U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from_____________to__________________
Commission File No. 0-7870
CHANNEL AMERICA BROADCASTING, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Florida 59-3229961
------------------------------- -------------------
(State of 0ther Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1509 S. FLORIDA AVENUE, LAKELAND, FLORIDA 33803
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(941) 683-6467
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(Issurer's Telephone Number, Including Area Code)
EVRO CORPORATION
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(Former name, former address and former fiscal year, if changed since last
year.)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of December 3, 1996, the Company
had 15,125,790 shares of Common Stock outstanding, $0.001 par value.
<PAGE>
CHANNEL AMERICA BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
Current Assets:
Cash $ 30,803
Notes and other receivables 116,615
Inventories 77,814
Prepaid expenses 131,395
------------
Total current assets 356,627
Property, Equipment, and Program Library
(less accumulated depreciation of $1,023,215) 4,919,757
Other Assets
Goodwill (less accumulated amortization of $970,813) 11,091,682
Other - net 2,695,157
------------
TOTAL ASSETS $ 19,063,223
============
LIABILITIES AND STOCKHOLDERS'DEFICIT
Current Liabilities:
Notes payable and current portion
of long-term debt $ 2,847,926
Notes payable - related parties 251,982
Convertible debentures 6,561,000
Accounts payable 3,659,720
Accrued liabilities 3,414,610
Amounts due to affiliates 968,163
------------
Total current liabilities 17,703,401
Long-Term Debt:
Long-term debt 740,576
Other 543,758
------------
TOTAL LIABILITIES 18,987,735
------------
Minority interest 235,122
------------
Preferred Stock - Series C subject
repurchase agreement 500,100
------------
Stockholders' Deficit:
Preferred stock, $0.001 par value,
25,000,000 shares authorized, 383,881
shares issued and outstanding with
liquidation preference value of $19,972,647 13,174,249
Common stock, $0.001 par value, 100,000,000
shares authorized, 2,525,165 shares issued
and outstanding 6,067,803
Warrants to purchase common stock 37,500
Accumulated deficit (19,087,348)
------------
192,204
Less:
Unearned compensation (522,981)
Subscription receivable (115,000)
Series L preferred stock held by
subsidiary - 10.6 shares (212,481)
Common stock held by subsidiary -
791 shares (1,476)
------------
TOTAL STOCKHOLDERS'DEFICIT (659,734)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 19,063,223
============
See notes to consolidated financial statements
2
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<TABLE>
<CAPTION>
CHANNEL AMERICA BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sales and Revenues
Rental, memberships and other revenues $ 340,065 $ 526,374 $ 986,943 $ 1,041,592
Programming and advertising 115,456 799,662
Product sales 0 0 6,731 176,278
----------- ----------- ----------- -----------
455,521 526,374 1,793,336 1,217,870
Cost of Sales and Revenues 807,176 257,871 2,725,642 740,016
----------- ----------- ----------- -----------
Gross Margin (351,655) 268,503 (932,306) 477,854
----------- ----------- ----------- -----------
Operating Expenses:
Selling, general and administrative 1,663,627 995,641 4,626,455 2,429,306
Management and accounting services 190,000 190,000 570,000 570,000
Depreciation and amortization 341,872 85,204 1,023,118 213,609
----------- ----------- ----------- -----------
2,195,499 1,270,845 6,219,373 3,212,915
----------- ----------- ----------- -----------
Operating Loss of Continuing Operations (2,547,154) (1,002,342) (7,151,879) (2,735,061)
Other Income (Expenses)
Interest expense (440,681) (25,419) (890,875) (112,473)
Costs associated with convertible debenture
modifications and defaults 47,001 (677,817)
Other-net 933,727 (6,771) 939,384 2,212
----------- ----------- ----------- -----------
Net Loss from Continuing Operations (2,007,107) (1,034,532) (7,781,187) (2,845,322)
Loss of Discontinued Operations (55,476) (88,640)
----------- ----------- ----------- -----------
Net Loss $(2,007,107) $ (1,090,00) $(7,781,187) $(2,933,962)
=========== =========== =========== ===========
Loss per Share Data:
Net Loss from Continuing Operations $ (0.80) $ (0.42) $ (3.12 $ (1.56)
Loss of Discontinued Operations -- (0.02) -- (0.05)
----------- ----------- ----------- -----------
Net Loss $ 0.80 $ (0.44) $ (3.12) $ (1.61)
=========== =========== =========== ===========
Average Number of Common Shares
Outstanding 2,497,665 2,490,317 2,497,665 1,821,009
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
CHANNEL AMERICA BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1996
(UNAUDITED)
COMMON AND
COMMON STOCK COMMON PREFERRED
--------------------- STOCK PREFERRED ACCUMULATED UNEARNED NOTES STOCK HELD
SHARES $ WARRANTS STOCK DEFICIT COMPENSATION RECEIVABLE BY THI
------ ---------- -------- --------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 2,497,665 $5,382,476 $ $11,550,958 $(11,306,156) $(1,504,725) $ (115,000) $ (664)
Proceeds from sale of
preferred stock
Series C Convertible
Preferred - 15,000 shares 150,000
Series K Convertible
Preferred - 17 shares 510,000
Proceeds from sale by creditor
of common stock held as
collateral applied against
outstanding indebtedness 29,077
Common shares and warrants
for 2,000,000 common
shares issued as a loan
guarardee fee 3,000,000 656,250 37,500
Series C Convertible
Preferred issued:
Pursuant to Program
Test Agreement with
Panda America - 7,000
shares 140,000
As additional consideration
pursuant to various
financing transactions
- 7,250 shares 29,000
In settlement of litigation
- 11,000 shares 44,000
Preferred stock issued for
services rendered
Series C Convertible
Preferred - 5,000 shares 20,000
Series L Convertible
Preferred - .7 shares 12,187
Series F Convertible Preferred
Stock issued to acquire the
minority interest of The
Sports & Shopping Network,
Inc. - 28.1418 shares 0
Series J Convertible Preferred
Stock issued as a penalty
pursuant to a loan
guarantee agreement 40,000
Series L Convertible Preferred
issued in payment of
facilitator's fee in
connection with sale of
Series K Convertible
Preferred - 1.7 shares 85,000
Series L Convertible Preferred
Stock issued to American
Clinical Labs, Inc. ("ACL")
In settlement of loans and
advances - 8.44844 shares 287,248
Commitment to put up Company
common shares held by ACL
as collateral for Company
financing - 5 shares 93,375
</TABLE>
4
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<TABLE>
<CAPTION>
CHANNEL AMERICA BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1996
(UNAUDITED)
COMMON AND
COMMON STOCK COMMON PREFERRED
---------------------- STOCK PREFERRED ACCUMULATED UNEARNED NOTES STOCK HELD
SHARES $ WARRANTS STOCK DEFICIT COMPENSATION RECEIVABLE BY THI
---------- ---------- -------- ----------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series L Convertible
Preferred issued to
Technology Holdings,
Inc. pursuant to The
Sports & Shopping
Network, Inc.
acquisition agreement
date March 14, 1995 -
10.62404 shares 212,481 (212,481)
Purchase of common stock
by Technology Holdings,
Inc. - 375 shares (812)
Stock compensation earned
during the nine months
ended September 30, 1996 981,544
Loss for the nine months
ended September 30,
1996 (7,781,187)
Balance -
September 30, 1996 ---------- ---------- -------- ----------- ------------ ------------ ---------- ---------
5,497,665 $6,067,803 $ 37,500 $13,174,249 $(19,087,343) $ (523,181) $ (115,000) $(213,957)
========== ========== ======== =========== ============ ============ ========== =========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
CHANNEL AMERICA BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(7,781,187) $ (2,933,962)
Adjustments to reconcile net loss to
net cash utilized by operating
activities:
Depreciation and amortization 1,023,118 213,609
Compensation for financial consulting services
paid in common and preferred stock 981,744 404,248
Issuance of Preferred stock for:
Pursuant to home shopping test program agreement 140,000
Pursuant to financing agreements 122,375
For services rendered 32,187
Imputed interest related to reverse purchase of
EVRO Corporation 17,903
Settlement of litigation by issuance of common
and preferred stock 44,000 39,000
Costs associated with convertible debenture
modifications or defaults 677,817
Amortization of loan costs charged to interest cost 249,799
Prepaid consulting fees 93,750
Other, net 50,160 35,849
(Increase) Decrease in current assets (61,974) (120,660)
Increase in accounts payable and accrued liabilities 585,089 642,316
---------- ------------
NET CASH USED IN OPERATING ACTIVITIES (3,843,122) (1,701,697)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (78,513) (30,231)
Acquisition of EVRO Corporation (100,000)
Cash acquired in reverse purchase of EVRO
Corporation 2,349
Investment in and loan to America's
Collectables Network, Inc. (250,000)
Note receivable 10,000 20,795
Decrease in deposits 133,000
Other 11,428 (4,425)
---------- -----------
Net cash used in investing activities 75,915 (361,512)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Convertible debentures 2,111,059
Notes payable 614,487 849,784
Repayment of debt (532,421) (67,330)
Proceeds from sale of preferred and common stock 774,077 749,985
Recision of preferred stock sale 0
Working capital advances fromtto affiliates, net 813,464 643,847
Other (16,007) (29,095)
---------- ----------
Net cash provided by financing activities 3,764,659 2,147,221
---------- -----------
NET INCREASE (DECREASE) IN CASH (2,548) 84,012
CASH, BEGINNING OF PERIOD 33,351 67
---------- -----------
CASH, END OF PERIOD $ 30,803 $ 84,079
========== ===========
Supplemental Disclosures:
Interest paid $ 183,904 $ 58,559
========== ===========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
CHANNEL AMERICA BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
On October 11, 1996, the date of the Company's Special Meeting of
Shareholders, the shareholders authorized the Company to change its name from
EVRO Corporation to Channel America Broadcasting, Inc., ("Channel America" and
the "Company"). Accordingly, the Company's Articles of Incorporation were
amended on October 14, 1996.
The financial statements of Channel America and its subsidiaries as of
September 30, 1996, and for the nine months ended September 30, 1996 and 1995,
are unaudited and in the opinion of management reflect all adjustments necessary
for a fair presentation of such data. All such adjustments made were of a normal
recurring nature, except as more fully described below. On March 14, 1995, the
Company acquired 98.35% of the issued and outstanding common shares of The
Sports & Shopping Network, Inc., ("TSSN"), a Florida corporation and on October
10, 1995 acquired Channel America Television Network, Inc., ("CATN"), a Delaware
corporation. For financial reporting purposes, the acquisition of TSSN 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 were revalued to reflect the market value
of the Company's outstanding shares. As closing occurred on March 14, 1995, the
middle of a month, the accounts of TSSN have been consolidated with the Company
as of February 28, 1995, a date that lies within the date on which the
transaction was initiated and the date of closing. The historical financial
statements prior to February 28, 1995, included herein, are those of TSSN. The
accounts of CATN have been consolidated with the Company for the nine months
ended September 30, 1996. The Company's significant accounting policies are
described in the notes to the December 31, 1995 financial statements and there
have been no material changes in significant accounting policies from those
described therein. Certain amounts for the prior year have been reclassified to
conform to the 1996 presentation.
The consolidated financial statements include the accounts of Channel
America and its subsidiaries, Technology Holdings, Inc., a Florida corporation
("THI"), TSSN, The Shopping Connection, Inc., a Florida corporation ("TSC"), and
CATN. 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"). TIR has one wholly owned
inactive subsidiary, Lintronics Technologies, Inc. ("Lintronics"), whose
operations were terminated in 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. CATN has one wholly-owned subsidiary,
Channel America LPTV License Subsidiary, Inc., whose operations were
discontinued in 1992.
7
<PAGE>
2. BASIS OF ACCOUNTING
The consolidated financial statements 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 and the nine months ended September 30,
1996 of $1,703,000, $7,899,000, and $7,781,000, respectively, which have
adversely reduced the Company's liquidity and capital resources. At September
30, 1996, the Company had current assets of $300,000 and current liabilities of
$17,703,000 or a working capital deficit of $17,349,000. The Company is
currently in default on various notes payable aggregating approximately
$1,974,000, certain of its Debentures which have a redemption value of
$2,339,000.
The Company is in default of a note payable to Genesee Cattle Co. in the
amount of $258,000 due June 24, 1995 (including accrued interest of $58,000),
and consulting fees of $50,000. The note payable is collateralized by all the
common stock of the company's subsidiary TSSN. On May 2l,1996, the note holder
filed a civil action to collect all monies due in the U.S. District Court for
the District of Colorado against the Company, Stephen H. Cohen, a Director,
individually, and Daniel M. Boyar, Special Legal Counsel to the Board of
Directors, individually, guarantor of the note payable. The Company is also in
default of a consulting contract with Southern Resource Management, Inc.
regarding the payment of $95,455 in fees. Southern Resource Management, Inc. has
elected to accelerate all of the remaining payments as a result of the default.
This obligation is collateralized by the personal guarantees of D. Jerry
Diamond, a Director, and Daniel M. Boyar.
On November 7, 1996, the Company's shares of common stock, which traded
under the symbol "CATV", were delisted from the Nasdaq SmallCap Market. The
Nasdaq Stock Market, Inc. ('Nasdaq") stated that the action was taken as a
result of the Company's failure to meet the capital and surplus requirement as
stated in Marketplace Rule 4310(c)(03). The Nasdaq Listing Qualifications
Panel ("Qualifications Panel") detemined that the Company could not sustain
long term compliance with the capital and surplus criterion for continued
inclusion. This determination was made irrespective of the Qualifications Panel
findings that the Company's capital and surplus, as of October 3 1, 1996, was
approximately $3,261,000 as shown on a Proforma Balance Sheet filed by the
Company as an exhibit to Form 8-K filed on November 4, 1996 and that the Company
achieved technical compliance with the $1,000,000 minimum capital and surplus
requirement. As shown on the proforma balance sheet set forth in Note 14 -
Subsequent Events, the Company's capital and surplus as of November 30, 1996 is
$4,197,554, after providing for an estimated reduction of Stockholders' Equity
resulting from an additional loss from operations for the two months ended
November 30, 1996 of $1,450,000.
The Company has filed an appeal with Nasdaq concerning these findings. The
Company has been advised that the Review Committee will issue its decision
subsequent to the meeting of the NASD Board of Governors which is currently
scheduled for January 27, 1997.
8
<PAGE>
On October 24, 1996, the Company was advised by Nasdaq that the Company's
shares of common stock have failed to maintain a closing inside bid price
greater than or equal to $1.00. To be eligible for continued listing, the
Company's shares of common stock must maintain a minimum bid price of $1.00 or,
as an alternative if the bid price is less than $ 1.00, maintain capital and
surplus of $2,000,000 and a market value of the public float of $1,000,000. The
Company has a ninety day period or until January 24, 1997 to demonstrate
compliance with the minimum $1.00 bid price or the alternative requirement. The
Board of Directors is currently evaluating its alternatives in resolving this
compliance issue including giving consideration of a reverse stock split.
On October 11, 1996, the date of the Company's Special Meeting of
Shareholders, the shareholders approved an increase in the Company's shares of
authorized common stock from 2,500,000 to 100,000,000 shares with a par value of
$.OO1 per share. Given the current bid price of the Company's shares of common
stock, the Company does not have a sufficient number of authorized shares of
common stock to convert its outstanding convertible debenture and preferred
stock. On Tuesday, December 3, 1996, the closing bid price of the Company's
shares of common stock was $0.10. The Company estimates that if it converted all
of its outstanding convertible debentures and preferred stock at a closing bid
price of the Company's shares of common stock of $0.10, the Company would be
required to issue in excess of 300,000,000 shares of common stock. The has only
100,000,000 authorized shares of common stock. Accordingly, the Company must
negotiate agreements with its major creditors and preferred and common
stockholders which agreements could be tantamount to a plan of reorganization.
If the Company is not successful in negotiating such agreements, then the only
alternative may be to seek protection under the laws of the United States
Bankruptcy Code.
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. CATN will reinstate its entertainment
broadcasting once it receives sufficient capital to do so. With the
reinstatement of CATN's entertainment broadcasting, the Company intends to
initially commence broadcasting the programming of TSSN, 6 hours per day, seven
days per week on CATN. Thereafter, the Company anticipates expanding such
programming to 12 hours per day, seven days per week. The Company plans to
attain future profitable operations by developing and/or expanding (1) sources
of supply of products that it will
9
<PAGE>
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.
3. ACCOUNTING FOR 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 The Stellar Companies, Inc. ("Stellar")
pursuant to the "TSSN Acquisition Agreement". For financial reporting purposes,
the acquisition of TSSN 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 were revalued
to reflect the market value of the Company's outstanding shares. 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 nine months ended September 30, 1995 reflect the operations
of TSSN for the nine months ended September 30, 1995 and the operations of
Channel America (historic EVRO Corporation) for the period March 1, 1995 through
September 30, 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 calculations of loss per share for the three months and nine months
ended September 30, 1995 were 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 (500,000 shares) to be issued to The Stellar Companies, Inc.,
("Stellar"), the seller of TSSN, and (b) for the period from March 14, 1995
through September 30, 1995, the actual number of Channel America shares
outstanding.
4. ACQUISITION OF CHANNEL AMERICA TELEVISION NETWORK, INC.
During 1995, the Company executed agreements with CATN, for the acquisition
of 100% of the issued and outstanding shares of the common stock of CATN for a
purchase price of $7,000,000, comprised of cash of $1,000,000 and $6,000,000 of
the Company's Series H Convertible Preferred Stock ("Series H Preferred"). The
cash portion of the purchase price, $600,000, was paid as of March 31, 1996 and
$400,000 was paid by a promissory note bearing interest of 8% per annum, which
is due and payable April 7, 1996. Accrued interest on the promissory note was
$31,174 as of September 30, 1996. The note has been extended from time to time
to August 15, 1996 in exchange for the Company's agreement to issue to CATN an
additional 200,000 shares of common stock or its equivalent in preferred stock,
together with $50,000 in cash. The note has been further extended to October 15,
1996 in consideration of Company's agreement to waive the condition, precedent
to the closing of the purchase of the
10
<PAGE>
49% minority interest of CATN, that required the conversion of an aggregate of
90% of CATN's notes payable and preferred stock into restricted shares of CATN's
common stock. However, in no event shall the conversion of CATN's notes payable
and preferred stock into restricted shares of CATN's common stock be less than
an aggregate of 75%. The Company is currently in default of the note and is
negotiating with CATN to further extend the maturity date of the note. The
Company believes that CATN will extend the maturity date of the note as CATN has
previously granted numerous extensions.
As of September 30, 1996, the Company has made working capital advances to
CATN of $1,834,700 and has issued 7,000 shares of Series C Convertible Preferred
Stock ("Series C Preferred") and .2 shares of Series L Convertible Preferred
Stock ("Series L Preferred), having an aggregate value of $142,187, pursuant to
transactions completed on behalf of CATN. CATN is obligated to repay the
advances on demand.
On October 10, 1995, CATN 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
CATN common stock will represent at least 51% of the issued and outstanding
shares of CATN 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 CATN. 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 CATN. The Series H Preferred will be held in escrow,
pending (1) the conversion of an aggregate of 75% of CATN's notes payable and
preferred stock (which totaled $7,690,000 as of June 30, 1995) into shares of
CATN's common stock; (2) the Company increasing the number of its authorized
shares of common stock; and (3) 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 CATN in
exchange of the Company's common stock is not contingent upon the full payment
of the $400,000 promissory note discussed above.
The conversion of CATN's note and preferred stock holders into shares of
CATN's common stock was a significant consideration in the Company's decision to
acquire CATN. Before the closing of the agreements on October 10, 1995, CATN
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 CATN's common stock. The
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written acceptances represented in excess of 80% of the total notes payable and
preferred stock outstanding as of June 30, 1995. As of September 30, 1996, note
and preferred stock holders aggregating $4,764,000, or 62% of the notes payable
and preferred stock outstanding as of June 30, 1995, have been converted into
shares of CATN's common stock. In addition, note and preferred stock holders
aggregating $1,627,000, or 21% of the notes payable and preferred stock
outstanding as of June 30, 1995, have committed, but have not yet converted into
additional shares of CATN'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.
5. CONVERTIBLE DEBENTURES
As of December 31, 1995, the Company had 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. During January and February, 1996, the Company
issued an additional $3,040,000 of 8.5% Convertible Debentures of which
$1,890,000 are due January 31, 1998 and $1,150,000 are due on October 31, 2000
(collectively referred to as the "Original Debentures"). In July, 1996, the
Company issued a $200,000 10.25% Convertible Debenture due July 2, 2001 (the
"10.25% Debenture). The Debentures were issued to individuals and corporations
located outside of the United States. The holders of the Original Debentures are
entitled, at their option, at any time commencing 41 days after issuance 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%-70% 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 Original Debentures, as amended, provide that a penalty of 30% to 50%
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 Original Debentures by certain dates. The Company did not obtain
authorization for the issuance of this common stock on a timely basis and
accordingly recorded the additional principal due on the Original Debentures.
The Original Debentures provide that in the event authorization for
issuance of the Common Stock is not obtained before 75 or 90 days from date of
issue, the Company is required to redeem the Original Debentures at an amount
equal to the value of the common stock into which the Original Debentures would
have been convertible at the date of redemption. As of September 30, 1996, all
Original Debentures were in default as authorization for issuance of the Common
Stock was not obtained until October 11, 1996, the date of the Company's Special
Meeting of Shareholders. Subsequent to the Company's Special Meeting of
Shareholders, the Company agreed to amend the Original Debentures to provide for
a penalty of 30% to 50% of the face value of the Original Debentures in exchange
for a waiver of the mandatory redemption rights. During October 1996, all
Original Debenture holders except for two holders with Original
12
<PAGE>
Debentures aggregating adjusted principal of $1,420,000 agreed to waive the
mandatory redemption rights and converted their debentures into common and/or
Series B Convertible Preferred Stock ("Series B Preferred") as follows:
CONVERTED BALANCE NOT
CONVERTED INTO SERIES B CONVERTED
INTO COMMON PREFERRED AS OF
STOCK STOCK 10/31/96
----------- ------------- -----------
Adjusted principal $ 784,000 $4,157,000 $1,420,000
Accrued interest 49,297 297,182 106,968
---------- ---------- ----------
Total indebtedness $ 833,297 4454182 $1,526,968
========== ========== ==========
Number of shares issued
upon conversion 2,404,914 445,4182
The Company continues to work with the remaining two Original Debenture holders
to convert these debentures into the Company's equity. Accordingly, no
adjustment has been made to adjust the liability from the face value of the
Debentures, including extension penalties, as amended, to their common stock
equivalent value. The common stock equivalent value of the Original Debentures
as of September 30, 1996 aggregated $9,070,000.
Costs associated with convertible debenture modifications were comprised of
(1) additional principal of $304,000 pursuant to the original terms of the
Debentures, and (2) additional principal of $374,000 resulting from agreements
to extend mandatory redemption dates.
The 10.25% Debenture is convertible into Company's common stock at a
conversion price per share equal to the lesser of 20% of the Market Price of the
Company's common stock or $.286 per share. The 10.25% Debenture has as
collateral 2,750,000 shares of CATN's common stock.
[Balance of page intentionally left blank]
13
<PAGE>
6. NOTES PAYABLE
Notes and mortgage notes payable, as of September 30, 1996, are comprised
of the following:
RELATED
PARTIES OTHER
------- -----
Note payable to a company at 10% per annum
interest, due December 5, 1995, having as
collateral TSSN common stock $ $ 200,000
Note payable to an individual at 13% per
annum interest, interest only payable
monthly, due August 26, 1998 650,000
Mortgage payables to banks and individuals
(7) at 10-10.52% per annum interest,
payable in monthly installments including
interest aggregating $28,600, due
February, 1998 through 2001, having as
collateral land, buildings, and equipment
located at the Company's RV campgrounds, and
stock of Treasure Rockhound 1,769,243
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 Preferred 200,000
Notes payable to banks at 11-14% per annum
interest, payable in monthly installments
including interest aggregating $5,045, due
February, 1998 through August, 2000, having
as collateral equipment located at the RV
campgrounds 19,577
Notes payable to former supplier,
non-interest bearing 16,667
Various notes payable (7) at 10-12% per annum
interest, due prior to September 30, 1996 125,188
Note payable to a corporation at 7% per annum
interest, due December 31, 1995, as extended,
without collateral 30,000
Debt of CATN:
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 CATN 5,000
Subordinated notes payable at 10% per
annum interest, due December 31, 2000 196,925 295,219
Fixed rate notes payable at 10% per
annum, due August 31, 1996, having as
collateral certain broadcast stations and
construction permits owned by CATN 20,157 48,498
Five year notes payable at 10% per annum 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 3,992
--------- ----------
Total notes and mortgage payables 251,982 3,588,502
Less current portion 251,982 2,847,926
--------- ----------
Long term notes and mortgages $ 0 $ 740,576
========= ==========
14
<PAGE>
On August 26, 1996, the Company borrowed $650,000 from an individual. The
promissory balloon note bears interest at the rate of 13% per annum, interest
only payable monthly, with the principal due August 26, 1998. The note is
secured by certain real estate pursuant to a Letter of Agreement with E. Carl
Anderson, Jr. ("Mr. Anderson") dated August 26, 1996. Pursuant to the Letter of
Agreement, a loan guarantee fee of $100,682 was paid to Mr. Anderson at the time
of closing. Further, the Company granted Mr. Anderson, 3,000,000 shares of
restricted common stock to be issued immediately following the Company obtaining
shareholder approval to increase its authorized common stock, together with
warrants for 2,000,000 common shares exercisable at $ 1.00 per share as a fee
for providing the guarantee. The warrants are exercisable for a period ending
the later of three years or two years from the date that the Company registers
the underlying common shares for sale to the public. The value of the common
shares granted ($693,750) was determined based on the average of the closing bid
and ask prices of the Company's common stock on the date of the Letter of
Agreement, discounted to reflect stock restrictions. The value of the warrants
($37,500) was determined by subtracting the exercise price from the value of the
underlying common shares determined in the same manner as for the common shares
granted. The value of the common shares granted and warrants issued were
recorded as deferred loan costs, together with the loan guarantee fee ($100,682)
and other loan fees and related closing costs of $44,902 paid at closing. The
deferred loan costs are being amortized over the life of the loan.
The loan guarantee has collateral of 100 shares of the Company's Series J
Preferred (which are convertible into 5,000,000 common shares) and 27,500,000
shares of CATN, representing the Company's 51% interest in CATN. Further, the
Company has pledged its rights to receive those shares of CATN regarding the
remaining 49% interest in CATN. In the event the Company does not repay the loan
by November 24, 1996, the Company shall pay Mr. Anderson 40 shares of the Series
J Preferred held as collateral as a penalty. The Company failed to repay the
loan by November 24, 1996, and accordingly, ownership of the 40 shares of Series
J Preferred shall be transferred to Mr. Anderson. The remaining 60 shares of
Series J Preferred will continue to be held by Mr. Anderson as collateral to the
guarantee and pursuant to a Put Agreement relating to certain shares of Series C
Preferred previously purchased by Mr. Anderson (See Note 7 - Commitments,
Contingencies and Litigation). In addition, D. Jerry Diamond and Daniel M. Boyar
personally guaranteed the obligations of the Company pursuant to the Letter of
Agreement and Guarantee Agreement. The value of the Series J Preferred to be
paid as a penalty shall be determined based on the average of the closing bid
and ask prices of the Company's common stock on November 24, 1996, discounted to
reflect stock restrictions. The value of 40 shares of Series J Prefeffed to be
paid as a penalty is estimated to be $40,000 which has been recorded as of
September 30, 1996 with a corresponding charge to operations.
The Company has agreed to register as soon as practicable, in its first
registration statement to be filed with the Securities and Exchange Commission,
one half of the shares owned by Mr. Anderson and one half of the shares
underlying the outstanding warrants, and maintain an effective registration
statement for a period of two years.
15
<PAGE>
On April 10, 1995, the Company borrowed $550,000 from Genesee Cattle
Company ("Genesee"). The promissory note bears interest at the rate of 10% per
annum. The note was originally due and payable on June 24, 1995. Genesee agreed
to extend the term of the note until December 5, 1995. As of September 30, 1996,
the Company has paid $350,000 of principal on the note leaving a balance of
$200,000 plus accrued interest of $58,000. 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 Genesee for financial public relations and promotion services.
Under the terms of this agreement, as amended, the Company was required to pay
the consulting fees of $50,000 on December 5, 1995. The Company is in default on
payment under this agreement. On May 21, 1996, the note holder filed a civil
action in the U.S. District Court seeking collection of the note and consulting
fees (See Note 7 - Commitments, Contingencies and Litigation).
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 and presently the note has been verbally extended and is payable on
demand. The note has as collateral 26,000 shares of the Company's Series C
Preferred.
As of November 25, 1996, the Company is in default on an unsecured note
aggregating $16,667, two mortgage notes payable aggregating $432,573 having as
collateral the Treasure Rockhound RV Campgrounds and the stock of Treasure
Rockhound, a mortgage note payable aggregating $232,419 having as collateral a
mobile home park, and two mortgage notes payable aggregating $693,209 having as
collateral the Tres Rivers RV Campground. On October 23, 1996, the holder of the
two mortgage notes payable secured by Tres Rivers RV Campground notified the
Company of acceleration of debt and has threatened to file a lawsuit against
Tres Rivers, the borrower, and the Company and Treasure Rockhound, as
guarantors, seeking the amounts due plus attorney's fees and court costs (See
Note 7 - Commitments, Contingencies and Litigation).
CATN is in default of its long-term debt and, accordingly, the entire
amount has been classified as current liabilities. As more fully described in
Note 4 - Acquisition of Channel America Television Network, Inc., the conversion
of CATN's note and preferred stock holders into shares of CATN's common stock
was a determinative item in the Company's decision to acquire CATN. The
following debt of CATN was outstanding as of September 30, 1996, for which the
holders had accepted the Conversion Plan to convert their notes into Channel
America's common stock. The debt was considered to have been converted in the
recording of the acquisition of CATN.
16
<PAGE>
RELATED
PARTIES OTHER
------- -----
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 CATN $ 62,500 $
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 CATN 50,000
Subordinated notes payable at 10% per annum
interest, due December 31, 2000 320,770 275,458
Fixed rate notes payable at 1O% per annum, due
August 3 1, 1996, having as collateral certain
broadcast stations and construction permits
owned by CATN collateral 80,754 18,424
Five year notes payable at I 0% 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 $372,242
======== ========
According to the Conversion Plan, the total notes payable of $1,295,172
summarized above, together with accrued interest of $255,302, convert into
2,826,707 shares of common stock of CATN.
Maturities of long term debt over the next five years are as follows:
YEAR ENDED
SEPTEMBER 3.0 AMOUNT
------------- ------
1997 $3,099,908
1998 59,055
1999 675,483
2000 6,038
2001 and thereafter ----------
$3,840,484
==========
17
<PAGE>
7. COMMITMENTS, CONTINGENCIES AND LITIGATION
An agreement with Mr. Dale A. Fullerton, a former Chairman of the Board,
President and the largest shareholder of the Company, provides that Mr.
Fullerton has the right, but not the obligation, to sell 5,000 shares of the
Company's common stock (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. The discounted difference between the repurchase price of
the stock and the current value of the Company's common stock is included in
accrued liabilities ($23,548) and other debt ($223,647).
On November 1, 1995, pursuant to a Stock Purchase Agreement, the Company
sold to Carl Anderson, an accredited investor, 50,000 shares of Series C
Preferred for $500,000. The buyer has an option at any time prior to January 28,
1997, as amended, to put the shares back to the Company at a redemption price of
$10.00 per share (the "Put Agreement"). As security for the agreement by the
Company to buy back any shares put to the Company, the Company has pledged all
common shares of CATN owned by the Company and, as modified, 60 shares of The
Company's Series J Preferred, representing the equivalent of 3,000,000 common
shares upon conversion. In addition, the Company entered into a five-year
consulting agreement, as amended, with Southern Resource Management, Inc., of
which the Mr. Anderson is president. The amended agreement provides for payments
of $100,000 on February 8, 199;- $25,000 on March 15, 1996; and $125,000 each on
November 1, 1996, 1997, 1998 and 1999. The Company 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. D. Jerry Diamond
and Daniel M. Boyar personally guaranteed the obligations of the Company
pursuant to the Stock Purchase Agreement and Consulting Agreement. As of
September 30, 1996, the Company has paid $529,545 to Southern Resource
Management, Inc. However, the Company did not deliver to Southern Resource
Management, Inc., the aforementioned letter of credit or "Satisfaction Payment"
on a timely basis. Thus, the Company is in default under the terms of the
agreement and Southern Resource Management, Inc. has elected to accelerate all
of the remaining payments as a result of the default ($95,455).
The Company has agreed to rescind the sale of 42,000 shares of Series C
Preferred, sold on May 31, 1995, at its sales price of $420,000 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. As of September 30,
1996, the Company has repaid $250,000 of the purchase price. For financial
statement purposes, the remaining liability of $200,000, including accrued
interest, has been included in accrued liabilities.
The Company is in default of a $550,000 note payable to Genesee Cattle Co.
due December 5, 1995, as amended. As of September 30, 1996, the Company has
repaid $350,000 of principal of the note, leaving a balance due of $258,000
including accrued interest of $58,000. In addition, the Company owes to Genesee
Cattle Co. consulting fees of $50,000. The note has as collateral all of the
common stock of TSSN held by the Company, On May 21, 1996, Bryan K.
18
<PAGE>
Foster doing business as Genesee Cattle Co. filed a civil action in the U.S.
District Court for the District of Colorado against the Company, Daniel M.
Boyar, the Special Legal Counsel to the Board of Directors, individually,
guarantor of the note payable, and Stephen H. Cohen, a Director of the Company,
individually. The action seeks repayment of all monies due. The plaintiff
alleges fraud by Boyar and Cohen in the inducement of the loan and forbearance
from bringing suit. The defendants deny the allegations and will vigorously
defend the charges. In addition, the action alleges that 50,000 shares of Series
C Preferred issued to Genesee Cattle Co. will have, upon conversion into common
stock, a market price less than $1,000,000 in value as promised by the Company.
The Company believes that the Series C Preferred issued fulfills the stock
obligation to Genesee Cattle Co. in full.
On October 23, 1996, the holders of the two mortgage notes payable
aggregating $693,209 secured by Tres Rivers RV Campground notified the Company
of acceleration of debt, thereby demanding payment of the debt in full,
including interest at the default rate of 1.8% per annum. Further, the holders
have threatened to file a lawsuit against Tres Rivers, the borrower, and the
Company and Treasure Rockhound, as guarantors, seeking the amounts due plus
attorney's fees and court costs.
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 of 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.
On June 25, 1996, Prostar, Inc. filed a Petition against Channel America
and its wholly owned subsidiary the Shopping Connection, Inc. in the District
Court of Ft. Bend County, Texas seeking payment of $159,356.25 for transponder
services rendered, together with interest, attorney's fees and related costs.
This liability has been recorded and is included in accounts payable.
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.
19
<PAGE>
8. MINORITY INTEREST
Minority interest represents the par value and paid in capital of the
unconverted preferred stock of CATN, together with accrued dividends of $22,973.
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 CATN, 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 CATN to pay two consecutive dividends, the holders of the
preferred stock have the right to gain control of the Board of Directors of CATN
and convert their shares of preferred stock into an aggregate of fifty percent
(50%) of the Company's outstanding common stock. As of September 30, 1996, CATN
has failed to pay the 1995 dividend which aggregates approximately $13,000 for
the unconverted preferred stock.
As more fully described in Note 4 - Acquisition of Channel America
Television Network, Inc., the conversion of an aggregate of ninety percent (90%)
of CATN's notes payable and preferred stock into shares of CATN's common stock
was a significant consideration in the Company's decision to acquire CATN. As of
September 30, 1996, 21,879 shares of preferred stock were outstanding ($218,790)
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 CATN.
9. COMMON AND PREFERRED STOCK
COMMON STOCK - On October 11, 1996, the date of the Company's Special
Meeting of Shareholders, the shareholders approved an increase in the Company's
shares of authorized common stock from 2,500,000 to 100,000,000 shares with a
par value of $.OO1 per share. As of September 30, 1996, 5,497,665 shares of
common stock were issued and outstanding, as adjusted. On August 23, 1996, a
creditor sold 27,500 shares of the Company's common stock previously held as
collateral. The net cash proceeds of $29,077 resulting from the sale were
applied against the outstanding indebtedness. As of September 30, 1996,
Technology Holdings, Inc. held 666 shares of the Company's common stock.
On July 24, 1996, in connection with a $25,000 bridge loan, the Company
granted warrants for 25,000 shares of common stock exercisable at $1.00 per
share. The Company shall register the underlying common shares for sale to the
public. The warrants lapse on July 23, 1999.
On August 26, 1996, in connection with a loan guarantee provided by Mr.
Anderson, the Company granted Mr. Anderson 3,000,000 shares of restricted common
stock to be issued immediately following the Company obtaining shareholder
approval to increase its authorized common stock, together with warrants for
2,000,000 common shares exercisable at $ 1.00 per
20
<PAGE>
share as a fee for providing the guarantee. The warrants are exercisable for a
period ending the later of three years or two years from the date that the
Company registers the underlying common shares for sale to the public.
The value of the common shares granted ($693,750) was determined based on the
average of the closing bid and ask prices of the Company's common stock on the
date of the Letter of Agreement, discounted to reflect stock restrictions. The
value of the warrants ($37,500) was determined by subtracting the exercise price
from the value of the underlying common shares determined in the same manner as
for the common shares granted (See Note 6 - Notes Payable). The 3,000,000 shares
of restricted common stock and warrants for 2,000,000 common shares issued to
Mr. Anderson as a fee for providing the loan guarantee were recorded as issued
and outstanding as of September 30, 1996. The Company has agreed to register as
soon as practicable, in its first registration statement to be filed with the
Securities and Exchange Commission, one half of the shares owned by Mr.
Anderson and one half of the shares underlying the outstanding warrants, and
maintain an effective registration statement for a period of two years.
PREFERRED STOCK - On October 11, 1996, the date of the Company's Special
Meeting of Shareholders, the shareholders approved an increase in the Company's
shares of authorized common stock from 1,250,000 to 25,000,000 shares with a par
value of $0.001 per share. As of September 30, 1996, the following series of
preferred stock were authorized and outstanding.
LIQUIDATION
RECORDED PREFERENCE
VALUE VALUE
-------- -----------
Series A Preferred Stock ("Series A
Preferred"), $0.001 par value, $50,000
stated value, 100 shares authorized,
no shares issued or outstanding $ 0 $ 0
Series B Preferred, $0.001 par value,
$10,000 stated value, 1,000 shares
authorized, no shares issued or outstanding 0 0
Series C Preferred, $0.001 par value, $10
stated value, 500,000 shares authorized,
240,650 shares issued and outstanding
including 26,000 shares as collateral 2,009,585 2,406,500
Series D Convertible Preferred Stock
("Series D Preferred'), $0.001 par value,
17,000 shares authorized and 16,984.9 shares
issued and outstanding 4,084,153 3,784,296
Series E Convertible Preferred Stock
("Series E Preferred"), $0.001 par value,
30,000 shares authorized, issued and
outstanding 30,000 30,000
Series F Convertible Preferred Stock
("Series F Preferred'), $0.001 par value,
1,680 shares authorized, 1,352.5912 shares
issued and outstanding 171,300 1,352
Series H Preferred, $0.001 par value,
100,000 shares authorized, 48,000 shares
issued and outstanding 6,000,000 6,000,000
21
<PAGE>
Series I Convertible Preferred Stock
("Series I Preferred'), $0.001 par value,
7,000 shares authorized, 6,750 shares
issued and outstanding 440,943 1,096,875
Series J Preferred, $0.001 par value, 100
shares authorized, issued and outstanding
including 60 shares as collateral 40,000 5,000,000
Series K Convertible Preferred Stock
("Series K Preferred"), $0.001 par value,
100 shares authorized, 17 shares issued
or outstanding 510,000 850,000
Series L Preferred, $0.001 par value,
100 shares authorized, 26.47248 shares
issued or outstanding 690,291 1,323,624
Series M Convertible Preferred Stock
("Series M Preferred'), $0.001 par value,
40,000 shares authorized, issued and
outstanding including 25,000 shares as
collateral 74,062 400,000
---------- ----------
Total Preferred Stock, 697,080 shares
designated; 338,880.96368 shares of
designated series issued and outstanding
including 51,060 shares as collateral
14,050,334 20,892,647
Less Series C Preferred:
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 $13,174,249 $19,972,647
=========== ===========
Series A 10% Convertible Preferred Stock was canceled by the Board of
Directors during 1996. Series B 8% Preferred Stock was canceled by the Board of
Directors during 1995. Series G Preferred Stock has not been designated nor
issued. Series A Preferred and Series B Preferred, were designated by the Board
of Directors, but, no shares of these series of preferred stock were issued
until after September 30, 1996. A description of rights and preferences of each
series of preferred stock is included in the Notes to the Consolidated Financial
Statements for the year ended December 31, 1995 set forth in the Company's 1995
Form 10-KSB except as set forth below.
In January 1996, the Company sold 15,000 shares of Series C Preferred to an
accredited investor for $150,000. On September 6, 1996, the Company entered into
a Program Test Agreement to broadcast home shopping programming produced by
Panda America over the CATN network. Pursuant to the Agreement, the Company
issued 7,000 shares of Series C Preferred ($140,000) to Panda America. In
addition, during the nine months ended September 30, 1996, the Company issued
the following shares of Series C Preferred:
[Balance of page intentionally left blank]
22
<PAGE>
NUMBER OF VALUE OF
Series C Preferred issued: SHARES ISSUED SHARES ISSUED
------------- -------------
As additional consideration pursuant to
various financing agreements 7,250 $29,000
In settlement of litigation 29,000 44,000
For services rendered on behalf of
the Company 5,000 20,000
The value of the Series C Preferred shares issued for other the sale was
determined based on the value of the Company's common stock to be issued upon
conversion, discounted to reflect stock restrictions.
In November 1996, the Company sold 20,000 shares of Series C Preferred to
an accredited investor outside the United States for $160,000, net of sales and
closing costs of $60,000 paid and/or accrued at the time of closing.
On January 15, 1996, the Company issued 28.1418 shares of Series F
Preferred in exchange for the remaining 1.65% of TSSN's issued and outstanding
shares of common stock held by the minority shareholders. No value was assigned
to the shares issued to acquire the minority interest as the book value of the
net assets of TSSN was negative as of the date of purchase.
SERIES A CONVERTIBLE PREFERRED STOCK - The Board of Directors established
this series with 100 shares authorized, $0.001 par value, and $50,000 stated
value. This series was intended to be sold to accredited investors through
private placements. In October 1996, the Company sold I I shares of Series A
Preferred to an accredited investor located outside the United States for
$440,000, net of sales and closing costs of $1 10,000 paid and/or accrued at
time of closing.
The Series A Preferred has no voting rights except as provided by operation
of law and is not redeemable. As long as the Series A Preferred 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
A Preferred in any material respect prejudicial to the holders thereof, or
increase the authorized number of shares of such Series.
Each holder of Series A Preferred shall have the right, at his option, at
any time commencing 40 days after date of issuance, to convert each share into
fully paid and nonassessable shares of the Company's common stock at a
conversion price equal to the lessor of 50% of the common stock's market value
or $.75 per common share. The Shares being converted shall be multiplied by
50,000 before determining the common shares to be received.
23
<PAGE>
Market value is defined to be the lower of the average closing bid price per
share of the Company's common stock for the five business days prior to
conversion date or the average closing bid price per share of the Company's
common stock for the five business days prior to subscription by the holder.
On or after June 30, 1997, the holder may, at its option, may put the
shares back to the Company at a redemption price of $50,000 per share, together
with accrued dividends and penalties, if any. In addition, the holder may
exercise its fight to Put its shares back to the Company if any event of default
shall occur as defined in the Certificate of Designation, Preferences, Rights
and Limitations of Series A Preferred, including events such as if the Company
shall (1) become insolvent, (2) make an assignment for the benefit of creditors,
(3) consent to the appointment of a trustee, liquidator or receiver, (4) be
subject to any money judgement in excess of $500,000 which shall remain unpaid,
unvacated, unbonded, or unstayed for a period of 15 days or more, (5) be subject
to bankruptcy proceedings instituted by or against the Company, or (6) delisted
from an exchange or over the counter market.
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 A
Preferred shall be entitled to receive the sum of $50,000 in cash for each share
of Series A Preferred held subject to the first priority of all holders of the
Company's Series C Preferred, Series D Preferred, Series E Preferred, Series F
Preferred, Series I Preferred, Series H Preferred, Series L Preferred, Series M
Preferred, and Series K Preferred.
SERIES B CONVERTIBLE PREFERRED STOCK - The Board of Directors established
this series with 1,000 shares authorized, $0.001 par value and $50,000 stated
value. This series was designated to be utilized in converting the Original
Debentures from debt to capital. In October 1996, the holders of Original
Debentures, having an adjusted principal balance of $4,157,000 and accrued
interest of $297,182, or a total indebtedness of $4,454,182, converted their
debentures into 445.4182 shares of Series B Preferred.
The Series B Preferred has no voting rights except as provided by
operation of law and is not redeemable. As long as the Series B Preferred 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, fights or limitations with respect to
the Series B Preferred in any material respect prejudicial to the holders
thereof, or increase the authorized number of shares of such Series.
The Certificate of Designation, Preferences, Rights and Limitations of
Series B Preferred provides that the holders of the Series B Preferred shall be
entitled to receive dividends at an annual rate to be determined by the
Company's Board of Directors at the time the Series B Preferred is issued, which
rate shall not be less than 8.5% nor greater than 9.5% of the stated value of
the shares. Each holder of Series B Preferred shall have the right, at its
option, at any
24
<PAGE>
time, to convert each share into fully paid and nonassessable shares of the
Company's common stock at a conversion price to be determined by the Company's
Board of Directors at the time the Series B Preferred is issued, which
conversion price shall not be less than 50% nor greater than 70% of the common
stock's market value. The Shares being converted shall be multiplied by 50,000
before determining the common shares to be received. Market value is defined to
be the lower of the average closing bid price per share of the Company's common
stock for the five business days prior to conversion date or the average closing
bid price per share of the Company's common stock for the five business days
prior to subscription by the holder. Upon conversion of the Original Debentures
to Series B Preferred, the Company's Board of Directors has specified a dividend
rate and conversion price equal to the rate of interest and conversion rate of
the specific debentures being converted.
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 B
Preferred shall be entitled to receive the sum of $50,000 in cash for each share
of Series B Preferred held subject to the first priority of all holders of the
Company's Series C Preferred, Series D Preferred, Series E Preferred, Series F
Preferred, Series I Preferred, Series H Preferred, Series L Preferred, Series M
Preferred, Series K Preferred and Series A Preferred.
SERIES K CONVERTIBLE PREFERRED STOCK - The Board of Directors established
this series with 100 shares authorized, $0.001 par value and $50,000 stated
value. This series was intended to be sold to accredited investors through
private placements. In March 1996, the Company sold 17 shares of Series K
Preferred to an accredited investor located outside the United States for
$637,500, net of sales commissions and closing costs of $212,500 paid at time
of closing. In addition, the Company issued 1.7 shares of Series L Preferred
(the equivalent of 85,000 common shares) in payment of a 10% facilitator's fee
($85,000) and accrued related costs of $42,500.
The Series K Preferred has no voting rights except as provided by operation
of law does not bear dividends, and is not redeemable. As long as the Series K
Preferred 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 K Preferred in any material respect prejudicial to the
holders thereof, or increase the authorized number of shares of such Series.
Each holder of Series K Preferred 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 price equal to 55% of the common stock's market value. The
Shares being converted shall be multiplied by 50,000 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. The Series K Preferred automatically converts to common shares on
June 30, 1997,
25
<PAGE>
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 K
Preferred shall be entitled to receive the sum of $50,000 in cash for each share
of Series K Preferred held subject to the first priority of all holders of all
prior series of preferred stock.
SERIES L CONVERTIBLE PREFERRED STOCK - The Board of Directors established
this series with 100 shares authorized, $0.001 par value and $50,000 stated
value. This series was intended to be used for transactions which provide for
the issuance of preferred stock convertible into a fixed number of common
shares. During the nine months ended September 30, 1996, the Company issued 0.7
shares of Series L Preferred ($12,187), or the equivalent of 35,000 common
shares, for services rendered on behalf of the Company. In addition, the Company
issued to ACL 8.44844 shares of Series L Preferred, or the equivalent of 422,422
common shares in satisfaction of loans and advances to the Company and TIE
aggregating $287,247 and 5 shares of Series L Preferred ($93,375), or the
equivalent of 250,000 common shares, for ACL's commitment to put up 100,000
unrestricted shares of the Company's common stock held by ACL as collateral for
a financing agreement the Company was pursuing, but ultimately did not close.
Pursuant to the TSSN Acquisition Agreement between the Company and
Stellar, TFU 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 phase "total assets"
is defined to mean the amount set forth on the consolidated balance sheet of TFU
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 phase "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. THI ratably earns the Special Shares over each applicable twelve month
period. THI's entitlement to the Special Shares shall cease upon the Company's
redemption of its Series D Preferred. For the period March 14, 1995 through
March 13, 1996, The Company issued Special Shares to THI equal to 10. 62404
shares of Series L Preferred ($212,481), or the equivalent of 531,202 common
shares. As of September 30, 1996, THI has earned 282,627 additional Special
Shares for the period March 14, 1996 through September 30, 1996.
The value of the Series L Preferred shares issued, other than the shares
issued to ACL in satisfaction of loans and advances to the Company and TIE, was
determined based on the value of the Company's common stock to be issued upon
conversion, discounted to reflect stock restrictions.
The Series L Preferred has no voting rights except as provided by operation
of law, does not bear dividends, and is not redeemable. As long as the Series L
Preferred is outstanding, the
26
<PAGE>
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 L
Preferred in any material respect prejudicial to the holders thereof, or
increase the authorized number of shares of such Series.
Each holder of Series L Preferred shall have the right, at his option, at
any time after the Company increases its authorized common shares, to convert
each share into 50,000 shares of fully paid and nonassessable shares of the
Company's common stock. The Series L Preferred 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 L
Preferred shall be entitled to receive the sum of $50,000 in cash for each share
of Series L Preferred held subject to the first priority of all holders of all
prior series of preferred stock.
10. MATERIAL TRANSACTIONS WITH RELATED PARTIES
During both the nine months ended September 30, 1996 and 1995, Stellar
billed TSSN $570,000 for management and accounting services performed on the
Company's behalf, which were charged to the intercompany advance account.
Stellar charged TSSN based upon estimated time and charges incurred by Stellar
on the Company's behalf Management asserts that the fees charged to the Company
approximate the costs that would have been incurred by TSSN if it had operated
on a stand alone basis. During the nine months ended September 30, 1996 and
1995, the Company made net payments to Stellar of $106,472 and $293,653,
respectively. As of September 30, 1996, Amounts due to Stellar aggregated
$893,830.
As of September 30, 1996, American Clinical Labs, Inc. ("ACL"), owned 18.8
shares of the Company's common stock and 6,041.988 shares of the Series D
Preferred. ACL will control 36% of the common stock of TIFH in the event Channel
America redeems Series D Preferred in exchange for all of the outstanding common
stock of THI. ACL and THI share a common management team and accordingly provide
management services to one another. These services are billed at cost based on
the percentage of time that the individuals expend on one another's behalf,
including payroll taxes, insurance, automobile allowance, and reimbursed
expenditures. During the period March 1, 1995 through September 30, 1995 and the
nine months ended September 30,1996, ACL billed TIE $43,000 and $30,000,
respectively, and THI billed ACL $28,000 and $25,000, respectively, for
management services. During the period March 1, 1995 through September 30, 1995,
THI paid to ACL (1) advances made in 1994 of $142,381, (2) advances of $121,949
and (3) net management fees of $12,000. During the nine months ended September
30, 1996, ACL advanced to Channel America and TFU $525,607 of which THI repaid
to ACL $129,740 in cash and $287,247 by issuance of 8.44844 shares of Series L
Preferred (the
27
<PAGE>
equivalent of 422,422 shares of common stock) and paid $57,931 of expenses on
ACL's behalf. As of September 30, 1996, the Company owed ACL $105,668.
In August 1996, the Company issued to ACL 5 shares of Series L Preferred
($93,375), or the equivalent of 250,000 common shares, for its commitment to put
up 100,000 unrestricted shares of the Company's common stock, held by ACL at
such time, as collateral for a financing agreement the Company was pursuing, but
ultimately did not close.
[Balance of page intentionally left blank]
28
<PAGE>
11. BUSINESS SEGMENTS
The Company has identified its major lines of business to be the RV
campgrounds, broadcasting and shopping. The results of operations by major lines
of business for the nine months ended September 30, 1996 are summarized below:
<TABLE>
<CAPTION>
RV
CAMPGROUNDS BROADCASTING SHOPPING CORPORATE TOTAL
----------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales and revenues $ 986,943 $ 799,662 $ 6,731 0 1,793,336
Cost of sales and
revenues 602,643 2,085,782 37,217 0 2,725,642
----------- ----------- ----------- ----------- -----------
Gross margin 384,300 (1,286,120) (30,486) 0 (932,302)
Operating expenses 800,780 1,023,614 1,143,165 2,228,896 5,196,455
Depreciation and
amortization 279,800 718,818 24,500 1,023,118
----------- ----------- ----------- ------------ -----------
Income (loss) from
operations (696,280) (3,028,552) (1,198,151) (2,228,896) (7,151,879)
Other items (182,342) 889,387 (1,336,353) (629,308)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 878,622 $ 2,139,165) $(1,198,151) $(3,565,249) $(7,781,187)
=========== =========== =========== =========== ===========
Identifiable assets $ 6,747,380 $ 9,368,319 $ 334,042 $ 2,622,743 $19,063,223
=========== =========== =========== =========== ============
</TABLE>
[Balance of page intentionally left blank]
29
<PAGE>
12. ADDITIONAL CASH FLOW STATEMENT INFORMATION
The noncash effect of the acquisition of TSSN as of February 28, 1995 is
summarized below:
INCREASE IN ASSETS:
Notes and other receivables 81,141
Prepaid expenses 18,788
---------
Increase in current assets 99,929
Property, equipment, and program library 3,487,891
Unamortized goodwill 3,595,592
Other assets 168,617
---------
Total increase in assets 7,352,029
---------
INCREASE IN LIABILITIES:
Notes payable and current portion
of long-term debt 428,638
Accounts payable 654,495
Amounts due to affiliates 24,550
Accrued liabilities 145,995
---------
Increase in current liabilities 1,253,678
Long-term debt 1,731,276
Other liabilities 292,024
---------
Total increase in liabilities 3,276,978
---------
CHANGE IN STOCKHOLDERS' EQUITY:
Issuance of Series D Preferred (16,985 shares) 4,084,153
Issuance of Series E Preferred (30,000 shares) 30,000
Common stock 3,460,823
Additional paid in capital (3,490,823)
----------
Total increase in stockholders'equity 4,084,153
----------
Total increase in liabilities and
stockholders' equity 7,361,131
----------
CASH ACQUIRED (INVESTED) $ 9,102
==========
Other noncash transactions which occurred during the nine months ended
September 30, 1995 are as follows:
Common stock issued pursuant to the 1995
Employee Stock Compensation Plan (576,000
shares) $(1,755,500)
30
<PAGE>
Preferred stock issued pursuant
to Financial Consulting Agreements:
Series F Preferred (20 shares) (137,500)
Series I Preferred (5,750 shares) (955,469)
Compensation earned during the period 404,248
Unearned compensation as of September 30, 1995 2,444,221
Issuance of Series C Preferred in settlement of
litigation (39,000 shares) (39,000)
Selling, general and administrative costs 39,000
Noncash transactions which occurred during the nine months ended
September 30, 1996 are as follows:
Issuance of common stock and warrants as fee for
loan guarantee:
Common stock (3,000,000 shares) $(656,250)
Warrants to purchase 2,000,000 shares common stock (37,500)
Deferred loan costs 693,750
Issuance of 40 shares of Series L Preferred as penalty
as additional loan guarantee fee as related loan was
not repaid by November 24, 1996 (40,000)
Deferred loan costs 40,000
Issuance of 1.7 shares of Series L Preferred in
payment of a 10% facilitator's fee on sale of 85 shares
of Series K Preferred:
Series L Preferred (85,000)
Series K Preferred 85,000
Series L Preferred issued to ACL in satisfaction
of loans and advances to the Company (287,247)
Amounts due to affiliates 287,247
31
<PAGE>
Issuance of 10.62404 shares Series L Preferred
as Special Shares to THI pursuant to the TSSN
Acquisition Agreement (212,481)
Series L Preferred held by subsidiary 212,481
13. PROFORMA FINANCIAL INFORMATION
The Condensed Proforma Combined Statement of Operations shown below for
the nine month period ended September 30, 1995 has been prepared as if TSSN and
CATN had been acquired as of January 1, 1995, adjusted to reflect an increase in
amortization resulting from goodwill recorded in the mergers and the reduction
of interest expense and dividends payable relating to the conversion of notes
payable and preferred stock (See Note 4 - Acquisition of Channel America
Television Network, Inc.). The proforma weighted average number of shares used
to compute the proforma loss per share was based on the actual number of Channel
America shares outstanding, adjusted for the number of common shares issued to
Stellar (500,000 shares).
<TABLE>
<CAPTION>
CONDENSED PROFORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
CHANNEL
AMERICA CATN
CHANNEL 01/01/95 01/01/95
AMERICA THROUGH THROUGH COMBINED
AS REPORTED 02/28/95 09/30/95 ADJUSTMENTS TOTALS
----------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales and revenues $ 1,217,870 $ 174,224 $ 1,094,109 $ $ 2,486,203
Cost of sales and revenues 740,016 13,665 1,926,622 2,680,303
----------- --------- ----------- ------------
Gross margin 477,854 160,559 (832,513) (194,100)
Operating expenses 3,212,915 197,677 705,268 722,886 4,838,746
----------- --------- ----------- ----------- -----------
Operating loss of (2,735,061) (37,118) (1,537,781) (722,886) (5,032,846)
continuing from operations
Other income (expense) (110,261) (300,841) (366,438) 319,308 (458,232)
----------- --------- ----------- ----------- -----------
Loss from continuing
operations $(1,845,322) $(337,959) $(1,904,219) $ (403,578) $(5,491,078)
=========== ========= =========== =========== ===========
Loss per share from
continuing operations $ (2.41)
===========
Average number of
common shares outstanding $ 2,281,181
===========
</TABLE>
32
<PAGE>
14. SUBSEQUENT EVENTS
On October 30, 1996, the Company acquired all of the shares of Hallmark
Properties, Inc. "Hallmark"), a Florida corporation, whose assets consist of two
office buildings located in Tampa, Florida. The Company issued 2,447,059 shares
of its common stock for all of Hallmark's issued and outstanding shares of
common stock, which shares were owned by Paul Pritchard. The Company intends to
relocate its offices to Tampa and to occupy approximately 2,500 square feet of
Hallmark's office buildings. The buildings contain 16,800 square feet of rental
space and are located on 4.6 acres. Other than the space to be occupied by the
Company, the office buildings are fully occupied. The office buildings were
appraised at $1,440,000 by an MAI appraiser in April 1996 and the office
buildings are currently encumbered by mortgage debt in the amount of $744,000.
The parties of the transaction have agreed to have the buildings owned by
Hallmark reappraised and to the extent the net assets of Hallmark are greater
than or less than $700,000, the number of shares of the Company's common stock
issued to Mr. Pritchard will be adjusted accordingly.
On October 29, 1996, the Company acquired from North American Resorts,
Inc. ("North American") certain inventory to be resold on the Company's shopping
network. The Company paid for the inventory by issuing to North American 50,000
shares of Series C Preferred. The inventory consists of 159,000 reproduction
prints, such as floral prints, animal prints and other nature scenes. The
collection was appraised in October 1996 and valued at $1,225,000, The appraisal
WAS conducted by Bonnie Lindberg, ISA, a qualified independent appraiser. The
Company will record this asset at a value of $850,000, which represents its fair
market value less estimated costs to sell and provision for normal profit
margin. Max P. Cawal, a director of the Company, is also a director of North
American, however, Mr. Cawal abstained from the vote by the Company's Board of
Directors approving the transaction between the Company and North American. Mr.
Cawal owns less than 1% of the Company's common or preferred stock and less than
1% of North American's common or preferred stock.
The Company has granted "piggyback" registration rights to each of Mr.
Pritchard and North American, as well as demand registration rights which are
effective one year after each respective date of issuance. The registration
rights grant to Mr. Pritchard and North American the right to have the common
stock, and the common stock received upon conversion of the Company's Series C
Preferred, registered for resale to the public.
The following proforma consolidated balance sheet has been prepared to
show that with the following transactions completed in October 1996, the Company
is in compliance with the Nasdaq SmallCap Market continuing listing requirement
for capital and surplus as set forth in Rule 43 10(c)(3). The Proforma
Consolidated Balance Sheet shown below has been prepared as if the following
transactions had occurred on September 30, 1996:
(1) Acquisition of Hallmark Properties, Inc. for 2,447,059 shares of the
Company's common stock.
33
<PAGE>
(2) Acquisition of inventory in exchange for 50,000 shares of the
Company's Series C Preferred Stock.
(3) Conversion of convertible debentures having an adjusted principal
balance of $784,000 and accrued interest of $42,297, or total indebtedness of
$833,297, into 2,404,914 shares of the Company's common stock.
(4) Conversion of convertible debentures having an adjusted principal
balance of $4,157,000 and accrued interest of $297,182, or total indebtedness of
$4,454,182, into 445,4182 shares of the Company's Series B Preferred.
During the two month period after September 30, 1996, the balance sheet date,
management estimates that the Company incurred a net loss of approximately
$1,450,000, of which approximately $300,000 represents the amortization of
deferred compensation, which was originally recorded as a direct offset to
Stockholders' Equity. Accordingly, management estimates that the loss for the
two month period ended November 30, 1996 will reduce Stockholders' Equity by
approximately $1,150,000. This estimated loss has not been reflected in the
proforma consolidated balance sheet.
[Balance of page intentionally left blank]
34
<PAGE>
<TABLE>
<CAPTION>
CHANNEL AMERICA BROADCASTING, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
09/30/96 09/30/96
ASSETS BALANCES PROFORMA PROFORMA
CURRENT ASSETS: AS REPORTED ADJUSTMENTS BALANCES
- --------------- ------------- ------------ ------------
<S> <C> <C> <C>
CASH $ 30,803 $ $ 30,803
Notes and other receivables 116,615 116,615
Inventories 77,814(2) 850,000 927,814
Prepaid expenses 131,395 131,395
------------ ------------ ------------
TOTAL CURRENT ASSETS 356,627 850,000 1,206,627
Property, Equipment, and Program Library
(less accumulated depreciation of $1,023,215) 4,919,757(1) 1,394,000 6,313,757
Other Assets
Goodwill (less accumulated amortization of $970,813) 11,091,682 11,091,682
Other - net 2,695,157(3) (122,957) 1,914,966
(4) (657,234)
------------ ------------ ------------
TOTAL ASSETS $ 19,063,223 $ 1,463,809 $ 20,527,032
============ ============ ============
LIABILITIES AND STOCKHOLDERS'DEFICIT
Current Liabilities:
Notes payable and current portion of long-term debt $ 2,847,926 $ $ 2,847,926
Notes payable - related parties 251,982 251,982
Convertible debentures 6,561,000(3) (784,000) 1,620,000
(4) (4,157,000)
Accounts payable 3,659,720 3,659,720
Accrued liabilities 3,414,610(3) (49,297) 3,068,131
(4) (297,182)
Amounts due to affiliates 968,163 968,163
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 17,703,401 (5,287,479) 12,415,922
Long-Term Debt:
Long-term debt 740,576(1) 744,000 1,484,576
Other 543,758 543,758
------------ ------------ ------------
TOTAL LIABILITIES 18,987,735 (4,543,479) 14,444,256
------------ ------------ ------------
MINORITY INTEREST 235,122 235,122
------------ ------------ ------------
PREFERRED STOCK - SERIES C SUBJECT TO
REPURCHASE AGREEMENT 500,100 500,100
------------ ------------ ------------
Stockholders' Deficit:
Preferred stock 13,174,249(2) 850,000 17,821,197
(4) 3,796,948
Common stock 6,067,803(1) 650,000 7,428,143
(3) 710,340
Warrants to purchase common stock 37,500 37,500
Accumulated deficit (19,087,348) (19,087,348)
------------ ------------ ------------
192,204 6,007,288 6,199,492
Less:
Unearned compensation (522,981) (522,981)
Subscription receivable (115,000) (115,000)
Series L preferred stock held by subsidiary - 10.6 shares (212,481) (212,481)
Common stock held by subsidiary - 791 shares (1,476) (1,476)
------------ ------------ ------------
TOTAL STOCKHOLDERS'DEFICIT (659,734) 6,007,288 5,347,554
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'DEF $ 19,063,223 $ 1,463,809 $ 20,527,032
============ ============ ============
</TABLE>
35
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations for
the three months and nine months ended September 30, 1995 and 1996. The
Company's net loss increased from $1,090,000 or $(.44) per share during the
three months ended September 30, 1995 to $2,007,000 or $(.80) per share for the
same period in 1996. The increase is primarily attributable to (1) the loss from
operations of $1,018,000 of CATN for the three months ended September 30, 1996,
which was not acquired until October 10, 1995, including amortization of
goodwill of $141,000, (2) an increase in the loss from operations of THI
(HISTORIC EVRO CORPORATION) of $205,000, (3) an increase in corporate overhead
of $525,000 which was principally attributable to accrued compensation of
directors and financial consulting services and other costs incurred to support
the Company's acquisition and financial activities, (4) interest and other
financing costs of $321,000 associated with new corporate borrowings, all
partially offset by a loss of discontinued operations of $55,000 in 1995 for
which there was no similar item in 1996, a reduction in the loss from shopping
operations reflecting the temporary discontinuance of such operations in
mid-March 1996 ($159,000) and a gain on settlement of a creditor claims of
$941,000.
The Company's net loss increased from $2,934,000 or $(1.61) per share
during the nine months ended September 3 0, 1995 to $7,78 1,000 or $(3.12) per
share during the same period in 1996. The increase is primarily attributable to
(1) the loss from operations of $3,080,000 of CATN for the six months ended June
30, 1996, which was not acquired until October 10, 1995, including amortization
of goodwill of $424,000, (2) an increase of $395,000 in the loss from operations
of THI for nine months ended September 30, 1996 as compared to the comparable
period of the prior year for which operations of THI were included only for the
period March 1, 1995 through September 30, 1995, (this loss was incurred in the
business historically operated by EVRO Corporation), (3) an increase in
corporate overhead of $1,162,000, which was primarily attributable to
accounting, legal and financial consulting services and other costs incurred to
support the Company's acquisition and financial activities and accrued
compensation of directors, (5) interest and other financing costs of $658,000
associated with new corporate borrowings, and (6) costs associated with
convertible debenture modifications and defaults of $678,000, partially offset
by a loss of discontinued operations of $88,000 in 1995 for which there was no
similar item in 1996, a reduction in the loss from shopping operations
reflecting the temporary discontinuance of such operations in mid-March 1996
($97,000) and a gain on settlement of a creditor claims of $941,000.
Revenues, listed as "Rental, memberships, and other revenues" of $340,000,
$526,000, $987,000 and $1,042,000 for the three months and nine months ended
September 30, 1996 and 1995, respectively, on the Company's Consolidated
Statements of Operations reflect the operations of the Company's RV campgrounds
(HISTORIC EVRO CORPORATION). The decrease in revenues for the three months ended
September 30, 1996 from that reported for the same period
36
<PAGE>
in 1995 is primarily due to severe drought and weather conditions experienced
at the Company's Tres Rivers RV campground located in Glen Rose, Texas. These
conditions have limited the use of the campground for tent camping, canoeing,
and tubing. The revenues for the nine months ended September 30, 1995 reflect
the operations of the RV Campgrounds only for the period March 1, 1995 through
September 30, 1995, while revenues for the nine months ended September 30, 1996,
reflect the operations of the RV Campgrounds for the full nine month period.
Programming and advertising revenues, in the amount of $115,000 and
$800,000 reflect the operations of CATN for the three months and nine months
ended September 30, 1996. In September 1996 CATN temporarily suspended
broadcasting its entertainment programming (See Plan of Operation - Channel
America Television Network below). On September 6, 1996, the Company entered
into a Program Test Agreement with Panda America to broadcast home shopping
programming produced by Panda America over the CATN network. Panda America will
pay CATN 30% of the net profits generated by sales to affiliate introduced to
Panda America by CATN. No CATN affiliates contracted with Panda America to
broadcast the home shopping programming prior to September 30, 1996 and
accordingly, there were no related revenues.
In mid-January, 1996, TSSN initiated the sale of jewelry, gem stones and
non-sports collectibles on a limited basis through TSC from a television studio
facility located in Altamonte Springs, Florida. The shopping broadcast was
limited primarily to satellite only homes. As more fully explained later, the
Company temporarily discontinued the shopping operations in mid-March 1996.
Revenues from these limited operations were $6,700, net. Revenues from product
sales of $176,000 for the nine months ended September 30, 1995, reflect sales of
sports memorabilia through a contractual arrangement with VIA TV Network located
in Knoxville, Tennessee during January and February 1995. The sales volume was
largely attributable to cable distribution of the Nostalgia Network.
Cost of sales and revenues reported for the three months and nine months
ended September 30, 1996 and 1995 were comprised of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
09/30/96 09/30/95 09/30/96 09/30/95
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Rental, memberships and
other revenues $ 205,957 $ 257,871 $ 602,643 $ 579,714
Programming and
advertising 601,219 2,085,782
Product sales 37,217 160,302
--------- --------- ---------- ---------
Total costs of sales and
revenues $ 807,176 $ 257,871 $2,725,642 $ 740,016
========= ========= ========== =========
</TABLE>
37
<PAGE>
The decrease in cost of sales and revenues for the three months ended September
30, 1996 over the same period in 1995 for RV campground operations is primarily
due to decreased variable labor costs resulting from the reduced number of
campers and related activities. In addition, THI implemented an extensive
maintenance and refurbishment program in 1995. The cost of sales and revenues of
RV campgrounds for the nine months ended September 30, 1995 reflect the
operations for only the period March 1, 1995 through September 30, 1995, while
costs of sales and revenues for the nine months ended September 30, 1996,
reflect the operations of the RV Campgrounds for the full nine month period. The
cost of sales in 1996 for shopping operations was disproportionally high due to
limited sales volume and the cost of products used for promotions. The cost of
sales in 1995 for shopping operations, which reflect the sale of sports
memorabilia, were 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. CATN incurred a negative gross margin of
$486,000 and $1,286,000 for the three months and nine months ended September 30,
1996, respectively, which were primarily attributable to unsold advertising
time.
Selling, general and administrative expenses as reported for the three
months and six months ended June 30, 1996 and 1995 were comprised of the
following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
09/30/96 09/30/95 09/30/96 09/30/95
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
RV campgrounds $ 207,515 $ 191,312 $ 800,780 $ 646,011
Broadcasting 278,381 1,023,614
Shopping 101 154,697 573,165 716,669
Corporate 1,177,630 649,632 2,228,896 1,066,626
--------- ---------- ---------- ----------
Total selling, general and
administrative expenses $1,663,627 $ 995,641 $4,626,455 $2,429,306
========== ========== ========== ==========
</TABLE>
Selling, general and administrative expenses of RV campgrounds for the nine
months ended September 30, 1995 reflect the operations for only the period March
1, 1995 through September 30, 1995, while such costs for the nine months ended
September 30, 1996, reflect the operations of the RV Campgrounds for the full
six month period. Selling, general and administrative costs for shopping
operations for three months ended September 30, 1996 decreased in comparison to
the same period in 1995 reflecting the temporary discontinuance of operations.
Selling, general and administrative costs for shopping operations for nine
months ended September 30, 1996 primarily reflect the costs of distribution,
personnel, studio facility and other costs incurred to support the initial
shopping operations in the 1st quarter of 1996.
38
<PAGE>
During both the three months and nine months ended September 30, 1995 and
1996, Stellar billed TSSN $190,000, $190,000, $570,000, and $570,000,
respectively, for management and accounting services performed on TSSN's or the
Company's behalf Stellar charged TSSN based upon estimated time and charges
incurred by Stellar on the Company's behalf Management believes that the fees
charged to the Company and TSSN approximate the costs that would have been
incurred by TSSN if it had operated on a stand alone basis.
Interest expense for the three months ended September 30, 1996 were
$441,000 as compared to $25,000 for the comparable period in 1995 and for the
nine months ended September 30, 1996 were $891,000 as compared to $112,000 for
the comparable period in 1995. The increases were attributable to the following:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
------------- -------------
Corporate financing required to
support acquisitions and business
operations:
Convertible debentures $277,000 $544,000
Other financing 91,000 114,000
RV Campground operations 58,000 181,000
CATN operations 15,000 52,000
-------- --------
$441,000 $891,000
======== ========
Costs associated with convertible debenture modifications were comprised of (1)
additional principal of $304,000 pursuant to the original terms of the
Debentures, and (2) additional principal of $374,000 resulting from agreements
to extend mandatory redemption dates.
In April, 1995, TGHC, Inc., an inactive subsidiary, 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, the Company 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 September 30, 1996 no income had been recognized by the Company.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 12 1, Accounting for the Impairment of Long
Lived Assets and for
39
<PAGE>
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.
PLAN OF OPERATION
The Company has three primary subsidiaries, CATN, TSSN and THI. It is
anticipated that CATN and TSSN will comprise the primary future business
operations of the Company. The Company has temporarily suspended the operations
of both subsidiaries. The operations of each subsidiary will be reinstated once
the Company receives sufficient working capital to do so. THI, the Company's
only current operating subsidiary, incurred a loss of $878,000 for the nine
months ended September 30, 1996 and requires significant working capital
advances to sustain its operations. Accordingly, the Company is evaluating the
feasibility of spinning off THI to the shareholders of the Company's Series D
Preferred by issuing all of the common stock of THI held by the Company in
redemption of the Series D Preferred issued and outstanding or, in the
alternative, of suspending the operations of THI and/or selling THI and its
subsidiaries and their assets. A discussion of the Plan of Operations of CATN
and TSSN follows:
CHANNEL AMERICA TELEVISION NETWORK
CATN, a broadcast television network, enhances the Company's business plan
by affording the Company a means to distribute TSSN's programming, and,
additionally, expands the Company's entertainment business to include a
television network. Until August 1996, CATN broadcast its programming 24 hours
per day through its television network which, as of July 1O, 1996, was comprised
of 85 affiliates with a potential reach of approximately 35 million US
households, including 9.9 million direct cable homes and 4.6 million satellite
homes.
In August 1996, the Company and CATN determined to relocate CATN operations
from Connecticut, and to that end, the Company and CATN have taken the following
steps:
1. The Company and CATN are currently reevaluating the economics of
relocating the operations of CATN to either California or Florida.
2. The Company and CATN intend to continue their efforts to build a
broadcast network, offering home shopping programming and entertainment
programming.
3. With regard to the Company's home shopping programming, the Company has
entered into a Program Test Agreement with Panda America to broadcast home
shopping programming produced by Panda America over the Channel America network
beginning
40
<PAGE>
September 6, 1996 through December 31, 1996. Panda America will pay the Company
30% of net profits generated by sales to affiliates introduced to Panda America
by CATN.
4. With regard to the Company's entertainment programming, the Company has
severed its relationship with IDB Communications Group, Inc. ("IDB
Communications"), the entity that was performing the Company's "Master control"
and "uplink transmission" services. (Services necessary to format Channel
America's programming and to transmit that programming to a satellite).
Beginning in July 1996, the "master control" services were being performed by
Glendale Studios and the "uplink transmission services" were being performed by
Vyvex, Inc.
5. Channel America was able to obtain satellite transmission at rates
more favorable than those charged by AT&T, thus, the Company terminated its
agreement with AT&T and, subsequently, subleased space on a satellite through
Panda America.
6. In connection with the relocation of CATN from Connecticut, CATN has:
(a) terminated all of its employees, with the exception of David Post and Allen
Christopher; and (b) temporarily suspended broadcasting its entertainment
programming. Until the Company is in receipt of sufficient financing to
recommence its entertainment programming, Channel America will broadcast
shopping programming on a 24 hour per day basis.
7. As a result of CATN's decision to temporarily suspend its entertainment
programming, substantially all of CATN's affiliates have discontinued
broadcasting CATN's programming. CATN's management believes that many, if not
all, of the affiliates will return once the entertainment programming is
broadcast, however, there can be no assurance that the all or substantially all
of the affiliates will return to the CATN network.
8. CATN will reinstate its entertainment broadcasting once it receives
sufficient capital to do so. Management believes that it will receive sufficient
funding from the issuance of its preferred and/or common stock within the next
90 days, at which time CATN will have the ability to recommence the broadcasting
of its entertainment programming in the manner in which the Company believes
will permit CATN to broadcast such programming on a profitable basis.
TSSN
TSSN is 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.
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
41
<PAGE>
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, TSSN 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, the Company temporarily
discontinued the shopping program operations at its Altamonte Springs, Florida
television studio facility in order to relocate and consolidate its shopping
program operations with the operations of CATN. With the reinstatement of CATN's
entertainment broadcasting, the Company intends to initially commence
broadcasting the programming of TSSN, 6 hours per day, seven days per week on
CATN. Thereafter, the Company anticipates expanding such programming to 12 hours
per day, seven days per week.
CASH REQUIREMENTS. The Company 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) $6,750,000 to satisfy its existing cash needs for the repayment of
current liabilities; (2) $1,200,000 for its anticipated cash needs in the next
twelve months; (3) $450,000 to complete payments to CATN; (4) $2,350,000 for
working capital to be utilized in the operations of CATN; and (5) $2,000,000 for
working capital for TSSN. 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, however, the Company currently has no commitments to receive either
debt or equity financing and no assurance can be given that the Company will be
successful in obtaining additional equity or debt funding.
OUTLOOK
The Company has established the following objectives to achieve profitable
operations in 1997, assuming the Company is successful in its capital raising
efforts:
1. Strengthen its management team, including recruiting experienced Chief
Executive Officers for CATN;
2. Reinstate CATN entertainment broadcasting. With the reinstatement of
CATN's entertainment broadcasting, the Company intends to initially commence
broadcasting the programming of TSSN, 6 hours per day, seven days per week on
CATN. Thereafter, the Company anticipates expanding such programming to 12 hours
per day, seven days per week;
3. Consolidate the uplink and transponder facilities of CATN and TSSN.
This consolidation will provide for considerable cost savings, as well as
reducing related overhead costs;
42
<PAGE>
5. Obtain Nielsen ratings of CATN's programming to facilitate the sale of
advertising time to national advertisers;
6. Enhance the programming of CATN through joint ventures; and
7. Eliminate the loss from operations and cash operating requirements of
THI and its subsidiaries by spinning off THI to the shareholders of the
Company's Series D Preferred by issuing all of the common stock of THI held by
the Company in redemption of the Series D Preferred issued and outstanding or,
in the alternative, suspending the operations of THI and/or selling THI and its
subsidiaries and their assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses in 1994, 1995, and for the nine
months ended September 30, 1996, of $1,703,000, $7,899,000 and $7,781,000
respectively, which have adversely reduced the Company's liquidity and capital
resources. In addition, TSSN and CATN will require a substantial capital
infusion to fully establish their respective operations. The Company anticipates
that it will continue to incur losses through the fourth quarter of fiscal year
1996 and first two quarters of fiscal year 1997.
As of December 31, 1995, the Company had 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. During January and February, 1996, the Company
issued an additional $3,040,000 of 8.5% Convertible Debentures of which
$1,890,000 are due January 31, 1998 and $1,150,000 are due on October 31, 2000
(collectively referred to as the "Original Debentures"). In July, 1996, the
Company issued a $200,000 10.25% Convertible Debenture due July 2, 2001 (the
"10.25% Debenture). The Debentures were issued to individuals and corporations
located outside of the United States. The holders of the Original Debentures are
entitled, at their option, at any time commencing 41 days after issuance 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%-70% 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 Original Debentures, as amended, provide that a penalty of 30% to 50%
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 Original Debentures by certain dates. The Company did not obtain
authorization for the issuance of this common stock on a timely basis and
accordingly recorded the additional principal due on the Original Debentures.
The Original Debentures provide that in the event authorization for
issuance of the
43
<PAGE>
Common Stock is not obtained before 75 or 90 days from date of issue, the
Company is required to redeem the Original Debentures at an amount equal to the
value of the common stock into which the Original Debentures would have been
convertible at the date of redemption. As of September 30, 1996, all Original
Debentures were in default as authorization for issuance of the Common Stock was
not obtained until October 11, 1996, the date of the Company's Special Meeting
of Shareholders. Subsequent to the Company's Special Meeting of Shareholders,
the Company agreed to amend the Original Debentures to provide for a penalty of
30% to 50% of the face value of the Original Debentures in exchange for a waiver
of the mandatory redemption rights. During October 1996, all Original Debenture
holders except for two holders with Original Debentures aggregating adjusted
principal of $1,420,000 (with a mandatory redemption value of $2,339,000) agreed
to waive the mandatory redemption rights and converted their debentures into
common and/or Series B Preferred as follows:
CONVERTED BALANCE NOT
CONVERTED INTO SERIES B CONVERTED
INTO COMMON PREFERRED AS OF
STOCK STOCK 10/31/96
----------- ------------- -----------
Adjusted principal $ 784,000 $4,157,000 $1,420,000
Accrued interest 49,297 297,182 106,968
--------- ---------- ----------
Total indebtedness $ 833,297 $4,454,182 $1,526,968
========= ========== ==========
Number of shares issued upon
conversion 2,404,914 445,4182
========= ========
The Company continues to work with the remaining two Original Debenture holders
to convert these debentures into the Company's equity. Accordingly, no
adjustment has been made to adjust the liability from the face value of the
Debentures, including extension penalties, as amended, to their common stock
equivalent value. The common stock equivalent value of the Original Debentures
as of September 30, 1996 aggregated $9,070,000,
During the first quarter of 1996, the Company sold 15,000 shares of Series
C Preferred and 17 shares of Series K Preferred for $787,500, net of sales
commissions of $212,500.
On August 26, 1996, the Company borrowed $650,000 from an individual. The
promissory balloon note bears interest at the rate of 13% per annum, interest
only payable monthly, with the principal due August 26, 1998. The note is
secured by certain real estate pursuant to a Letter of Agreement with E. Carl
Anderson, Jr. ("Mr. Anderson") dated August 26, 1996. Pursuant to the Letter of
Agreement, a loan guarantee fee of $100,682 was paid to Mr. Anderson at the time
of closing. Further, the Company granted Mr. Anderson, 3,000,000 shares of
restricted common stock to be issued immediately following the Company obtaining
shareholder approval to increase its authorized common stock, together with
warrants for 2,000,000 common shares exercisable at $1.00 per share as a fee for
providing the guarantee.
44
<PAGE>
The warrants are exercisable for a period ending the later of three years or
two years from the date that the Company registers the underlying common shares
for sale to the public. The value of the common shares granted ($693,750) was
determined based on the average of the closing bid and ask prices of the
Company's common stock on the date of the Letter of Agreement, discounted to
reflect stock restrictions. The value of the warrants ($37,500) was determined
by subtracting the exercise price from the value of the underlying common shares
determined in the same manner as for the common shares granted. The value of the
common shares granted and warrants issued were recorded as deferred loan costs,
together with the loan guarantee fee ($100,682) and other loan fees and related
closing costs of $44,902 paid at closing. The deferred loan costs are being
amortized over the life of the loan.
The loan guarantee has collateral of 100 shares of the Company's Series J
Preferred (which are convertible into 5,000,000 common shares) and 27,500,000
shares of CATN, representing the Company's 51% interest in CATN. Further, the
Company has pledged its rights to receive those shares of CATN regarding the
remaining 49% interest in CATN. In the event the Company does not repay the loan
by November 24, 1996, the Company shall pay Mr. Anderson 40 shares of the
Series J Preferred held as collateral as a penalty. The Company failed to repay
the loan by November 24, 1996, and accordingly, ownership of the 40 shares of
Series J Preferred shall be transferred to Mr. Anderson. The remaining 60 shares
of Series J Preferred will continue to be held by Mr. Anderson as collateral to
the guarantee and pursuant to a Put Agreement relating to certain shares of
Series C Preferred previously purchased by Mr. Anderson (See Note 7 -
Commitments, Contingencies and Litigation). In addition, D. Jerry Diamond and
Daniel M. Boyar personally guaranteed the obligations of the Company pursuant to
the Letter of Agreement and Guarantee Agreement. The value of the Series J
Preferred to be paid as a penalty shall be determined based on the average of
the closing bid and ask prices of the Company's common stock on November 24,
1996, discounted to reflect stock restrictions. The value of 40 shares of Series
J Preferred to be paid as a penalty is estimated to be $40,000 which has been
recorded as of September 30, 1996 with a corresponding charge to operations.
On July 24, 1996, the Company borrowed $25,000 from an individual pursuant
to a promissory note due on or before August 23, 1996, which provides for
interest at the rate of 12% per annum, a loan origination fee of $12,500'. and
warrants for 25,000 shares of common stock exercisable at $1.00 per share. The
warrants lapse on July 23, 1999.
In August, 1996, the Company borrowed $60,000 from four individuals to be
repaid from the next tranche of funding to be received by the Company. As
additional consideration for the loans, the Company issued an aggregate of 6,000
shares of Series C Preferred with stated value of $60,000. Series C Preferred
stated value is convertible into common shares at a conversion price equal to
50% of the common stock's market value.
During the nine months ended September 30, 1996, the Company used the net
cash of $3,605,000 that it received from the issuance of its Debentures, sale of
preferred stock , the $650,000 balloon promissory note and other financing
aggregating $80,000 in the following
45
<PAGE>
manner: (1) payments to CATN for its acquisition ($300,000); (2) advances to or
payments on behalf of CATN ($957,000); (3) legal and accounting fees incurred to
complete certain filings with the Securities and Exchange Commission ($262,000);
(4) debt service and working capital to fund the operations of THI ($376,000);
(5) payment to Stellar for management and accounting services ($106,000); (6)
working capital for operations of TSSN and TSC ($330,000); (7) working capital
for corporate overhead operations ($269,000); (8) repayment of outstanding debt,
the proceeds of which were previously used for working capital purposes
($350,000); (9) consulting services ($405,000); and (10) the redemption of
previously issued shares of The Company's Series C Preferred ($250,000).
During the quarter ended June 30, 1996, ACL made working capital advances
of $426,000 to the Company. The Company repaid $80,000 of the advances in cash
and in July, 1996 issued 8,44,844 shares of Series L Preferred, which are
convertible into 422,422 shares of the Company's common stock, in satisfaction
of advances aggregating $287,000. The Company used the working capital advances
in the following manner: (1) debt service and working capital to find the
operations of THI ($316,000); (2) legal and accounting fees incurred to complete
certain filings with the Securities and Exchange Commission ($50,000); (3)
working capital for CATN operations ($37,000) and (4) working capital for
corporate overhead operations ($23,000).
In October 1996, the Company sold 11 shares of Series A Preferred to an
accredited investor located outside the United States for $440,000, net of
sales and closing costs costs of $110,000 paid and/or accrued at time of
closing. Each holder of Series A Preferred shall have the right, at his option,
at any time commencing 40 days after date of issuance, to convert each share
into fully paid and nonassessable shares of the Company's common stock at a
conversion price equal to the lessor of 50% of the common stock's market value
or $.75 per common share. The Shares being converted shall be multiplied by
50,000 before determining the common shares to be received. Market value is
defined to be the lower of the average closing bid price per share of the
Company's common stock for the five business days prior to conversion date or
the average closing bid price per share of the Company's common stock for the
five business days prior to subscription by the holder. On or after June 30,
1997, the holder may, at its option, may put the shares back to the Company at a
redemption price of $50,000 per share, together with accrued dividends and
penalties, if any, In addition, the holder may exercise its right to Put its
shares back to the Company if any event of default shall occur as defined in the
Certificate of Designation, Preferences, Rights and Limitations of Series A
Preferred, including events such as if the Company shall (1) become insolvent,
(2) make an assignment for the benefit of creditors, (3) consent to the
appointment of a trustee, liquidator or receiver, (4) be subject to any money
judgement in excess of $500,000 which shall remain unpaid, unvacated, unbonded,
or unstayed for a period of 15 days or more, (5) be subject to bankruptcy
proceedings instituted by or against the Company, or (6) delisted from an
exchange or over the counter market.
In November 1996, the Company sold 20,000 shares of Series C Preferred to
an accredited investor outside the United States for $160,000, net of sales and
closing costs of
46
<PAGE>
$60,000 paid and/or accrued at the time of closing.
During October and November 1996, the Company used net cash of $632,000
that it received from the sale of 11 shares of Series A Preferred and 20,000
shares of Series C Preferred in the following manner: (1) advances to or
payments on behalf of CATN ($14,000); (2) legal and accounting fees incurred to
complete certain filings with the Securities and Exchange Commission ($20,000);
(3) debt service and working capital to fund the operations of THI ($205,000);
(4) payment to Stellar for management and accounting services ($10,000); (5)
accrued payroll taxes of TSC ($44,000); (6) working capital for corporate
overhead operations ($202,000); and (7) the redemption of previously issued
shares of The Company's Series C Preferred ($20,000). As of November 30, 1996,
remaining cash proceeds of $117,000 were held in reserves for working capital.
DEFICIENCY IN WORKING CAPITAL
The Company is currently experiencing a significant deficiency in working
capital and CATN and TSSN (the Company's primary future operating subsidiaries)
have operated since their inception with a negative working capital position. As
of September 30, 1996, the Company had current assets of $357,000 and current
liabilities of $17,810,000, or a working capital deficiency of $17,453,000. The
Company is currently in default on various notes payable aggregating
approximately $1,974,000, certain of its Debentures which have a redemption
value of $2,339,000, These factors raise substantial doubts as to the Company'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 the Company will depend, among other factors,
upon management's ability to attain and maintain profitable operations; to
obtain favorable financing arrangements; to retire its current indebtedness;
and, to raise additional capital.
Despite the inability of the Company to establish positive cash flow from
its operations, it has been able to raise capital through the issuance of its
debentures, its preferred stock, and other debt financing, however, there can be
no assurance that the Company will be able to continue to issue its securities,
particularly in light of the delisting of the Company's shares of common stock,
the current closing bid price of the Company's common shares and the inadequate
number of authorized shares of common stock, which matters are further discussed
below.
DELISTED FROM NASDAQ SMALLCAP MARKET
On November 7, 1996, the Company's shares of common stock, which traded
under the symbol "CATV", were delisted from the Nasdaq SmallCap Market. The
Nasdaq Stock Market, Inc. ('Nasdaq") stated that the action was taken as a
result of the Company's failure to meet the capital and surplus requirement as
stated in Marketplace Rule 4310(c)(03). The Nasdaq Listing Qualifications Panel
("Qualifications Panel") determined that the Company could not sustain long term
compliance with the capital and surplus criterion for continued inclusion. This
determination
47
<PAGE>
was made irrespective of the Qualifications Panel findings that the Company's
capital and surplus, as of October 3 1, 1996, was approximately $3,261,000 as
shown on a Proforma Balance Sheet filed by the Company as an exhibit to Form 8-K
dated on November 4, 1996 and that the Company achieved technical compliance
with the $1,000,000 minimum capital and surplus requirement. As shown on the
proforma balance sheet set forth in Note 14 - Subsequent Events, the Company's
capital and surplus as of November 30, 1996 is $4,197,554, after providing for
an estimated reduction of Stockholders' Equity resulting from an additional loss
from operations for the two months ended November 30, 1996 of $1,450,000.
The Company has filed an appeal with Nasdaq concerning these findings. The
Company has been advised that the Review Committee will issue its decision
subsequent to the meeting of the NASD Board of Governors which is currently
scheduled for January 27, 1997.
On October 24, 1996, the Company was advised by Nasdaq that the Company's
shares of common stock have failed to maintain a closing inside bid price
greater than or equal to $1.00. To be eligible for continued listing, the
Company's shares of common stock must maintain a minimum bid price of $1.00 or,
as an alternative if the bid price is less than $ 1.00, maintain capital and
surplus of $2,000,000 and a market value of the public float of $1,000,000. The
Company has a ninety day period or until January 24, 1997 to demonstrate
compliance with the minimum $1.00 bid price or the alternative requirement. The
Board of Directors is currently evaluating its alternatives in resolving this
compliance issue including giving consideration of a reverse stock split.
INADEQUATE NUMBER OF AUTHORIZED COMMON SHARES
On October 11, 1996, the date of the Company's Special Meeting of
Shareholders, the shareholders approved an increase in the Company's shares of
authorized common stock from 2,500,000 to 100,000,000 shares with a par value of
$.OO1 per share. Given the current bid price of the Company's shares of common
stock, the Company does not have a sufficient number of authorized shares of
common stock to convert its outstanding convertible debenture and preferred
stock. On Tuesday, December 3, 1996, the closing bid price of the Company's
shares of common stock was $0.10. The Company estimates that if it converted
all of its outstanding convertible debentures and preferred stock at a closing
bid price of the Company's shares of common stock of $0.10, the Company would
be required to issue in excess of 300,000,000 shares of common stock. The has
only 100,000,000 authorized shares of common stock. Accordingly, the Company
must negotiate agreements with its major creditors and preferred and common
stockholders which agreements could be tantamount to a plan of reorganization.
If the Company is not successful in negotiating such agreements, then the only
alternative may be to seek protection under the laws of the United States
Bankruptcy Code.
48
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
10.1 Promissory Balloon Note in the amount of $650,000 dated August 26,
1996 with Paul Pritchard, Trustee, Steven Iachini, Trustee, Carl
Anderson, personally and EVRO Corporation, a Florida Corporation, as
Makers; and Robert D. Basham, as Payee.
10.2 Letter of Agreement dated August 26, 1996 between Carl Anderson and
EVRO Corporation.
27.0 Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
EVRO CORPORATION
Date: DECEMBER 5, 1996 By /s/ 0. DON LAUHER
---------------- -----------------
0. Don Lauher
Chief Financial Officer
EXHIBIT 10.1
PROMISSORY BALLOON NOTES
$650,000.00 Tampa, Hillsborough County,Florida
Date: August 26, 1996
1. PARTIES. The parties to this Promissory Note are:
1.1 Paul Pritchard, Trustee, Steven Iachini, Trustee, Carl Anderson,
personally and EVRO Corp., a Florida Corp., as Makers, with mailing
address at:
; and
1.2 Robert D. Basham, his successors and/or assigns, as Payee, with
mailing address at:
2. DEBT. This Mortgage Note is given to evidence the following debt:
2.1 Maker promises to pay to the order of Payee, the principal sum of SIX
HUNDRED FIFTY THOUSAND DOLLARS AND NO/100 ($650,000.00) in lawful money of the
United States of America at the time of payment, together with interest thereon,
at the rate and on the terms set forth herein and payable at Payee's address or
at such other place as Payee may designate in writing from time to time.
3. INTEREST.
3.1 Before Maturity or Default the Debt shall bear interest from August 26,
1996 at thirteen percent (13%) per annum, payable at $7,014.67, interest only
per month, with a final payment of $650,000.00, due August 26, 1998.
3.2 After Maturity or Default the Debt shall bear interest at the maximum
legal rate of interest chargeable to Maker (the Default Rate).
3.3 Accrued interest shall be the product of the applicable interest rate
times the number of days in each interest accrual period times the unpaid
principal balance outstanding during the applicable interest accrual period and
the product divided by 365 days.
3.4 If either the applicable interest rate or outstanding principal balance
changes during any interest accrual period, accrued interest shall be the sum of
the several accrued interest computations made for each portion of the period in
which those factors are constant.
3.5 Maker shall pay monthly installments of accrued interest, without set-
off or deduction, on the twenty sixth day of September, 1996, and the same date
of each calendar month thereafter
<PAGE>
on the twenty sixth day of September, 1996, and the same date of each calendar
month thereafter until Maturity on the twenty sixth day of September, 1998.
4. PRINCIPAL
4.1 Maker shall pay the principal amount in full on the Maturity date of
the Balloon Note, in the amount of $650,000.00.
4.2 If not sooner paid, the entire unpaid principal of this Note and
accrued interest shall be due and payable on August 26, 1998.
5. PREPAYMENT
5.1 Maker shall have the right to prepay this Note, in full, on any
install- ment payment date without premium or penalty.
5.2 Payee shall not be required to accept any part payment.
6. SECURITY
6.1 This Note is secured by certain land together with buildings and other
improvements thereon and other collateral as described in a certain Mortgage
dated August 26, 1996 (the Mortgage).
7. DEFAULT
7.1 This Note shall be in default if Maker fails to pay any installment of
interest, or principal and interest, or fails to observe or perform any provi-
sion of the Mortgage.
7.2 After default, Payee, at its option and without notice to Maker, may
accelerate this Note and declare it immediately due and payable in full.
7.3 In the event payment is not received by payee within 10 days of due
date, Payee, or its agent, will immediately notify Carl Anderson, Maker, by
certified mail, who will then have 10 days from the date of receipt of notice to
make payment, prior to payee declaring this Note in default.
8. GRACE PERIOD.
8.1 Payee shall not exercise any right or remedy provided for herein unless
Maker shall have failed to pay any principal or interest within 30 calendar days
after such payment is due.
8.2 Payee agrees to pay a late fee of 5% of any payment when payment is 10
days or greater past due.
<PAGE>
9. REMEDIES.
9.1 Payee shall be entitled to recover all costs incurred in collection and
enforcement of this Note including reasonable attorneys' fees, and if action is
brought, all costs of suit and other expenses thereof, together with reasonable
attorneys' fees at all trail and appellate levels.
9.2 Any property that may be levied on pursuant to a judgment under this
Note may be sold in whole or in part in any order designated by Payee.
9.3 The rights and remedies of Payee as provided in this Note or in the
Mortgage shall be cumulative and concurrent, and may be pursued singly, succes-
sively, or collectively at the sole discretion of Payee, and may be exercised as
often as the occasion arises.
10. WAIVERS
10.1 Maker and all endorsers, sureties, and guarantors waive notice of and
consent to any and all extensions of time, renewals, waivers, or modifications
that my be granted by Payee with respect to the payment or other provisions of
this Note, and to the release of the collateral or any part thereof, with or
without substitution, and agree that additional makers, endorsers, guarantors,
or sureties may become parties hereto without notice to them and without
affecting their liability hereunder.
10.2 Maker and all endorsers, sureties, and guarantors waive presentment
for payment, demand, notice of demand, notice of nonpayment, or dishonor,
protest, and notice of protest of this Note, and they agree that the liability
of each of them shall be unconditional, joint, and several, without regard to
the liability of any other party, and shall not be affected in any manner by any
indulgence, extension of time, renewal, waiver, or modification granted or con-
sented to by Payee.
10.3 Maker and all endorsers, sureties, and guarantors waive the right to
trial by jury of any issue arising out of or incident to this Note.
10.4 Payee shall not be deemed, by any act of omission or commission, to
have waived any of its rights or remedies hereunder unless such waiver is in
writing and signed by Payee, and then only to the extent specifically set forth
in the writing.
10.5 Failure of Payee to exercise any right or remedy on any occasion shall
not constitute a waiver of the right to exercise such right or remedy on any
other occasion.
11. GENERAL PROVISIONS.
11.1 Notice. Notice or demand may be given to the parties to this Note at
their respective addresses shown in Section 1 by prepaid U.S. mail with return
receipt requested. Either party may change its address for purposes of this
Section by notice to the other.
11.2 Definitions. The singular number includes the plural, the singular,
and the use of any gender includes all genders. The words "Maker" and Payee"
include the respective heirs, personal representatives, successors, and assigns
of Maker and Payee.
<PAGE>
11.3 Amendments. This Note may not be amended or modified, nor shall any
waiver of any provision hereof be effective, except by an instrument in writing
executed by the party sought to be charged.
11.4 Captions. The captions and headings contained in this Note are for
con- venience only and shall not be used to interpret or construe this Note.
11.5 Parties Bound. This Note shall be binding on and inure to the benefit
of the parties, their respective heirs, successors, permitted assigns, and
personal representatives.
/s/ PAUL PRITCHARD
- --------------------------------
Paul Pritchard, Trustee
/s/ STEVEN IACHINI
- --------------------------------
Steven Iachini, Trustee
/s/ CARL ANDERSON
- --------------------------------
Carl Anderson, personally
/s/ O. DON LAUHER
- ---------------------------------
EVRO, Corp., a Florida Corporation
Donald Lauher, Chief Financial Officer
EXHIBIT 10.2
[LETTERHEAD]
VIA FACSIMILE
August 26, 1996
Mr. Carl Anderson
P.O. Box 274147
Tampa, Florida 33688-4147
Re: Evro Corporation Loan Guarantee
Dear Carl:
This letter shall confirm that you shall receive certain compensation as set
forth below, for arranging and your personal guarantee of loan to EVRO Corpora-
tion ("EVRO") for $650,000. The material terms of the loan would be as follows:
The principal amount of the loan would be $650,000. The Loan shall bear interest
at the rate of 13% per annum and shall be due and payable in one year. However,
there shall be an understanding that EVRO shall pay off the loan as soon as
possible, which is estimated to be within 60 days. There shall be a loan
origination fee of $39,000 payable at the closing and funding of the loan,
together with the necessary costs of recording a mortgage, title insurance and
related closing costs.
You shall guarantee the loan to the Lender in the principal amount of up to
$650,000 and allow them to place a mortgage against three of your real estate
parcels to secure the guarantee.
<PAGE>
Mr. Carl Anderson
August 26, 1996
Page 2.
For your guarantee, you shall receive the following:
1. A grant, immediately following EVRO obtaining shareholder approval to
increase its authorized common stock in an amount sufficient so as to permit it,
of 3,000,000 shares of restricted common stock of EVRO and 2,000,000 Warrants
exercisable at $1.00 per share as a fee for providing this guarantee.
2. The Warrants would be transferable, non-callable and exercisable at $1.00
per share for a period ending the later of three years or two years from and
after the date that EVRO registers the underlying common shares for sale to the
public. Each warrant shall allow the purchase of one common share of EVRO and
the warrants shall be exercisable in any incremental amounts.
3. Jerry Diamond and Daniel Boyar shall personally guarantee Carl Anderson
against any loss resulting from his providing this guarantee.
4. In the event that EVRO fails to repay the loan in 90 days, the Company
shall pay you a penalty of 2,000,000 additional common shares. These shares
shall be pledged by EVRO as collateral during the term of the loan and shall be
returned to EVRO upon repayment if the loan is fully repaid within 90 days. If
the loan is not repaid in 90 days you will then own the aforementioned 2,000,000
shares. Additionally, 3,000,000 of the 5,000,000 shares of common stock already
in your possession, which are in the form of convertible preferred stock, will
remain with you as collateral for your new guarantee and as collateral to
guarantee EVRO's obligations under a certain Put Agreement between you and EVRO.
You shall return the balance of 2,000,000 shares held as collateral upon receipt
of an additional $95,455 which remains due under the earlier agreements signed
with EVRO.
5. You shall continue to hold the 27,500,000 share certificate representing
EVRO's ownership in Channel America Television Network, Inc. (Channel America")
as collateral for the loan guarantee. Upon repayment of the loan within 90 days
to the lender in Florida, you shall return these shares to EVRO. If the loan is
not repaid on or before 90 days, then you shall have the right to resell the
collateral to a third party for whatever consideration you shall negotiate and
you shall keep that as additional payment for your guarantee. If you receive
sufficient funds from such sale to extinguish any liability on your part in
regard to this $650,000 loan, then the personal guarantees of Jerry Diamond and
Dan Boyar will be cancelled as to this transaction.
<PAGE>
Mr. Carl Anderson
August 26, 1996
Page 3.
6. EVRO shall pledge any and all of its rights to receive those shares of
Channel America Stock that are in escrow or required to be delivered into
escrow with the Scolaro, Shulman, Cohen, et al law firm regarding the purchase
of the remaining 49% of Channel America as set forth in the purchase contracts
between EVRO and Channel America. EVRO shall pay the Channel America share-
holders for said stock, as preciously agree, by delivery of EVRO shares. These
Channel America shares shall serve as collateral subject to the same terms and
conditions described in paragraph 5 hereto.
7. You would receive $215,227 in cash proceeds at the closing of the loan,
which would include a fee of $100,682 for your guarantee. Additionally, you
shall receive $36,000 as repayment for the funds advanced to EVRO which allowed
us to file our proxy statement. You shall agree that $114,545 of the proceeds
that you receive will be applied to the $210,000 that is owed to Southern
Resource Management, Inc. under their consulting agreement.
8. EVRO will as soon as practicable, in its first registration, register for
sale to the public one-half of your shares and one-half of the shares under-
lying your warrants, and maintain an effective registration statement thereafter
or file necessary post effective amendments, if any for two years.
9. You confirm that EVRO will be authorized to issue at a later date, warrants
for common shares to the following parties at 110% of the Market Bid Price set
at that time, and that other issuances of EVRO shares or warrants to any current
insiders will be subject to your prior approval:
Diamond 1,500,000
Stellar 1,500,000
Cawal 1,500,000
Boyar 10,000,000**
**(NOTE: The above notwithstanding, 5,000,000 of Boyar's 10,000,000 warrants
will be exercisable at $4.00).
10. You agree that if the registration rights granted to you for your shares
and warrants becomes an impediment in future efforts by EVRO to raising money,
you will negotiate reasonable lock-up conditions at the time. The exercise
period for any affected warrants will be extended for a term equal to the term
of any lock-up period.
11. All future funding will be applied by EVRO first to repay the
<PAGE>
Mr. Carl Anderson
August 26, 1996
Page 4.
$650,000 loan or lesser amount if such applies. If in the meantime it becomes
necessary to pay other bills of EVRO, in the ordinary course of business, then
you would have to consent to such payments first. However, any future amount to
be paid to Boyar, Cawal, Diamond, or the Stellar Group or any member thereof
will require your approval until such time as this loan is repaid in full.
12. You have required as a condition of your guarantee that the largest EVRO
shareholder, Stellar, grants to you an option to purchase some of its shares in
EVRO, which will be dealt with directly by Stellar in a separate letter.
If these conditions are acceptable to you, please signify your acceptance by
signing below and returning by facsimile. We agree that facsimile signatures
shall be deemed as originals.
We all appreciate your help with this guarantee so that EVRO can pay its
necessary bills to keep Channel America on the air, until we receive the next
funding sufficient to pay off the loan and go forward.
Very truly yours,
EVRO CORPORATION
/s/ THOMAS L. JENSEN
- --------------------------
Thomas L. Jensen, Chairman
of the Board of Directors
/s/ STEPHEN H. COHEN
- --------------------------
Stephen H. Cohen, Director
/s/ MAX P. CAWAL
- --------------------------
Max P. Cawal, Director
/s/ D. JERRY DIAMOND
- --------------------------
D. Jerry Diamond, Director
I hereby accept the foregoing terms and conditions for my guarantee of the EVRO
loan of $650,000.
/s/ E. CARL ANDERSON
- --------------------------
E. Carl Anderson
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 30,803
<SECURITIES> 0
<RECEIVABLES> 116,615
<ALLOWANCES> 0
<INVENTORY> 77,814
<CURRENT-ASSETS> 356,627
<PP&E> 5,942,972
<DEPRECIATION> (1,023,215)
<TOTAL-ASSETS> 19,063,223
<CURRENT-LIABILITIES> 17,703,401
<BONDS> 0
500,100
13,174,249
<COMMON> 6,067,803
<OTHER-SE> (19,901,786)
<TOTAL-LIABILITY-AND-EQUITY> 19,063,223
<SALES> 6,731
<TOTAL-REVENUES> 1,793,336
<CGS> 37,217
<TOTAL-COSTS> 2,725,642
<OTHER-EXPENSES> 5,958,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 890,875
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,781,187)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (7,781,187)
<EPS-PRIMARY> (3.12)
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