50,000 shares
Series I Convertible Preferred Stock - 1,000 shares (58,750)
Interest and financing costs 558,750
Series C Convertible Preferred Stock issued in settlement of litigation -
26,000 shares $ (39,000)
Selling, general and administrative costs 39,000
</TABLE>
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<PAGE> 74
20. PROFORMA FINANCIAL INFORMATION
The Condensed Proforma Combined Statements of Operations (the
"Statement") shown below for the years ended December 31, 1995 and 1994 have
been prepared as if EVRO and Channel America had been acquired as of the
beginning of each of the respective periods, adjusted to reflect an increase in
amortization resulting from goodwill recorded in the mergers. In addition, the
Statement was adjusted to reflect the reduction of interest expense and
dividends as if certain notes payable and preferred stock aggregating
$6,391,000 had been converted into common stock of Channel America at the
beginning of each of the respective periods. The proforma weighted 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 year ended December 31,
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.
Condensed Proforma Combined Statements of Operations
for the Year Ended December 31, 1995
<TABLE>
<CAPTION>
EVRO Channel
Corporation America
EVRO 01/01/95 01/01/95
Corporation through through Combined
As Reported 02/28/95 09/30/95 Adjustments Totals
----------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Sales and revenues $ 1,635,962 $ 174,224 $ 1,094,109 $ $ 2,904,295
Cost of sales and revenues 1,679,730 13,665 1,926,622 3,620,017
----------- --------- ----------- ------------
Gross margin (43,768) 160,559 (832,513) (715,722)
Operating expenses 5,472,311 197,677 705,268 707,820 7,083,076
----------- --------- ----------- ----------- ------------
Loss from operations (5,516,079) (37,118) (1,537,781) (707,820) (7,798,798)
Other income (expense) (2,382,567) (300,841) 43,562 319,308 (2,320,538)
----------- --------- ----------- ----------- ------------
Net loss $(7,898,646) $(337,959) $(1,494,219) $ (388,512) $(10,119,336)
=========== ========= =========== =========== ============
Net loss per share $ (4.34)
============
Average number of common
2,330,656
============
shares outstanding
</TABLE>
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<PAGE> 75
Condensed Proforma Combined Statements of Operations
for the Year Ended December 31, 1994
<TABLE>
<CAPTION>
The Sports &
Shopping
Network EVRO Channel Combined
As Reported Corporation America Adjustments Totals
----------- ----------- ------- ----------- ------
<S> <C> <C> <C> <C> <C>
Sales and revenues $ 48,898 $ 1,080,991 $ 1,639,811 $ $ 2,769,700
Cost of sales and revenues 73,325 582,186 2,058,623 2,714,134
----------- ----------- ----------- -----------
Gross margin (24,427) 498,805 (418,812) (55,566)
Operating expenses 1,597,712 2,648,027 1,438,206 131,664 5,815,609
----------- ----------- ----------- ---------- -----------
Loss from operations (1,622,139) (2,149,222) (1,857,018) (131,664) (5,760,043)
Other income (expense) (81,024) (149,132) (467,601) 425,744 (272,013)
----------- ----------- ----------- ---------- -----------
Net loss $(1,703,163) $(2,298,354) $(2,324,619) $ (294,080) $(6,032,056)
=========== =========== =========== ========== ===========
Net loss per share $(3.49)
===========
Average number of common 1,726,172
===========
shares outstanding
</TABLE>
21. FAIR VALUE OF FINANCIAL INSTRUMENTS AND LONG-LIVED ASSETS
As of December 31, 1995, the balance sheet of the Company includes
notes payable and mortgage notes payable with a carrying value of $3,583,000.
The aforementioned carrying value is considered to reflect fair value, because
the current terms and conditions of loans presently available to the Company
are similar to those for the existing debt.
With respect to the convertible debt of $790,000 as shown in the
balance sheet at December 31, 1995, such debt and its related terms and
conditions represent transactions entered into during the last quarter of 1995.
Additional debenture transactions were concluded during the first quarter of
1996 with similar terms and conditions. Accordingly, the carrying value for
the debenture payables is considered to approximate fair value.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long
Lived Assets and for Long-Lived Assets to Be Disposed of", in March, 1995.
SFAS No. 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after
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<PAGE> 76
December 15, 1995. Adoption of SFAS No. 121 is not expected to have a material
impact on the Company's Consolidated Financial Statements.
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<PAGE> 77
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
EVRO had no change in or disagreements with its accountants during the last
two fiscal years.
[Balance of Page Left Intentionally Blank.]
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following individuals are the Directors and Officers of EVRO. All
Directors are elected annually by the shareholders to serve until the next
annual meeting of shareholders and until their successors are duly elected and
qualified. Officers are elected annually by the Board of Directors to serve at
the pleasure of the Board.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Thomas L. Jensen Chairman of the Board, Chief
Executive Officer and 61
Director
Stephen H. Cohen Secretary and Director 50
D. Jerry Diamond Director 56
Max P. Cawal Director 51
Daniel M. Boyar Special Legal Counsel to the
Board of Directors 41
O. Don Lauher Treasurer and Chief
Financial Officer 53
</TABLE>
THOMAS L. JENSEN was elected Chairman of the Board and Director of
EVRO on March 14, 1995 and has served as EVRO's Chief Executive Officer from
October 3, 1995. Mr. Jensen is also Chairman of the Board, Chief Executive
Officer and President of The Stellar Companies, Inc. ("Stellar"), in which
capacities he has served since November 1992. Mr. Jensen is also President of
Olympus Development Corporation which develops commercial real estate primarily
in Florida. In addition, from 1979 until March 1993, he served as vice
president of Wood Properties, Inc., an affiliate of the Lawler-Wood Group, a
closely held corporation based in Knoxville, Tennessee. He is presently a
general partner of Spacecoast Associates, Ltd., the managing partner of the
Maingate Joint Venture, a partnership that owns the Radisson Maingate Hotel in
Orlando, Florida (located
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<PAGE> 79
directly outside the main entrance to Walt Disney World.) Mr. Jensen served in
the Tennessee Legislature from 1967 until associating with the Lawler-Wood
Group in 1979. He was elected Minority Leader of the House of Representatives
in 1970 and was floor leader for Governor Winfield Dunn through multiple terms
of office. As a legislator, Mr. Jensen sponsored and passed several landmark
bills in Tennessee, including one that effected a restructuring of the rules of
procedure, the budgeting process and several departments of State Government,
and another that established a system of statewide public kindergartens. As a
legislator, Mr. Jensen also served on numerous national committees and boards
and in 1975 was elected President of the National Conference of State
Legislatures. During his term, the California Assembly praised him for "his
active role in improving state image at the national level and in assisting the
California Legislature and other state legislatures..." Mr. Jensen serves as
Past Chairman and Member of the Board of Metropolitan Knoxville Airport
Authority, Chairman of the Board of the Knox County Private Industry Council,
Board Member of the Knoxville Chamber of Commerce, Chairman of the Board of
Trustees of the Tennessee Baptist Foundation, and on several other business and
civic boards and committees.
STEPHEN H. COHEN was elected Secretary and Director of EVRO on March
14, 1995. Mr. Cohen, a licensed attorney, is a founding partner of the
Syracuse, New York law firm of Scolaro, Shulman, Cohen, Lawler & Burstein, P.C.
("Scolaro Shulman"). Mr. Cohen has been with such law firm since its inception
in 1979 and is presently a partner with the firm. He is a member of the New
York and Pennsylvania bars, and specializes in the areas of federal income tax,
employee benefits, estate planning, and health care. Mr. Cohen received his
undergraduate degree in Accounting from Syracuse University in 1967 and his
J.D. from Syracuse University's College of Law in 1970. He is a frequent
lecturer on the topics of employee benefits and health care and has been
designated in the book, "Best Lawyers in America," in the area of employee
benefits. Mr. Cohen is also the Secretary and a director of Stellar, in which
capacity he has served since November, 1992.
D. JERRY DIAMOND was elected as Director of EVRO on October 19, 1992.
He served as Chairman of the Board, President and Chief Executive Officer of
EVRO from October 19, 1992 until his resignation on March 14, 1995. Since
October, 1994, Mr. Diamond has served as Chairman, President and Chief
Executive Officer of American Clinical Labs, Inc. ("ACL"), a Florida
corporation. From February 1992 through October 1992, Mr. Diamond was Senior
Vice President and Chief Operating Officer of Veridien Corporation, a publicly
traded healthcare company headquartered in St. Petersburg, Florida, which
specializes in infection control. From May 1988 through February 1992, Mr.
Diamond was Chairman, President and Chief Executive Officer of Coastland
Corporation of Florida, a Tampa, Florida based company specializing in the
development of businesses in the hazardous and nonhazardous waste recycling
industry. For the past 18 years, Mr. Diamond has had an extensive background
in managing publicly traded companies. Mr. Diamond is currently the Chairman
of the Board of Directors, Chief Executive Officer and President of Technology
Holdings, Inc. ("THI"), a Florida corporation and wholly owned subsidiary of
EVRO.
MAX P. CAWAL was appointed as a Director of EVRO on March 1, 1996.
From August 1990 to June 1995, Mr. Cawal served as the President of Peak
Development Co., a time share resort located in Orlando, Florida. Mr. Cawal
graduated from Queens College in New York, New York
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<PAGE> 80
where Mr. Cawal received a bachelor's degree in Economics. On March 1, 1996,
EVRO retained Mr. Cawal as a consultant for a one year period to provide
general financial advice to EVRO.
DANIEL M. BOYAR was elected President, Chief Executive Officer and
Director of EVRO on March 14, 1995 positions he held until October 3, 1995 at
which time he resigned as an officer and director of EVRO and was retained by
EVRO as Special Legal Counsel to the Board of Directors. Mr. Boyar, a licensed
attorney, is the sole owner of Boyar Holdings, Inc., an investment company
specializing in equity capital private placements, syndications, corporate
mergers and acquisitions, and growth stocks for public companies. Mr. Boyar is
a sole practitioner, who specializes in commercial transaction law, and has
practiced in either Ocala, West Palm Beach or Orlando, Florida from December
1990 to date. From November 1993 to May 1994, Mr. Boyar served as the
secretary and special counsel to Members Service Corp., a corporation whose
shares were traded on NASDAQ. From June 1993 to July 1993, Mr. Boyar served as
the President, Chief Executive Officer and a Director of Aspen Marine Group,
Inc., also a corporation whose shares were traded on NASDAQ. From August 1991
to date, Mr. Boyar served as the President, Chief Executive Officer and a
Director of Sportsworld 2000, Inc., a corporation whose shares are traded in
the over-the-counter market. From March 1991 to June 1991, Mr. Boyar served as
the President, Chief Executive Officer and a Director of Iroquois Brands, Ltd.
a corporation whose shares were traded on the American Stock Exchange. From
January 1991 to April 1991, Mr. Boyar served as the President, Chief Executive
Officer and a Director of International Standards Group, Inc., a corporation
whose shares were traded in the over-the-counter market. Mr. Boyar is a third
generation real estate developer from southern California, having participated
in his family's home building public company at the age of 20. He is a
graduate of the University of Miami, from which he received a Bachelor of
Business Administration Degree in Finance, and of Southwestern University
School of Law, from which he completed the law school curriculum in two years,
receiving a J.D. degree. Additionally, Mr. Boyar completed the Masters of Law
Program in Taxation at Boston University, receiving his L.L.M. degree. On
March 21, 1996, Mr. Boyar was indicted, and charged with wire fraud, money
laundering, and violating the federal securities laws in connection with his
employment by Members Service Corporation. This proceedings is currently
pending in the United States District Court, Middle District, State of Florida,
Orlando, Division. Mr. Boyar is charged with issuing false press releases,
selling securities that were not properly registered under the Securities Act
of 1933, as amended, and with making misrepresentations in connection with the
sale of such securities. Mr. Boyar has plead "not guilty" to such charges,
believes such charges to be without merit and has retained counsel to
vigorously defend the charges brought against him.
O. DON LAUHER was elected Treasurer and Chief Financial Officer of
EVRO on March 14, 1995. Mr. Lauher is also Chief Financial Officer and
Treasurer of Stellar, in which capacities he has served since January 1993.
Prior to joining Stellar, Mr. Lauher served as Vice President/Chief Accounting
Officer of The Major Group, Inc. (f/k/a the Radice Corporation), a NYSE listed
company from 1982 through 1992, principally engaged in providing real estate
management and advisory services. Prior to 1989, Major was a diversified real
estate merchant builder involved in the development of commercial office parks;
residential, single-family and condominium communities; rental apartment
projects; and adult congregate living facilities with total assets
approximating $400
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<PAGE> 81
million. Mr. Lauher directed and monitored the overall accounting and
financial activities, including cash management, accounting, tax, SEC
compliance, MIS, construction financing, insurance and administrative
functions, prepared short and long-range financial models for all phases of the
company's operations, and its annual business plan. He coordinated the use of
the company's consultants for accounting, financial and tax matters. In
addition, he also served as corporate secretary from 1990 through 1992. Prior
to his tenure with Major, Mr. Lauher was the Chicago Regional Controller for
Levitt Homes, Inc., for five years. The annual sales for the Chicago region
were in excess of $60 million. Prior to his service with Levitt, Mr. Lauher
served as Audit Manager, Senior and Junior Accountant with Price Waterhouse &
Company for 11 years. Mr. Lauher is a member of the American Institute of
Certified Public Accountants and graduated from Southern Illinois University
with a B.S. in Accounting.
SECTION 16 REPORTS
The requirements imposed by Section 16(a) of the Securities Exchange
Act of 1934, as amended, provide that EVRO's Officers and Directors, and
persons who own more than ten percent of EVRO's Common Stock, file initial
statements of beneficial ownership (Form 3), and statements of changes in
beneficial ownership (Forms 4 or 5) with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish EVRO with copies of all such forms they
file. Based solely on its review of the copies of such forms received, EVRO
believes that during its fiscal year ended December 31, 1995, ACL had two late
filings of Form 4 regarding two transactions, Messrs. Donald R. Mastropietro
and Max P. Cawal each had one late filing of Form 3, and James L. Kennedy and
Gerald Pennington each had one late Form 4 filing. To EVRO's knowledge, the
preceding persons were the only officers, directors or greater than ten percent
beneficial owners that did not file all of the above referenced forms on a
timely basis.
[Balance of Page Left Intentionally Blank]
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<PAGE> 82
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
CASH COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
-------------------------------- ----------------------- -------
Restricted
Name and Other Annual Stock LTIP All Other
Principal Salary Bonus Compensation Award(s) Options/ Payouts Compensation
Position Year $ $ $ $ SAR's (#) $ $
-------- ---- -------- ------- ------------- --------- --------- ------- ------------
<S> <C> <C> <C> <C>
D. Jerry -0-
Diamond, 1995 135,000 0
Chief 1994 0
Executive 1993 180,000(1) 5,638
Officer
Daniel M.
Boyar,
Chief 1995 97,500(2) 74,062 45,000
Executive
Officer
Thomas
L. Jensen
Chief 1995 -0-
Executive
Officer
</TABLE>
______________
(1) Included in the amount earned in 1993 is $90,000 for which payment
was deferred to 1994.
(2) Salary accrued, but not paid, for the six and one-half month period
Mr. Boyar served as Chief Executive Officer. The balance of which will be paid
as EVRO has available cash flow. Mr. Boyar was subsequently retained as
special counsel. The amount recorded as other annual compensation relates to
accrued earnings for Mr. Boyar's services as special counsel. (See "Certain
Relationships and Related Transactions of Management and Others." The amount
recorded as a bonus paid to Mr. Boyar was paid by EVRO's issuance to Mr. Boyar
of 15,000 shares of EVRO's Series M Preferred.
EVRO may adopt additional compensation programs at a later date
suitable for its executive personnel. EVRO is unable to predict at this time
the format or manner of compensation to be included in any such program.
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<PAGE> 83
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To EVRO's knowledge, the following table sets forth information as of
March 29, 1996 with respect to the beneficial ownership of EVRO's Voting Stock
by each person who is known by EVRO to beneficially own more than 5% of any
class of the Voting Stock, by each director and by all directors and executive
officers as a group. The table also sets forth the number of shares of common
stock that will be owned by such persons or group if EVRO's shareholders
approve of the increase in the authorized shares of EVRO's common stock to
100,000,000 shares, as more fully discussed herein.
COMMON SHARES
<TABLE>
<CAPTION>
After Increase in Authorized
Present Holdings Shares of Common Stock (1)
---------------- --------------------------
Title Percent Percent
Class Name and Address Amount of Class Amount of Class
----- ---------------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Common Thomas L. Jensen 400,018.80 (2) 16.19% 15,465,540(3) 44.81%
(Chief Executive Officer, Chairman
of the Board and Director)
1601 Riverview Tower
Knoxville, TN 37902
Common Daniel M. Boyar (4) 0 0% 599,900 1.74%
3101 S.W. 34th Avenue #905-427
Ocala, FL 34474
Common Stephen H. Cohen 400,018.80 (2) 16.19% 15,751,199 45.63%
(Secretary and Director) (5)
90 Presidential Plaza
Syracuse, NY 13202
Common D. Jerry Diamond (Director) 21,738.85 * (6) 896,756 (7) 2.60%
1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Common Max P. Cawal (Director) 10,000.00 * (6) 10,000 * (6)
8731 Fernwicke Court
Orlando, FL 32819
Common O. Don Lauher 400,018.80 (2) 16.19% 15,465,540 44.81%
(Treasurer and Chief Financial Officer) (8)
523 Douglas Avenue
Altamonte Springs, FL 32714
Common The Stellar Companies, Inc. 400,018.80 (2) 16.19% 15,465,540 44.81%
c/o EVRO Corporation
523 Douglas Avenue
Altamonte Springs, FL 32714
</TABLE>
-83-
<PAGE> 84
<TABLE>
<CAPTION>
After Increase in Authorized
Present Holdings Shares of Common Stock
---------------- ----------------------
Title Percent Percent
Class Name and Address Amount of Class Amount of Class
----- ---------------- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Common American Clinical Labs, Inc. 0 0% 875,018(9) 2.54%
1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Common All Executive Officers and Directors as a 431,757.65 17.48% 16,657,955 48.26%
Group (5 Persons)
PREFERRED SHARES
Series E Boyar Holdings, Inc. 4,499 15.00% n/a n/a
Preferred 3101 S.W. 34th Avenue #905-427
Ocala, Fl 34474
Series E Blackhawk Financial Group, Inc. 4,000 13.33% n/a n/a
Preferred 1211 Tech Boulevard, Ste. 101
Tampa, FL 33619
Series E American Clinical Labs, Inc. 3,500 11.67% n/a n/a
Preferred 1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Series F The Stellar Companies, Inc. 1,198.4303 88.60% n/a n/a
Preferred c/o EVRO Corporation
523 Douglas Avenue
Altamonte Springs, FL 32714
Series F Scolaro, Shulman, Cohen, Lawler & 3.5659 * (6) n/a n/a
Preferred Burstein, P.C.
90 Presidential Plaza
Syracuse, NY 13202
Series M Daniel M. Boyar 15,000 37.50% n/a n/a
Preferred 3101 S.W. 34th Avenue # 905-427
Ocala, Florida 34474
Series M Scolaro, Shulman, Cohen, Lawler & 25,000 62.50% n/a n/a
Preferred Burstein, P.C.
90 Presidential Plaza
Syracuse, NY 13202
</TABLE>
(1) The various assumptions made to determine the number of shares of
common stock that will be issued by the Company upon an increase in its
authorized shares of common stock are set forth on Schedule A to this Annual
Report. The outstanding shares of the Company's common stock which
are deemed to be outstanding after the increase of the Company's authorized
common stock total 34,515,759, which presumes that the Company satisfies its
obligations to the holders of the 27,500 shares of the Company's common stock,
26,000 shares of Series C Preferred Stock, 100 shares of Series J Preferred
Stock, and 25,000 shares of Series M Preferred Stock and that such shares
held as collateral are retired. See Schedule A to this Annual Report.
(2) Includes 400,018.8 shares owned by American Clinical Labs, Inc.
("ACL"). ACL provided The Stellar Companies, Inc., ("Stellar"), a corporation
which Mr. Jensen serves as an officer and director, an irrevocable proxy to
vote the shares of ACL until the shares owned by ACL represent less than 5% of
EVRO's issued and outstanding shares of common stock. Upon the approval of the
increase in EVRO's authorized shares of common stock, the proxy shall expire.
(3) Includes 11,856,502 shares that Stellar can receive upon the
conversion of its shares of Series F Preferred Stock; and 3,609,038 shares of
common stock to be received by Stellar upon EVRO's increase in its authorized
shares of common stock, representing the balance of the shares that EVRO is
obligated to issue to Stellar pursuant to the terms of the agreement, dated
March 14, 1995, between EVRO and Stellar, whereby EVRO acquired 98.35% of the
shares of the common stock of The Sports and Shopping Network, Inc.
(collectively, the "Stellar Shares").
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<PAGE> 85
(4) Includes 449,900 shares of common stock of EVRO which can be issued
to Boyar Holdings, Inc. ("BHI"), an entity wholly owned by Mr. Boyar, upon BHI
converting the 4,499 shares of Series E Stock Preferred Stock that it owns.
Also includes 150,000 shares of EVRO's common stock issuable to Mr. Boyar, upon
his conversion of the 15,000 shares of Series M Preferred Stock that Mr. Boyar
owns.
(5) Mr. Cohen is a director of Stellar and is attributed with the
ownership of the shares that Stellar has voting control over and any shares
directly or indirectly owned by Stellar and, accordingly, is attributed with
the voting power of the Stellar Shares. Also, includes 35,659 shares of
Common Stock issuable to a pension plan established by Scolaro, Shulman, Cohen,
Lawler & Burstein, P.C. ("Scolaro Shulman"), a law firm of which Mr. Cohen is a
shareholder, known as the Scolaro Shulman Employee's Deferred Savings Plan and
Trust f/b/o Steven H. Cohen over which Mr. Cohen has full voting rights
(the "Scolaro Shulman Pension Plan"). Does not include 250,000 shares of the
Company's common stock issuable to Scolaro, Shulman upon conversion of the
25,000 shares of Series M Preferred Stock held by Scolaro Shulman as collateral.
(6) Less than 1%.
(7) Includes shares owned directly by Mr. Diamond a well as shares
that ACL has voting control over and any shares directly or indirectly owned by
ACL after the increase in the Company's authorized shares of its common stock is
increased, inclusive of the shares of common stock that ACL would receive upon
the conversion of the Company's Series E Preferred Stock.
(8) Mr. Lauher is a director of Stellar and is attributed with the
ownership of the shares that Stellar has voting control over and shares
directly or indirectly owned by Stellar.
(9) Includes 400,018 shares owned by ACL, together with 350,000 shares
of common stock issuable to ACL upon conversion of 3,500 shares of Series E
Preferred Stock that ACL owns.
[Balance of page intentionally left blank]
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<PAGE> 86
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH MANAGEMENT
AND OTHERS
In connection with EVRO's acquisition of TSSN, EVRO and THI agreed
that EVRO would issue to the holders of EVRO's common stock as of March 27,
1995, a stock dividend consisting of EVRO's Series D Preferred Stock which has
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.
ACL is a shareholder of the Company who, as of March 29, 1996, owned
400,018.8 shares of the Company's common stock and 6,041.988 shares of Series D
Preferred Stock. The Company's Series D Preferred Stock is redeemable, at the
Company's option, by the Company tendering to the holders of the Series D
Preferred Stock all of the Company's shares of THI. In the event the Company
redeems its Series D Preferred Stock in exchange for all of the outstanding
common stock of THI, ACL will control 36% of the common stock of THI. ACL and
THI share a common management team, the members of which are employees of either
ACL or THI. The compensation paid to the employees of either THI and ACL who
provide services to both ACL and THI, together with related payroll taxes,
insurance, automobile allowances and other reimbursed expenditures associated
with such employees, are allocated between ACL and THI, based upon the
percentage of time that the employees expend on behalf of either ACL and THI.
The services are billed at cost, without a mark-up. During the period March 1,
1995 through December 31, 1995, ACL billed THI $84,000 and THI billed ACL
$69,000 for management services. During the period, THI paid to ACL, $12,906 in
addition to the net amount due for management services. As of December 31,
1995, THI owed ACL $11,644.
During 1995, Scolaro, Shulman provided legal services to EVRO totaling
approximately $250,000. EVRO agreed to issue to Scolaro, Shulman 25,000 shares
of EVRO's Series M Convertible Preferred Stock ("Series M Preferred") as
security for the payment of such fees. Each share of Series M Preferred is
convertible into 10 shares of EVRO's common stock and has voting rights equal
to 10 shares of EVRO's common stock. At any time after EVRO increases its
authorized shares of common stock, Scolaro, Shulman may put its shares of
Series M Preferred to EVRO at a price of $10.00 per share. If EVRO is unable
or unwilling to fulfill its obligations under the put, Scolaro, Shulman shall
have the right to retain all 25,000 shares of its Series M Preferred and shall
further be entitled to receive all legal fees due and owing from EVRO or any of
its subsidiaries. Stephen H. Cohen, who is both EVRO's secretary and a
director, is a partner with Scolaro Shulman. While the Board believes that the
agreement reached with Scolaro, Shulman is fair to EVRO, there can be no
assurance that the agreement is as favorable to EVRO as one that might have
been negotiated in an arms-length transaction.
In March 1995, EVRO acquired 98.35% of the shares of the common
capital stock of TSSN, from Stellar in exchange for EVRO's agreement to issue
shares of its common stock. The agreement between EVRO and Stellar has been
subsequently amended and is discussed more fully elsewhere herein.
As of December 31, 1995, Stellar was owed $44,382 by TSSN for amounts
advanced to EVRO or its subsidiaries, by Stellar, or for amounts owed to
Stellar under the management agreement between TSSN and Stellar (discussed
below), which amounts do not bear interest. TSSN has an agreement with Stellar
to
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<PAGE> 87
perform managerial and administrative services, the terms and conditions of
which are more fully discussed elsewhere herein. See "BUSINESS OF EVRO -
Employees."
TSSN also accrued an interest expense of $81,000 during 1994, payable
to Stellar, on the outstanding indebtedness evidenced by a promissory note
dated December 31, 1993, in the amount of $1,258,000. TSSN satisfied the
principal and accrued interest on the indebtedness between TSSN and Stellar, on
November 30, 1994, by issuing 1,729,908 shares of TSSN's common stock to
Stellar. TSSN also issued 2,018,226 shares of its common stock to Stellar in
satisfaction of additional advances made to TSSN by Stellar in the amount of
$404,000.
EVRO entered into a one year Employment Agreement with Daniel M. Boyar
on March 15, 1995, pursuant to which Mr. Boyar was retained as President and
Chief Executive Officer of EVRO at an annual salary of $180,000. Mr. Boyar
resigned as an officer and director of EVRO, effective October 3, 1995, at
which time EVRO entered into a Professional Services Agreement retaining Mr.
Boyar as Special Legal Counsel to the Board of Directors at an annual
compensation of $180,000. The Professional Services Agreement has been
extended to March 15, 1997. EVRO also issued Mr. Boyar 15,000 shares of its
Series M Preferred for services rendered. EVRO has further agreed to pay Boyar
a cash bonus equal to 5% of any gross funds received by EVRO during the term of
the Employment Agreement and Professional Services Agreement in excess of
$4,000,000. "Gross funds" is defined to be the sum of: (a) the amounts
received by EVRO from the issuance of its debt or equity securities to persons
introduced to EVRO by Mr. Boyar; and (b) the net fair market value of the
assets acquired by EVRO in business combinations with acquisition candidates
introduced to EVRO by Mr. Boyar. As of December 31, 1995 the amount received by
EVRO from persons, and the net fair market value of assets acquired from
acquisition candidates, introduced to EVRO by Mr. Boyar aggregated $3,625,000.
Consequently, Mr. Boyar was not, as of December 31, 1995, entitled to a bonus.
In May 1994, EVRO was billed approximately $77,000 by ACL for legal
and consulting services incurred by ACL on behalf of EVRO. During 1994, EVRO
issued a total of 33,328 shares of EVRO's common stock to ACL: 13,278 shares of
which were issued to ACL in exchange for shares of EVRO's preferred stock
redeemed from ACL; and 20,050 shares of which were issued to ACL as
consideration for ACL paying vendors who provided services for the benefit of
EVRO.
In June 1994, EVRO converted ACL's 48,920 preferred shares of EVRO to
common stock of EVRO on a one for one basis. Also in June 1994, EVRO's Board
of Directors determined and approved the purchase of two Lintronics'
dealerships from ACL in exchange for 5,500 shares of EVRO's common stock. The
purchase price was determined based on the historic purchase prices of
dealerships, the most recent of which occurred in June 1994.
At December 31, 1994, ACL owned 34% of the issued and outstanding
common capital stock of EVRO. In January and February 1994, ACL repaid EVRO
$214,000 for amounts due EVRO at December 31, 1993. In three separate
transactions during 1994, ACL sold a total of 205,676 shares of its EVRO common
stock, and loaned the proceeds totaling approximately $1,821,000 to EVRO. In
May, June and December 1994, EVRO repaid ACL with the issuance of 92,438,
11,852 and 101,386 shares of EVRO's common stock, respectively. During the
fourth quarter of 1994, ACL loaned EVRO approximately $192,000 for working
capital purposes, of which $50,000 was repaid. At December 31, 1994, EVRO owed
ACL
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<PAGE> 88
approximately $142,000. During the first quarter of 1995, ACL advanced an
additional approximate $110,000.
<TABLE>
<CAPTION>
ITEM 13. EXHIBITS, REPORTS ON FORM 8-K
- ------- -----------------------------
(A) EXHIBITS
--------
Exhibit # Description of Document
-----------------------
<S> <C>
2.01 Modification of Letter of Intent and Addendum to Modification of Letter of Intent dated January 12,
1995 by and between EVRO Corporation and The Stellar Companies, Inc. (c)
2.02 Option Agreement among The Stellar Companies, Inc., The Sports & Shopping Network, Inc., and Boyar
Holdings, Inc. (c)
2.03 Assignment of Option dated January 12, 1995 amongst Boyar Holdings, Inc., EVRO Corporation, The Stellar
Companies, Inc. And The Sports & Shopping Network, Inc. (c)
2.04 Stock Purchase Agreement by and among Channel America Television Network, Inc. and EVRO Corporation
dated July 13, 1995. (d)
2.05 Agreement and Plan of Merger by and among Channel America Television Network, Inc. and EVRO Corporation
dated July 13, 1995. (d)
2.06 Escrow Agreement by and among Channel America Television Network, Inc., EVRO Corporation and Scolaro,
Shulman, Cohen, Lawler & Burstein, P.C. dated July 13, 1995. (d)
2.07 Amendment Agreement I to Stock Purchase Agreement, Agreement and Plan of Merger, and Escrow Agreement
by and among Channel America Television Network, Inc., EVRO Corporation and Scolaro, Shulman, Cohen,
Lawler & Burstein, P.C. dated September 18, 1995. (d)
2.08 Second Amended Agreement to Stock Purchase Agreement, Agreement of Plan and Merger, and Escrow
Agreement by and among Channel America Television Network, Inc., EVRO Corporation and Scolaro, Shulman,
Cohen, Lawler & Burstein, P.C. dated October 10, 1995.(d)
2.09 Consent to Amendment of Agreement and Plan of Merger and Escrow Agreement dated October 10, 1995. (d)
2.10 Third Amended Agreement to Stock Purchase Agreement, Agreement of Plan and Merger, and Escrow Agreement
by and among Channel America Television Network, Inc., EVRO
</TABLE>
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<PAGE> 89
<TABLE>
<S> <C>
Corporation and Scolaro, Shulman, Cohen, Lawler & Burstein, P.C. dated October 26, 1995.(d)
2.11 Fourth Amended Agreement to Stock Purchase Agreement, Agreement of Plan and Merger, and Escrow
Agreement by and among Channel America Television Network, Inc., EVRO Corporation and Scolaro, Shulman,
Cohen, Lawler & Burstein, P.C. dated February 7, 1996.(g)
2.12 Fifth Amended Agreement to Stock Purchase Agreement, Agreement of Plan and Merger, and Escrow Agreement
by and among Channel America Television Network, Inc., EVRO Corporation and Scolaro, Shulman, Cohen,
Lawler & Burstein, P.C. dated February 29, 1996.(g)
2.13 Sixth Amended Agreement to Stock Purchase Agreement, Agreement of Plan and Merger, and Escrow Agreement
by and among Channel America Television Network, Inc., EVRO Corporation and Scolaro, Shulman, Cohen,
Lawler & Burstein, P.C. dated April 23, 1996.
3.01 Articles of Incorporation. (a)
3.02 By-Laws of the Registrant. (a)
3.03 Articles of Amendment to Articles of Incorporation filed October 3, 1994. (b)
3.04 Articles of Amendment to Articles of Incorporation filed January 24, 1995. (b)
3.05 Articles of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of Series
A 10% Convertible Preferred Stock, $20.00 Face Value of EVRO Corporation filed October 17, 1995.(g)
3.06 Articles of Amendment to cancel the Certificate of Designation, Preferences, Rights and Limitations of
Series B 8% Preferred Stock, $1.00 Face Value of EVRO Corporation filed October 17, 1995.(g)
3.07 Articles of Amendment to the Seconded Amended Certificate of Designation, Preferences, Rights and
Limitations of Series C Convertible Preferred Stock, No Par Value of EVRO Corporation filed August 4,
1995.(g)
3.08 Articles of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of Series
D Convertible Preferred Stock, No Par Value of EVRO Corporation filed April 10, 1995. (b)
</TABLE>
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<PAGE> 90
<TABLE>
<S> <C>
3.09 Articles of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of Series
E Convertible Preferred Stock, No Par Value of EVRO Corporation filed March 15, 1995. (b)
3.10 Articles of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of Series
F Convertible Preferred Stock, No Par Value of EVRO Corporation filed May 26, 1995.(g)
3.11 Articles of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of Series
H Convertible Preferred Stock, No Par Value of EVRO Corporation filed October 17, 1995.(g)
3.12 Articles of Amendment to the Seconded Amended Certificate of Designation, Preferences, Rights and
Limitations of Series I Convertible Preferred Stock, No Par Value of EVRO Corporation filed September
21, 1995.(g)
3.13 Articles of Amendment to the Third Amended Certificate of Designation, Preferences, Rights and
Limitations of Series J Convertible Preferred Stock, No Par Value of EVRO Corporation filed October 23,
1995.(g)
3.14 Articles of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of Series
K Convertible Preferred Stock, No Par Value of EVRO Corporation filed November 13, 1995.(g)
3.15 Articles of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of Series
L Convertible Preferred Stock, No Par Value of EVRO Corporation filed November 13, 1995.(g)
3.16 Articles of Amendment to the Certificate of Designation, Preferences, Rights and Limitations of Series
M Convertible Preferred Stock, No Par Value of EVRO Corporation filed November 13, 1995.(g)
4.01 Specimen Stock Certificate. (a)
10.01 1995 Employee Stock Compensation Plan of the Registrant.(g)
10.02 Promissory Note of EVRO Corporation ("Debtor") payable to the order of Genesee Cattle Co. ("Holder")
for the principal sum of $550,000. (f)
10.03 Escrow Agreement, dated April 10, 1995, by and among Genesee Cattle Co. ("Creditor"), EVRO Corporation,
and Scolaro, Shulman, Cohen, Lawler & Berstein, P.C. ("Escrow Agent"). (f)
</TABLE>
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<PAGE> 91
<TABLE>
<S> <C>
10.04 Stock Purchase Agreement and Stock Pledge Agreement (Stock) dated November 1, 1995 by and between EVRO
Corporation and E. Carl Anderson, Jr.(g)
10.05 Consulting Agreement and Stock Pledge Agreement (Consulting) dated November 1, 1995 by and between EVRO
Corporation and Southern Resource Management, Inc.(g)
10.06 First Amendment to Consulting Agreement by and between EVRO Corporation and Southern Resource
Management, Inc. dated November 30, 1995.(g)
10.07 Joint Venture Agreement dated January 11, 1996 by and between EVRO Corporation and MIT-F/x, Inc. and
Larry Mitchell.(g)
10.08 Professional Services Agreement dated October 3, 1995 by and between EVRO Corporation and Daniel M.
Boyar.(g)
10.09 Management Services Agreement by and between The Stellar Companies, Inc, and Microsonics International,
Inc., International Sports Collectibles, Inc., The Sports & Shopping Network, Inc. And Centennial
Sports Promotions, Inc. (e)
22.01 Subsidiaries of the registrant.(g)
27.0 Financial Data Schedule (for SEC use only).
</TABLE>
(B) REPORTS ON FORM 8-K
-------------------
A report on Form 8-K dated September 18, 1995, reported
matters under Item 2 (Acquisition or Disposition of Assets)
dealing with the acquisition of Channel America.
- ----------------------
(a) Filed as an Exhibit to Report on Form 10-KSB for the Year
Ended December 31, 1993.
(b) Filed as an Exhibit to Report on Form 10-KSB for the Year
Ended December 31, 1994.
(c) Filed as an Exhibit to Report on Form 8-K dated March 14,
1995.
(d) Filed as an Exhibit to Report on Form 8-K dated September
18, 1995.
(e) Filed as an Exhibit to Report on Form 10-QSB for the
Quarter Ended March 31, 1995.
(f) Filed as an Exhibit to Report on Form 10-QSB for the
Quarter Ended June 30, 1995.
(g) Filed as an Exhibit to this report on 10-KSB
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<PAGE> 92
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on this 31st day of July, 1996.
EVRO CORPORATION
By: s/Thomas L. Jensen
------------------------------
Thomas L. Jensen
Chief Executive Officer
In accordance with the Exchange, this Report has been signed below by
the following persons on behalf of the Registrant, and in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
s/Thomas L. Jensen Chairman of the Board and
- --------------------------------- Chief Executive Officer July 31, 1996
Thomas L. Jensen
s/Stephen H. Cohen Secretary and Director July 31, 1996
- ---------------------------------
Stephen H. Cohen
s/D. Jerry Diamond Director July 31, 1996
- ---------------------------------
D. Jerry Diamond
s/O. Don Lauher Treasurer, Chief Financial July 31, 1996
- --------------------------------- Officer and Principal Accounting
O. Don Lauher Officer
/s Max P. Cawal Director July 31, 1996
- -----------------
Max P. Cawal
</TABLE>
0094911.05
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<PAGE> 93
Schedule A to the Annual Report on Form 10-KSB for the Year Ended
December 31, 1995
PRO FORMA CAPITALIZATION
The following table sets forth the number of shares of the EVRO's
common stock that would have been issued, as of March 29, 1996, assuming that,
effective as of that date, the shareholders of EVRO had approved an increase in
the number of shares of EVRO's authorized shares of common stock, and, assuming
further that: (i) the holders of EVRO's preferred stock exercised their rights
to convert EVRO's outstanding shares of preferred stock into shares of EVRO's
common stock; (ii) EVRO issued the balance of the shares that it had
contractually agreed to issue to Stellar for the shares of TSSN; and (iii) EVRO
acquired the assets of WinSAT.
<TABLE>
<CAPTION>
Class of Stock or, alternatively, the
Obligation Giving Rise to the Potential Common Stock
Issuance of Common Stock Equivalents
- ------------------------ -----------
<S> <C>
Common Stock Issued as of
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,497,957 (1)
Series C Convertible Preferred Stock
210,400 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,896,563 (2)
Series E Convertible Preferred Stock
30,000 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 (3)
Series F Convertible Preferred Stock
1,352.5911 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,525,911 (4)
Series H Convertible Preferred Stock
48,000 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,764,706 (5)
Series I Convertible Preferred Stock
6,750 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350,000 (6)
Series J Convertible Preferred Stock
100 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 (7)
Series K Convertible Preferred Stock
17 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696,542 (8)
</TABLE>
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<PAGE> 94
<TABLE>
<S> <C>
Series M Convertible Preferred Stock
40,000 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 (9)
Balance of Shares that EVRO is
Contractually Obligated to Issue to
Stellar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,609,038 (10)
Shares to be issued to Channel America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 (11)
Shares to be issued to WinSAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000 (12)
Shares to be issued to the holders
of EVRO's 8.5% Convertible
Debentures Due October 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,806,908 (13)
Shares to issued to holder of
warrants upon exercise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 (14)
---------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,027,625
===============
Adjusted Total (See Footnote 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.515,759 (15)
===============
</TABLE>
(1) As of March 29, 1996, there were 2,497,957 shares of common stock
issued of which 27,500 shares were issued as collateral.
(2) As of March 29, 1996 there were 210,400 shares of Series C
Preferred Stock issued at a price of $10.00 per share. The holders of the
Series C Preferred Stock can convert the shares into EVRO's common stock at 50%
of the market price of EVRO's common stock. The market price of EVRO's common
stock, as of March 29, 1996, was $2.21875 (this price represents the stock's
closing price for March 29, 1996).
(3) As of March 29, 1996 there were 30,000 shares of Series E
Preferred Stock issued, convertible into 3,000,000 shares of EVRO's common
stock.
(4) As of March 29, 1996 there were 1,352.5911 shares of Series F
Preferred Stock issued, convertible into 13,525,911 shares of EVRO's common
stock.
(5) As of March 29, 1996 there were 48,000 shares of Series H
Preferred Stock issued with a face value of $6,000,000. The Series H Preferred
Stock is convertible into 3,764,706 shares pursuant to the Agreement and Plan
of Merger, as amended.
(6) As of March 29, 1996 there were 6,750 shares of Series I Preferred
Stock issued, convertible into 1,350,000 shares of EVRO's common stock.
(7) As of March 29, 1996 there were 100 shares of Series L Preferred
Stock issued, convertible into 5,000,000 shares of EVRO's common stock. EVRO
issued the shares of Series L Preferred Stock as collateral for EVRO's
obligations to E. Carl Anderson, Jr. and/or Southern Resource Management, Inc.
(See "Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources").
(8) As of March 29, 1996, there were 17 shares of Series K Preferred
Stock issued at a price of $50,000 per share. The holders of the Series K
Preferred Stock can convert the shares into EVRO's common stock at 55% of the
market price of EVRO's common stock. The market price of EVRO's common stock,
as of March 29, 1996, was $2.21875 (this price represents the stock's closing
price for March 29, 1996).
(9) As of March 29, 1996 there were 40,000 shares of Series M
Preferred Stock issued, convertible into 400,000 shares of EVRO's common stock.
Twenty five thousand shares of the Series M Preferred Stock were issued to
Scolaro, Shulman as security for EVRO's
-94-
<PAGE> 95
obligation to Scolaro, Shulman for legal services rendered. See "Certain
Relationships and Related Transactions with Management and Others."
(10) EVRO initially agreed to issue to Stellar 16,759,038 shares of
EVRO's common stock which was subsequently decreased to 16,409,038. EVRO
issued 1,280 shares of its Series F Preferred Stock to Stellar in partial
satisfaction of such obligation to issue shares and, by issuing the Series F,
EVRO was relieved of its obligation to issue 12,800,000 shares of common stock
to Stellar. See "Business of EVRO - Material Acquisitions - 1995 -- TSSN
Acquisition"). The balance of the 16,409,038 shares that EVRO agreed to issue
to Stellar, 4,959,038, remain to be issued by EVRO to Stellar.
(11) EVRO agreed to issue to Channel America 50,000 shares of EVRO's
common stock pursuant to an extension of a promissory note.
(12) EVRO agreed to acquire the assets of WinSat Communication
Corporation ("WinSAT") in exchange for preferred stock convertible into 230,000
shares of EVRO's common stock.
(13) As of March 29, 1996 EVRO had issued its 8.5% and 9.5% Convertible
Debentures Due January 31, 1998 - November 27, 2000 with original face value of
$4,540,000. The holders of the Convertible Debentures can convert the
debenture into EVRO's common stock at 50%-70% of the market price of EVRO's
common stock. The market price of EVRO's common stock, as of March 29, 1996,
was $2.21875 (this price represents the stock's closing price for March 29,
1996).
(14) As of March 29, 1996, warrants were outstanding to purchase
200,000 common shares at $1.00 per share. If the market price (bid price per
share) is less than $2.00 per share at the time of the exercise of the warrants
by the buyer, the purchase price per share shall be reduced to one half of the
market price of the common shares on the exercise date. The closing price of
the Company's common stock on March 29, 1996 was $2.21875.
(15) The outstanding shares of the Company's common stock which are
deemed to be outstanding after the increase of the Company's authorized common
stock has been adjusted as it has been presumed that the Company will satisfy
its obligations to the holders of the 27,500 shares of the Company's common
stock, 26,000 shares of Series C Preferred Stock, 100 shares of Series J
Preferred Stock, and 25,000 shares of Series M Preferred Stock and that such
shares held as collateral are retired.
-95-
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 33,351
<SECURITIES> 0
<RECEIVABLES> 40,899
<ALLOWANCES> 0
<INVENTORY> 77,814
<CURRENT-ASSETS> 297,201
<PP&E> 6,003,194
<DEPRECIATION> 678,580
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<CURRENT-LIABILITIES> 10,976,956
<BONDS> 0
500,100
11,550,958
<COMMON> 5,382,476
<OTHER-SE> (12,927,063)
<TOTAL-LIABILITY-AND-EQUITY> 18,490,281
<SALES> 176,566
<TOTAL-REVENUES> 1,635,962
<CGS> 260,370
<TOTAL-COSTS> 1,679,730
<OTHER-EXPENSES> 5,488,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,366,647
<INCOME-PRETAX> (7,898,646)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,898,646)
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<NET-INCOME> (7,898,646)
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