<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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
------
EVRO CORPORATION
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Florida 59-3229961
- ------------------------------------ ---------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1509 S. Florida Avenue, Lakeland, Florida 33803
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(941) 683-6467
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
523 Douglas Avenue, Altamonte Springs, Florida 32714
- --------------------------------------------------------------------------------
(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 August 14, 1996, the
Company had 2,497,665 shares of Common Stock outstanding, no par value.
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EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 24,682
Notes and other receivables 72,311
Inventories 77,814
Prepaid expenses 125,595
-------------
TOTAL CURRENT ASSETS 300,402
PROPERTY, EQUIPMENT, AND PROGRAM LIBRARY
(less accumulated depreciation of $940,727) 5,073,547
OTHER ASSETS
Goodwill (less accumulated amortization of $770,047) 11,320,450
Other - net 1,844,394
-------------
TOTAL ASSETS $ 18,538,793
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 1,606,395
Notes payable - related parties 251,982
Convertible debentures 6,408,001
Accounts payable 4,457,903
Accrued liabilities 2,638,347
Amounts due to affiliates 1,080,595
-------------
TOTAL CURRENT LIABILITIES 16,443,223
LONG-TERM DEBT:
Long-term debt 1,251,008
Other 558,351
-------------
TOTAL LIABILITIES 18,252,582
-------------
MINORITY INTEREST 231,930
-------------
PREFERRED STOCK - SERIES C SUBJECT TO
REPURCHASE AGREEMENT 500,100
-------------
STOCKHOLDERS' DEFICIT:
Preferred stock, no par value, 1,250,000 shares
authorized, 353,604 shares issued and outstanding
with liquidation preference value of $17,923,322 12,338,458
Common stock, no par value, 2,500,000 shares
authorized, 2,497,665 shares issued and outstanding 5,382,476
Accumulated deficit (17,080,236)
-------------
640,698
Less:
Unearned compensation (970,312)
Subscription receivable (115,000)
Common stock held by subsidiary - 666 shares (1,205)
-------------
TOTAL STOCKHOLDERS' DEFICIT (445,819)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 18,538,793
=============
</TABLE>
See notes to consolidated financial statements
2
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EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES AND REVENUES
Rental, memberships and other revenues $ 347,076 $ 394,587 $ 646,878 $ 515,218
Programming and advertising 331,046 684,206
Product sales (256) 44,069 6,731 176,278
------------- ------------ ------------ ------------
677,866 438,656 1,337,815 691,496
COST OF SALES AND REVENUES 964,978 219,560 1,918,466 482,145
------------- ------------ ------------ ------------
GROSS MARGIN (287,112) 219,096 (580,651) 209,351
------------- ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 989,985 1,096,849 2,962,828 1,433,665
Management and accounting services 190,000 190,000 380,000 380,000
Depreciation and amortization 341,331 103,037 681,246 128,405
------------- ------------ ------------ ------------
1,521,316 1,389,886 4,024,074 1,942,070
------------- ------------ ------------ ------------
OPERATING LOSS OF CONTINUING OPERATIONS (1,808,428) (1,170,790) (4,604,725) (1,732,719)
OTHER INCOME (EXPENSES)
Interest expense (242,684) (44,190) (450,194) (87,054)
Costs associated with convertible debenture
modifications and defaults (215,842) (724,818)
Other-net (3,173) 4,665 5,657 8,983
------------- ------------ ------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (2,270,127) (1,210,315) (5,774,080) (1,810,790)
LOSS OF DISCONTINUED OPERATIONS 14,993 (33,164)
------------- ------------ ------------ ------------
NET LOSS $ (2,270,127) $ (1,195,322) $ (5,774,080) $ (1,843,954)
============= ============ ============ ============
LOSS PER SHARE DATA:
NET LOSS FROM CONTINUING OPERATIONS $ (0.91) $ (0.56) $ (2.31) $ (1.21)
LOSS OF DISCONTINUED OPERATIONS - 0.01 - (0.02)
------------- ------------ ------------ ------------
NET LOSS $ (0.91) $ (0.55) $ (2.31) $ (1.24)
============= ============ ============ ============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,497,665 2,155,238 2,497,665 1,491,637
============= ============ ============ ============
</TABLE>
See notes to consolidated financial statements
3
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EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Preferred Accumulated
Shares $ Stock Deficit
------ - ----- -------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 2,497,665 $5,382,476 $11,550,958 $(11,306,156)
Proceeds from sale of preferred stock
Series C Convertible Preferred - 15,000 shares 150,000
Series K Convertible Preferred - 17 Shares 637,500
Series F Convertible Preferred Stock issued to
acquire the minority interest of The Sports &
Shopping Network, Inc. - 28.1418 shares 0
Purchase of common stock by
Technology Holdings, Inc. - 250 shares
Stock compensation earned during the six
months ended June 30, 1996
Loss for the six months ended June 30, 1996 (5,774,080)
--------- ---------- ----------- ------------
BALANCE - JUNE 30, 1996 2,497,665 $5,382,476 $12,338,458 $(17,080,236)
========= ========== =========== ============
<CAPTION>
Common
Unearned Notes Stock Held
Compensation Receivable by THI
------------ ---------- ------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $(1,504,725) $(115,000) $ (664)
Proceeds from sale of preferred stock
Series C Convertible Preferred - 15,000 shares
Series K Convertible Preferred - 17 Shares
Series F Convertible Preferred Stock issued to
acquire the minority interest of The Sports &
Shopping Network, Inc. - 28.1418 shares
Purchase of common stock by
Technology Holdings, Inc. - 250 shares (541)
Stock compensation earned during the six
months ended June 30, 1996 534,413
Loss for the six months ended June 30, 1996
----------- --------- -------
BALANCE - JUNE 30, 1996 $ (970,312) $(115,000) $(1,205)
=========== ========= =======
</TABLE>
See notes to consolidated financial statements
4
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EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,774,080) $ (1,843,955)
Adjustments to reconcile net loss to net cash utilized by
operating activities:
Depreciation and amortization 681,246 128,405
Compensation for financial consulting services
paid in common and preferred stock 534,413 127,513
Imputed interest related to reverse purchase of
EVRO Corporation 17,903
Settlement of litigation by issuance of common
stock 39,000
Costs associated with convertible debenture
modifications or defaults 724,818
Amortization of loan costs charged to interest costs 102,376
Prepaid consulting fees 62,500
Other, net 6,935 8,317
(Increase) Decrease in current assets (11,870) 5,928
Increase in accounts payable and accrued liabilities 859,299 345,514
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (2,814,363) (1,171,375)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (40,455) (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. (100,000)
Note receivable 10,000 20,795
Decrease in deposits 133,000
Other (30,610) (11,611)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES 71,935 (218,698)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Convertible debentures 2,032,101
Notes payable 550,000
Repayment of debt (473,543) (60,942)
Proceeds from sale of preferred and common stock 787,500 749,985
Recision of preferred stock sale (250,000) (15,201)
Working capital advances from/to affiliates, net 638,649 167,993
Other (948) 9,080
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,733,759 1,400,915
-------------- --------------
NET INCREASE (DECREASE) IN CASH (8,669) 10,842
CASH, BEGINNING OF PERIOD 33,351 67
-------------- --------------
CASH, END OF PERIOD $ 24,682 $ 10,909
============== ==============
Supplemental Disclosures:
Interest paid $ 90,194 $ 58,559
============== ==============
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
EVRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The financial statements of EVRO Corporation ("EVRO" and the
"Company") and its subsidiaries as of June 30, 1996, and for the six months
ended June 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., ("Channel America"), 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 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 Channel America have been consolidated with the Company for the six
months ended June 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 EVRO and
its subsidiaries, Technology Holdings, Inc., a Florida corporation ("THI"),
TSSN, The Shopping Connection, Inc., a Florida corporation ("TSC"), and
Channel America. THI is a holding company with two wholly owned operating
subsidiaries, Treasure Rockhound Ranches, Inc., a Texas corporation ("Treasure
Rockhound") and Tres Rivers, Inc., a Texas corporation ("Tres Rivers"). THI
has one wholly owned inactive subsidiary, Lintronics Technologies, Inc.
("Lintronics"), whose operations were terminated in 1994. TSSN has two
wholly-owned subsidiaries, International Sports Collectibles, Inc. and
Microsonics International, Inc., both Florida corporations and an 80% owned
subsidiary, Centennial Sports Promotions, Inc., a Missouri corporation.
Channel America has one wholly-owned subsidiary, Channel America LPTV License
Subsidiary, Inc., whose operations were discontinued in 1992.
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
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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 six months ended June 30, 1996 of $1,703,000, $7,899,000, and
$5,774,000 respectively, which have adversely reduced the Company's liquidity
and capital resources. At June 30, 1996, the Company had current assets of
$300,000 and current liabilities of $16,443,000 or a working capital deficit of
$16,143,000, together with a stockholders' deficit of $446,000.
As of August 14, 1996, the Company is in default on all of its
convertible debentures as a result of the Company's failure to obtain
authorization for the issuance of the Common Stock on a timely basis. These
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 Debentures at an amount equal to the value of the common
stock into which the Debentures would have been convertible at the date of
redemption. As of August 14, 1996, the common stock equivalent value of the
Debentures aggregated $9,070,000. The Company is negotiating the extension of
the mandatory redemption dates with all of the Debenture holders.
EVRO intends to schedule a shareholders meeting at which EVRO will
ask its shareholders to increase the number of shares of EVRO's authorized
common and preferred stock. If the shareholders of EVRO do not approve the
increase in EVRO's authorized common stock, the holders of EVRO's Debentures
will likely demand the repayment of amounts owed to them in cash rather than
convert such Debentures into shares of EVRO's common stock as EVRO will not be
able to issue additional common shares.
The Company is also in default of a note payable to Genesee Cattle Co.
in the amount of $253,000 due June 24, 1995 (including accrued interest of
$53,000), and consulting fees of $50,000. The note payable is collateralized by
all the common stock of the company's subsidiary TSSN. On May 21, 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 $325,000 in fees. This obligation is collateralized
by 60 shares of Series J Convertible Preferred Stock ("Series J Preferred
Stock") which is convertible into 3,000,000 shares of the common stock of the
Company, and by the personal guarantees of D. Jerry Diamond, a Director, and
Daniel M. Boyar.
As of August 14, 1996, Technology Holdings is in default on notes
payable aggregating $257,000 and Channel America is in default on notes payable
aggregating $830,000.
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
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<PAGE> 8
source of additional capital nor a source of long term financing to allow for
the repayment of those creditors. Although the Company has plans in process
which it believes will allow it to obtain additional and other financing, there
can be no assurance that such plans will be implemented successfully.
The Company's current business focus is to develop and expand its home
shopping and entertainment business. The Company plans to attain future
profitable operations by developing and/or expanding (1) sources of supply of
products that it will sell at retail; (2) the ability to acquire and/or produce
and broadcast television shopping and entertainment programming; and (3) a
distribution network for such programming.
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").
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 quarter ended
March 31, 1995 reflect the operations of TSSN for the quarter ended March 31,
1995 and the operations of EVRO Corporation for the month ended March 31, 1995.
The cost of acquisition and net income for the period from February 28, 1995 to
March 14, 1995 have been reduced by imputed interest of $17,903 using a 10%
annual rate of interest.
The calculations of loss per share for the three months and six months
ended June 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 June 30, 1995, the actual number of EVRO shares outstanding.
4. ACQUISITION OF CHANNEL AMERICA TELEVISION NETWORK, INC.
During 1995, the Company executed agreements with Channel America, for
the acquisition of 100% of the issued and outstanding shares of the common
stock of Channel America for a purchase price of $7,000,000, comprised of cash
of $1,000,000 and $6,000,000 of the Company's 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.
The
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note has been extended from time to time to August 15, 1996 in exchange for the
Company's agreement to issue to Channel America 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 49% minority interest of Channel America, that required the
conversion of an aggregate of 90% of Channel America's notes payable and
preferred stock into restricted shares of Channel America's common stock.
However, in no event shall the conversion of Channel America's notes payable
and preferred stock into restricted shares of Channel America's common stock be
less than an aggregate of 75%. The Company is not in default of the note, as
extended, and the Company will not be in default of the note unless it fails to
make the cash payments due under the note in a timely manner. The Company
believes that Channel America would extend the maturity date of the note if
requested to do so by the Company as Channel America has previously granted
numerous extensions.
The Company has made working capital advances to Channel America of
$1,422,080 as of June 30, 1996. Channel America is obligated to repay the
advances on demand.
On October 10, 1995, Channel America issued 27,500,000 shares of its
common stock to the Company for the $1,000,000 of the purchase price. The
27,500,000 shares of Channel America common stock will represent at least 51%
of the issued and outstanding shares of Channel America when it completes the
conversion of the outstanding notes payable and preferred stock into common
stock as described below.
The Company issued into escrow $6,000,000 (48,000 shares) of its
Series H Preferred for the remaining 49% of the common shares of Channel
America. Under the terms of the agreements, as amended, between the companies,
the Series H Preferred is convertible into a maximum of 3,000,000 shares of the
Company's common stock, unless the market price of such common shares was less
than $2.00 per share as of December 31, 1995. If the market price of the
Company's common stock was less than $2.00 per share at December 31, 1995, then
the number of common shares would be increased to attain the ascribed value of
$6,000,000. At December 31, 1995, the average of the closing bid and ask
prices for the Company's common stock was $1.5938. Accordingly, the Company
shall issue, upon conversion of the Series H Preferred, 3,764,588 shares of
the Company's common stock to the minority shareholders of Channel America.
The Series H Preferred will be held in escrow, pending (a) the conversion of an
aggregate of 75% of Channel America's notes payable and preferred stock (which
totaled $7,690,000 as of June 30, 1995) into shares of Channel America's common
stock; (b) the Company increasing the number of its authorized shares of common
stock; and (c) the Company registering the shares of common stock underlying
the Series H Preferred with the Securities and Exchange Commission. The
acquisition of the remaining 49% minority interest of Channel America in
exchange of the Company's common stock is not contingent upon the full payment
of the $400,000 promissory note discussed above.
The conversion of Channel America's note and preferred stock holders
into shares of Channel America's common stock was a significant consideration
in the Company's decision to
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acquire Channel America. Before the closing of the agreements on October 10,
1995, Channel America provided to the Company written acceptances from note and
preferred stock holders whereby the holders accepted the Conversion Plan to
convert their notes and preferred stock into Channel America's common stock.
The written acceptances represented in excess of 80% of the total notes payable
and preferred stock outstanding as of June 30, 1995. As of June 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 Channel America'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 Channel America's common stock. The
Company recorded the conversion of both groups of debt and equity holders as if
their conversion had occurred on October 1, 1995.
5. CONVERTIBLE DEBENTURES
As of December 31, 1995 the Company issued $1,000,000 of 8.5%
Convertible Debentures due October 31, 2000 and $500,000 of 9.5% Convertible
Debentures due November 27, 2000. 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 "Debentures"). The Debentures were
issued to individuals and corporations located outside of the United States.
The holders of the Debentures are entitled, at their option, at any time
commencing 41 days after 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 Debentures, as amended, provide that a penalty of 10% to 30% of
the face value of the Debentures be added to principal in the event that the
Company does not obtain shareholder authorization to increase its authorized
shares of common stock necessary to satisfy the Company's conversion obligation
under the Debentures by certain dates. The Company has not obtained the
authorization for the issuance of this common stock and accordingly recorded
the additional principal due on the Debentures.
The 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 Debentures at an amount equal to the value of
the common stock into which the Debentures would have been convertible at the
date of redemption. As of June 30, 1996, all Debentures were in default as
authorization for issuance of the Common Stock has not yet been obtained.
Overall, the Debenture holders continue to support the Company and have not
demanded redemption of the Debentures. The Company has agreed to redeem one
Debenture with a face value of
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$150,000 for an aggregate amount of $250,000. Management believes that the
balance of the Debentures holders will continue to hold the Debentures for
conversion into common stock upon the Company obtaining shareholder approval to
increase its authorized shares. Once the Company receives notice from the
Securities and Exchange Commission that it can mail its proxy statement to its
shareholders and can therefore schedule its special shareholders meeting,
management will then be able to negotiate final extensions of the mandatory
redemption dates. 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 Debentures as of June 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 $371,000 resulting
from agreements to extend mandatory redemption dates.
[Balance of page intentionally left blank]
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6. NOTES PAYABLE
Notes and mortgage notes payable, as of June 30, 1996, are comprised
of the following:
<TABLE>
<CAPTION>
Related
Parties Other
------- -----
<S> <C> <C>
Note payable to a company at 10% per annum interest, due December 5,
1995, having as collateral TSSN common stock. $ $ 200,000
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, stock
of Treasure Rockhound, and 27,500 shares of the Company. 1,809,376
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
Convertible Preferred Stock. 200,000
Notes payable to banks at 11-14% per annum interest, payable in monthly
installments including interest aggregating $614, due February, 1998
through August, 2000, having as collateral equipment located at the RV 12,186
campgrounds.
Notes payable to former supplier, non-interest bearing 28,014
Note payable to a corporation at 7% per annum interest, due December 31,
1995, as extended, without collateral. 30,000
Debt of Channel America:
Senior convertible debentures payable at 10% per annum interest,
principal and interest due March 31, 1995 having as collateral all
tangible and intangible assets of Channel America. 5,000
Subordinated notes payable at 10% per annum interest, due December
31, 2000. 196,825 295,219
Fixed rate notes payable at 10% per annum, due August 31, 1996,
having as collateral certain broadcast stations and construction
permits owned by Channel America. 20,157 48,498
Five year notes payable at 10% per annum interest, due 1995 to 2000. 230,118
Two year notes payable at 10% per annum interest, due 1995 and 1996. 30,000
Fixed rate note payable on demand at 15% interest per annum. 3,992
---------- ----------
Total notes and mortgage payables 251,982 2,857,403
Less current portion 251,982 1,606,395
---------- ----------
Long term notes and mortgages $ 0 $1,251,008
========== ==========
</TABLE>
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 June 30,
1996, the Company has paid $350,000 of principal on the note leaving a balance
of $200,000 plus accrued interest of $53,000. The note is currently in
default.
12
<PAGE> 13
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 Stock.
As of August 14, 1996, THI is in default on an unsecured note payable
of $16,667 and a mortgage note payable aggregating $240,164 secured by a mobile
home park.
Channel America is in default with respect to its long-term debt and,
accordingly, the entire amount has been classified as current liabilities. As
more fully described in Note 4 - Acquisition of Channel America Television
Network, Inc., the conversion of Channel America's note and preferred stock
holders into shares of Channel America's common stock was a determinative item
in the Company's decision to acquire Channel America. The following debt of
Channel America was outstanding as of June 30, 1996, for which the holders had
accepted the Conversion Plan to convert their notes into Channel's America's
common stock. The debt was considered to have been converted in the recording
of the acquisition of Channel America.
<TABLE>
<CAPTION>
Related
Parties Other
------- -----
<S> <C> <C>
Senior convertible debentures payable at 5% per annum interest, principal
and interest due September 30, 1996 having as collateral all tangible and
intangible assets of Channel America $ 62,500 $
Senior convertible debentures payable at 10% per annum interest,
principal and interest due March 31, 1995 having as collateral all
tangible and intangible assets of Channel America 50,000
Subordinated notes payable at 10% per annum interest, due December 31,
2000 320,770 275,458
Fixed rate notes payable at 10% per annum, due August 31, 1996, having as
collateral certain broadcast stations and construction permits owned by
Channel America collateral 80,754 18,424
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C> <C>
Five year notes payable at 10% per annum interest, due 1995 to 2000 78,360
Two year notes payable at 10% per annum interest, due 1995 and 1996 408,906
--------- ---------
Total notes payable $ 922,930 $ 372,242
========= =========
</TABLE>
According to the Conversion Plan, the total notes payable of $1,295,172
summarized above, together with accrued interest of $225,663, convert into
2,826,707 shares of common stock of Channel America.
Maturities of long term debt over the next five years are as follows:
<TABLE>
<CAPTION>
Year Ended
June 30, Amount
-------- ------
<S> <C>
1997 $1,858,377
1998 299,519
1999 271,663
2000 118,539
2001 and thereafter 561,287
----------
$3,109,385
==========
</TABLE>
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 ($23,026) and other debt ($229,463).
On November 1, 1995, pursuant to a Stock Purchase Agreement, the
Company sold to an accredited investor, 50,000 shares of Series C Preferred for
$500,000. The buyer has an option at any time prior to October 28, 1996, as
amended, to put the shares back to the Company at a redemption price of $10.00
per share. 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 Channel
America owned by the Company and 40 shares of The Company's Series J
Convertible Preferred Stock ("Series J Preferred"), representing the equivalent
of 2,000,000 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 investor is president. The amended agreement
provides for payments of $100,000 on February 8, 1996; $25,000 on March 15,
1996;
14
<PAGE> 15
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. The Company has pledged 60 shares of the Company's Series J Preferred,
representing the equivalent of 3,000,000 common shares upon conversion, as
security for payment of the Satisfaction Payment of $400,000. In addition, D.
Jerry Diamond and Daniel M. Boyar personally guaranteed the obligations of the
Company pursuant to the Stock Purchase Agreement and Consulting Agreement. As
of June 30, 1996, the Company has paid $300,000 to Southern Resource
Management, Inc. However, the Company has not delivered to Southern Resource
Management, Inc., the aforementioned letter of credit or "Satisfaction
Payment." Thus, the Company is in default under the terms of the agreement and
Southern Resource Management, Inc. may elect to accelerate all of the payments
as a result of the default.
The Company has agreed to rescind the sale of 42,000 shares of Series
C Preferred Stock, 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
June 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 June 30, 1996, the Company has
repaid $350,000 of principal of the note, leaving a balance due of $248,000,
including accrued interest of $48,000. 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. 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
Convertible Preferred Stock 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 Convertible
Preferred Stock issued fulfills the stock obligation to Genesee Cattle Co. in
full.
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 EVRO
Corporations and its wholly
15
<PAGE> 16
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.
8. MINORITY INTEREST
Minority interest represents the par value and paid in capital of the
unconverted preferred stock of Channel America, together with accrued dividends
of $19,150. The preferred stock provides for payment of annual dividends in
the amount of six percent (6%) per annum through December 31, 1996, and
seventeen percent (17%) per annum thereafter. The preferred stock is
redeemable by Channel America, at its option, at any time at a redemption price
of 105% of its par value, provided that the subordinated notes payable due
December 31, 2000 have been fully paid. Upon failure of Channel America to pay
two consecutive dividends, the holders of the preferred stock have the right to
gain control of the Board of Directors of Channel America and convert their
shares of preferred stock into an aggregate of fifty percent (50%) of the
Company's outstanding common stock. As of June 30, 1996, Channel America has
failed to pay the 1995 dividend which aggregates approximately $13,000 for the
unconverted preferred stock.
As more fully described in Note 4 - Acquisition of Channel America
Television Network, Inc., the conversion of an aggregate of ninety percent
(90%) of Channel America's notes payable and preferred stock into shares of
Channel America's common stock was a significant consideration in the Company's
decision to acquire Channel America. As of June 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 Channel
America.
9. COMMON AND PREFERRED STOCK
COMMON STOCK - The Company has authorized common stock of 2,500,000
shares without par value, of which 2,497,665 shares were issued at June 30,
1996, of which 27,500
16
<PAGE> 17
shares have been issued as collateral. As of June 30, 1996, Technology
Holdings, Inc. held 666 common shares.
PREFERRED STOCK - The Company has authorized preferred stock of
1,250,000 shares without par value. As of June 30, 1996, the following series
of preferred stock were authorized and outstanding.
<TABLE>
<CAPTION>
Liquidation
Recorded Preference
Value Value
----- -----
<S> <C> <C>
Series A Preferred Stock, $20 par value, 100,000 shares authorized,
no shares issued or outstanding $ 0 $ 0
Series C Convertible Preferred Stock, $10 stated value, 500,000
shares authorized, 210,400 shares issued and outstanding of which
26,000 shares were issued as collateral 1,776,585 2,104,000
Series D Convertible Preferred Stock, no par value, 17,000 shares
authorized and 16,984.9 shares issued and outstanding 4,084,153 3,361,095
Series E Convertible Preferred Stock, no par value, 30,000 shares
authorized, issued and outstanding 30,000 30,000
Series F Convertible Preferred Stock, no par value, 1,680 shares
authorized, 1,352.5912 shares issued and outstanding 171,300 1,352
Series H Convertible Preferred Stock, no par value, 100,000 shares
authorized, 48,000 shares issued and outstanding 6,000,000 6,000,000
Series I Convertible Preferred Stock, no par value, 7,000 shares
authorized, 6,750 shares issued and outstanding 440,943 1,096,875
Series J Convertible Preferred Stock, no par value, 100 shares
authorized, issued and outstanding which were issued for collateral 0 5,000,000
Series K Convertible Preferred Stock, no par value, 100 shares
authorized, 17 shares issued or outstanding 637,500 850,000
Series L Convertible Preferred Stock, no par value, 100 shares
authorized, no shares issued or outstanding 0 0
Series M Convertible Preferred Stock, no par value, 40,000 shares
authorized, issued and outstanding of which 25,000 shares were
issued for collateral 74,062 400,000
----------- -----------
Total Preferred Stock, 795,980 shares designated; 338,285.3494
shares of designated series issued and outstanding of which 51,100
shares were issued for collateral 13,214,543 18,843,322
Less Series C Convertible Preferred Stock:
Shares subject to agreement to rescind sale thereof (42,000 shares) (375,985) (420,000)
Shares subject to repurchase agreement (50,000 shares) (500,100) (500,000)
----------- -----------
Adjusted Preferred Stock $12,338,458 $17,923,322
=========== ===========
</TABLE>
17
<PAGE> 18
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 L Convertible Preferred Stock has been designated by the Board of
Directors, but, no shares were issued as of March 31, 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
Stock to an accredited investor for $150,000.
On January 15, 1996, the Company issued 28.1418 shares of Series F
Convertible Preferred Stock 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 K CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with 100 shares authorized, no par value. This series
was intended to be sold to accredited investors through private placements.
In March 1996, the Company sold 17 shares of Series K Convertible Preferred
Stock ("Series K Preferred Stock") to an accredited investor located outside
the United States for $637,500, net of sales commissions and closing costs of
$212,500.
The Series K Preferred Stock has no voting rights except as provided
by operation of law does not bear dividends, and is not redeemable. As long as
the Series K Preferred Stock is outstanding, the Company cannot without the
affirmative vote or the written consent as provided by law of 80% of the
holders of the outstanding shares, voting as a class, change the preferences,
rights or limitations with respect to the Series K Preferred Stock in any
material respect prejudicial to the holders thereof, or increase the authorized
number of shares of such Series.
Each holder of Series K Preferred Stock shall have the right, at his
option, at any time after the Company increases its authorized common shares,
to convert each share into fully paid and nonassessable shares of the Company's
common stock at a conversion 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 Stock automatically
converts to common shares on June 30, 1997.
In the event of liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series K
Preferred Stock shall be entitled to receive the sum of $50,000 in
18
<PAGE> 19
cash for each share of Series K Preferred Stock 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 six months ended June 30, 1996 and 1995, Stellar
billed TSSN $380,000 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 six months ended June 30, 1996 and
1995, the Company made net payments to Stellar of $84,141 and $358,668,
respectively. As of June 30, 1996, Amounts due to Stellar aggregated $726,141.
ACL is a shareholder of the Company who, as of June 30, 1996, owned
190,018 shares of the Company's common stock, and 6,041.988 shares of the
Company's Series D Preferred Stock. The Company's Series D Preferred Stock is
redeemable, at the Company's option, by the Company tendering to the holders of
the Series D Preferred Stock all of the Company's shares of THI. In the event
the Company redeems its Series D Preferred Stock in exchange for all of the
outstanding common stock of THI, ACL will control 36% of the common stock of
THI. ACL and THI share a common management team, the members of which are
employees of either ACL or THI. The compensation paid to the employees of
either THI and ACL who provide services to both ACL and THI, together with
related payroll taxes, insurance, automobile allowances and other reimbursed
expenditures associated with such employees, are allocated between ACL and THI
based upon the percentage of time that the employees expend on behalf of either
ACL and THI. The services are billed at cost, without a mark-up. During the
period March 1,1995 through June 30, 1995, ACL billed THI $34,000 and THI
billed ACL $28,000 for management services, resulting in a net management fee
being payable to ACL of $6,000 for the four month period ending March 31, 1995.
During the period beginning January 1, 1996 and ending June 30, 1996, ACL
billed THI $35,000 and THI billed ACL $25,000 for management services,
resulting in a net management fee being payable to ACL of $10,000 for the six
month period ending June 30, 1996.
During The period March 1, 1995 through June 30, 1995, THI paid to ACL
(1) advances made in 1994 of $142,381, (2) advances of $73,789 and (3) net
management fees of $6,000. During the six month period ended June 30, 1996,
ACL advanced to the Company and THI $426,107 of which THI repaid $79,720
directly to ACL and THI indirectly repaid ACL $13,597, by paying expenses
incurred on ACL's behalf, resulting in a balance owed to ACL by THI of $354,454,
as of June 30, 1996. In July 1996, the Company repaid $287,247 of the
amounts advanced to it by ACL by issuing to ACL 8.44844 shares of the Company's
Series L Preferred Stock, which is convertible into 422,422 shares of the
Company's common stock. The advances from ACL to THI and the Company are
demand loans that do not bear interest.
19
<PAGE> 20
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 six months ended June 30, 1996 are summarized below:
<TABLE>
<CAPTION>
RV
Campgrounds Broadcasting Shopping Corporate Total
----------- ------------ -------- --------- -----
<S> <C> <C> <C> <C> <C>
Sales and revenues $ 646,878 $ 684,206 $ 6,731 $ 0 $ 1,337,815
Cost of sales and revenues 396,686 1,484,563 37,217 0 1,918,466
---------- ----------- ---------- ----------- -----------
Gross margin 250,192 (800,357) (30,486) 0 (580,651)
Operating expenses 593,265 745,233 953,064 1,051,266 3,342,828
Depreciation and amortization 185,112 479,794 16,340 0 681,246
---------- ----------- ---------- ----------- -----------
Income (loss) from operations (528,185) (2,025,384) (999,890) (1,051,266) (4,604,725)
Other items (117,041) (36,796) (1,015,518) (1,169,355)
---------- ----------- ---------- ------------ -----------
Net income (loss) $ (645,226) $(2,062,180) $ (999,890) $(2,066,784) $(5,774,080)
========== =========== ========== =========== ===========
Identifiable assets $6,804,285 $ 9,642,516 $ 334,042 $ 1,757,950 $18,538,793
========== =========== ========== =========== ===========
</TABLE>
[Balance of page intentionally left blank]
20
<PAGE> 21
12. ADDITIONAL CASH FLOW STATEMENT INFORMATION
The noncash effect of the acquisition of TSSN as of February 28, 1995
is summarized below:
<TABLE>
<S> <C>
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
-----------
Minority interest
CHANGE IN STOCKHOLDERS' EQUITY:
Issuance of Series D Convertible Preferred Stock (16,985 4,084,153
shares)
Issuance of Series E Convertible Preferred Stock (30,000 30,000
shares)
Issuance of Series H Convertible Preferred Stock
(48,000 shares)
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
===========
</TABLE>
21
<PAGE> 22
Other noncash transactions which occurred during the six months ended
June 30, 1995 are as follows:
<TABLE>
<S> <C>
Common stock issued pursuant to the 1995 Employee Stock
Compensation Plan (550,000 shares) $(1,693,750)
Compensation earned during the period 127,513
Unearned compensation as of June 30, 1995 1,566,237
Issuance of Series C Convertible Preferred Stock in settlement of
litigation (39,000 shares) (39,000)
Selling, general and administrative costs 39,000
</TABLE>
[Balance of page intentionally left blank]
22
<PAGE> 23
13. PROFORMA FINANCIAL INFORMATION
The Condensed Proforma Combined Statement of Operations shown below
for the six month period ended June 30, 1995 has been prepared as if TSSN and
Channel America 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 EVRO shares outstanding, adjusted for the number of common
shares issued to Stellar (500,000 shares).
Condensed Proforma Combined Statement of Operations
For The Six Months Ended June 30, 1995
<TABLE>
<CAPTION>
EVRO Channel
Corporation America
EVRO 01/01/95 01/01/95
Corporation through through Combined
As Reported 02/28/95 06/30/95 Adjustments Totals
----------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Sales and revenues $ 691,496 $ 174,224 $ 729,406 $ 1,595,126
Cost of sales and revenues 482,145 13,665 1,284,415 1,780,225
----------- --------- ----------- -----------
Gross margin 209,351 160,559 (555,009) (185,099)
Operating expenses 1,942,070 197,677 470,179 481,924 3,091,850
----------- --------- ----------- --------- -----------
Operating loss of
continuing from operations (1,732,719) (37,118) (1,025,188) (481,924) (3,276,949)
Other income (expense) (78,071) (300,841) (244,292) 212,872 (410,332)
----------- --------- ----------- --------- -----------
Loss from continuing
operations $(1,810,790) $(337,959) $(1,269,480) $(269,052) $(3,687,281)
=========== ========= =========== ========= ===========
Loss per share from
continuing operations $ (1.70)
===========
Average number of common
shares outstanding 2,166,917
===========
</TABLE>
23
<PAGE> 24
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 six months ended June 30, 1995 and 1996. The
Company's net loss increased from $1,195,000 or $(.55) per share during the
three months ended June 30, 1995 to $2,270,000 or $(.91) per share for the same
period in 1996. The increase is primarily attributable to (1) the loss from
operations of $961,000 of Channel America for the three months ended June 30,
1996, which was not acquired until October 10, 1995, including amortization of
goodwill of $141,000, (2) interest and other financing costs $198,000
associated with new corporate borrowings, and (3) costs associated with
convertible debenture modifications and defaults of $216,000, partially offset
by a reduction in the loss from shopping operations reflecting their temporary
discontinuance in mid-March 1996.
The Company's net loss increased from $1,844,000 or $(1.24) per share
during the six months ended June 30, 1995 to $5,774,000 or $(2.31) per share
during the same period in 1996. The increase is primarily attributable to (1)
the loss from operations of $2,062,000 of Channel America for the six months
ended June 30, 1996, which was not acquired until October 10, 1995, including
amortization of goodwill of $283,000, (2) an increase of $157,000 in the loss
from operations of THI (historic EVRO) for six months ended June 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 June 30, 1995, (this
loss was incurred in the business historically operated by EVRO), (3) an
increase in the loss from shopping operations of $60,000, (4) an increase in
corporate overhead of $634,000, which primarily attributable to accounting,
legal and financial consulting services and other costs incurred to support the
Company's acquisition and financial activities, (5) interest and other
financing costs $326,000 associated with new corporate borrowings, and (6)
costs associated with convertible debenture modifications and defaults of
$725,000, partially offset by a loss of discontinued operations of $33,000 in
1995 for which there was no similar item in 1996.
Revenues, listed as "Rental, memberships, and other revenues" of
$347,000, $395,000, $647,000 and $515,000 for the three months and six months
ended June 30, 1996 and 1995, respectively, on the Company's Consolidated
Statements of Operations reflect the operations of the Company's RV campgrounds
(historic EVRO and its subsidiaries). The decrease in revenues for the three
months ended June 30, 1996 from that reported for the same period 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 campgrounds for tent camping, canoeing,
and tubing. The revenues for the six months ended June 30, 1995 reflect the
operations of the RV Campgrounds only for the period March 1, 1995 through June
30, 1995, while revenues for the six months ended June 30, 1996, reflect the
operations of the RV Campgrounds for the full six month period. Programming
and advertising
24
<PAGE> 25
revenues, in the amount of $331,000 and $684,000 reflect the operations of
Channel America for the three months and six months ended June 30, 1996.
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 late mid-March
1996. Revenues from these limited operations were $6,500, net. Revenues from
product sales of $44,000 and $176,000 for the three months and six months ended
June 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 for the three months ended June 30, 1995
represent sales sold in the first quarter but shipped during the second quarter
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 six
months ended June 30, 1996 and 1995 were comprised of the following:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
06/30/96 06/30/95 06/30/96 06/30/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Rental, memberships and other
revenues $ 222,771 $ 179,276 $ 396,686 $ 321,843
Programming and advertising 742,053 1,484,563
Product sales 154 40,284 37,217 160,302
---------- ---------- ---------- ----------
Total costs of sales and
revenues $ 964,978 $ 219,560 $1,918,486 $ 482,145
========== ========== ========== ==========
</TABLE>
The increase in cost of sales and revenues for the three months ended June 30,
1996 over the same period in 1995 for RV campground operations is primarily due
to increased labor to provide better services to the members and public campers
together with increased promotional costs. The cost of sales and revenues of
RV campgrounds for the six months ended June 30, 1995 reflect the operations
for only the period March 1, 1995 through June 30, 1995, while costs of sales
and revenues for the six months ended June 30, 1996, reflect the operations of
the RV Campgrounds for the full six month period. The cost of sales in 1996
for shopping operations was disproportionally high due to limited sales volume
and the cost of product 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. Channel America incurred a negative gross margin of $389,000
for the three months ended March 31, 1996, which was primarily attributable to
unsold advertising time.
25
<PAGE> 26
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 six months ended
-------------------------- ------------------------
06/30/96 06/30/95 06/30/96 06/30/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
RV campgrounds $ 312,493 $ 459,381 $ 593,265 $ 454,699
Broadcasting 296,120 745,233
Shopping 24,719 220,474 573,064 561,972
Corporate 356,653 416,994 1,051,266 416,994
--------- ---------- ---------- ----------
Total selling, general and
administrative expenses $ 989,985 $1,096,849 $2,962,828 $1,433,665
========= ========== ========== ==========
</TABLE>
Selling, general and administrative costs for RV campgrounds for the three
months ended June 30, 1996 decreased from the same period in 1995 reflecting
reductions of subsidiary corporate overhead including rent, personnel costs and
insurance. Selling, general and administrative expenses of RV campgrounds for
the six months ended June 30, 1995 reflect the operations for only the period
March 1, 1995 through June 30, 1995, while such costs for the six months ended
June 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 June 30, 1996 decreased in comparison to the
same period in 1995 reflecting the temporary discontinuance of operations.
Despite the reduction incurred during the second quarter, selling, general and
administrative costs for shopping operations increased slightly for the six
months ended June 30, 1996 in comparison to the same period in 1995 due to the
costs of distribution, personnel, studio facility and other costs incurred to
support the initial shopping operations in the 1st quarter of 1996.
During both the three months and six months ended June 30, 1995 and
1996, Stellar billed TSSN $190,000, $190,000, $380,000, and $380,000 for
management and accounting services performed on TSSN's or EVRO's behalf.
Stellar charged TSSN based upon estimated time and charges incurred by Stellar
on 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 June 30, 1996 were
$243,000 as compared to $44,000 for the comparable period in 1995 and for the
six months ended June 30, 1996 were $450,000 as compared to $87,000 for the
comparable period in 1995. The increases are directly attributable to new
financing required to support the Company's acquisitions and business
operations. Accrued interest for the three months and six months ended June 30,
1996 for the
26
<PAGE> 27
Debentures were $157,000 and $274,000, respectively, including amortization of
loan costs of $60,000 and $102,000, respectively. 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 $371,000 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 June 30, 1996 no income had been recognized by
the Company.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long
Lived Assets and for Long-Lived Assets to Be Disposed of," in March, 1995.
SFAS No. 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. Adoption
of SFAS No. 121 is not expected to have a material impact on the Company's
Consolidated Financial Statements.
PLAN OF OPERATION
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 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-
27
<PAGE> 28
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 Channel America. The Company anticipates that it will operate
from facilities located in California, however, the Company has yet to obtain
such a facility. Upon the consolidation of the Company's television operations
at one studio facility, TSSN will relaunch its shopping programming on Channel
America during late evening hours, seven days a week in late 1996.
CHANNEL AMERICA
Channel America, 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. Channel America currently broadcasts its
programming 24 hours per day through its television network which, as of July
10, 1996, is 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. The Company intends to initially commence
broadcasting the programming of TSSN, 6 hours per day, seven days per week on
Channel America's network. 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 including (1) $6,000,000 to satisfy its
existing cash needs for the repayment of current liabilities; (2) $950,000 for
its anticipated cash needs in the next twelve months; (3) $450,000 to complete
payments to Channel America; (4) $1,550,000 for working capital to be utilized
in the operations of Channel America; (5) $2,000,000 for working capital for
TSSN; (6) $300,000 for THI's debt and operations; and (7) $1,500,000 to
finance the acquisition of a RV park and campground. The Company plans to
obtain funds to satisfy its cash requirements from the issuance of its capital
stock or from issuance of its debt securities, 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 1996, assuming the Company is successful in its
capital raising efforts:
1. Strengthen its management team, including recruiting
experienced Chief Executive Officers for both the Company and
Channel America;
2. Consolidate the operations of Channel America and TSSN into a
television studio facility in California. This consolidation
will provide for considerable cost savings
28
<PAGE> 29
as it will allow for the use of common uplink and transponder
facilities, as well as reducing related overhead costs;
3. Obtain Nielsen ratings of Channel America's programming to
facilitate the sale of advertising time to national
advertisers;
4. Enhance the programming of Channel America through joint
ventures with partners such as MIT-F/x, Inc. to distribute a
computer animated television series called WINGS Angela and
SBI Communications to broadcast an interactive live television
bingo game show; and
5. To further diversify the geographic regions and seasonal
variations of its RV park division, the Company is currently
negotiating the purchase of a fully developed RV park and
campground in the northeast United States, which includes
approximately 400 sites.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses in 1994, 1995, and for the
six months ended March 31, 1996, of $1,703,000, $7,899,000 and $5,774,000
respectively, which have adversely reduced the Company's liquidity and capital
resources. In addition, TSSN and Channel America will require a substantial
capital infusion to fully establish their respective operations. The Company
anticipates that it will continue to incur losses throughout its 1996 fiscal
year.
As of December 31, 1995 the Company issued $1,000,000 of 8.5%
Convertible Debentures due October 31, 2000 and $500,000 of 9.5% Convertible
Debentures due November 27, 2000. 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 "Debentures"). The Debentures were
issued to individuals and corporations located outside of the United States.
The holders of the Debentures are entitled, at their option, at any time
commencing 41 days after issue to convert any or all of the original principal
amounts of the Debenture into shares of common stock of the Company, at a
conversion price per share equal to 50%-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 Debentures, as amended, provide that a penalty of 10% to 30% of
the face value of the Debentures be added to principal in the event that the
Company does not obtain shareholder authorization to increase its authorized
shares of common stock necessary to satisfy the Company's conversion obligation
under the Debentures by certain dates. The Company has not obtained the
authorization for the issuance of this common stock and accordingly recorded
additional principal due on the Debentures.
29
<PAGE> 30
The 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 Debentures at an amount equal to the value of
the common stock into which the Debentures would have been convertible at the
date of redemption. As of June 30, 1996, all Debentures were in default as
authorization for issuance of the Common Stock has not yet been obtained.
Overall, the Debenture holders continue to support the Company and have not
demanded redemption of the Debentures. The Company has agreed to redeem one
Debenture with a face value of $150,000 for an aggregate amount of $250,000.
Management believes that the balance of the Debentures holders will continue to
hold the Debentures for conversion into common stock upon the Company obtaining
shareholder approval to increase its authorized shares. Once the Company
receives notice from the Securities and Exchange Commission that it can mail
its proxy statement to its shareholders and can therefore schedule its special
shareholders meeting, management will then be able to negotiate final
extensions of the mandatory redemption dates. 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 Debentures as of June 30, 1996
aggregated $9,070,000.
During the first quarter of 1996, the Company sold 15,000 shares of
Series C Preferred Stock and 17 shares of Series K Preferred Stock for
$787,500, net of sales commissions of $212,500.
During 1996, the Company used the net cash of $2,826,000 that it
received from the issuance of its Debentures and sale of preferred stock in
the following manner: (1) payments to Channel America for its acquisition
($300,000); (2) advances to or payments on behalf of Channel America
($671,000); (3) legal and accounting fees incurred to complete certain filings
with the Securities and Exchange Commission ($160,000); (4) debt service and
working capital to fund the operations of THI ($234,000); (5) payment to
Stellar for management and accounting services ($103,000); (6) working capital
for operations of TSSN and TSC ($330,000); (7) working capital for corporate
overhead operations ($138,000); (8) repayment of outstanding debt, the proceeds
of which were previously used for working capital purposes ($350,000); (9)
consulting services ($290,000); and (10) the redemption of previously issued
shares of The Company's Series C Preferred ($250,000).
During the three months 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 8.44844 shares of Series L
Convertible Preferred Stock, 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 fund 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 Channel America
operations ($37,000) and (4) working capital for corporate overhead operations
($23,000).
30
<PAGE> 31
On November 1, 1995, pursuant to a Stock Purchase Agreement, the
Company sold to an accredited investor, 50,000 shares of Series C Preferred for
$500,000. The buyer has an option, for a period of six months following the
date of issuance, to put the shares back to the Company at a redemption price
of $10.00 per share. 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
Channel America owned by the Company and 40 shares of the Company's Series J
Convertible Preferred Stock ("Series J Preferred"), representing the equivalent
of 2,000,000 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 investor is president. The amended agreement
provides for payments of $100,000 on February 8, 1996; $25,000 on March 15,
1996; and $125,000 each on November 1, 1996, 1997, 1998 and 1999. 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. The Company has pledged 60 shares of the Company's Series J Preferred,
representing the equivalent of 3,000,000 common shares upon conversion, as
security for payment of the Satisfaction Payment of $400,000. In addition, D.
Jerry Diamond and Daniel M. Boyar personally guaranteed the obligations of the
Company pursuant to the Stock Purchase Agreement and Consulting Agreement. As
of June 30, 1996, the Company has paid $300,000 to Southern Resource
Management, Inc. However, the Company has not delivered to Southern Resource
Management, Inc., the aforementioned letter of credit or "Satisfaction
Payment." Thus, the Company is in default under the terms of the agreement and
Southern Resource Management, Inc. may elect to accelerate all of the payments
as a result of the default.
The Company is also in default of a note payable to Genesee Cattle Co.
in the amount of $253,000 due June 24, 1995 (including accrued interest of
$53,000), and consulting fees of $50,000. The note payable is collateralized by
all the common stock of the company's subsidiary TSSN. On May 21, 1996, the
note holder filed a civil action to collection 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, individually, guarantor
of the note payable.
The Company is currently experiencing a significant deficiency in
working capital and Channel America and TSSN (the Company's primary future
operating subsidiaries) have operated since their inception with a negative
working capital position. As of June 30, 1996, the Company had current assets
of $300,000 and current liabilities of $16,443,000, or a working capital
deficiency of $16,143,000, together with a stockholders' deficit of $446,000.
The Company is currently in default on various notes payable aggregating
approximately $1,287,000 and all of its Debentures which have a stock common
equivalent values of $9,070,000. 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.
31
<PAGE> 32
The Company intends to schedule a shareholders meeting at which the
Company will ask its shareholders to increase the number of shares of the
Company's authorized common and preferred stock. If the shareholders of the
Company do not approve the increase in the Company's authorized common stock,
the holders of the Company's Debentures will likely demand the repayment of
amounts owed to them in cash rather than convert such Debentures into shares of
the Company's common stock as the Company will not be able to issue additional
common shares. Thus, it is critical to the success of the Company that the
shareholders of the Company's common stock increase the authorized shares of
the Company's common stock. Not only are the increased shares needed for
possible issuance to Debenture holders, but, such shares are also required to
raise additional capital for the Company. On the other hand, if the
shareholders of the Company fail to increase the authorized shares of the
Company's preferred stock, the Company does not envision that such action will
materially impact the Company, although it will limit the Company's ability to
engage in certain financing transactions requiring the issuance of preferred
stock. If the shareholders of the Company do not approve an increase in the
Company's common stock, the Company will likely seek to renegotiate the terms
of its existing Debentures to extend the maturity date thereof, however, there
can be no assurance that the Debenture holders would extend the terms of the
Debentures in which case, if payment of a substantial amount of the Debentures
were demanded, the Company would likely be unable to meet such request.
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 and its preferred stock, however, there can be no assurance that
the Company will be able to continue to issue its securities.
[Balance of page intentionally left blank]
32
<PAGE> 33
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT # DESCRIPTION OF DOCUMENT
- --------- -----------------------
2.01 Eighth Amended Agreement to Stock Purchase Agreement,
Agreement of Plan and Merger, and Escrow Agreement by and
among Channel America Television Network, Inc., EVRO
Corporation and Scolaro, Shulman, Cohen, Lawler & Burstein,
P.C. dated August 8, 1996.
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 August 16, 1996 By /s/ O. Don Lauher
--------------------- ---------------------------
O. Don Lauher Chief
Financial Officer
33
<PAGE> 1
EXHIBIT 2.01
EIGHTH AMENDED AGREEMENT
TO
STOCK PURCHASE AGREEMENT,
AGREEMENT AND PLAN OF MERGER,
AND
ESCROW AGREEMENT
THIS EIGHTH AMENDED AGREEMENT (this "Agreement"), made and entered
into this 8th day of August, 1996, by and among CHANNEL AMERICA TELEVISION
NETWORK, INC., a Delaware corporation (the "Company"), having offices located
in Darien, Connecticut, EVRO CORPORATION, a Florida corporation ("Purchaser"),
having offices located in Lakeland, Florida, and SCOLARO, SHULMAN, COHEN,
LAWLER & BURSTEIN, P.C., a New York professional corporation, with its
principal place of business located in Syracuse, New York.
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into a certain Stock Purchase
Agreement dated July 13, 1995 ("the Stock Purchase Agreement");
WHEREAS, the parties hereto have entered into a certain Agreement and
Plan of Merger dated July 13, 1995 (the "Merger Agreement");
WHEREAS, the parties hereto have entered into a certain Escrow
Agreement dated July 13, 1995 (the "Escrow Agreement");
WHEREAS, the parties hereto have entered into certain amendments to
the Stock Purchase Agreement, the Merger Agreement and the Escrow Agreement
dated September 18, 1995, October 3, 1995, October 26, 1995, February 7, 1996,
February 29, 1996, April 23, 1996 and June 20, 1996 (the "Prior Amendments");
and
WHEREAS, the parties desire to amend the aforementioned agreements by
waiving the condition of requiring the conversion of ninety percent (90%) of
the debt and preferred stock of Channel America as further stated herein in
order to expedite the closing of the purchase by Purchaser of the remaining
forty-nine percent (49%) of the minority interest of Channel America;
WHEREAS, the parties hereto desire to further amend the Stock Purchase
Agreement, the Merger Agreement and the Escrow Agreement, as heretofore amended
pursuant to the Prior Amendments (collectively, the "Agreements"), as set forth
herein.
NOW, THEREFORE, in consideration of the foregoing, the covenants,
agreements, conditions and promises hereinafter set forth, the sum of One
Dollar ($1.00) each paid to the other in hand, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
<PAGE> 2
1. Waiver of Default; Extension of Term. The Company and
Purchaser hereby agree to extend the dates for payment of the $400,000
installment payment due to the Company under the Stock Purchase Agreement and
evidenced by a promissory note (the "Note") due and payable on August 15, 1996,
as amended. The Note shall be extended until October 15, 1996 in consideration
of the Purchaser agreeing to the waiver set forth in Paragraph 2 hereof.
Upon execution of this Amendment, the Company and the parties hereto
hereby acknowledge and expressly agree that no default of any of the referenced
agreements has occurred and that all of the Agreements are legally binding and
still in full force and effect.
2. Waiver of 90% Condition. The condition as set forth in the
Merger Agreement Paragraph 8.1(c) and the Escrow Agreement Paragraph 3(d) and
as authorized pursuant to the Merger Agreement Paragraph 9.7, which confirms
that either party may waive any contractual condition, and as further set forth
in the Escrow Agreement Paragraph 3(d) that requires "... that an aggregate of
ninety percent (90%) of its note holders and preferred shareholders ... convert
their notes and preferred shares into voting restricted common stock of the
Company" is hereby expressly waived by the Purchaser. Pursuant to the Escrow
Agreement Paragraph 3(c), the Company shall certify the amount of the note
holders and preferred shareholders that have agreed to convert their position,
but in no event shall the parties agree to accept less than an aggregate of
seventy-five percent (75%) as required in Paragraph 3(c)(I). The Company
agrees to provide the Purchaser with such certification as soon as possible
upon execution hereof.
3. Entire Agreement. The Agreements, as amended by this
Amendment, contain the entire agreement of the parties regarding the subject
matter thereof, and supersedes all prior agreements and understandings, written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. Notwithstanding anything to the contrary contained herein, unless this
Amendment specifically amends a provision contained in the Agreements, the
terms and conditions of the Agreements shall remain in full force and effect.
In case of a discrepancy or conflict between this Amendment and the Agreements,
this Amendment shall be controlling and the parties agree to use their best
efforts to fully implement the spirit and intent of this Agreement.
4. Governing Law. This Amendment and the rights and obligations
of the parties shall be governed by and construed and enforced in accordance
with the substantive laws of the State of Florida.
5. Counterparts and Facsimile Signatures. This Amendment may be
executed in multiple counterparts, each of which shall be deemed an original,
and all of which together shall constitute one and the same instrument.
Execution and delivery of this Amendment by exchange of facsimile copies
bearing facsimile signature of a party shall constitute a valid and binding
execution and delivery of this Amendment. Such facsimile copies shall
constitute enforceable original documents.
<PAGE> 3
IN WITNESS WHEREOF, this Amendment has been executed effective as of
the date first above written by the parties hereto.
CHANNEL AMERICA TELEVISION NETWORK, INC.
By: /s/ David A. Post
--------------------------------
David A. Post, Chairman
EVRO CORPORATION
By: /s/ Thomas L. Jensen
--------------------------------
Thomas L. Jensen, Chairman and CEO
SCOLARO, SHULMAN, COHEN, LAWLER &
BURSTEIN, P.C.
By: /s/ Stephen H. Cohen
--------------------------------
Stephen H. Cohen, Partner
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EVRO CORPORATION FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 24,682
<SECURITIES> 0
<RECEIVABLES> 72,311
<ALLOWANCES> 0
<INVENTORY> 125,595
<CURRENT-ASSETS> 300,402
<PP&E> 6,014,274
<DEPRECIATION> 940,727
<TOTAL-ASSETS> 18,538,793
<CURRENT-LIABILITIES> 16,443,223
<BONDS> 0
500,100
12,338,458
<COMMON> 5,382,476
<OTHER-SE> (18,166,753)
<TOTAL-LIABILITY-AND-EQUITY> 18,538,793
<SALES> 6,731
<TOTAL-REVENUES> 1,337,815
<CGS> 37,217
<TOTAL-COSTS> 1,918,466
<OTHER-EXPENSES> 4,024,074
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 450,194
<INCOME-PRETAX> (5,774,080)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,774,080)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,774,080)
<EPS-PRIMARY> (2.31)
<EPS-DILUTED> (2.31)
</TABLE>
