<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/x/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Evro Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
EVRO CORPORATION
1509 South Florida Avenue, Suite 3
Lakeland, Florida 33803
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a special meeting of the Shareholders (the
"Shareholders' Meeting") of EVRO Corporation (the "Company") will be held at
The Inn at Maingate located at 3011 Maingate Lane, Kissimmee, Florida 34747,
July 1, 1996 at 10:00 a.m., for the following purposes:
1. To approve an increase in the Company's shares of authorized
common stock from 2,500,000 to 100,000,000 shares, each of which shall have a
par value of $0.001;
2. To approve an increase in the Company's shares of authorized
preferred stock from 1,250,000 to 25,000,000 shares, each of which shall have a
par value of $0.001;
3. To authorize the Company to change its name to Channel America
Broadcasting, Inc.;
4. To elect a board of directors for the ensuing year;
5. To authorize the Company to offer to purchase the fractional
shares resulting from the one for twenty reverse stock split of the Company's
capital stock effective January 26, 1995, at the market price on the date of
the Shareholders' Meeting; and
6. To consider and act upon such other business as may be
properly presented to the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business May 29, 1996,
as the record date for determination of the shareholders of common and
preferred stock entitled to notice of and to vote at the meeting or any
adjournment thereof.
A form of Proxy and Proxy Statement accompany this Notice of Special
Meeting. A copy of the Company's Annual Report on Form 10K-SB for the Year
Ended December 31, 1995 and the Company's Quarterly Report on Form 10Q-SB for
the Three Months Ended March 31, 1996 are also included. The Proxy covers all
shares of common stock held by you directly.
IF YOU DO NOT EXPECT TO BE PRESENT AT THE SHAREHOLDERS' MEETING IN
PERSON, PLEASE PROMPTLY SIGN THE ACCOMPANYING PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE.
By Order of the Board of Directors,
----------------------------------------
Stephen H. Cohen
Corporate Secretary
May , 1996
--
<PAGE> 3
PRELIMINARY COPY
EVRO CORPORATION
1509 South Florida Avenue, Suite 3
Lakeland, Florida 33803
PROXY STATEMENT
FOR
A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 1, 1996
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement and the accompanying form of proxy are being
mailed on or about June 7, 1996, in connection with the solicitation by the
Board of Directors of EVRO Corporation (the "Company"), a Florida corporation,
of proxies to be used at a special meeting (the "Shareholders' Meeting") of its
common shareholders, its Series E Convertible Preferred Shareholders, its
Series F Convertible Preferred Shareholders and its Series M Convertible
Preferred Shareholders (collectively, the "Shareholders"). The Shareholders'
Meeting will be held on July 1, 1996 at 10:00 am at The Inn at Maingate located
at 3011 Maingate Lane, Kissimmee, Florida 34747. The mailing address for the
Company's principal executive offices is 1509 South Florida Avenue, Suite 3,
Lakeland, Florida 33803.
The cost of preparing, assembling and mailing this Proxy Statement and
the cost of further solicitation hereinafter referred to are to be borne by the
Company. Solicitations may further be made by directors, officers and regular
employees of the Company without additional compensation, by use of the mails,
telephone, telegraph or by personal interview. The Company may retain outside
agents to assist in the solicitation of proxies, at a cost not anticipated to
exceed $5,000 plus expenses. Brokerage houses and other nominees of record
will be requested to forward all proxy solicitation material to the beneficial
owners, and their expenses in such regard will also be paid by the Company.
All proxies are being solicited by mail in the accompanying form, but further
solicitation following the original mailing may be made by Board
representatives or agents by telephone, telegraph or personal contact with
certain shareholders.
<PAGE> 4
Execution of the enclosed proxy will not affect a shareholder's rights
to attend the meeting or vote in person. A shareholder giving a proxy may
revoke it at any time before exercise, by either notifying the Secretary of the
Company of its revocation, submitting a substitute proxy dated subsequent to
the initial one or attending the Shareholders' Meeting and voting in person.
All properly executed proxy cards delivered pursuant to this solicitation and
not revoked will be voted at the Shareholders' Meeting in accordance with the
directions given. If no specific instructions are given with regard to the
matter to be voted upon, the shares represented by a signed proxy card will be
voted FOR the proposed increase in the number of the Company's authorized
common shares from 2,500,000 to 100,000,000, each of which shall have a par
value of $.001, FOR the proposed increase in the number of the Company's
authorized preferred shares from 1,250,000 to 25,000,000, each of which shall
have a par value of $.001, FOR the proposed name change from "EVRO Corporation"
to "Channel America Broadcasting, Inc.," FOR the election of the nominees
listed below under the caption "Election of Directors", FOR the purchase of
fractional shares resulting from the one for twenty reverse stock split of the
Company's capital stock effective January 26, 1995 at the market price on the
date of the Shareholders' Meeting, and, if any other matters properly come
before the Shareholders Meeting, the persons named as Proxies will vote upon
such matters according to their best judgment.
A proxy card is enclosed for your use. YOU ARE SOLICITED ON BEHALF OF
THE BOARD TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE.
A copy of the Company's Annual Report on Form 10K-SB for the Year
Ended December 31, 1995 and the Company's Quarterly Report on Form 10Q-SB for
the Three Months Ended March 31, 1996, which include the Company's financial
statements for the fiscal year ended December 31, 1995, and the three month
period ended March 31, 1996, respectively, are being mailed to you with this
Proxy Statement.
DEADLINES FOR SHAREHOLDERS' PROPOSALS TO BE INCLUDED IN THE NEXT PROXY STATEMENT
Any proposals that one or more shareholders of the Company wish to
submit for shareholder action at the next annual meeting of shareholders must
be received by the Secretary of the Company within a reasonable period of time
before the solicitation is made.
2
<PAGE> 5
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only those shareholders of record at the close of business on May 29,
1996 will be entitled to vote at the Shareholders' Meeting. The Company
currently has four classes of stock entitled to vote (collectively, the "Voting
Stock"): common stock, Series E Convertible Preferred Stock ("Series E
Preferred"), Series F Convertible Preferred Stock ("Series F Preferred") and
Series M Convertible Preferred Stock ("Series M Preferred"). The following
table sets forth the number of outstanding shares in each class and the number
of votes to which each class is entitled.
<TABLE>
<CAPTION>
========================================================================================
Class of Stock Number of Shares Number of Votes Per
Outstanding Class
----------------------------------------------------------------------------------------
<S> <C> <C>
Common 2,497,957 2,497,957
----------------------------------------------------------------------------------------
Series E Preferred 30,000 30,000
----------------------------------------------------------------------------------------
Series F Preferred 1,352.591 1,352,591
----------------------------------------------------------------------------------------
Series M Preferred 40,000 400,000
========================================================================================
</TABLE>
[Balance of page intentionally left blank]
3
<PAGE> 6
To the Company's knowledge, the following table sets forth information
as of May 15, 1996 with respect to the beneficial ownership of the Company's
Voting Stock by each person who is known by the Company to beneficially own
more than 5% of any class of the Voting Stock, by each director, each executive
officer and by all directors and executive officers as a group. The table also
sets forth the number of shares of common stock that will be owned by such
persons or group if the Company's Shareholders approve of the increase in the
authorized shares of the Company's common stock to 100,000,000 shares, as more
fully discussed in this Proxy Statement.
COMMON SHARES
<TABLE>
<CAPTION>
After Increase in Authorized
Present Holdings Shares of Common Stock(1)
---------------- ----------------------
Title Percent Percent
Class Name and Address Amount of Class Amount of Class
----- ---------------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Common Thomas L. Jensen 275,018.80(2) 11.01% 15,465,540(3) 44.64%
(Chief Executive Officer, Chairman
of the Board and Director)
1601 Riverview Tower
Knoxville, TN 37902
Common Daniel M. Boyar(4) 0 0% 599,900 1.73%
3101 S.W. 34th Avenue #905-427
Ocala, FL 34474
Common Stephen H. Cohen 275,018.80 11.01% 15,751,199 45.46%
(Secretary and Director)(5)
90 Presidential Plaza
Syracuse, NY 13202
Common D. Jerry Diamond (Director) 21,738.85 *(6) 646,756(7) 1.87%
1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Common Max P. Cawal (Director) 10,000.00 *(6) 10,000 *(6)
8731 Fernwick Court
Orlando, FL 32819
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
After Increase in Authorized
Present Holdings Shares of Common Stock
---------------- ----------------------
Title Percent Percent
Class Name and Address Amount of Class Amount of Class
----- ---------------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Common O. Don Lauher 275,018.80 11.01% 15,465,540 44.64%
(Treasurer and Chief Financial Officer)(8)
1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Common The Stellar Companies, Inc. 275,018.8(2) 11.01% 15,465,540 44.64%
c/o EVRO Corporation
1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Common American Clinical Labs, Inc. 0 0 625,018 1.80%
1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Common All Executive Officers and Directors as a 306,757.65 12.28% 16,407,955 47.36%
Group (5 Persons)
PREFERRED SHARES
Series E Boyar Holdings, Inc. 4,499 15.00% n/a n/a
Preferred 3101 S.W. 34th Avenue #905-427
Ocala, Fl 34474
Series E Blackhawk Financial Group, Inc. 4,000 13.33% n/a n/a
Preferred 1211 Tech Boulevard, Ste. 101
Tampa, FL 33619
Series E American Clinical Labs, Inc. 3,500 11.67% n/a n/a
Preferred 1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Series E E. Carl Anderson, Jr. 7,000 23.33% n/a n/a
Preferred P.O. Box 274147
Tampa, Florida 33688-4147
Series E Rick Herrera 6,500 21.67% n/a n/a
Preferred c/o Bretney Corporation
8321 Wornall Street
Kansas City, MO 64114
Series F The Stellar Companies, Inc. 1,185.6502 87.66% n/a n/a
Preferred c/o EVRO Corporation
1509 S. Florida Avenue, Ste. 3
Lakeland, FL 33803
Series F Scolaro, Shulman, Cohen, Lawler & 3.5659 *(6) n/a n/a
Preferred Burstein, P.C.
90 Presidential Plaza
Syracuse, NY 13202
Series M Daniel M. Boyar 15,000 37.50% n/a n/a
Preferred 3101 S.W. 34th Avenue # 905-427
Ocala, Florida 34474
Series M Scolaro, Shulman, Cohen, Lawler & 25,000 62.50% n/a n/a
Preferred Burstein, P.C.
90 Presidential Plaza
Syracuse, NY 13202
</TABLE>
5
<PAGE> 8
(1)The various assumptions made to determine the number of shares of
common stock that will be issued by the Company upon an increase in its
authorized shares of common stock are set forth on Schedule A to this Proxy
Statement. The outstanding shares of the Company's common stock which are
deemed to be outstanding after the increase of the Company's authorized common
stock total 34,647,625, which presumes that the Company satisfies its
obligation to the holder of the Company's Series J Preferred Stock and that
such shares are retired. See Schedule A to this Proxy Statement.
(2)Includes 275,018.8 shares owned by American Clinical Labs, Inc.
("ACL"). ACL provided The Stellar Companies, Inc., ("Stellar"), a corporation
which Mr. Jensen serves as an officer and director, an irrevocable proxy to
vote the shares of ACL until the shares owned by ACL represent less than 5% of
the Company's issued and outstanding shares of common stock. Upon the approval
of the increase in the Company's authorized shares of common stock, the proxy
shall expire.
(3)Includes 11,856,502 shares that Stellar can receive upon the
conversion of its shares of Series F Preferred Stock; and 3,609,038 shares of
common stock to be received by Stellar upon the Company's increase in its
authorized shares of common stock, representing the balance of the shares that
the Company is obligated to issue to Stellar pursuant to the terms of the
agreement, dated March 14, 1995, between the Company and Stellar, whereby the
Company acquired 98.35% of the shares of the common stock of The Sports and
Shopping Network, Inc. (collectively, the "Stellar Shares").
(4)Includes 449,900 shares of common stock of the Company which can be
issued to Boyar Holdings, Inc. ("BHI"), an entity wholly owned by Mr. Boyar,
upon BHI converting the 4,499 shares of Series E Preferred that it owns. Also
includes 150,000 shares of the Company's common stock issuable to Mr. Boyar,
upon his conversion of the 15,000 shares of Series M Preferred Stock that Mr.
Boyar owns.
(5)Mr. Cohen is a director of Stellar and is attributed with the
ownership of the shares that Stellar has voting control over and any shares
directly or indirectly owned by Stellar and, accordingly, is attributed with
the voting power of the Stellar Shares. Includes 250,000 shares of the
Company's common stock issuable to Scolaro, Shulman, Cohen, Lawler & Burstein,
P.C. ("Scolaro Shulman"), a law firm of which Mr. Cohen is a shareholder.
Also includes 35,659 shares of Common Stock issuable to a pension plan
established by Scolaro Shulman known as the Scolaro Shulman Employee's Deferred
Savings Plan and Trust f/b/o Steven H. Cohen over which Mr. Cohen has full
voting rights (the "Scolaro Shulman Pension Plan").
(6)Less than 1%.
(7)Includes shares owned directly by Mr. Diamond as well as shares that
ACL has voting control over and any shares directly or indirectly owned by ACL
after the increase in the Company's authorized shares of its common stock is
increased, inclusive of the shares of common stock that ACL would receive upon
the conversion of the Company's Series E Preferred Stock owned by ACL.
(8)Mr. Lauher is a director of Stellar and is attributed with the
ownership of the shares that Stellar has voting control over and shares
directly or indirectly owned by Stellar.
[Balance of page intentionally left blank]
6
<PAGE> 9
ELECTION OF BOARD OF DIRECTORS
The By-Laws of the Company provide that its Board of Directors shall
consist of not less than three members and not more than seven members, as may
be fixed from time to time by action of the Board of Directors or of the
shareholders. The Board is currently comprised of four members. All four
members of the Board of Directors will be elected at the Shareholders' Meeting.
The Board has no separate standing committees.
Unless authority is withheld as to the Board designated nominees, the
shares represented by Board of Directors proxies properly executed and timely
received will be voted for the election as Director of the persons who are
presently serving as Directors of the Company, as indicated below. If any such
nominee ceases to be a candidate for election for any reason, the proxy will be
voted for a substitute candidate designated by the Board of Directors. The
Board has no reason to believe the nominees will be unavailable to serve if
elected. Board members owning shares of common stock intend to either be
present and vote their shares in favor of the nominees listed below or give
their proxy in support of such nominees. The current directors listed below,
if elected, will serve a one year term, expiring on the date of the annual
meeting of shareholders in 1997. Certain information with respect to each
nominee, as well as the Company's Chief Financial Officer, is hereafter set
forth:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Thomas L. Jensen Chief Executive Officer, Chairman
of the Board and Director 61
Stephen H. Cohen Secretary and Director 50
D. Jerry Diamond Director 56
Max P. Cawal Director 51
O. Don Lauher Treasurer and Chief Financial Officer 53
</TABLE>
THOMAS L. JENSEN was elected Chairman of the Board and Director of the
Company on March 14, 1995 and has served as the Company's Chief Executive
Officer from October 3, 1995. Mr. Jensen is also Chairman of the Board, Chief
Executive Officer and President of The Stellar Companies, Inc. ("Stellar"), in
which capacities he has served since November 1992. Mr. Jensen is also
President of Olympus Development Corporation which develops commercial real
estate primarily in Florida. In addition, from 1979 until March 1993, he
served as vice president of Wood Properties, Inc., an affiliate
7
<PAGE> 10
of the Lawler-Wood Group, a closely held corporation based in Knoxville,
Tennessee. He is presently a general partner of Spacecoast Associates, Ltd.,
the managing partner of the Maingate Joint Venture, a partnership that owns The
Inn at Maingate in Orlando, Florida (located directly outside the main entrance
to Walt Disney World.) Mr. Jensen served in the Tennessee Legislature from
1967 until associating with the Lawler-Wood Group in 1979. He was elected
Minority Leader of the House of Representatives in 1970 and was floor leader
for Governor Winfield Dunn through multiple terms of office. As a legislator,
Mr. Jensen sponsored and passed several landmark bills in Tennessee, including
one that effected a restructuring of the rules of procedure, the budgeting
process and several departments of State Government, and another that
established a system of statewide public kindergartens. As a legislator, Mr.
Jensen also served on numerous national committees and boards and in 1975 was
elected President of the National Conference of State Legislatures. During his
term, the California Assembly praised him for "his active role in improving
state image at the national level and in assisting the California Legislature
and other state legislatures..." Mr. Jensen serves as Past Chairman and Member
of the Board of Metropolitan Knoxville Airport Authority, Chairman of the Board
of the Knox County Private Industry Council, Board Member of the Knoxville
Chamber of Commerce, Chairman of the Board of Trustees of the Tennessee Baptist
Foundation, and on several other business and civic boards and committees.
STEPHEN H. COHEN was elected Secretary and Director of the Company on
March 14, 1995. Mr. Cohen, a licensed attorney, is a founding partner of the
Syracuse, New York law firm of Scolaro, Shulman, Cohen, Lawler & Burstein, P.C.
("Scolaro Shulman"). Mr. Cohen has been with such law firm since its inception
in 1979 and is presently a partner with the firm. He is a member of the New
York and Pennsylvania bars, and specializes in the areas of federal income tax,
employee benefits, estate planning, and health care. Mr. Cohen received his
undergraduate degree in Accounting from Syracuse University in 1967 and his
J.D. from Syracuse University's College of Law in 1970. He is a frequent
lecturer on the topics of employee benefits and health care and has been
designated in the book, "Best Lawyers in America," in the area of employee
benefits. Mr. Cohen is also the Secretary and a director of Stellar, in which
capacity he has served since November, 1992.
D. JERRY DIAMOND was elected as Director of the Company on October 19,
1992. He served as Chairman of the Board, President and Chief Executive
Officer of the Company from October 19, 1992 until his resignation on March 14,
1995. Since October, 1994, Mr. Diamond has served as Chairman, President and
Chief Executive Officer of American Clinical Labs, Inc. ("ACL"), a Florida
corporation. From February 1992 through October 1992, Mr. Diamond was Senior
Vice President and Chief Operating Officer of Veridien Corporation, a publicly
traded healthcare company headquartered in St. Petersburg, Florida, which
specializes in infection control. From May 1988 through February 1992, Mr.
Diamond was Chairman, President and Chief Executive Officer of Coastland
Corporation of Florida, a Tampa, Florida based company specializing in the
development of businesses in the hazardous and nonhazardous waste recycling
industry. For the past 18 years, Mr. Diamond has had an extensive background
in managing publicly traded companies. Mr. Diamond is currently the Chairman
of the Board of Directors, Chief Executive Officer and President of Technology
Holdings, Inc. ("THI"), a Florida corporation and wholly owned subsidiary of
the Company.
8
<PAGE> 11
MAX P. CAWAL was appointed as a Director of the Company on March 1,
1996. From August 1990 to June 1995, Mr. Cawal served as the President of
Peak Development Co., a time share resort located in Orlando, Florida. Mr.
Cawal graduated from Queens College in New York, New York where Mr. Cawal
received a bachelor's degree in Economics. On March 1, 1996, the Company
retained Mr. Cawal as a consultant for a one year period to provide general
financial advice to the Company.
O. DON LAUHER was elected Treasurer and Chief Financial Officer of the
Company on March 14, 1995. Mr. Lauher is also Chief Financial Officer and
Treasurer of Stellar, in which capacities he has served since January 1993.
Prior to joining Stellar, Mr. Lauher served as Vice President/Chief Accounting
Officer of The Major Group, Inc. (f/k/a the Radice Corporation), a NYSE listed
company from 1982 through 1992, principally engaged in providing real estate
management and advisory services. Prior to 1989, Major was a diversified real
estate merchant builder involved in the development of commercial office parks;
residential, single-family and condominium communities; rental apartment
projects; and adult congregate living facilities with total assets
approximating $400 million. Mr. Lauher directed and monitored the overall
accounting and financial activities, including cash management, accounting,
tax, SEC compliance, MIS, construction financing, insurance and administrative
functions, prepared short and long-range financial models for all phases of the
company's operations, and its annual business plan. He coordinated the use of
the company's consultants for accounting, financial and tax matters. In
addition, he also served as corporate secretary from 1990 through 1992. Prior
to his tenure with Major, Mr. Lauher was the Chicago Regional Controller for
Levitt Homes, Inc., for five years. The annual sales for the Chicago region
were in excess of $60 million. Prior to his service with Levitt, Mr. Lauher
served as Audit Manager, Senior and Junior Accountant with Price Waterhouse &
Company for 11 years. Mr. Lauher is a member of the American Institute of
Certified Public Accountants and graduated from Southern Illinois University
with a B.S. in Accounting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH MANAGEMENT AND OTHERS
During 1996, the Scolaro Shulman Pension Plan received 3.5659 shares
of the Company's Series F Preferred Stock in exchange for the shares of The
Sports & Shopping Network, Inc. ("TSSN") formerly owned by the Scolaro Shulman
Pension Plan. See "INCREASE IN AUTHORIZED SHARES OF COMMON AND PREFERRED
STOCK--Acquisition of the Sports and Shopping Network, Inc."
In connection with the Company's acquisition of TSSN, the Company and
THI agreed that the Company would issue to the holders of the Company's common
stock as of March 27, 1995, a stock dividend consisting of the Company's Series
D Preferred Stock which has limited voting rights. The Company has the right,
but not the obligation, to redeem the Series D Preferred Stock in exchange for
all of THI's issued and outstanding capital stock.
ACL and THI provide management services to one another. The cost of
these services are based upon the percentage of time that the individuals
expend on one another's behalf, including payroll taxes, insurance, automobile
allowance, and reimbursed expenditures. The aggregate billings of each company
9
<PAGE> 12
for the period March 1, 1995 through December 31, 1995 were approximately
equal. During 1995, THI paid $12,906, on a net basis, to ACL. As of December
31, 1995, ACL was owed $11,644.
During 1995, Scolaro, Shulman provided legal services to the Company
totaling approximately $250,000. The Company agreed to issue to Scolaro,
Shulman 25,000 shares of the Company's Series M as security for the payment of
such fees. Each share of Series M Preferred is convertible into 10 shares of
the Company's common stock and has voting rights equal to 10 shares of the
Company's common stock. At any time after the Company increases its authorized
shares of common stock, Scolaro, Shulman may put its shares of Series M
Preferred to the Company at a price of $10.00 per share. If the Company is
unable or unwilling to fulfill its obligations under the put, Scolaro, Shulman
shall have the right to retain all 25,000 shares of its Series M Preferred and
shall further be entitled to receive all legal fees due and owing from the
Company or any of its subsidiaries. Stephen H. Cohen, who is both the
Company's secretary and a director, is a partner with Scolaro Shulman. While
the Board believes that the agreement reached with Scolaro, Shulman is fair to
the Company, there can be no assurance that the agreement is as favorable to
the Company as one that might have been negotiated in an arms-length
transaction.
In March 1995, the Company acquired 98.35% of the shares of the common
capital stock of TSSN, from Stellar in exchange for the Company's agreement to
issue shares of its common stock. The agreement between the Company and
Stellar has been subsequently amended and is discussed more fully elsewhere
herein.
As of December 31, 1995, Stellar was owed $430,000 by TSSN for amounts
advanced to the Company or its subsidiaries, by Stellar, or for amounts owed to
Stellar under the management agreement between TSSN and Stellar (discussed
below), which amounts do not bear interest.
TSSN has an agreement with Stellar to perform managerial and
administrative services, the terms and conditions of which are more fully
discussed elsewhere herein. See "BUSINESS OF EVRO - Employees."
TSSN also accrued an interest expense of $81,000 during 1994, payable
to Stellar, on the outstanding indebtedness evidenced by a promissory note
dated December 31, 1993, in the amount of $1,258,000. TSSN satisfied the
principal and accrued interest on the indebtedness between TSSN and Stellar, on
November 30, 1994, by issuing 1,729,908 shares of TSSN's common stock to
Stellar. TSSN also issued 2,018,226 shares of its common stock to Stellar in
satisfaction of additional advances made to TSSN by Stellar in the amount of
$404,000.
The Company entered into a one year Employment Agreement with Daniel
M. Boyar on March 15, 1995, pursuant to which Mr. Boyar was retained as
President and Chief Executive Officer of the Company at an annual salary of
$180,000. Mr. Boyar resigned as an officer and director of the Company,
effective October 3, 1995, at which time the Company entered into a
Professional Services Agreement retaining Mr. Boyar as Special Legal Counsel to
the Board of Directors at an annual compensation of $180,000. The Professional
Services Agreement has been extended to March 15, 1997. The Company also
issued Mr. Boyar 15,000 shares of its Series M Preferred for services
10
<PAGE> 13
rendered. The Company has further agreed to pay Boyar a cash bonus equal to 5%
of any gross funds received by the Company during the term of the Employment
Agreement and Professional Services Agreement in excess of $4,000,000.
In May 1994, the Company was billed approximately $77,000 by ACL for
legal and consulting services incurred by ACL on behalf of the Company. During
1994, the Company issued a total of 33,328 shares of the Company's common stock
to ACL: 13,278 shares of which were issued to ACL in exchange for shares of the
Company's preferred stock redeemed from ACL; and 20,050 shares of which were
issued to ACL as consideration for ACL paying vendors who provided services for
the benefit of the Company.
In June 1994, the Company converted ACL's 48,920 preferred shares of
the Company to common stock of the Company on a one for one basis. Also in
June 1994, the Company's Board of Directors determined and approved the
purchase of two Lintronics' dealerships from ACL in exchange for 5,500 shares
of the Company's common stock. The purchase price was determined based on the
historic purchase prices of dealerships, the most recent of which occurred in
June 1994.
At December 31, 1994, ACL owned 34% of the issued and outstanding
common capital stock of the Company. In January and February 1994, ACL repaid
the Company $214,000 for amounts due the Company at December 31, 1993. In
three separate transactions during 1994, ACL sold a total of 205,676 shares of
its the Company common stock, and loaned the proceeds totaling approximately
$1,821,000 to the Company. In May, June and December 1994, the Company repaid
ACL with the issuance of 92,438, 11,852 and 101,386 shares of the Company's
common stock, respectively. During the fourth quarter of 1994, ACL loaned the
Company approximately $192,000 for working capital purposes, of which $50,000
was repaid. At December 31, 1994, the Company owed ACL approximately $142,000.
During the first quarter of 1995, ACL advanced an additional approximate
$110,000.
SECTION 16 REPORTS
The requirements imposed by Section 16(a) of the Securities Exchange
Act of 1934, as amended, provide that the Company's Officers and Directors, and
persons who own more than ten percent of the Company's Common Stock, file
initial statements of beneficial ownership (Form 3), and statements of changes
in beneficial ownership (Forms 4 or 5) with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all such forms they file. Based solely on its review of the copies of such
forms received, the Company believes that during its fiscal year ended December
31, 1995, ACL had two late filings of Form 4 regarding two transactions,
Messrs. Donald R. Mastropietro and Max P. Cawal each had one late filing of
Form 3, and James L. Kennedy and Gerald Pennington each had one late Form 4
filing. To the Company's knowledge, the preceding persons were the only
officers, directors or greater than ten percent beneficial owners that did not
file all of the above referenced forms on a timely basis.
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<PAGE> 14
ATTENDANCE OF SEATED DIRECTORS AT 1995 DIRECTOR MEETINGS
During the Company's fiscal year ended December 31, 1995, the Board
held 18 meetings. Of the current directors, all attended at least 75% of those
meetings. The Board held no separate committee meetings during 1995.
COMPENSATION OF DIRECTORS, EXECUTIVE OFFICERS AND CONSULTANTS
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
------------------- ---------------------- --------
Restricted
Name and Other Annual Stock LTIP All Other
Principal Salary Bonus Compensation Award(s) Options/ Payouts Compensation
Position Year $ $ $ $ SAR's (#) $ $
-------- ---- -------- ------ ------------- --------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Jerry
Diamond, 1995 -0- 0
Chief 1994 135,000 0
Executive 1993 180,000(1) 5,638
Officer
Daniel M.
Boyar,
Chief 1995 97,500(2) 74,062 45,000
Executive
Officer
Thomas 1995 -0-
L. Jensen
Chief
Executive
Officer
</TABLE>
______________
(1)Included in the amount earned in 1993 is $90,000 for which payment
was deferred to 1994.
(2)Salary accrued for the six and one-half month period Mr. Boyar
served as Chief Executive Officer, of which $60,048 has been paid. The balance
of which will be paid as the Company has available cash flow. Mr. Boyar was
subsequently retained as special counsel. The amount recorded as other annual
compensation relates to accrued earnings for Mr. Boyar's services as special
counsel. (See "Certain Relationships and Related Transactions of Management
and Others.") The amount recorded as a bonus paid to Mr. Boyar was paid by the
Company's issuance to Mr. Boyar of 15,000 shares of the Company's Series M
Preferred.
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<PAGE> 15
The Company may adopt additional compensation programs at a later date
suitable for its executive personnel. The Company is unable to predict at this
time the format or manner of compensation to be included in any such program.
PROFESSIONAL SERVICES AGREEMENT
The Company entered into a one year Employment Agreement with Daniel
M. Boyar on March 15, 1995, pursuant to which Mr. Boyar was retained as
President and Chief Executive Officer of the Company at an annual salary of
$180,000. The Company further agreed to pay Boyar a cash bonus equal to 5% of
any gross funds received by the Company during the term of the Employment
Agreement in excess of $4,000,000. Mr. Boyar resigned as an officer and
director of the Company, effective October 3, 1995, at which time the Company
entered into a Professional Services Agreement retaining Mr. Boyar as Special
Legal Counsel to the Board of Directors at the same level of compensation that
he was receiving under his Employment Agreement. The Professional Services
Agreement has been extended to March 15, 1997. The Company also issued Mr.
Boyar 15,000 shares of its Series M Preferred for services rendered.
Mr. Boyar, 41, was elected President, Chief Executive Officer and
Director of the Company on March 14, 1995, positions he held until October 3,
1995 at which time he resigned as an officer and director of the Company and
was retained by the Company as Special Legal Counsel to the Board of Directors.
Mr. Boyar, a licensed attorney, is the sole owner of Boyar Holdings, Inc., an
investment company specializing in equity capital private placements,
syndications, corporate mergers and acquisitions, and growth stocks for public
companies. Mr. Boyar is a sole practitioner, who specializes in commercial
transaction law, and has practiced in either Ocala, West Palm Beach or Orlando,
Florida from December 1990 to date. From November 1993 to May 1994, Mr. Boyar
served as the secretary and special counsel to Members Service Corp., a
corporation whose shares were traded on NASDAQ. From June 1993 to July 1993,
Mr. Boyar served as the President, Chief Executive Officer and a Director of
Aspen Marine Group, Inc., also a corporation whose shares were traded on
NASDAQ. From August 1991 to date, Mr. Boyar served as the President, Chief
Executive Officer and a Director of Sportsworld 2000, Inc., a corporation whose
shares are traded in the over-the-counter market. From March 1991 to June
1991, Mr. Boyar served as the President, Chief Executive Officer and a Director
of Iroquois Brands, Ltd. a corporation whose shares were traded on the American
Stock Exchange. From January 1991 to April 1991, Mr. Boyar served as the
President, Chief Executive Officer and a Director of International Standards
Group, Inc., a corporation whose shares were traded in the over-the-counter
market. Mr. Boyar is a third generation real estate developer from southern
California, having participated in his family's home building public company at
the age of 20. He is a graduate of the University of Miami, from which he
received a Bachelor of Business Administration Degree in Finance, and of
Southwestern University School of Law, from which he completed the law school
curriculum in two years, receiving a J.D. degree. Additionally, Mr. Boyar
completed the Masters of Law Program in Taxation at Boston University,
receiving his LL.M. degree. On March 21, 1996, Mr. Boyar was indicted, and
charged with wire fraud, money laundering and violating the federal securities
laws in connection with his employment by Members Service Corporation. These
proceedings are currently pending in the United States District Court, Middle
District, State of Florida, Orlando, Division. Mr.
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<PAGE> 16
Boyar is charged with issuing false press releases, selling securities that
were not properly registered under the Securities Act of 1933, as amended, and
with making misrepresentations in connection with the sale of such securities.
Mr. Boyar has plead "not guilty" to such charges, believes such charges to be
without merit and has retained counsel to vigorously defend the charges brought
against him.
MANAGEMENT AGREEMENT WITH STELLAR
Stellar provides management, financial, administrative and marketing
services to TSSN pursuant to a Management and Services Agreement, wherein
Stellar is obligated to provide to TSSN personnel, supplies, equipment,
administrative and accounting services, management expertise, and other
resources. During the twelve months ended December 31, 1995, and 1994, Stellar
billed TSSN $1,150,000 and $760,000, respectively, for such management and
accounting services performed on TSSN's behalf, based upon estimated time and
charges incurred by Stellar on TSSN's behalf. Management believes that the
fees charged to TSSN by Stellar approximates the costs that would have been
incurred by TSSN if it had operated on a stand alone basis.
As of December 31, 1995, Stellar was owed $430,000 by the Company
principally for amounts owed to Stellar under the management agreement between
TSSN and Stellar, which amounts do not bear interest.
INCREASE IN AUTHORIZED SHARES OF COMMON AND PREFERRED STOCK
The Board has approved an amendment to the Company's Articles of
Incorporation pursuant to which the aggregated number of shares of common stock
that the Company has authority to issue would be increased from 2,500,000 to
100,000,000, with a par value of $.001 per share, and the aggregate number of
authorized shares of preferred stock would be increased from 1,250,000 to
25,000,000, with a par value of $.001 per share. If the proposed amendment is
approved by the Shareholders, the additional authorized shares could be issued
at the Board's discretion, for any proper purpose, without further approval
from the Shareholders, other than as may be required by applicable law. The
Board believes that the proposed increase in the number of authorized shares of
common and preferred stock will give the Company added flexibility to act in
the future with respect to financing programs, acquisitions and other corporate
purposes without delay and expense of stockholder action each time an
opportunity requiring the issuance of shares may arise.
ACQUISITION OF THE SPORTS & SHOPPING NETWORK, INC.
The primary reason for the proposed increase in the number of
authorized shares of common stock is to enable the Company to consummate the
acquisition of TSSN. Stellar owned 98.35% of the shares of the capital stock
of TSSN; however, Stellar had granted Boyar Holdings, Inc. ("BHI") an option to
acquire all of Stellar's shares of TSSN (the "TSSN Option"). On January 12,
1995, the
14
<PAGE> 17
Company purchased the TSSN Option from BHI, pursuant to the terms of the
Assignment of Option Agreement by and between BHI and the Company. As
consideration for the transfer of the TSSN Option, the Company issued to BHI
30,000 shares of the Company's Series E Preferred Stock which is convertible
into 3,000,000 shares of the Company's common stock after the anticipated
increase in the Company's authorized shares of common stock is made effective.
A summary of the rights and preferences of the Series E Preferred is set for
elsewhere in this Proxy Statement (See "AMENDMENTS TO THE COMPANY'S ARTICLES OF
INCORPORATION--Description of Securities").
On March 14, 1995, the Company exercised the TSSN Option and acquired
98.35% of the issued and outstanding shares of the common stock of TSSN from
Stellar in exchange for the Company's agreement to issue 16,759,038 shares of
its common stock to Stellar (the "TSSN Acquisition"). As the Company only had
2,500,000 shares of common stock authorized at the time of the exercise of the
TSSN Option, the Company and certain of its shareholders agreed to use their
best efforts to cause the Company's authorized common stock to be increased as
soon as was practicable. Pending such increase in the Company's authorized
common stock, the Company issued Stellar 500,000 shares of its authorized but
then unissued shares of common stock. Once the Company increased the number of
shares of its authorized common stock, the Company was required to issue
16,259,038 (16,759,038 - 500,000) shares of its common stock to Stellar,
representing the balance of the shares of the Company's common stock that the
Company was obligated to issue to Stellar under the purchase agreement.
Pursuant to the agreement between the Company and Stellar, the Company also
agreed to offer to purchase the remaining 1.65% of TSSN's issued and
outstanding shares of common stock held by TSSN's minority shareholders in
exchange for, in the aggregate, 281,418 shares of the Company's common stock.
Thus, the only consideration that the Company agreed to offer to the minority
shareholders of TSSN for their shares of the common stock of TSSN were shares
of the Company's common stock. If the Company issues Special Shares (as
defined herein) to THI, only Stellar, and not the minority shareholders of
TSSN, will have the option described below to purchase those shares from THI.
During the first quarter of 1996, the Company offered, and the remaining
shareholders of TSSN accepted, 28.1421 shares of the Company's Series F
Preferred Stock in exchange for all of the shares of TSSN held by persons other
than the Company. The Company has no further obligation to issue additional
consideration to the former minority shareholders of TSSN.
In conjunction with the TSSN acquisition, ACL, which then held 587,219
shares of the Company's common stock, granted Stellar an irrevocable proxy to
represent ACL or any assignee thereof at all regular and special meetings of
shareholders, or in connection with any other shareholder action of the
Company, but only in ACL's capacity as the owner of record of, and to vote the
shares of the common stock of the Company which were owned by ACL as of March
14, 1995 ("the ACL Shares"). The irrevocable proxy was effective March 14,
1995 and expires on the date the ACL Shares represent less than five percent of
the Company's issued and outstanding shares of common stock.
The Company formed a wholly owned subsidiary, THI, which now owns all
of the assets that were owned by the Company prior to the TSSN acquisition.
Pursuant to such acquisition, the holders of record of the Company's common
stock as of March 27, 1995, will be issued a stock dividend consisting of the
Company's Series D Convertible Preferred Stock ("Series D Preferred"). The
15
<PAGE> 18
Company has the right, but not the obligation, to redeem the Series D Preferred
in exchange for all of THI's issued and outstanding capital stock. A summary
of the rights and preferences of the Series D Preferred is set for elsewhere in
this Proxy Statement (See "AMENDMENTS TO THE COMPANY'S ARTICLES OF
INCORPORATION--Description of Securities").
The creation of THI and the authorization and issuance of the
Company's Series D Preferred was done for the purpose of preserving the value
of the Company's then existing assets for the holders of the Company's common
stock at the time of the TSSN acquisition. Due to the significant difference
in the historical business of the Company and that of TSSN, the Company
insisted on the creation of THI as a condition of the TSSN acquisition. By
creating THI and issuing a stock dividend of the Series D Preferred Stock to
the Company's then existing common shareholders of the Company, those
shareholders would, upon liquidation of the Company, be granted a preference in
liquidation in an amount equal to the value of THI's assets. Alternatively,
upon the redemption of the Series D Preferred prior to a liquidation of the
Company, the holders of the Company's common stock prior to the TSSN
Acquisition would receive all of the value of THI.
As additional consideration for entering the TSSN Acquisition
agreement, Stellar agreed to cause the Company to contribute $455,000 to THI
from the proceeds that the Company would receive from the Company's then
contemplated private debt or equity offerings, which obligation has been
satisfied by the Company. While it was the Company's intention to redeem its
Series D Preferred in exchange for all of THI's issued and outstanding common
stock upon the completion of the Company's financing activities, it is the
Company's current intention not to effect such a redemption until such time as
the Company completes its capitalization objectives, including obtaining
adequate financing and effecting an acquisition of significant net assets in
support of the Company's operations.
The TSSN Acquisition agreement also provided that THI would be
entitled to receive, on an annual basis, that number of shares of the Company's
voting common stock (the "Special Shares") equal to 20% of the average total
assets of THI over a twelve month period (March 14 through the following March
13 each year) divided by two dollars. The phrase "total assets" was defined to
mean the amount set forth on the consolidated balance sheet of THI as total
assets, including, without limitation, the current assets, property and
equipment (net of accumulated depreciation), investments and other assets (net
of accumulated amortization and adjustments). The phrase "average total
assets" was defined to mean the sum of the "total assets" (as defined above) of
THI as set forth on the balance sheets of THI during each of the quarters
ending March 31, June 30, September 30 and December 31 during each applicable
twelve month period and dividing such sum by four. THI ratably earns the
Special Shares over each applicable twelve month period. THI's entitlement to
the Special Shares shall cease upon the Company's redemption of its Series D
Preferred. As of December 31, 1995, THI has earned 426,417 Special Shares.
Stellar has the option to purchase the Special Shares from THI for an
amount equal to the greater of (a) two dollars per share; or (b) 50% of the bid
price of the Company's common stock as of the end of the month preceding
Stellar's exercise of its option. As mentioned above, the TSSN Acquisition
Agreement between the Company and Stellar provided that THI would be entitled
to receive Special Shares in certain circumstances and the agreement further
provided that if the Special Shares were
16
<PAGE> 19
issued, Stellar would have the option to buy the Special Shares from TSSN.
Stellar paid no additional consideration for the option to purchase the Special
Shares from THI. Stellar's option to acquire the Special Shares shall
terminate June 30, 1997. Stellar has not been granted "registration rights"
with respect to the Special Shares.
The following example is provided to illustrate the application of the
contractual provisions of the TSSN Acquisition agreement related to the
obligation of the Company to issue Special Shares.
EXAMPLE: Assume that during the period from March 14, 1995 to March
13, 1996, THI's average total assets were $5,274,324, then the number
of shares of the Company common stock; i.e., the Special Shares, that
would be issued to THI would total 527,432 shares [(20% x $5,274,324)
/ $2.00].
Stellar has the option to purchase the Special Shares from THI on or
before June 30, 1997 by paying THI the greater of (a) two dollars per
share; or (b) 50% of the bid price of the Company's common stock as of
the end of the month preceding Stellar's exercise of its option. The
bid price of the Company's common stock on March 29, 1996, was $2.22,
consequently the option price would be $2.00. If Stellar were to
exercise its option to acquire all of the Special Shares, it would be
required to pay THI $1,054,864.
The Special Shares that Stellar may acquire upon the exercise of its
option will be restricted securities, and such Special Shares can be
transferred by Stellar either pursuant to the limitations imposed by
Rule 144 or without limitation through an effective registration
statement relating to such securities.
To the extent that the Company redeems the Series D Preferred by
issuing shares of THI to the holders thereof, the common shareholders of the
Company who do not also own shares of the Series D Preferred will be diluted,
as the Company will receive no consideration for the issuance of the Special
Shares. To the extent that Special Shares are issued to THI and Stellar
exercises its option to acquire the Special Shares from THI, Stellar will
benefit from such transaction to the extent that the market price of the shares
of the Company's common stock is greater than the option price that Stellar
must pay THI for the Special Shares.
EXAMPLE: Assume that the "bid" price of the Company's common stock on
June 30, 1996, was $3.75 and the "ask" price $4.00. Applying the
formula set forth above, if Stellar exercises its option to acquire
the Special Shares on June 30, 1996, the option price will be $2.00
per share (the greater of $2.00 or 50% of the bid price of the
Company's common stock). Stellar would receive a benefit unavailable
to other shareholders of the Company as it would be able to acquire
shares of the common stock of the Company at a substantial discount to
the "ask" price of the shares of the Company; however, the shares
acquired by Stellar would be restricted securities, as that term is
defined in Rule 144(a)(3), promulgated by the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, and as
a result thereof, are not freely transferable by Stellar.
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<PAGE> 20
If the Series D Preferred has not been redeemed by June 30, 1997, the
holders thereof, as a group, shall be entitled to receive a special dividend of
shares of the Company's common stock in an aggregate amount equal to the number
of Special Shares held by THI as of June 30, 1997. As long as the Series D
Preferred remains outstanding, additional stock dividends shall be payable by
the Company to the holders of the Series D Preferred, beginning July 1, 1998,
and continuing each July 1st thereafter until the Company has redeemed its
Series D Preferred, in an annual amount equal to the number of Special Shares
transferred to THI during the immediately preceding applicable twelve month
period.
For financial reporting purposes, the business combination between
TSSN and the Company has been accounted for as a reverse purchase acquisition
under which TSSN and the Company will be recapitalized to include the
historical financial information of TSSN and the assets and liabilities of the
Company revalued to reflect the market value of the Company's outstanding
shares.
There have been subsequent amendments to the TSSN Acquisition
agreement, the first of which occurred on April 19, 1995, when Stellar agreed
to return the 500,000 shares of restricted common stock previously issued to
Stellar at the closing of the Company's purchase of TSSN. The Company asked
Stellar to amend the TSSN Acquisition agreement in order to make the 500,000
shares of common stock available to the Company for issuance by the Company
pursuant to its 1995 Employee Stock Compensation Plan. Stellar agreed to
return the 500,000 shares of common stock to the Company in exchange for the
Company's agreement to increase, by 1,000,000 shares, the number of shares of
the Company's common stock that the Company would issue to Stellar at such time
as the Company increased its authorized shares of common stock. Consequently,
the number of shares that the Company was obligated to issue to Stellar for the
shares of TSSN increased from 16,759,038 to 17,759,038.
The then existing members of the Board of Directors of the Company
unanimously approved the amendment to the TSSN Acquisition agreement increasing
the number of shares to be issued to Stellar. As originally negotiated, the
TSSN Acquisition agreement contemplated that Stellar would own 77.1% of the
shares of the Company's common stock after the closing of the TSSN Acquisition
agreement. As a result of the return by Stellar to the Company of the 500,000
shares of common stock previously issued to Stellar and the Company's
subsequent issuance thereof to third parties, Stellar requested that the
Company agree to issue sufficient additional shares so that it would receive
the same percentage ownership that it had the contractual right to receive
prior to the April 19, 1995 amendment. The resulting agreement by the Board of
Directors to agree to issue an additional 1,000,000 shares to Stellar reflects
the compromise reached between Stellar and the Company. The percentage of the
common stock of the Company to be owned by Stellar, after giving effect to the
agreement to issue an additional 1,000,000 shares of common stock as a result
of the April 19, 1995 amendment to the TSSN Acquisition agreement and after
also giving effect to the Company's issuance of an additional 500,000 shares of
the common stock returned to the Company by Stellar, decreased from 77.1% to
76.4% of the Company's common stock. On the date that the TSSN Acquisition
agreement was amended, April 19, 1995, the bid price of the Company's common
stock was $3.12 and its ask price was $3.25.
In addition, the April 19, 1995 amendment to the TSSN Acquisition
agreement required the Company to issue to Stellar 500 shares of its Series F
Preferred. Each share of Series F Preferred entitles the holder thereof with
the right to cast 1,000 votes on any matter requiring the approval of
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<PAGE> 21
common shareholders. In the event that the Company issued additional voting
securities prior to the time that the Company had increased the number of
shares of its authorized shares of common stock, the Company agreed to issue
additional shares of its Series F Preferred to Stellar in an amount equal in
voting rights with any subsequent voting shares of common or preferred stock
issued by the Company. For example, if the Company issued 300,000 shares of
its common stock, the Company would be required to issue 300 shares of its
Series F Preferred to Stellar.
The shares of the Company's Series F Preferred are convertible, at the
option of Stellar, into shares of the Company's restricted common stock, on a 1
for 10,000 basis, following an increase in the number of the Company's
authorized shares of common stock. Any common stock issued to Stellar as a
result of its conversion of Series F Preferred into the Company's common stock
reduces the Company's obligation to issue the 17,759,038 shares of restricted
common stock to Stellar. As of April 26, 1996, Stellar held 1,185.6502 shares
of Series F Preferred.
Pending an increase in the Company's authorized capital stock, the
Series F Preferred was intended to grant voting rights to Stellar similar to
those voting rights held by Stellar prior to the April 15, 1995 amendment to
the TSSN Acquisition agreement. More specifically, the grant to Stellar of 500
shares of Series F Preferred gave Stellar 500,000 votes (500 shares of Series F
Preferred with each share having 1,000 votes per share), the number of votes
that Stellar had prior to returning 500,000 shares of common stock to the
Company. The Series F Preferred also granted Stellar the right to convert the
Series F Preferred into common shares at a conversion ratio of 10,000 to 1. By
converting the Series F Preferred, Stellar could increase its voting power ten
fold, however, any shares of common stock issued to Stellar upon Stellar's
conversion of the Series F Preferred decreases, on a one for one basis, the
Company's obligation to issue the 17,759,038 shares of common stock the Company
is obligated to issue to Stellar under the TSSN Acquisition agreement as
amended.
On October 6, 1995, the TSSN Acquisition agreement was further amended
to provide that Stellar would, upon the conversion by Stellar of its shares of
Series F Preferred, return 2,126,000 shares of the 17,759,038 shares of common
stock to be received by Stellar upon the Company increasing its shares of
authorized common stock. Additionally, Stellar agreed to deliver 9,000,000
shares of the common stock to be issued to Stellar upon its conversion of the
Series F Preferred to the law firm of Scolaro Shulman, who agreed to hold the
shares in escrow, and would release the 9,000,000 shares, on a pro rata basis,
upon the Company and/or its sports and shopping-related subsidiaries achieving
net earnings of $5,000,000. Any and all shares held in escrow which are not
issued by the escrow agent to Stellar on or before December 31, 2000, are to be
returned to the Company. Stellar suggested that the TSSN Acquisition agreement
be amended to reduce the number of shares that Stellar would receive under the
TSSN Acquisition agreement (2,126,000 shares) and to subject an additional
9,000,000 shares to a risk of forfeiture if the Company's earnings did not meet
certain benchmarks, in order to facilitate the Company's capital raising
efforts.
On February 26, 1996, the Company and Stellar amended the October 6,
1995 amendment to the TSSN Acquisition agreement to provide that upon the
conversion by Stellar of its shares of Series F Preferred, Stellar would return
only 1,350,000 shares of the 17,759,038 shares of common stock to be received
by Stellar upon the Company increasing its shares of authorized common stock
rather than
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<PAGE> 22
the 2,126,000 shares that Stellar had earlier agreed to return in the October
6, 1995 amendment. The Company agreed to this amendment as the basis for
Stellar agreeing to the October 6, 1995 amendment was Stellar's understanding
that the Company would be required to issue 2,126,000 shares of its common
stock or common stock equivalents to various third parties to assist the
Company in its fund raising efforts. As the Company was only required to issue
1,350,000 shares to such third parties, the amount of shares to be forfeited by
Stellar to the Company was reduced accordingly.
The acquisition of TSSN resulted in no immediate tax consequences to
the Company, except that it is likely that the Company will lose a portion of
the tax benefits that it might otherwise have realized from its net operating
losses due to the fact that, as a result of the TSSN Acquisition an ownership
change will occur, as such term is defined for federal income tax purposes,
thereby limiting the Company's ability to utilize its net operating loss
carryforwards.
Although the Company's common stock trades on the National Association
of Securities Dealers, Inc. ("Nasdaq") system, neither the stock of TSSN nor
any classes of the Company's preferred stock trade publicly. On March 13,
1995, the Company's common stock sold at a high of $1.50 and a low of $1.31.
ACQUISITION OF CHANNEL AMERICA TELEVISION NETWORK, INC.
A secondary reason for the proposed increase in the number of
authorized shares of common stock is to enable the Company to consummate the
acquisition of Channel America Television Network, Inc. ("Channel America"), a
Delaware corporation based in Darien, Connecticut. The acquisition agreements
between the Company and Channel America, initially signed on July 13, 1995,
provided that the Company would acquire 100% of the issued and outstanding
shares of the capital stock of Channel America. The Company executed
agreements with Channel America on October 10, 1995, in which the Company
agreed to pay $1,000,000 to Channel America and to issue 48,000 shares of the
Company's Series H Convertible Preferred Stock ("Series H Preferred Stock").
Channel America issued 27,500,000 shares of its common stock to the Company,
which represented 51% of the issued and outstanding shares of Channel America's
voting stock, after giving effect to the anticipated issuance of additional
shares of Channel America's common stock to its creditors pursuant to the
anticipated conversion of Channel America's indebtedness described below. Of
the $1,000,000 purchase price, $600,000 has been paid as of March 29, 1996 and,
the balance was paid by the Company's delivery of its promissory note, bearing
interest at eight percent per annum, the principal and accrued interest of
which was due on April 7, 1996. The note has been extended to June 15, 1996 in
exchange for the Company's agreement to issue to Channel America 100,000 shares
of its common stock, or the equivalent in convertible preferred stock. The
Company has the option to extend the note for an additional 30 days by paying
to Channel America an additional 50,000 shares and $50,000. In the event that
the Company is deemed to be in default in the payment of any portion of the
purchase price, the percentage of Channel America's shares acquired by the
Company will be reduced pro rata with respect to the percentage of the purchase
price actually paid.
20
<PAGE> 23
Since October 10, 1995, the Company has made working capital advances
directly to Channel America, or to creditors of Channel America, in the amount
of $1,349,000.
The Company issued, on October 10, 1995, 48,000 shares of its Series H
Preferred Stock to Channel America, for the benefit of shareholders of Channel
America other than the Company, and delivered such shares to Scolaro, Shulman,
in its capacity as the escrow agent for the shareholders of Channel America.
The Series H Preferred is convertible into 3,764,588 shares of the Company's
common stock. The Series H preferred stock will be held in escrow, pending the
conversion, by the holders of an aggregate of 90% of the sum of [i] the face
amount of the notes previously issued by Channel America; and [ii] the stated
value of the outstanding preferred stock of Channel America, as of June 30,
1995. The face amount of the notes and the stated value of the preferred
shares is $7,768,533, as of June 30, 1995 and, as of December 31, 1996, the
holders of 49% of the debt and equity, representing $3,773,229, had converted
their debt or equity into shares of Channel America's common stock. Another
approximate $2,618,000 (34%) has committed, but has not yet converted. The
Series H Preferred will be held in escrow, pending (a) the conversion of an
aggregate of 90% of Channel America's notes payable and preferred stock; (b)
the Company increasing its authorized shares; and (c) the Company registering
the shares of common stock underlying the Series H Preferred Stock with the
Securities and Exchange Commission.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW OF THE COMPANY PRIOR TO THE TSSN AND CHANNEL AMERICA ACQUISITIONS
In anticipation of the closing of the TSSN acquisition in March 1995,
the Company formed a wholly owned subsidiary, THI, and the Company contributed
to THI all of the assets that were owned by the Company prior to the TSSN
acquisition. Pursuant to the agreement between the Company and Stellar (the
former owner of TSSN) setting forth the terms of the TSSN acquisition (the
"TSSN Acquisition Agreement"), the holders of record of the Company's common
stock as of March 27, 1995, were issued a stock dividend consisting of the
Company's Series D Preferred, which has limited voting rights. The Company has
the right, but not the obligation, to redeem the Series D Preferred in exchange
for all of THI's issued and outstanding capital stock.
The Company previously had two business segments, a health related
business segment and a recreational business segment. The Company operated the
health related business segment through Lintronics Technologies, Inc., TGHC,
Inc. ("TGHC"), formerly known as The Good Health Channel, Inc., Imaging
Technologies, Inc., and EVRO Trading Corp. During the last quarter of the
Company's 1994 fiscal year, the Company discontinued the business operations of
its health related business segment (other than winding-up activities),
effective as of December 31, 1994.
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The Company's recreational business segment is comprised of the
ownership and operation of RV campground facilities and the Company conducts
such operations out of its subsidiaries, Treasure Rockhound Ranches, Inc. and
Tres Rivers, Inc.
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations
for 1994 and 1995. The Company's net loss increased from $1,703,000 in 1994 to
$7,899,000 in 1995. The increase is primarily attributable to (1) the loss
from operations of $1,078,000 of THI (historic EVRO) for the period March 1,
1995 through December 31, 1995 including the amortization of goodwill of
$170,000 (this loss was incurred in the business historically operated by the
Company), (2) the loss from operations of $1,096,000 of Channel America for the
period October 1, 1995 through December 31, 1995 including the amortization of
goodwill of $141,000, (3) increase in corporate overhead of $1,590,000,
including accounting, legal and financial consulting services and other costs
to support the Company's acquisitions and financial activities of $1,265,000,
(4) the loss on the sale of sports memorabilia in January and February 1995 of
$231,000, (5) an uninsured jewelry and gem stone inventory theft loss of
$538,000, (6) interest and other financing costs associated with 1995
borrowings of $857,000, and (7) costs associated with convertible debenture
modifications and defaults of $1,318,000, partially offset by a reduction in
management and accounting services of $390,000.
The Company's net loss per share decreased from $(3.62) in 1994 to
$(3.37) in 1995. The decrease in loss per share in 1995 from that reported for
1994 reflects the change in the average common shares outstanding caused by the
issuance of additional shares of common stock.
Revenues, listed as "Rental, memberships, and other revenues" on the
Company's Consolidated Statements of Operations, in the amount of $1,070,000,
reflect the operations of the Company's RV campgrounds (historic the Company
and its subsidiaries) since March 1, 1995. Programming and advertising
revenues, in the amount of $389,000, reflect the operations of Channel America
since October 1, 1995. Revenues from product sales totaling $177,000, reflect
sales of sports memorabilia through a contractual arrangement with VIA TV
Network located in Knoxville, Tennessee during January and February 1995. The
Company received revenues from the sale of sports memorabilia during November
and December 1994 through Via TV of $49,000. The increased revenues received
from product sales in 1995 resulted from additional cable distribution on the
Nostalgia Network.
Cost of sales and revenues is comprised of the costs associated with
the RV campgrounds, totaling $734,000; Channel America, totaling $685,000; and,
sports memorabilia, totaling $260,000 (inclusive of a provision for inventory
obsolescence and write down to market value of $95,000). The cost of sales
associated with the sports memorabilia was approximately 30-35% higher than
would normally be expected due to product selection and high product costs
directly attributable to the initial low sales volume levels. Channel America
incurred a negative gross margin of $296,000 for the period October 1, 1995
through December 31, 1995, primarily attributable to unsold advertising time.
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Selling, general and administrative expenses for the year ended
December 31, 1995 totaled $951,000 for RV campground operations, $552,000 for
operations of Channel America, $1,833,000 for the shopping operations,
including an uninsured jewelry theft loss of $538,000, and $1,590,000 for
corporate expenses and consulting services and other costs incurred in support
of the Company's acquisition and financing activities. The Company is
currently reviewing all of its insurance requirements and policies to assure
that its insurance coverage is adequate.
During the years ended December 31, 1994 and 1995, Stellar billed TSSN
$1,150,000 and $760,000, respectively, for management and accounting services
performed on TSSN's or 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. For the year ended December 31, 1994, TSSN accrued interest at 7%
per annum ($80,444) on a note payable to Stellar dated December 31, 1993 in the
principal amount of $1,258,116. The note and accrued interest was satisfied by
TSSN's issuance of common shares to Stellar.
Interest expense of $1,048,464 for the year ended December 31, 1995
includes (a) additional consideration of $559,000 on certain loans paid by
issuance of 50,000 shares of Series C Convertible Preferred Stock and 1,000
shares of Series I Convertible Preferred Stock, and (b) amortization of loan
costs incurred in connection with issuance of the convertible debentures of
$6,000. Costs associated with convertible debenture modifications and defaults
were comprised of (1) penalty principal added to the face value of the
Debentures of $170,000 resulting from the Company not obtaining shareholder
approval for an increase in the Company's authorized common stock by certain
dates, (2) the adjustment of liability on debentures in default from the
adjusted face values to their mandatory redemption value, and (3) the write off
of related loan costs regarding debentures in default of $175,000.
The Company's subsidiary, TGHC, received a promissory note in exchange
for the sale of substantially all of the assets of TGHC. As the ultimate
collection of the contingent promissory note is uncertain and largely dependent
upon the success of the acquiring entity, Better Health Network, Inc.,
establishing future profitable operations, 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 December 31, 1995 no income had been recognized by the Company.
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.
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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 through The
Shopping Connection, Inc. ("TSC"). The shopping broadcast was limited
primarily to satellite only homes. In late February 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 anticipates that it 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 March
29, 1996, is comprised of 79 affiliates with a potential reach of approximately
32.7 million US households, including 9.2 million direct cable homes and 4.6
million satellite homes. 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 $5,700,000 to continue the execution of its business plan
through the next twelve months including (1) $3,000,000 to satisfy its existing
cash needs, including $200,000 for the repayment of existing bridge loan; (2)
$1,275,000 for its anticipated cash needs in the next twelve months; (3)
$450,000 to complete payments to Channel America; (4) $675,000 for working
capital to be utilized in the operations of Channel America; and (5) $300,000
for THI's debt and operations. The Company plans to obtain funds to satisfy
its cash requirements from the issuance of its capital stock or from issuance
of its debt securities. While the Company has retained Sands Brothers & Co.
Ltd. to assist the Company in its capital raising efforts, the Company
currently has no binding commitment to receive either debt or equity financing
and no assurance can be given that the Company will be successful in obtaining
additional equity or debt funding.
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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 as it will allow
for the use of common uplink and transponder facilities, as
well as reducing related overhead costs;
3. Obtain Nielsen ratings of Channel America's programming to
facilitate the sale of advertising time to national
advertisers;
4. Enhance the programming of Channel America through joint
ventures with partners such as MIT-F/x, Inc. to distribute a
computer animated television series called W.I.N.G.S. Angela
and SBI Communications to broadcast an interactive live
television bingo game show; and
5. To further diversify the geographic regions and seasonal
variations of its RV park division, the Company is currently
negotiating the purchase of a fully developed RV park and
campground in the northeast United States, which includes
approximately 400 sites.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses in 1994 and 1995, of
$1,703,000 and $7,899,000, 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 and achieve profitable operations. The Company
anticipates that it will continue to incur losses throughout its 1996 fiscal
year.
In October and November, 1995 the Company issued $1,000,000 of its
8.5% Convertible Debentures due October 31, 2000 and $500,000 of 9.5%
Convertible Debentures due November 27, 2000 (the "1995 Debentures"). The
holders of the 1995 Debentures can convert any or all of the original principal
amounts of the 1995 Debentures into shares of the Company's common stock, at a
conversion price per share equal to 50%-65% of the average closing bid price of
the Company's common stock during the five business days immediately preceding
the conversion date or immediately preceding the date the 1995 Debenture was
acquired, whichever is lower.
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The 1995 Debentures, as amended, provided for additional common stock
of the Company to be issued, if the Company failed to timely obtain shareholder
authorization to increase its authorized shares of common stock necessary to
satisfy the Company's conversion obligation under the 1995 Debentures. Since
the Company did not timely obtain authorization to issue additional shares, the
Company recorded additional principal due on the 1995 Debentures of $170,000 as
of December 31, 1995.
The 1995 Debentures provided that the Company would be required to
redeem the 1995 Debentures, for cash, at their common stock equivalent value
($3,068,567), if the Company had not increased its authorized common stock on
or before a date 90 days after the 1995 Debentures were issued. Consequently,
due to the failure of the Company to increase its authorized common stock on a
timely basis, the Company became obligated to redeem the 1995 Debentures for
cash, during the first quarter of 1996. The Company has obtained extensions
from the mandatory redemption provisions from the holders of approximately 46%
of the 1995 Debentures and is negotiating with the remaining holders for
similar extensions.
During the period January 11, 1996 through February 8, 1996, the
Company issued additional 8.5% Convertible Debentures aggregating $3,040,000
(the "1996 Debentures"). The 1996 Debentures have conversion provisions
similar to the 1995 Debentures, and, as of April 26, 1996, the common stock
equivalent value of the 1996 Debentures aggregated $4,881,653. As of April 26,
1996, the Company is currently negotiating the extension of the mandatory
redemption dates with all of the 1996 Debenture holders, having obtained
extensions from the holders of approximately 20% of the 1996 Debenture holders.
On November 1, 1995, pursuant to a Stock Purchase Agreement, the
Company sold to an accredited investor, 50,000 shares of Series C Preferred for
$500,000, who was granted an option, through August 29, 1996, 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. The Company paid to
Southern Resource Management, Inc., $100,000 on February 8, 1996 and $190,000
on March 25, 1996. However, the Company has not 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
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Southern Resource Management, Inc. may elect to accelerate all of the payments
as a result of the default.
During the first quarter of 1996, the Company sold 15,000 shares of
Series C Preferred Stock and 17 shares of Series K Preferred Stock for
$787,500, net of sales commissions of $212,500.
The Company used the $4,472,000 that it received from the issuance of
its Debentures and sale of preferred stock in the following manner: (1)
repayment of a bridge loan which was utilized to fund the initial deposit on
Channel America acquisition ($252,000); (2) additional payments to Channel
America for its acquisition ($400,000); (3) advances to Channel America for
payment of amounts due on its satellite and transmission contracts
($1,005,000); (4) other advances to or payments on behalf of Channel America
($345,000); (5) legal and accounting fees incurred to complete certain filings
with the Securities and Exchange Commission ($244,000); (6) debt service and
working capital to fund the operations of THI ($432,000); (7) payment to
Stellar for management and accounting services ($60,000); (8) working capital
for operations of TSSN and TSC ($500,000); (9) working capital for corporate
overhead operations ($344,000); (10) repayment of outstanding debt, the
proceeds of which were previously used for working capital purposes ($350,000);
(11) consulting services ($290,000); and (12) the redemption of previously
issued shares of the Company's Series C Preferred ($250,000).
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 December 31, 1995, the Company had current
assets of $297,201 and current liabilities of $10,976,956, or a working capital
deficiency of $10,679,755. The Company is currently in default on various
notes payable aggregating approximately $5,500,000. 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.
A primary purpose of the 1996 Shareholders' Meeting is to approve and
increase in 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
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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.
AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION
The Board has approved an amendment to the Company's Articles of
Incorporation which would change the Company's name from "EVRO Corporation" to
"Channel America Broadcasting, Inc.", which name, in the opinion of management,
better reflects the Company's current business focus.
The primary matter to be voted on at the 1996 Shareholders' Meeting is the
approval of an amendment to the Company's articles of incorporation that would
increase the number of authorized common shares from 2,500,000 to 100,000,000,
each with a par value of $.001. The Company wishes to increase the number of
authorized shares in order to fulfill its commitment to issue shares of its
common stock to Stellar in exchange for 98.35% of TSSN's outstanding common
stock. Additionally, the increased shares of common stock will permit the
Company to issue shares of common stock to the holders of the Company's issued
convertible preferred stock. Moreover, the Company has issued its Debentures,
which entitle the holders thereof with the right to convert the principal
amount of the Debentures into shares of the Company's common stock.
Furthermore, the Company has entered into various agreements to acquire the
assets of other businesses in exchange for shares of the Company's common
stock. The Company currently does not have a sufficient number of authorized
shares of common stock to accommodate the conversion rights set forth in the
issued shares of its preferred stock and its outstanding Debentures and its
contractual commitments to issue shares for the business combinations that it
has negotiated. The general effect of the approval of this amendment to
increase the Company's authorized shares of common stock will be to dilute the
voting power and ratable share of earnings of the common stockholders in
inverse proportion to the increase in authorized shares.
The Board has also approved a proposed amendment to increase the number of
the Company's authorized preferred shares from 1,250,000 to 25,000,000. The
Company has issued numerous series of its preferred stock and the Company
currently has insufficient authorized shares of its common stock to issue to
the holders of the Company's preferred shares who elect to convert their shares
of preferred stock. If the common shareholders of the Company do not approve
the amendment to the Company's Articles of Incorporation increasing the
authorized shares of the Company's common stock the preferred shareholders will
not be able to convert their shares of preferred stock. The Company has issued
its preferred stock during 1995 and 1996, primarily due to the fact that the
Company had issued all of its authorized shares of common stock. The Company
issued its preferred stock for the following reasons: (a) to acquire other
businesses (Series D, E and F Preferred - issued to the shareholders of the
Company, BHI and Stellar, respectively, in connection with the TSSN
acquisition; and Series H Preferred - issued to Channel America); (b) to raise
additional capital (Series C and K Preferred -
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issued for cash); (c) to secure indebtedness of the Company (Series J and M
Preferred issued to secure indebtedness for services rendered to the Company
and Series J Preferred to secure a "put" obligation with respect to 50,000
shares of Series C Preferred); and (d) in payment for services provided to the
Company (Series F, I and M Preferred issued in payment for financial and legal
services rendered to the Company). It is possible that the Company will issue
additional shares of its preferred stock, from time to time, without the
consent of its existing shareholders. By increasing the number of authorized
shares of preferred stock, the Company will be able to issue additional shares
of preferred stock without the consent of the Company's common or preferred
shareholders. The Company's preferred stock will have preferential claims to
the assets of the Company in the event the Company is dissolved or liquidated.
The following is a brief summary of the characteristics of the various
classes of the Company's capital stock.
DESCRIPTION OF SECURITIES
COMMON STOCK - The Company has authorized common stock of 2,500,000 shares
with no par value, of which 2,497,957 shares were issued at May 15, 1996, of
which 875 shares were held by THI. Although the Company has not in the past and
has no current plans to declare cash dividends, each common share is equally
entitled to receive any cash dividends declared on such shares. However, the
Company's common stock does not entitled its holder to preemptive rights.
The Board has proposed increasing the number of authorized shares of
common stock to 100,000,000, with a par value of $.001 per share. All shares
of common stock issued as the result of the conversion of its preferred stock
or convertible debentures will be restricted in that they may not be resold
absent registration under the Securities Act of 1933 or an exemption to such
registration. The restrictions on resale may impair the marketability of such
shares.
PREFERRED STOCK - The Company has authorized 1,250,000 shares of preferred
stock with no par value. The Board has proposed increasing the number of
authorized shares of preferred stock to 25,000,000, with a par value of $.001
per share. The following discussion provides information relevant to the
possible conversion and/or redemption of each series of preferred stock with
outstanding shares in that series.
Series C Convertible Preferred Stock ("Series C Preferred") - The Board
has established this series with 500,000 shares authorized, with a stated value
of $10.00 per share. As of May 15, 1996, 210,400 shares of Series C Preferred
were issued and outstanding. This series has no voting rights, except as
provided by operation of law. Under applicable law, the Company cannot
without the affirmative vote or the written consent of 80% of the holders of
the outstanding shares, voting as a class, change the preferences, rights or
limitations with respect to the Series C Preferred in any material respect
prejudicial to the holders thereof, or increase the authorized number of shares
in this series so long as shares of Series C Preferred remain outstanding.
Moreover, this series shall not bear dividends.
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Shares of Series C Preferred may be redeemed in whole or in part, at the
option of the Company, at any time on or after April 15, 1996 at a price equal
to the sum of $10.00 per share. Each holder of Series C Preferred shall have
the right on or before April 15, 1997, to convert each share into fully paid
and nonassessable shares of the Company's common stock at a conversion price
equal to 50% of the common stock's market value. The market value shall be
determined as follows: (a) if at the time of valuation the Company's common
stock is listed on any national securities exchange, the average closing price
on such exchange for the ten day period prior to conversion, or, if listed on
more than one exchange, on the exchange on which the Company's common stock
shall have the largest total trading volume; (b) if at the time of valuation,
the Company's common stock is publicly traded but not listed on any national
securities exchange, the average of the average closing bid and asked prices
appearing on Nasdaq for the ten day period preceding the conversion date or,
if not listed on Nasdaq, the average closing bid and asked prices as reported
by the National Quotation Bureau, Inc. or a comparable general quotation
service; or (c) if at the time of valuation the Company's common stock is not
publicly traded, the net book per share as reflected on the Company's audited
balance sheet for its latest fiscal year ending prior to the valuation date.
In the event the Series C Preferred is called for redemption, the right of
conversion shall cease and terminate at the close of business the day preceding
the date fixed for the redemption of such shares. The Company has no sinking
fund obligations in connection with this series.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series C
Preferred shall be entitled to receive, out of the net assets of the Company,
the sum of $10.00 in cash for each share of Series C Preferred held,
aggregating $2,104,000, subject to the first priority of all holders of Series
A Convertible 10% Preferred Stock ("Series A Preferred").
Series D Convertible Preferred Stock ("Series D Preferred") - The Board has
established this series with 17,000 shares authorized, with no par value. As
of May 15, 1996, 16,984.9 shares of Series D Preferred were issued and
outstanding.
Pursuant to the terms of the Company's acquisition of TSSN, the Company
issued one share of Series D Preferred for each 100 shares of issued and
outstanding common stock (See "INCREASE IN AUTHORIZED SHARES OF COMMON AND
PREFERRED STOCK--Acquisition of the Sports & Shopping Network, Inc." for a
detailed description of the TSSN Acquisition) to all holders of common stock of
record as of March 27, 1995, except for Stellar. The Company issued the stock
certificates on or about August 28, 1995.
Series D Preferred has no voting rights except as provided by operation of
law. As long as any Series D Preferred remains outstanding, the Company shall
not, without the affirmative vote or written consent of the holders of a
majority of the Series D Preferred (a) change the preferences, rights or
limitations with respect to the Series D Preferred, or increase the authorized
number of shares of such Series, but nothing herein contained shall require
such a vote or consent (i) in connection with any increase in the total number
of authorized shares of the Company's common stock; or (ii) in connection with
the authorization, designation, increase or issuance of any class or series of
stock holding a ranking subordinate to the Series D Preferred; (b) cause THI
to issue additional capital stock; (c) pledge, hypothecate or otherwise
encumber the THI common stock held by the Company; or (d) take any other action
which will restrict the Company's ability to conduct the conversion of the
Series D Preferred.
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At any time after issuance, the issued and outstanding shares of Series D
Preferred may be converted, at the sole option of the Company, into 100% of the
THI common stock owned by the Company on the effective date of conversion. The
Series D Preferred may only be converted into the THI common stock in whole,
not in part. Upon conversion, one share of Series D Preferred will be
converted into an amount of THI common stock equal to the product of (a) the
number of shares of THI common stock owned by the Company on the date of
conversion and (b) a fraction, the numerator of which is one and the
denominator of which is the number of shares of Series D Preferred issued and
outstanding on the date of conversion. Holders of Series D Preferred do not
have the option to convert.
The Company has contractually agreed to issue to THI shares of the
Company's authorized but previously unissued common stock (the "Distribution
Shares") which on an annualized basis will equal 20% of THI's average total
assets, assuming for the purposes of such issuance that the Distribution Shares
have a value of $2.00 per share. The Distribution Shares will be issued each
March 14th, commencing in 1996, based upon the average total assets for the
previous 12 months. THI has granted the Corporation's majority shareholder,
Stellar, an option (the "Stellar Option") to purchase the Distribution Shares
at any time until June 30, 1997 at a price equal to the greater of $2.00 per
share or 50% of the bid price of the Company's publicly traded common stock as
of the last day of the month preceding Stellar's exercise of the Stellar
Option. If Stellar has not exercised the Stellar Option prior to March 14,
1996, the Corporation has agreed to issue to THI additional Distribution Shares
at the same rate specified above for each successive 12 month period.
If the Company fails to convert all shares of Series D Preferred by June
30, 1997, the Company shall declare a stock dividend to the holders of the
Series D Preferred, on a pro rata basis, of an amount of the Company's
restricted common stock equal to the total number of Distribution Shares which
have been distributed to THI as of June 30, 1997. The stock dividend shall
have a record date of July 1, 1997, and shall be declared each successive July
1 until the Company converts the Series D Preferred shares, based upon the
amount of Distribution Shares conveyed to THI during the 12 month period
preceding the July 1 record date. As of May 15, 1996, there were no dividends
in arrears related to Series D Preferred.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series D
Preferred shall be entitled to receive, out of the net assets of the Company,
the Company's shares of THI's common stock, aggregating $3,885,000 (the
approximate net book value of THI as of September 30, 1995) subject to the
first priority of all holders of Series A Preferred and Series C Preferred.
The Company has no sinking fund obligations in connection with Series D
Preferred.
Series E Convertible Preferred Stock ("Series E Preferred") - The Board has
established 30,000 shares of authorized Series E Preferred with no par value.
As of May 15, 1996, all 30,000 shares were issued
31
<PAGE> 34
and outstanding. The holder of each of Series E Preferred is entitled to one
vote on each matter with respect to which a vote is required of the
shareholders of the Company's common stock. As long as the Series E Preferred
is outstanding, the Company cannot without the affirmative vote or the written
consent as provided by law of 80% of the holders of the outstanding shares,
voting as a class, change the preferences, rights or limitations with respect
to the Series E Preferred in any material respect prejudicial to the holders
thereof, or increase the authorized number of shares of such series. Series E
Preferred shall not bear dividends.
Each holder of Series E 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 ratio of 100 shares of common stock for each share of
Series E Preferred. The Company has no power to force redemption or conversion
of these shares and is not required to provide any type of sinking fund to
accommodate conversion.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series E
Preferred shall be entitled to receive, out of the net assets of the Company,
the sum of $1.00 in cash for each share of Series E Preferred held, aggregating
$30,000, subject to the first priority of all holders of Series A Preferred,
Series C Preferred and Series D Preferred.
Series F Convertible Preferred Stock ("Series F Preferred") - The Board has
established 1,680 authorized shares of Series F Preferred with no par value.
As of May 15, 1996, 1,352.5911 of these were issued and outstanding. The
Company had issued 1,280 shares of Series F Preferred to Stellar pursuant to
the terms of the TSSN acquisition. (See "INCREASE IN AUTHORIZED SHARES OF
COMMON AND PREFERRED STOCK--Acquisition of the Sports and Shopping Network,
Inc." for a detailed discussion of the TSSN acquisition). In addition, the
Company issued 44.449 shares of Series F Preferred for services provided to the
Company by consultants and the Company has issued 28.1421 shares of its Series
F Preferred to the former shareholders of TSSN, other than Stellar.
Holders of Series F Preferred are entitled to 1,000 votes per share on
each matter with respect to which a vote is required of the shareholders of the
Company's common stock. As long as any Series F Preferred shares remain
outstanding, the Company may not without the affirmative vote or the written
consent as provided by law of 80% of the holders of the outstanding shares,
voting as a class, change the preferences, rights or limitations with respect
to the Series F Preferred in any material respect prejudicial to the holders
thereof, or increase the authorized number of shares of such series. Series F
Preferred shall not bear dividends.
Each holder of Series F Preferred shares shall have the right, at his
option, at any time after the Company increases its authorized common shares,
to convert each share into fully paid and nonassessable shares of the Company's
common stock at a conversion ratio of 10,000 shares of common stock for each
share of Series F Preferred. The Company has no right to redeem any Series F
Preferred shares, nor does it have any sinking fund obligations with respect to
such shares.
32
<PAGE> 35
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series F
Preferred shall be entitled to receive, out of the net assets of the Company,
the sum of $1.00 in cash for each share of Series F Preferred held, aggregating
$1,352, subject to the first priority of all holders of Series A Preferred,
Series C Preferred, Series D Preferred and Series E Preferred.
Series H Convertible Preferred Stock ("Series H Preferred") - The Company has
authorized a total of 100,000 shares of Series H Preferred with no par value.
As of May 15, 1996, 48,000 shares were issued and outstanding. The Company
issued the outstanding shares of Series H Preferred pursuant to the terms of
the Channel America acquisition. (See "INCREASE IN AUTHORIZED SHARES OF COMMON
AND PREFERRED STOCK--Acquisition of Channel America Television Network, Inc."
for a detailed discussion of the Channel America acquisition).
Any Series H Preferred shareholder may, at his option, at any time after
the Company increases its number of authorized shares of common stock shares,
but in no event later than June 30, 1997, into a number of shares of the
Company's common stock equal to 125 divided by the greater of the market price
of the Company's common stock at the date of conversion or $2.00. For this
purpose, the market value of the Company's common stock shall be determined as
follows: (a) if at the time of valuation the Company's common stock is listed
on any national securities exchange, the average closing price on such exchange
for the ten day period prior to conversion, or, if listed on more than one
exchange, on the exchange which the Company's common stock shall have had the
largest total trading volume; (b) if at the time of valuation the Company's
common stock is publicly traded but not listed on any national securities
exchange, the average bid and asked prices appearing on Nasdaq for the ten day
period preceding the conversion date, or, if not listed on Nasdaq, the average
of the average closing bid-and-asked prices as reported by the National
Quotation Bureau, Inc. or a comparable general quotation service; or (c) if at
the time of valuation the Company's common stock is not publicly traded, the
net book value per share as reflected on the Company's audited consolidated
balance sheet for its latest fiscal year ending prior to the valuation date.
The Company also has the option to redeem any or all Series H Preferred
shares at a price of $125.00 per share. In the event that the Company fails to
redeem 100% of the outstanding shares of Series H Preferred, the redemption
must occur in a nondiscriminatory manner. Moreover, after the Company provides
notice of redemption, any holder of Series H Preferred may convert such shares
into shares of the Company's common stock in accordance with the terms set
forth in the preceding paragraph any time on or before the designated
redemption date.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series H
Preferred shall be entitled to receive, out of the net assets of the Company,
the sum of $125.00 in cash for each share of Series H Preferred held,
aggregating $6,000,000, subject to the first priority of all holders of Series
A Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series
F Preferred and Series I Preferred.
33
<PAGE> 36
Series I Convertible Preferred Stock ("Series I Preferred") - The Board has
established Series I Preferred consisting of 7,000 authorized shares with no
par value. As of May 15, 1996, the Company had issued 6,750 of Series I
Preferred as payment for certain financial consulting services rendered to the
Company.
The Series I Preferred has no voting rights except as provided by
operation of law and shall not bear dividends. As long as the Series I
Preferred is outstanding, the Company may not without the affirmative vote or
the written consent as provided by law of 80% of the holders of the outstanding
shares, voting as a class, change the preferences, rights or limitations with
respect to the Series I Preferred in any material respect prejudicial to the
holders thereof, or increase the authorized number of shares of such series.
Each holder of Series I Preferred shall have the right, at his option, at
any time after the Company increases its authorized common shares, to convert
each share into fully paid and nonassessable shares of the Company's common
stock at a conversion ratio of 200 shares of common stock for each share of
Series I Preferred. The Company has no right to redeem or force conversion and
has no sinking fund obligations in connection with this series.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series I
Preferred shall be entitled to receive, out of the net assets of the Company,
the sum of $165.00 in cash for each share of Series I Preferred held,
aggregating $1,113,750, subject to the first priority of all holders of Series
A Preferred, Series C Preferred, Series D Preferred, Series E Preferred and
Series F Preferred.
Series J Convertible Preferred Stock ("Series J Preferred") - The Board has
authorized 100 shares of Series J Preferred with no par value. As of May 15,
1996, all 100 shares of Series J Preferred were issued and outstanding. Series
J Preferred shall bear no dividends.
The Series J Preferred has no voting rights except as provided by
operation of law and shall not bear dividends. As long as the Series J
Preferred is outstanding, the Company may not without the affirmative vote or
the written consent as provided by law of 80% of the holders of the outstanding
shares, voting as a class, change the preferences, rights or limitations with
respect to the Series J Preferred in any material respect prejudicial to the
holders thereof, or increase the authorized number of shares of such series.
Each holder of Series J Preferred shares shall have the right, at his
option, at any time after the Company increases its authorized common shares,
but in no event later than June 30, 1997, to convert each share into fully paid
and nonassessable shares of the Company's common stock at a conversion ratio of
50,000 shares of common stock for each share of Series J Preferred. The
Company has no right to redeem any Series J Preferred shares, nor does it have
any sinking fund obligations with respect to such shares.
34
<PAGE> 37
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series J
Preferred shall be entitled to receive, out of the net assets of the Company,
the sum of $50,000.00 in cash for each share of Series J Preferred held,
aggregating $5,000,000, subject to the first priority of all holders of Series
A Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series
F Preferred, Series H Preferred and Series I Preferred.
Series K Convertible Preferred Stock ("Series K Preferred") - The Board has
authorized 100 shares of Series K Preferred with no par value. As of May 15,
1996, 17 shares of Series K Preferred were issued and outstanding. Series K
Preferred shall bear no dividends.
The Series K Preferred has no voting rights except as provided by
operation of law and shall not bear dividends. As long as the Series K
Preferred is outstanding, the Company may not 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 shares shall have the right, at his
option, at any time after the Company increases its authorized common shares,
but in no event later than June 30, 1997, to convert each share into fully paid
and nonassessable shares of the Company's common stock at a conversion ratio of
50,000 shares of common stock for each share of Series K Preferred. The
Company has no right to redeem any Series K Preferred shares, nor does it have
any sinking fund obligations with respect to such shares.
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, out of the net assets of the Company,
the sum of $50,000.00 in cash for each share of Series K Preferred held,
aggregating $5,000,000, subject to the first priority of all holders of Series
A Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series
F Preferred, Series H Preferred, Series I Preferred and Series J.
Series M Convertible Preferred Stock ("Series M Preferred") - The Board has
authorized 40,000 of Series M Preferred with no par value. As of May 15, 1996,
all 40,000 shares were issued and outstanding. Of these, the Company issued
15,000 to Daniel M. Boyar as compensation for services and 25,000 shares to the
law firm of Scolaro Shulman, as security for payment of legal fees. Further,
Series M Preferred bears no dividends.
35
<PAGE> 38
Each holder of Series M Preferred shares shall have the right, at his
option, at any time after the Company increases its authorized common shares,
but in no event later than June 30, 1997, to convert each share into fully paid
and nonassessable shares of the Company's common stock at a conversion ratio of
10 shares of common stock for each share of Series M Preferred. The Company
has no right to redeem any Series M Preferred shares, nor does it have any
sinking fund obligations with respect to such shares.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series M
Preferred shall be entitled to receive, out of the net assets of the Company,
the sum of $10.00 in cash for each share of Series M Preferred held,
aggregating $400,000, subject to the first priority of all holders of Series A
Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F
Preferred, Series H Preferred, Series I Preferred, Series J Preferred and all
holders of Series K Preferred.
The Company has also authorized several other classes of preferred stock,
including Series A Preferred and Series L Convertible Preferred Stock.(1) As of
May 15, 1996, no shares from any of these series were outstanding.
Accordingly, the proposed increase in authorized shares of the Company's common
stock shall not involve the conversion, redemption, or other form of exchange
of any these types of preferred shares.
[Balance of page intentionally left blank]
____________________
(1) The Board has never authorized a Series G of the Company's
Preferred Stock and has retired its Series B 8% Preferred Stock.
36
<PAGE> 39
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) PRICE RANGE OF COMMON STOCK
The following table shows the high and low closing bid prices as reported
by Nasdaq for the Company's common stock for the calendar quarters indicated.
The Company's common stock is traded on Nasdaq Small Cap Market under the
symbol "EVRO".
The quotations represent prices between dealers in securities, do not
include retail markup, markdowns or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1994 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $2.56 $0.88
Second Quarter $1.31 $0.63
Third Quarter $1.13 $0.50
Fourth Quarter $0.53 $0.16
1995
----
First Quarter $2.63 $1.19
Second Quarter $3.75 $1.19
Third Quarter $3.06 $0.75
Fourth Quarter $2.69 $1.03
</TABLE>
The prices for 1994 do not reflect a 1:20 reverse stock split effective January
26, 1995.
The high and low sale prices for January 26, 1995, the day prior to the
public announcement of the agreement with Stellar to acquire a 98.35% interest
in TSSN, were $2.875 and $1.25, respectively.
(B) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of May 15, 1996, the number of shareholders of record of the Company's
common stock was approximately 2,400.
(C) DIVIDENDS
The Company has never paid cash dividends on its common stock. Payment of
dividends is within the discretion of the Company's Board of Directors and will
depend on, among other factors, earnings, capital requirements and the
operating and financial condition of the Company. At the present time, the
Company anticipates retaining future earnings, if any, in order to finance the
development of its business activities. The holders of the Company's common
stock as of the record date of March 27, 1995, were issued a stock dividend
during August 1995 consisting of the Company's Series D Preferred which have
limited voting rights. The Company has the right, but not the obligation, to
redeem the Series D Preferred in exchange for all of THI's issued and
outstanding capital stock. THI is entitled to receive on an annual basis that
number of shares of the Company's voting common stock ("Special Shares")
equal to 20% of the average total assets of THI over a twelve month period
(March 14 through the following March 13 each year) divided by Two Dollars
($2.00). THI's right to receive the Special Shares provided is earned pro
ratably over the applicable twelve month period. Such entitlement would
cease upon the redemption of the Series D Preferred. Stellar has the right to
purchase from THI any Special Shares of the Company's common stock received
until June 30, 1997 for an amount equal to the greater of Two Dollars ($2.00)
per share or 50% of the bid price of the Company's then publicly traded stock
as of the end of the month preceding Stellar's exercise of its right to
purchase. The Company is prohibited from pledging, hypothecating or otherwise
encumbering its shares of THI's capital stock. The Series D Preferred contains
a special dividend provision that in the event such preferred stock is not
redeemed by June 30, 1997, the Company shall, as of July 1, 1997, declare a
stock dividend of its voting common stock payable to the holders of the Series
D Preferred equal to the number of shares of common stock held by THI as of
June 30, 1997. Additional stock dividends shall be payable to the holders of
Series D Preferred each July 1st following July 1, 1997 until the Company has
redeemed its Series D Preferred. The amount of such additional stock dividend
shall equal the number of shares of the Company's common stock transferred to
THI during the immediately preceding twelve month period.
37
<PAGE> 40
FINANCIAL AND OTHER INFORMATION
MERGERS, CONSOLIDATIONS, ACQUISITIONS AND SIMILAR MATTERS
The following financial information with respect to the Company required
by Item 14(b) is incorporated by reference pursuant to Item 14(c) from the
Company's Form 10-KSB for the fiscal year ended December 31, 1995 and the
Company's Form 10-QSB for the quarterly period ended March 31, 1996, copies of
which are enclosed with this Information Statement:
ITEM 14(B) Pursuant to Note F to Schedule 14A, the following financial
statements and proforma financial information is provided pursuant to Item 310
of Regulation S-B in lieu of the financial statements required in Schedule 14A.
(1) Financial statements of the Company set forth in Part II, Item 7
of the Company's Form 10-KSB for the fiscal year ended December 31, 1995
and Item 1 of the Company's Form 10-QSB for the quarterly period ended
March 31, 1996 are incorporated herein by reference.
38
<PAGE> 41
(2) Financial statements of Channel America for the fiscal year
ended December 31, 1995 are attached as Schedule B to this Proxy
Statement.
(3) Financial Statements of The Sports & Shopping Network, Inc. for
the years ended December 31, 1994 and 1993 and for the period from
inception (December 16, 1992) through December 31, 1992, are attached as
Schedule C to this Proxy Statement.
(4) Proforma Financial Information for the years ended December 31,
1994 and 1995 set forth in Note 20 of the Company's Audited Financial
Statements included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 is incorporated herein by reference.
ITEM 14(B)(3)(I)(A): Description of Business set forth in Part I, Item 1 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1995 is
incorporated herein by reference.
ITEM 14(B)(3)(I)(B): Description of Property set forth in Part I, Item 2 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1995 is
incorporated herein by reference.
ITEM 14(B)(3)(I)(C): Legal Proceedings set forth in Part I, Item 3 of the
Company's Form 10-KSB for the fiscal year ended December 31, 1995 is
incorporated herein by reference.
ITEM 14(B)(3)(I)(H): Changes in and disagreements with accountants on
accounting and financial disclosure set forth in Part II, Item 8 of the
Company's Form 10-KSB for the fiscal year ended December 31, 1995 is
incorporated herein by reference.
By Order of the Board of Directors
Dated
-------------------- --------------------------------------
Secretary
39
<PAGE> 42
SCHEDULE A
TO THE
PROXY STATEMENT
FOR
EVRO CORPORATION
PRO FORMA CAPITALIZATION
<PAGE> 43
PRO FORMA CAPITALIZATION
The following table sets forth the number of shares of the Company's
common stock that would have been issued, as of May 15, 1996, assuming that,
effective as of that date, the shareholders of the Company had approved an
increase in the number of shares of the Company's authorized shares of common
stock, and, assuming further that: (i) the holders of the Company's preferred
stock exercised their rights to convert the Company's outstanding shares of
preferred stock into shares of the Company's common stock; and (ii) the Company
issued the balance of the shares that it had contractually agreed to issue to
Stellar for the shares of TSSN.
<TABLE>
<CAPTION>
Class of Stock or, alternatively, the
Obligation Giving Rise to the Potential Common Stock
Issuance of Common Stock Equivalents
- ------------------------ -----------
<S> <C>
Common Stock Issued as of
May 15, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,497,957
Series C Convertible Preferred Stock
210,400 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,896,563(1)
Series E Convertible Preferred Stock
30,000 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000(2)
Series F Convertible Preferred Stock
1,352.5911 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,525,911(3)
Series H Convertible Preferred Stock
48,000 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,764,706(4)
Series I Convertible Preferred Stock
6,750 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350,000(5)
Series J Convertible Preferred Stock
100 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000(6)
Series K Convertible Preferred Stock
100 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696,542(7)
</TABLE>
A-1
<PAGE> 44
<TABLE>
<S> <C>
Series M Convertible Preferred Stock
40,000 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000(8)
Balance of Shares that the Company is
Contractually Obligated to Issue to
Stellar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,609,038(9)
Shares to be issued to Channel America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000(10)
Shares to be issued to the holders
of the Company's 8.5% Convertible
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,806,908(11)
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,647,625
==========
Adjusted Total (See Footnote 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,647,625
==========
</TABLE>
(1)As of May 15, 1996, there were 210,400 shares of Series C Preferred
Stock issued at a price of $10.00 per share. The holders of the Series C
Preferred Stock can convert the shares into the Company's common stock at 50%
of the market price of the Company's common stock. The market price of the
Company's common stock used for purposes of determining the number of shares to
be issued upon conversion was $2.21875 (this price represents the closing price
of the Company's common stock on March 29, 1996).
(2)As of May 15, 1996, there were 30,000 shares of Series E Preferred
Stock issued, convertible into 3,000,000 shares of the Company's common stock.
(3)As of May 15, 1996, there were 1,352.5911 shares of Series F
Preferred Stock issued, convertible into 13,525,911 shares of the Company's
common stock.
(4)As of May 15, 1996, there were 48,000 shares of Series H Preferred
Stock issued with a face value of $6,000,000. The Series H Preferred Stock is
convertible into 3,764,706 shares pursuant to the Channel America Agreement and
Plan of Merger, as amended.
(5)As of May 15, 1996, there were 6,750 shares of Series I Preferred
Stock issued, convertible into 1,350,000 shares of the Company's common stock.
(6)As of May 15, 1996, there were 100 shares of Series J Preferred Stock
issued, convertible into 5,000,000 shares of the Company's common stock. The
Company issued the shares of Series J Preferred Stock as collateral for the
Company's obligations to E. Carl Anderson, Jr. (See "Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital Resources").
(7)As of May 15, 1996, there were 17 shares of Series K Preferred Stock
issued, at a price of $50,000 per share. The holders of the Series K Preferred
Stock can convert the shares into EVRO's common stock at 55% of the market
price of EVRO's common stock. The market price of EVRO's common stock, as of
March 29, 1996 was $2.21875 (this price represents the closing price of the
Company's common stock on May 29, 1996).
(8)As of May 15, 1996, there were 40,000 shares of Series M Preferred
Stock issued, convertible into 400,000 shares of the Company's common stock.
Twenty five thousand shares of the Series M Preferred Stock were issued to
Scolaro Shulman as security for the Company's obligation to Scolaro Shulman for
legal services rendered. See "ELECTION OF BOARD OF DIRECTORS--Certain
Relationships and Related Transactions with Management and Others."
A-2
<PAGE> 45
(9)The Company initially agreed to issue to Stellar 16,759,038 shares
of the Company's common stock which was subsequently decreased to 16,409,038.
The Company issued 1,280 shares of its Series F Preferred Stock to Stellar in
partial satisfaction of such obligation to issue shares and, by issuing the
Series F, the Company was relieved of its obligation to issue 12,800,000 shares
of common stock to Stellar. See "Business of the Company - Acquisition of
TSSN"). The balance of the 16,409,038 shares that the Company agreed to issue
to Stellar, 3,609,038, remain to be issued by the Company to Stellar.
(10)The Company agreed to issue to Channel America 100,000 shares of
the Company's common stock in exchange for Channel America's agreement to
extend a promissory note.
(11)As of May 15, 1996, the Company had issued its 8.5% and 9.5%
Convertible Debentures Due January 31, 1998 - November 27, 2000 with original
face value of $4,540,000. The holders of the Convertible Debentures can
convert the debenture into the Company's common stock at 50%-70% of the market
price of EVRO's common stock. The market price of the Company's common stock
for purposes of this illustration is assumed to be $2.21875, the closing price
of the Company's common stock on March 29, 1996).
A-3
<PAGE> 46
SCHEDULE B
TO THE
PROXY STATEMENT
FOR
EVRO CORPORATION
----------------
Channel America Television Network, Inc.
Financial Statements
For the Year Ended December 31, 1995
<PAGE> 47
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Channel America Television Network, Inc.
We have audited the accompanying consolidated balance sheet of
Channel America Television Network, Inc. and subsidiary as of December 31,
1995, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the two years in the period then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Channel America Television Network, Inc. and subsidiary as of
December 31, 1995, and the consolidated results of their operations and their
cash flows for each of the two years in the period then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 3 to the consolidated financial statements, the Company's
working capital deficit, accumulated deficit and history of operating losses
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ MORTENSON AND ASSOCIATES, P.C.
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants.
Cranford, New Jersey
March 8, 1996
B-1
<PAGE> 48
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995.
<TABLE>
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash $ 6,393
Accounts Receivable (Less Allowance for Doubtful Accounts
of $58,037) 7,276
Other Current Assets 2,979
---------------
TOTAL CURRENT ASSETS 16,648
---------------
PROPERTY AND EQUIPMENT:
Furniture and Equipment 62,499
Broadcast Equipment 55,276
Film Library 55,730
---------------
Total - At Cost 173,505
Less: Accumulated Depreciation and Amortization (153,654)
---------------
PROPERTY AND EQUIPMENT - NET 19,851
---------------
OTHER ASSET:
Deposits 125,000
---------------
TOTAL ASSETS $ 161,499
===============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
B-2
<PAGE> 49
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995.
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Notes Payable - Related Parties $ 1,144,912
Notes Payable - Others 2,038,105
Accounts Payable 2,364,096
Due to Parent Company 690,811
Accrued Expenses 77,703
Accrued Interest Payable 411,827
Other Current Liabilities 275,234
---------------
TOTAL CURRENT LIABILITIES 7,002,688
---------------
OTHER LIABILITIES:
Net Liabilities of Discontinued Operations 153,900
---------------
COMMITMENTS AND CONTINGENCIES --
---------------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A Preferred Stock - $.01 Par Value, Cumulative,
Authorized 200,000 Shares; Issued and Outstanding
53,988 Shares, $539,880 Liquidation Value 540
Additional Paid-in Capital - Preferred Stock 539,340
Common Stock $.01 Par Value; Authorized 100,000,000
Shares; Issued and Outstanding 42,075,606 Shares 420,756
Additional Paid-in Capital - Common Stock 14,819,766
Subscriptions Receivable (700,000)
Accumulated (Deficit) (22,075,491)
---------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (6,995,089)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 161,499
===============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
B-3
<PAGE> 50
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
REVENUE $ 1,483,034 $ 1,639,811
--------------- ---------------
OPERATING EXPENSES:
Direct Operating and Programming 2,611,878 2,058,623
Selling, General and Administrative 1,190,311 1,254,792
Debt Restructuring Costs -- 53,213
Bad Debt Expense 3,750 53,241
--------------- ---------------
TOTAL OPERATING EXPENSES 3,805,939 3,419,869
--------------- ---------------
OPERATING (LOSS) (2,322,905) (1,780,058)
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest Income 7,204 14,461
Interest Expense (473,287) (482,062)
Other Income 410,000 --
--------------- ---------------
TOTAL OTHER (EXPENSE) - NET (56,083) (467,601)
--------------- ---------------
(LOSS) FROM CONTINUING OPERATIONS (2,378,988) (2,247,659)
DISCONTINUED OPERATIONS:
Gain on Disposal of Discontinued Operations 299,666 237,440
--------------- ---------------
NET (LOSS) $ (2,079,322) $ (2,010,219)
=============== ===============
(LOSS) FROM CONTINUING OPERATIONS PER
COMMON SHARE $ (.21) $ (.73)
=============== ===============
NET (LOSS) PER COMMON SHARE $ (.18) $ (.65)
=============== ===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,366,954 3,077,164
=============== ===============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
B-4
<PAGE> 51
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
PREFERRED CAPITAL COMMON ADDITIONAL
STOCK PREFERRED PREFERRED STOCK COMMON PAID-IN
SHARES STOCK STOCK SHARES STOCK CAPITAL
------ ----- ----- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1994 128,266 $ 1,283 $ 1,281,377 1,886,465 $ 18,864 $ 9,635,418
Issuance of Stock for Exercise of Warrants -- -- -- 100,800 1,009 1,092
Issuance of Stock for Conversion of Debt -- -- -- 1,384,000 13,840 661,160
Issuance of Stock for Services Rendered -- -- -- 25,676 257 12,581
Issuance of 6% Preferred Stock Dividend 7,696 77 76,883 -- -- --
Issuance of Stock for Conversion of Debt -- -- -- 15,018 150 7,359
Net (Loss) -- -- -- -- -- --
--------- ---------- ------------ ---------- ---------- -------------
BALANCE - DECEMBER 31, 1994 135,962 1,360 1,358,260 3,411,959 34,120 10,317,610
Issuance of Stock to Evro Corporation -- -- -- 27,500,000 275,000 725,000
Issuance of Stock for Conversion of Debt -- -- -- 10,055,800 100,558 2,923,450
Issuance of Stock for Conversion of
Preferred Stock and Dividends (81,974) (820) (818,920) 1,107,847 11,078 853,706
Preferred Stock Dividends -- -- -- -- -- --
Net (Loss) -- -- -- -- -- --
--------- ---------- ------------ ---------- ---------- -------------
BALANCE - DECEMBER 31, 1995 53,988 $ 540 $ 539,340 42,075,606 $ 420,756 $ 14,819,766
========= ========== ============ ========== ========== =============
<CAPTION>
TOTAL
STOCKHOLDERS'
SUBSCRIPTIONS ACCUMULATED EQUITY
RECEIVABLE (DEFICIT) (DEFICIT)
---------- --------- ---------
<S> <C> <C> <C>
BALANCE - JANUARY 1, 1994 $ -- $ (17,831,513) $ (6,894,571)
Issuance of Stock for Exercise of Warrants -- -- 2,101
Issuance of Stock for Conversion of Debt -- -- 675,000
Issuance of Stock for Services Rendered -- -- 12,838
Issuance of 6% Preferred Stock Dividend -- (76,960) --
Issuance of Stock for Conversion of Debt -- -- 7,509
Net (Loss) -- (2,010,219) (2,010,219)
------------ -------------- -------------
BALANCE - DECEMBER 31, 1994 -- (19,918,692) (8,207,342)
Issuance of Stock to Evro Corporation (700,000) -- 300,000
Issuance of Stock for Conversion of Debt -- -- 3,024,008
Issuance of Stock for Conversion of
Preferred Stock and Dividends -- -- 45,044
Preferred Stock Dividends -- (77,477) (77,477)
Net (Loss) -- (2,079,322) (2,079,322)
------------ -------------- -------------
BALANCE - DECEMBER 31, 1995 $ (700,000) $ (22,075,491) $ (6,995,089)
============ ============== =============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
B-5
<PAGE> 52
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) from Continuing Operations $ (2,378,988) $ (2,247,659)
--------------- ---------------
Adjustments to Reconcile Net (Loss) from Continuing
Operations to Net Cash (Used) for Operating Activities:
Depreciation and Amortization 10,552 18,825
Use of Program Rights 110,948 76,821
Issuance of Stock for Services Rendered -- 12,838
Bad Debt Expense 3,750 53,241
Loss on Disposal of Property and Equipment 2,125 --
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (6,451) (22,739)
Program Rights -- (181,553)
Other Current Assets (2,979) 2,300
Deposits 7,500 --
Increase (Decrease) in:
Accounts Payable After Restructuring 451,425 91,125
Accrued Expenses After Restructuring (35,214) 19,959
Accrued Interest Payable After Restructuring 466,071 388,891
Other Current Liabilities 201,846 23,398
--------------- ---------------
Total Adjustments 1,209,573 483,106
--------------- ---------------
NET CASH - CONTINUING OPERATIONS - FORWARD (1,169,415) (1,764,553)
--------------- ---------------
DISCONTINUED OPERATIONS:
Net Income (Loss) from Discontinued Operations -- --
Adjustments to Reconcile Net Income (Loss) to Net
Cash Generated by Discontinued Operations:
Changes in Net Assets, Liabilities and Losses 51,867 --
Estimated Gain on Disposal of Discontinued Operations 299,666 237,440
--------------- ---------------
NET CASH GENERATED BY DISCONTINUED OPERATIONS - FORWARD 351,533 237,440
--------------- ---------------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Purchase of Property and Equipment (1,750) (29,132)
Security Deposit (125,000) (1,333)
Advances from Parent Company 690,811 --
--------------- ---------------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARD 564,061 (30,465)
--------------- ---------------
NET CASH - INVESTING ACTIVITIES - DISCONTINUED OPERATIONS -
FORWARD $ -- $ --
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
B-6
<PAGE> 53
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
NET CASH - CONTINUING OPERATIONS - FORWARDED $ (1,169,415) $ (1,764,553)
--------------- ---------------
NET CASH GENERATED BY DISCONTINUED OPERATIONS - FORWARDED 351,533 237,440
--------------- ---------------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARDED 564,061 (30,465)
--------------- ---------------
NET CASH - INVESTING ACTIVITIES - DISCONTINUED OPERATIONS -
FORWARDED -- --
--------------- ---------------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from Exercise of Warrants -- 2,101
Proceeds from Senior Convertible Debentures 74,000 226,000
Proceeds from Other Loans 36,808 5,000
Payments of Indebtedness (186,232) (41,809)
Proceeds from Issuance of Common Stock 300,000 --
--------------- ---------------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 224,576 191,292
--------------- ---------------
NET CASH - FINANCING ACTIVITIES - DISCONTINUED OPERATIONS -- --
--------------- ---------------
NET (DECREASE) IN CASH (29,245) (1,366,286)
CASH - BEGINNING OF YEARS 35,638 1,401,924
--------------- ---------------
CASH - END OF YEARS $ 6,393 $ 35,638
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 5,178 $ 5,580
Income Taxes $ -- $ --
</TABLE>
SUPPLEMENTAL INFORMATION OF NONCASH FINANCING ACTIVITIES:
See accompanying notes and consolidated financial statements for further
details on noncash financing activities.
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
B-7
<PAGE> 54
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Channel America Television Network, Inc. and its wholly-owned subsidiary
[the "Company"] is a subsidiary of Evro Corporation (see Notes 3 and 13).
(B) CONSOLIDATION - The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary. All material intercompany
accounts and transactions have been eliminated. The Company is pursuing the
sale of owned LPTV (see Note 2) stations and, in accordance with Opinion No. 30
of the Accounting Principles Board, amounts relative to the sales of such
stations are shown separately in the accompanying consolidated financial
statements as discontinued operations. This disposition is described in Note 4
and 5 and data presented in all other notes are exclusive of owned LPTV station
operations.
(C) REVENUE RECOGNITION - The Company derives operating revenues from paid
programming, affiliate fees and per-inquiry fees. The Company also generates
non-cash revenues from barter transactions. Paid programming represents
revenue earned for broadcasting customer generated programming and (to a lesser
extent) paid spot advertising (e.g. 30-second commercials). Affiliate fees are
monthly charges to affiliated stations for the right to belong to the broadcast
network. The Company may from time to time waive all or a portion of such fees
to attract and maintain affiliates. Per inquiry fees represent fees generated,
on a direct response basis, when a customer uses air time to sell directly to
viewers who then place orders with the customer. Barter (nonmonetary)
transactions generally are used by the Company to acquire programming. In a
typical barter transaction, the Company is given programming rights in exchange
for air time. The estimated fair value of programming rights is recognized as
revenue and programming expense when the air time is used. As is the general
accounting practice in this industry, no gain or loss is recognized on barter
transactions. Therefore, barter transactions increase both revenue and
expenses, but do not affect cash flow. Although the Company does not receive
any cash in barter transactions, such transactions alleviate cash expenditures
by the Company to acquire programming.
The following summarizes revenue:
<TABLE>
<CAPTION>
Years ended
December 31,
------------
Revenue Source: 1 9 9 5 1 9 9 4
- --------------- ------- -------
<S> <C> <C>
Barter Programming $ 802,200 $ 1,055,850
Paid Programming and Paid Spots 606,927 411,839
Per Inquiry Revenue 45,286 80,004
Affiliate Fees 28,621 92,118
------------- ------------
TOTAL REVENUE $ 1,483,034 $ 1,639,811
============= ============
</TABLE>
(D) FILM LIBRARY AND EQUIPMENT - Film library and equipment are stated at cost.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives ranging from 5 to 11 years. Depreciation and
amortization expense amounted to $10,552 and $18,825 for the years ended
December 31, 1995 and 1994, respectively.
(E) PROGRAM RIGHTS - Program rights relate to rights purchased for broadcast
materials. The costs are amortized over the estimated number of future
showings unless the program is licensed for an unlimited number of showings in
which case it is amortized over the contract period. Amortization expense for
the years ended December 31, 1995 and 1994 was $110,948 and $76,821,
respectively. These rights are classified as current or long-term based upon
their anticipated usage. At December 31, 1995, there were no unamortized
program rights.
B-8
<PAGE> 55
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) CASH AND CASH EQUIVALENTS - Cash equivalents are comprised of certain
highly liquid investments with a maturity of three months or less when
purchased. The Company had no cash equivalents at December 31, 1995.
(G) ACCOUNTS RECEIVABLE - A provision for doubtful accounts is charged to
operations based on management's evaluation of potential losses in trade
receivables. This evaluation includes an analysis of current and past due
accounts, past experience, and any other relevant information available.
(H) RISK CONCENTRATIONS - Financial instruments that potentially subject the
Company to concentrations of credit risk include cash and cash equivalents and
accounts receivable arising from its normal business activities. The Company
places its cash and cash equivalents with high credit quality financial
institutions located in the Eastern United States. The Company periodically has
money in financial institutions that is subject to normal credit risk beyond
insured amounts. The Company believes that no significant concentration of
credit risk exists with respect to its cash investment at December 31, 1995.
The Company routinely assesses the financial strength of its customers, who are
located throughout the United States, and based upon factors surrounding the
credit risk of its customers, establishes an allowance for doubtful accounts.
As a consequence, believes that its accounts receivable credit risk exposure
beyond such allowance is limited. The Company does not require collateral as a
condition of sale.
(I) LOSS PER SHARE - Loss per share has been computed based upon the weighted
average number of common shares outstanding after giving retroactive treatment
to the one-for-fifty reverse stock split (see Note 11A). No dual presentation
of earnings (loss) per share is presented because inclusion of any of the
Company's common stock equivalents would decrease the loss per share and thus
would be antidilutive.
(J) ADVERTISING - The Company expenses advertising costs as incurred. Total
advertising costs charged to expense for the periods ended December 31, 1995
and 1994 amounted to approximately $21,000 and $83,000, respectively.
(2) ORGANIZATION AND BUSINESS
DESCRIPTION AND NATURE OF THE COMPANY'S OPERATIONS - Channel America Television
Network, Inc. (the "Company" or "Channel America") operates a broadcast
television network. The network provides syndicated and first-run programming
and movies. The Company operates on a twenty-four hour day, seven day a week
schedule.
Until May 1994, the Company was called Channel America LPTV Holdings, Inc. and
originally served predominantly low power television ("LPTV") stations and the
home satellite dish market. The Company has sought as affiliates principally
full power television stations and direct cable affiliates. The Company's
network encompasses a number of affiliates throughout the United States
consisting of full power independent broadcast stations, LPTV stations and
local origination cable systems.
B-9
<PAGE> 56
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) REALIZATION OF ASSETS
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company has
sustained substantial losses and has a working capital deficiency of $6,986,040
and net deficiency of assets of $6,995,089 at December 31, 1995. In addition,
the Company expects to incur substantial expenditures in the operation of its
business, including expenditures relating to the acquisition and production of
programming and marketing. The Company may need substantial financing from
outside parties for working capital since the necessary funds are not being
generated from operations. The amount of funds needed by the Company is
dependent upon the Company's success at generating revenues and the rate of
growth of its operations.
During 1995, an equity investment resulting in a majority ownership interest in
the Company was made by Evro Corporation ("Evro") (see Note 13). Pursuant to
that investment, Evro assumed responsibility for the Company's day to day
activities including the arranging of payment of all related operating costs.
Advances made by Evro to the Company during 1995 amounted to $690,811 at
December 31, 1995. The Company was able to meet its 1995 working capital needs
through such advances. The Company has continued to receive advances from Evro
which have enabled it to meet its working capital needs subsequent to December
31, 1995. If advances to the Company by Evro are not continued, there can be
no assurance that the Company will be successful in generating the needed level
of revenue or cash flows to sustain operations.
In view of the matters described in the preceding paragraph, recoverability of
the recorded asset amounts shown in the accompanying balance sheet is dependent
upon continued operations of the Company, which, in turn, is dependent upon the
Company's future operations. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and settlement and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
(4) DISCONTINUED OPERATIONS
The Company initially decided to own and operate LPTV stations in connection
with the operation of its broadcast network and acquired or constructed 16
licensed operating LPTV stations, acquired options to buy additional stations,
obtained 17 construction permits from the United States Federal Communications
Commission (the "FCC") to build stations, and entered into eight program
affiliate/lease agreements to operate LPTV stations owned by others. In 1992,
based on the Company's financial condition and the costs involved to construct
LPTV stations, the Company discontinued its broadcast station operations. The
Company decided to sell all its LPTV licenses, stations and construction
permits and to terminate its program affiliate/lease agreements and to
concentrate on being a network comprised of affiliate stations. The Company's
former broadcast station operations, including its licenses, permits and
affiliate/lease agreements, are reflected in these consolidated financial
statements as discontinued operations.
(5) DISPOSITION OF OWNED LPTV STATIONS
The Company's owned LPTV stations ceased operating near the end of 1991. As a
result, the Company decided as of the beginning of 1992, to sell its owned LPTV
stations.
The estimated gain (loss) on disposal of such operations, which comprise "Gain
on Disposal of Discontinued Operations" on the accompanying consolidated
statements of operations, is as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Estimated Gain on Disposal of Owned
LPTV Station Operations $ 299,666 $ 237,440
============= ============
</TABLE>
B-10
<PAGE> 57
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) DISPOSITION OF OWNED LPTV STATIONS (CONTINUED)
The gain estimated on disposal of the LPTV business segment has been determined
in accordance with current forecasts and plans, as well as from actual sales of
stations. However, there can be no assurance that the ultimate gain or loss on
disposition of the remaining stations will not be more or less than the amounts
presently estimated. There is at least a reasonable possibility that a change
in this estimate will occur in the near term. The gain resulting from the
actual sale of LPTV stations in future years will be recognized in the year of
the sale. As of December 31, 1995, the Company had three LPTV stations
remaining to be sold. The Company is pursuing the sale of these stations and
contemplates their sale in 1996.
The assets and liabilities of the business being sold are shown as "Net
Liabilities of Discontinued Operations" separately on the accompanying
consolidated balance sheet and consist of the following:
<TABLE>
<CAPTION>
December 31,
1 9 9 5
-------
<S> <C>
Notes Receivable $ 3,200
Broadcast Equipment Estimated at Net Realizable Value 2,800
Liabilities (159,900)
---------------
NET LIABILITY $ (153,900)
===============
</TABLE>
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
To the extent practicable generally accepted accounting principles require the
disclosure of fair value of financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
is not necessarily representative of the amount that could be realized or
settled, nor does the fair value amount consider any tax consequences of
realization or settlement.
The Company has approximately $3,200,000 of notes payable, of which
approximately $1,100,000 is due to related parties. As can be seen from the
financial statements, the Company does not have the ability to pay such debt.
The settlement of this debt is totally dependent on the consummation of the
100% acquisition of the Company by Evro (see Note 13), which may occur
depending on the occurrence of several events. Among those events is the
conversion at least 90% of the Company's debt (and preferred stock) into its
own common stock, and the subsequent conversion of the Company's common stock
into the common stock of Evro to effect the acquisition. If these events were
to occur, the fair value of the Company's existing debt would be the fair value
of the stock of Evro received in exchange. It is not practicable to estimate
that value at December 31, 1995, particularly since there can be no assurance
that such an exchange will occur. Without such an exchange of stock, the
Company's ability to continue as a going concern will be severely impaired, and
the settlement of any of its liabilities, including its operating advance from
Evro ($690,811 at December 31, 1995), at recorded amounts will not occur
without a significant infusion of outside capital.
(7) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B-11
<PAGE> 58
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) LONG-TERM DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
December 31,
1 9 9 5
Notes Payable
-------------
Related
Parties Others
------- ------
<S> <C> <C>
Senior Convertible Debentures, Due September 30, 1996,
5% Per Annum $ 62,500 $ 500,000
Senior Convertible Debentures, Due March 30, 1995, 10% Per Annum 55,000 25,000
Subordinated Notes, Due December 31, 2000, 10% Per Annum 517,595 1,082,390
Fixed Rate Notes, Due August 31, 1996, 10% Per Annum 100,911 87,745
Five Year Notes, Due 1995 to 2000 -- 308,478
Two Year Notes, Due 1995 to 1996, 10% Per Annum 408,906 30,000
Fixed Rate Note Payable on Demand, 15% Per Annum -- 4,492
------------- -------------
TOTALS $ 1,144,912 $ 2,038,105
============= =============
</TABLE>
Maturities of long-term debt as of December 31, 1995 in each of the next five
years are as follows:
<TABLE>
<S> <C>
1996 $ 3,183,017
1997 --
1998 --
1999 --
2000 --
Thereafter --
---------------
TOTAL $ 3,183,017
===============
</TABLE>
At December 31, 1995, the Company was in default with respect to its long-term
debt. The entire amount, therefore, has been classified as current.
In accordance with certain terms of the acquisition of the Company by Evro, at
least ninety-percent (90%) of all outstanding debtholders must convert their
notes into Company common stock to effect the acquisition (see Note 13).
The Company, during 1995 sold an aggregate of $74,000 of Senior Debentures due
March 31, 1995.
Senior Convertible Debentures due 1996 (the "Senior Debentures") bear an annual
interest rate of 5% payable quarterly commencing December 31, 1995. The Senior
Debentures by their terms, were convertible into common stock (after adjustment
for the reverse stock split referred to in Note 11A) on the basis of one share
for each $.7325 of indebtedness if converted prior to September 30, 1995 and
$.9191 if converted thereafter, subject to antidilution adjustment. Such
shares are entitled to certain "demand" and "piggy-back" registration rights.
Certain of this indebtedness was converted to equity pursuant to the June 1995
conversion plan adopted by the Company (see Note 9).
B-12
<PAGE> 59
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) CONVERSION OF INDEBTEDNESS TO EQUITY AND PREFERRED STOCK TO COMMON
In June 1995, the Company adopted a plan to convert a substantial portion of
its indebtedness to equity. In furtherance of that Plan, on June 7, 1995, the
Board of Directors formally ratified and approved the following:
Management authorized the issuance of up to 22,838,040 shares of common stock
in exchange for debt and preferred stock.
A description of the conversion of indebtedness that occurred as of December 1,
1995, follows:
Senior Convertible Debentures, with principal due of $687,500 and interest due
of $71,449 was exchanged for 5,764,320 shares of common stock.
Senior Debentures, with principal due of $220,000 and interest due of $23,476
was exchanged for 964,636 shares of common stock.
Fixed Rate Notes, with principal due of $376,932 and interest due of $43,571
was exchanged for 1,051,136 shares of common stock.
Subordinated Notes, with principal due of $1,193,149 and interest due of
$109,486 was exchanged for 1,794,136 shares of common stock.
Other Notes, with principal due of $268,051 and interest due of $30,789 was
exchanged for 481,572 shares of common stock.
81,970 shares of preferred stock, with a liquidation value of $819,700 and
dividends due of $45,044 was exchanged for 1,107,847 shares of common stock.
The Company is attempting to settle the balance of the above listed debt into
common stock and the successful conversion of at least 90% of the Company's
notes, interest payable and preferred stock and dividends payable, is a
provision of the acquisition of the Company by Evro Corporation (see Note 13).
(10) INCOME TAXES
The Company has net operating loss carryovers of approximately $21,933,000 as
of December 31, 1995, expiring in the years 2004 through 2010. However, based
upon present Internal Revenue regulations governing the utilization of net
operating loss carryovers where the corporation has issued substantial
additional stock, most of this loss carryover may not be available to the
Company.
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," requires the establishment of a deferred tax asset for all
deductible temporary differences and operating loss carryforwards. Assuming
all operating loss carryforwards will be available (which is unlikely) the
Company would have a deferred tax asset of approximately $8,773,000. This
amount represents an increase of approximately $849,000 over the prior year
amount. Because of the uncertainty that the Company will generate income in
the future sufficient to fully or partially utilize these carryforwards, a
valuation allowance of $8,773,000 has been established pursuant to SFAS No.
109. Accordingly, no deferred tax asset is reflected in these financial
statements.
B-13
<PAGE> 60
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) STOCKHOLDERS' EQUITY
(A) REVERSE STOCK SPLIT - In March 1994, with stockholder approval, a
one-for-fifty reverse stock split was authorized converting the then
outstanding approximately 168,500,060 shares of the Company's common stock to
approximately 3,371,000 shares. The $.01 par value of the common stock did not
change, therefore, common stock was decreased and paid-in capital was increased
by $1,651,920 as a result of the reverse split. All share data were adjusted
for the reverse stock split. Options, warrants, conversion rights and other
rights of whatever nature to purchase common shares prior to the split were
adjusted to reflect the revised proportional relationship caused by the split.
(B) AUTHORIZED STOCK - The Company is authorized to issue 100,000,000 shares of
common stock and 200,000 shares of preferred stock.
(C) PREFERRED STOCK - In 1993, a new class of preferred stock having a
liquidation value of $10 per share was authorized for issuance to certain
creditors. For the first twelve months after issuance, the Company had the
option to pay the 6% dividend in kind by issuing additional shares of preferred
stock. As of December 31, 1994, the Company issued 7,696 shares of preferred
stock in payment of the 6% dividend due on that date (see Note 11D). During
the year ended December 31, 1995, pursuant to the direction of the Board of
Directors, the Company accrued $77,477 in preferred stock dividends. Of this
amount $45,044 was converted to common stock (see Note 9). At December 31,
1995, cumulative preferred stock dividends amounted to $32,433 or $.60 per each
outstanding preferred share.
After the third anniversary of the issuance of the preferred stock (i.e. after
December 31, 1996), the dividend shall be increased to 17% and a sinking fund
for the redemption of the preferred stock on the 10th anniversary of issuance
will commence. Upon the failure of the Company to pay two consecutive
dividends, the holders of the preferred stock have the right to gain control of
the Board of Directors of the Company and convert their shares of preferred
stock into an aggregate of 50% of the Company's outstanding common stock. The
preferred stock is redeemable by the Company, at its option, at any time at a
redemption price of 105% of par, provided that the certain secured notes have
been fully paid.
(D) STOCK ISSUANCES - During 1994, 25,676 shares of common stock were issued
for services rendered. Such issuance has been reflected by a charge to
operations of $12,838 during 1994.
During 1994, the Company issued 7,696 shares of preferred stock in payment of
the 6% dividend (see Note 11C).
In March 1994, certain indebtedness aggregating $675,000 was converted into
1,224,000 shares of the common stock of the Company. In connection with this
conversion, an additional 160,000 bonus shares were issued by the Company.
(12) STOCK OPTIONS
1994 STOCK COMPENSATION PLAN - The Company's 1994 Stock Compensation Plan (the
"1994 Plan") permits the granting of incentive stock options, non-qualified
stock options, stock appreciation rights, performance share units, restricted
stock and for other awards of restricted stock in lieu of cash bonuses to
Company employees, advisors, consultants and outside directors. Under the 1994
Plan, the term of any stock option may not exceed ten years and the stock
option purchase price of an incentive stock option may not be less than the
fair market value of the common stock on the date of the stock option grant.
The maximum number of shares of common stock provided for grants under the 1994
Plan is 650,000 shares. The 1994 Plan is administered by the Compensation and
Stock Option Committee appointed by the Board of Directors, which has the
authority to select optionees, designate the number of shares to be covered by
each option and, subject to certain restrictions, specify other terms of the
options.
B-14
<PAGE> 61
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) STOCK OPTIONS
1994 STOCK COMPENSATION PLAN (CONTINUED) - In January 1995, the Company issued
34,119 stock options at an exercise price of $.02 per share to a vendor in
connection with services performed for the Company. In addition, upon
conversion of senior debt holder notes into equity, the Company will issue an
additional 17,000 stock options at an exercise price of $.02 to the same
vendor.
In January 1995, the Company issued 68,238 options at a price of $.02 per share
to its senior vice president-programming and network operations. In addition,
upon conversion of senior debt holder notes into equity, the Company will issue
an additional 34,000 stock options at an exercise price of $.02 to the same
vendor.
During January 1995, the Company issued 10,000 options to purchase its common
stock at an exercise price of $.02 per share to an individual as consideration
for the extension of the payment terms of a note payable.
The following is a summary of Company common stock options:
<TABLE>
<CAPTION>
Shares Under Options
Years ended
December 31,
------------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Outstanding and Exercisable Beginning of Years 32,200 128,000
Offered During Years 112,357 5,000
Exercised During Years -- 100,800
Terminated During Years (32,200) --
-------------- -------------
OUTSTANDING AND EXERCISABLE END OF PERIODS (1) 112,357 32,200
============== =============
</TABLE>
(1) With an exercise price per share ranging from $.02 to $25.00 giving effect
to the one-for-fifty reverse stock split.
(13) ACQUISITION BY EVRO CORPORATION
In June 1995, the Board of Directors authorized management to issue common
stock in exchange for all outstanding notes and preferred stock in anticipation
of Evro making a significant equity investment in the Company. In July 1995,
the Company entered into a stock purchase agreement with Evro, whereby Evro may
eventually acquire 100% of the Company. Pursuant to the agreement, in October
1995, the Company issued 27,500,000 shares of its common stock to Evro for a
purchase price of $1,000,000, $300,000 of which was paid in cash. The
remaining amount due as of December 31, 1995, is reflected in the balance sheet
as "Subscriptions Receivable." The number of shares issued contemplated giving
Evro at least fifty-one percent of all outstanding common shares of the Company
after the conversions authorized in June 1995. In accordance with certain
terms of the acquisition of the Company by Evro, at least ninety-percent (90%)
of all outstanding debtholders and preferred stockholders must convert their
notes and preferred stock into Company common stock to effect the acquisition.
(14) COMMITMENTS AND CONTINGENCIES
(A) LEASES - The Company leases its operating facilities in Darien, Connecticut
under an operating lease. The future minimum annual rental commitments under
the lease for the years ending December 31 are approximately as follows:
<TABLE>
<S> <C>
1996 $ 50,000
1997 17,000
--------------
TOTAL $ 67,000
==============
</TABLE>
Rent expense for years ended December 31, 1995 and 1994 was approximately
$47,000 and $41,000, respectively.
B-15
<PAGE> 62
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) COMMITMENTS AND CONTINGENCIES (CONTINUED)
(B) EMPLOYMENT AGREEMENTS - On November 1, 1993, the Company entered into a
three-year employment agreement with its Chief Executive Officer ("CEO"). The
agreement may be terminated by the Company as a result of death or disability
or for cause. If the CEO terminates his agreement for cause during the first
year, the Company will be required to pay salary and earned bonus, if any, pro
rata for one year. If such termination occurs after the first year, the
Company is required to pay salary and earned bonus, if any, for two years. On
January 3, 1995, the Company entered into a three-year employment agreement
with the Senior Vice President of programming ("SVP"), including a revenue
participation plan.
(C) DEMAND AND PIGGY-BACK REGISTRATION RIGHTS - Certain shares of common stock
are entitled to certain "demand" and "piggy-back" registration rights under
certain circumstances.
(D) LITIGATION - As of December 31, 1995, the Company was involved in a
litigation proceeding involving breach of contract of a sales representative
agreement (see Note 18). The Company is subject to other legal action in the
ordinary course of business. Management believes it has meritorious defenses
against such actions and will defend the Company's position vigorously.
(E) CONTINGENT FEES - The Company has agreed to pay a finders, "success", fee
to its Chairman of the Board and an investment banker. The payment of such
fees (which aggregate approximately $370,000) is contingent on the consummation
of the Evro acquisition (see Note 13).
(15) CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS - BROADCAST SERVICES
AND PROGRAMMING
On September 15, 1992, the Company entered into a five year agreement with IDB
Communications Group, Inc., which provides stereo tape play-back of Channel
America programming, uplink transmission facilities to Spacenet II and
occasional downlink turnaround service which enables the Company to selectively
choose programming from other satellites and transmit it back to Spacenet II
for transmission to the Company's network. Prior to its entering into this
agreement, the Company was receiving these services under an agreement with
Reception Specialists Company, a wholly-owned subsidiary of IDB ("RSC"). The
Company owed RSC an aggregate of $400,000 for services previously rendered.
IDB has agreed to forgive this amount provided that the Company perform its
obligations under the new agreement. As this forgiveness is contingent upon
the future performance of the Company, the obligation remains in these
financial statements at the full amount. At December 31, 1995, $885,590 due to
IDB is included in accounts payable. Under the agreement, the Company was
required to pay a monthly fee for primary services of $40,750 through September
14, 1995. The monthly fee, which increased to $42,790 on September 15, 1995,
will remain unchanged until September 15, 1996. Additional services such as
downlink turnaround service and other services will be provided by IDB at an
hourly rate ranging from $65 per hour to $188 per hour during the term.
In order to permit the Company to arrange for new financing and improve its
cash flow, the agreement provided that IDB would accept partial payment of its
service fees until March 15, 1994. To recoup the deferred amounts, the
agreement provided for a 25% surcharge on amounts billed for the period
September 15, 1994 to September 15, 1995 and 50% for the period September 15,
1995 to September 15, 1996 until such deferred amounts are repaid in full. If
the agreement is terminated or a change in control of the Company occurs prior
to the expiration of the agreement, the entire unpaid balance due under the
agreement plus the $400,000 previously due to RSC shall become immediately
payable.
On March 31, 1995, the Company entered into a four-year satellite communication
agreement with AT&T, whereby the Company incurred monthly service charges of
$125,000 until December 31, 1995. Thereafter, the monthly rate will be
$131,500. The Company was required to pay a $125,000 deposit.
B-16
<PAGE> 63
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) RELATED PARTIES
The following related parties made various loans to the Company and purchased
various debentures as outlined in long-term debt (see Note 8) from October
1990 to 1995, whose balances outstanding at December 31, 1995 were as follows:
<TABLE>
<S> <C>
Howard White, Vice Chairman of the Board of Directors $ 5,000
David Post, Chairman of the Board and CEO 172,238
Katlean de Monchy, wife of David Post 98,897
Burton Kantor, Director of the Company 40,000
Walnut Capital Corp. whose Chairman and President is Burton Kantor 461,145
Windy City Communications, Inc., controlled by Joel Kantor, son of Burton Kantor 54,547
Richard Post, brother of David Post 118,085
Elvin Feltner, Director of the Board of Directors 195,000
---------------
TOTAL $ 1,144,912
===============
</TABLE>
In addition, the following related party had a note to the Company converted
into shares of common stock in connection with the recapitalization of the
Company and/or the stock purchase agreement with Evro (see Note 13):
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Allen Rosenblatt, acting controller of the Company 15,843
</TABLE>
In connection with the recapitalization of the Company during 1993, the
following related parties received shares of preferred stock of the Company:
<TABLE>
<CAPTION>
Shares
------
<S> <C>
David Post 4,992
Katlean de Monchy 3,839
Windy City Communications 9,598
</TABLE>
(17) OTHER INCOME - EXPIRATION OF OPTIONS
Effective March 7, 1995, the Company entered into an agreement with LMA, Inc.
("LMA"), to have LMA acquire 49% of the common stock of the Company upon it
paying to the Company certain contractual amounts and the Company fulfilling
its obligations under the agreement. On March 23, 1995, the Company formally
notified LMA, Inc. that is had not fulfilled its obligations under this
agreement and it was no longer in force. The $160,000 that LMA had advanced to
the Company has thus been recorded as an expired option.
Effective April 7, 1995, the Company entered into an agreement with National
Media Corporation ("National") whereby National would receive 33% of the common
stock of the Company, would receive six hours of broadcast time per day, six
minutes of spots per day and other broadcast preferences. National would pay
$125,000 per month directly to AT&T for the Company's satellite costs, $25,000
to IDB for the Company's satellite uplink service and other payments. On May
11, 1995, National notified the Company that under the terms of this agreement,
it was terminating the agreement, effective May 31, 1995. The $250,000 that
National paid has been recorded as an expired option.
B-17
<PAGE> 64
CHANNEL AMERICA TELEVISION NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) SUBSEQUENT EVENT
LITIGATION - On January 16, 1996, the litigation described in Note 14D was
adjudicated. A civil judgement was entered against the Company in the amount
of $167. The plaintiff in the litigation may file an appeal of the decision.
[19] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] 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 of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and 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 financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to
the intrinsic valued based method of accounting prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has not decided if it will adopt SFAS No. 123 or
continue to apply APB Opinion No. 25 for financial reporting purposes. SFAS
No. 123 will have to be adopted for financial note disclosure purposes in any
event. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995;
the disclosure requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning after December 15, 1995.
. . . . . . . . .
B-18
<PAGE> 65
SCHEDULE C
TO THE
PROXY STATEMENT
FOR
EVRO CORPORATION
----------------
The Sports & Shopping Network, Inc.
Financial Statements
For the Years Ended December 31, 1994, and 1993
And For the Period From Inception
(December 16, 1992) Through December 31, 1992
<PAGE> 66
TIMOTHY M. HOHL COMPANY P.A.
CERTIFIED PUBLIC ACCOUNTANT
4104 W. LINEBAUGH AVENUE, SUITE 201 MEMBERS OF:
TAMPA, FLORIDA 33624 AMERICA INSTITUTE OF CPA'S
(813) 960-9803 FAX (813) 960-9802 FLORIDA INSTITUTE OF CPA'S
SEC PRACTICE SECTION
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
The Sports & Shopping Network, Inc.
We have audited the accompanying consolidated balance sheet of The Sports &
Shopping Network, Inc. (a development stage Company) as December 31, 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended December 31, 1994, and December 31, 1993,
and for the period from inception (December 16, 1992) through December 31,
1992. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Sports & Shopping Network,
Inc. as of December 31, 1994, and the results of its operations and its cash
flows for the years ended December 31, 1994, and December 31, 1993, and for the
period from inception (December 16, 1992) through December 31, 1992, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1,
the Company has incurred recurring operating losses and has a working capital
deficiency. These conditions raise substantial doubt about the company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
/s/ Timothy M. Hohl Company P.A.
May 13, 1995
C-1
<PAGE> 67
THE SPORTS & SHOPPING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
(A SUBSIDIARY OF THE STELLAR COMPANIES, INC.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<S> <C>
Assets
Current Assets:
Cash $ 67
Accounts receivable 0
Inventories 172,919
Prepaid royalty fees and deposits 50,482
---------------
Total current assets 223,468
Other assets, net of accumulated
amortization of $33,186 323,465
---------------
Total assets $ 546,933
===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 333,396
Due parent company 125,271
---------------
Total current liabilities 458,667
---------------
Stockholders' Equity:
Common stock, par value $.000082918,
60,300,000 shares authorized
and 59,734,634 shares issued and outstanding 4,953
Additional paid in capital 3,490,823
Deficit accumulated during
the development stage (3,407,510)
---------------
Total stockholders' equity 88,266
---------------
Total liabilities and stockholders' equity $ 546,933
===============
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements
C-2
<PAGE> 68
THE SPORTS & SHOPPING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
(A SUBSIDIARY OF THE STELLAR COMPANIES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993,
AND FOR THE PERIOD FROM INCEPTION
(DECEMBER 16, 1992) THROUGH DECEMBER 1992
<TABLE>
<CAPTION>
1994 1993 1992 TOTAL
---- ---- ---- -----
<S> <C> <C> <C> <C>
Sales $ 48,898 $ 91,921 $ 15,357 $ 156,176
Other Income 100,006 100,006
--------------- --------------- -------------- --------------
Total Revenues 48,898 191,927 15,357 256,182
--------------- --------------- -------------- --------------
Cost of Sales 73,325 97,657 8,307 179,289
Selling, General & Administrative 447,712 818,790 10,341 1,276,843
Management and Accounting Services
Provided by Parent 1,150,000 976,536 2,126,536
Interest Expense 81,024 81,024
--------------- --------------- -------------- --------------
Total Costs 1,752,061 1,892,983 18,648 3,663,692
--------------- --------------- -------------- --------------
Loss before benefit from income taxes (1,703,163) (1,701,056) (3,291) (3,407,510)
Income Taxes 0 0 0 0
--------------- --------------- -------------- --------------
Net loss $ (1,703,163) $ (1,701,056) $ (3,291) $ (3,407,510)
=============== =============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements
C-3
<PAGE> 69
THE SPORTS & SHOPPING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
(A SUBSIDIARY OF THE STELLAR COMPANIES, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
AND FOR THE PERIOD FROM INCEPTION
(DECEMBER 16, 1992) THROUGH DECEMBER 31, 1992
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON STOCK PAID IN DEVEOPMENT
SHARES -$- CAPITAL STAGE TOTAL
------ --- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 16, 1992 $ 0 $ 0 $ 0 $ 0
5,000 shares issued 5,000 5,000 5,000
Net loss, December 16, 1992
through December 31,1992 (3,291) (3,291)
Contribution by STELLAR 1,229 1,229
---------- -------------- -------------- --------------- ----------------
Balance, December 31, 1992 5,000 5,000 1,229 (3,291) 2,938
Goodwill recognized 2,158 2,158
Net loss for year ended
December 31, 1993 (1,701,056) (1,701,056)
Contribution by STELLAR 1,321,790 1,321,790
---------- -------------- -------------- --------------- ----------------
Balance, December 31, 1993 5,000 5,000 1,325,177 (1,704,347) (374,170)
Adjustment pursuant to stock split 54,995,000 (440) 440 0
Exercise of warrants 356,500 30 178,220 178,250
Sale of common stock 630,000 52 244,948 245,000
Common stock issued in satisfaction
of note payable to STELLAR 1,729,908 144 1,338,560 1,338,704
Common stock issued in satisfaction
of advances made by STELLAR 2,018,226 167 403,478 403,645
Net loss for year ended
December 31, 1994 (1,703,163) (1,703,163)
---------- -------------- -------------- --------------- ----------------
Balance, December 31, 1994 59,734,634 $ 4,953 $ 3,490,823 $ (3,407,510) $ 88,266
========== ============== ============== =============== ================
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements
C-4
<PAGE> 70
THE SPORTS & SHOPPING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
(A SUBSIDIARY OF THE STELLAR COMPANIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993,
AND FOR THE PERIOD FROM INCEPTION
(DECEMBER 16, 1992) THROUGH DECEMBER 31, 1992
<TABLE>
<CAPTION>
1994 1993 1992 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss $(1,703,163) $ (1,701,056) $ (3,291) $ (3,407,510)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 33,186 32,547 1,893 67,626
(Increase) decrease in accounts receivable 5,729 (384) (5,345) 0
(Increase) decrease in inventories 81,047 (481,399) (3,900) (404,252)
(Increase) decrease in prepaid royalty fees
and deposits 4,740 (55,222) (50,482)
(Increase) in other assets (4,759) (932) (5,691)
Increase in accounts payable and
accrued liabilities 199,009 82,106 (28,880) 252,235
Decrease in unearned royalties (100,000) (100,000)
----------- ------------ ---------- -------------
Total adjustments 323,711 (527,111) (37,164) (240,564)
----------- ------------ ---------- -------------
Net cash used by operating activities (1,379,452) (2,228,167) (40,455) (3,648,074)
----------- ------------ ---------- -------------
Cash flows used in investing activities:
Purchase of property and equipment (62,152) (62,152)
Proceeds from sale of equipment, patents and
proprietary technology 350,000 350,000
Purchase of Microsonics International, Inc. (310,694) (310,694)
Purchase of Centennial Sports Promotions, Inc. (25,870) (25,870)
Contractual obligation due Brander (20,000) (30,000) (50,000)
----------- ------------ ---------- -------------
Net cash used in investing activities (62,152) (45,870) 9,306 (98,716)
----------- ------------ ---------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 423,250 5,000 428,250
Contribution by STELLAR 1,321,790 1,229 1,323,019
Working capital provided by STELLAR 1,017,472 948,127 29,989 1,995,588
----------- ------------ ---------- -------------
Net cash provided by financing activities 1,440,722 2,269,917 36,218 3,746,857
----------- ------------ ---------- -------------
Net increase (decrease) in cash (882) (4,120) 5,069 67
Cash at beginning of period 949 5,069 0 0
----------- ------------ ---------- -------------
Cash at end of period $ 67 $ 949 $ 5,069 $ 67
=========== ============ ========== =============
Interest paid $ 81,024 $ 0 $ 0 $ 0
=========== ============ ========== =============
Taxes paid $ 0 $ 0 $ 0 $ 0
=========== ============ ========== =============
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements
C-5
<PAGE> 71
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The STELLAR Companies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Accounting - The consolidated financial statements of The Sports
& Shopping Network, Inc. (the "Company" and "TSSN") and its majority owned
subsidiaries, Centennial Sports Promotions, Inc. ("Centennial"), International
Sports Collectibles, Inc. ("Collectibles") and Microsonics International, Inc.
("Microsonics") have been presented on the basis that they are a going concern,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company and its
subsidiaries, all considered to be in the development stage as defined in
Financial Accounting Standard No. 7, have incurred operating losses of
$1,701,000 and $1,703,000 during the years ended December 31, 1993 and 1994,
respectively, which have adversely reduced the Company's liquidity and working
capital. At December 31, 1994, the Company had current assets of $223,000 and
current liabilities of $459,000, or a working capital deficit of $236,000. As
more fully discussed 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 capital and other financing, there can be no assurance that such
plans will be implemented successfully.
TSSN is engaged in the development of a television shopping network
specializing in the marketing of sports memorabilia, apparel and related sports
products through satellite, television broadcast stations and cable networks.
The Company plans to attain future profitable operations by developing (1)
sources of supply of products that it will sell at retail; (2) the ability to
produce and broadcast related television programming; and (3) a distribution
network for such programming either internally or by acquisition of one or more
businesses.
2. Background and Organization - TSSN was incorporated under the laws of the
State of Florida on December 16, 1992.
In December 1992, the Company entered an agreement which provided for the
Company to adopt a Plan of Merger with The STELLAR Companies, Inc. ("STELLAR").
The December 1992 Agreement was superseded by a Stock For Stock Agreement
dated January 21, 1993, pursuant to which, on January 25, 1993, STELLAR issued
95,000 common shares in exchange for all of the issued and outstanding shares
of TSSN.
C-6
<PAGE> 72
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The Stellar Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of Significant Accounting Policies:
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries, Centennial,
Collectibles and Microsonics. All significant intercompany accounts and
transactions have been eliminated.
Inventories - Inventories are carried at the lower of cost (determined on a
first in, first out basis) or market.
Depreciation - Furniture, fixtures and equipment are depreciated over their
estimated useful lives of 5 to 7 years using the straight line method.
Amortization - Proprietary technology is being amortized over ten years which
is the estimated life of the related products. Goodwill is being amortized
over ten years, the estimated market life of the acquired trademarks. Other
assets are being amortized over five to twenty years. The Company has adopted
the policy to periodically review and evaluate whether there has been permanent
impairment in the value of its intangible assets, which review includes factors
such as current market conditions and trends relating to the Company and its
product lines.
Income Taxes - The provision (benefit) for income taxes is based on pretax
earnings (loss) reported in the consolidated financial statements, adjusted for
transactions that may never enter into the computation of income taxes payable.
A deferred tax liability or asset is recognized for the estimated future tax
effects attributable to temporary differences in the recognition of income and
expenses for financial statement and income tax purposes and net operating loss
carryforwards. Deferred tax assets are reduced, if necessary, by the amount of
any tax assets that are not expected to be realized. No benefit for income
taxes has been recognized for the years ended December 31, 1994 ,and 1993, as
the Company has not yet established its operations.
The Company and its subsidiaries file separate income tax returns.
4. Significant Transactions - As of December 31, 1993, STELLAR contributed the
stock of International Sports Collectibles, Inc. and Microsonics International,
Inc., wholly owned subsidiaries, and Centennial Sports Promotions, Inc., an 80%
owned subsidiary to TSSN, thereby causing the three companies to become
subsidiaries of TSSN. TSSN recorded the stock contribution of each company at
a value equal to STELLAR's basis in each subsidiary. This transaction has been
accounted for in a manner similar to a pooling of interests because of the
common ownership of each subsidiary and for enhanced comparability.
Accordingly, the accounts of each subsidiary have been included in the
consolidated financial statements of TSSN from
C-7
<PAGE> 73
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The Stellar Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Significant Transactions (cont.)
December 16, 1992, the date of inception of TSSN, or from their respective
dates of acquisition by STELLAR, if later. The accumulated losses from
operations of each subsidiary for the period from their respective dates of
acquisition by STELLAR to December 31, 1993, have been reflected as a capital
contribution and offset against accumulated deficit as the losses were incurred
prior to the stock contribution of each company to TSSN by STELLAR.
Purchase of Microsonics International, Inc. ("Microsonics") - On November 19,
1992, STELLAR purchased the outstanding capital stock of Microsonics
International, Inc., a Florida corporation for cash of $115,000, related costs
of $10,694, and the assumption of certain liabilities of the seller aggregating
$185,000. Microsonics owned certain assets for the manufacture and marketing of
microphonograhic and microrecord products. The excess purchase price over and
above the net assets acquired $(235,219) was allocated to proprietary
technology, which is being amortized over ten years, the estimated life of the
related products which the Company intends to market.
Sale of Microsonics Assets - On December 18, 1992, Microsonics, pursuant to an
Asset Purchase Agreement, sold its furniture and equipment, together with
certain rights, title and interest in certain patents and processes associated
therewith for $250,000 cash and a royalty of 2% of net revenues on all sales
and licensing revenue of or from microphonograph players and microrecord
players up to a maximum of $1 million. The Company retained the proprietary
rights to the related technology to be used in the sale of "notable figure"
cards, "notable item" cards and related players. Microsonics utilized the
cost recovery method of accounting which resulted in no gain or loss being
reported from this transaction.
On April 4, 1993, Microsonics assigned all of its right, title and interest in
and to payments of royalties pursuant to the Asset Purchase Agreement to
STELLAR. STELLAR pledged its right, title and interest in and to payments of
such royalties as security to $2,000,000 of promissory notes issued pursuant to
a private placement offering dated March 31, 1993.
Purchase of Sports Memorabilia - On November 19, 1992, STELLAR entered into an
agreement, as amended, with Norman K. Brander ("Brander"), a founder, former
officer and former director of STELLAR, to acquire the issued and outstanding
capital stock in a newly formed Florida corporation into which Brander
contributed sports memorabilia having an estimated retail value of $500,000 in
exchange for 500,000 shares of common stock of STELLAR and cash of $100,000 of
which $50,000 remains to be paid to Mr. Brander. Stellar recorded the amount
due to Mr. Brander as a dividend payable. No value was assigned to the Sports
Memorabilia as Brander had a nominal basis in the inventory. The transaction
was closed on January 11, 1993.
C-8
<PAGE> 74
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The Stellar Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Significant Transactions (cont.)
On June 21, 1993, STELLAR incorporated a new wholly owned subsidiary,
International Sports Collectibles, Inc. STELLAR contributed the sports
memorabilia, together with the related contractual obligation to Collectibles.
Purchase of Centennial Sports Promotions, Inc. ("CSP") - On January 1, 1993,
STELLAR entered into a Stock Purchase Agreement pursuant to which, on January
7, 1993, STELLAR purchased 80% of the issued and outstanding capital stock of
CSP for $155,000 payable as follows: $25,000 in cash and $130,000 in common
stock of STELLAR (130,000 common shares). The full purchase price of $155,000,
together with related legal and closing costs aggregating $870 were recorded as
goodwill, which is being amortized over ten years, the estimated market life of
the trademarks which were acquired in the acquistion of CSP. CSP is engaged
in the business of marketing sports apparel and related promotional items.
Transfer of inventory and liabilities to STELLAR - During 1994, Brander raised
certain claims with respect to inventory of the company held in part by
Brander. Due to the claims outstanding, the Company transferred the inventory
of sports memorabilia and lithographs of jazz greats at a cost of $231,333,
together with liabilities of $73,365 to STELLAR which was offset against
$157,968 of advances from STELLAR.
5. Inventories - As of December 31, 1994, the components of inventory were as
follows:
<TABLE>
<S> <C>
Sports memorabilia $158,341
Cager Classic apparel 14,578
--------
$172,919
========
</TABLE>
The inventory of sports memorabilia has been pledged as security for
$2,000,000 of promissory notes issued by STELLAR pursuant to a private
placement offering Dated March 31, 1993.
6. Other Assets - Other assets as of December 31, 1994, are comprised of the
following:
<TABLE>
<CAPTION>
1994
<S> <C>
Deposit on production set $ 61,702
Proprietary technology 130,661
Goodwill 126,421
Other 4,681
--------
$323,465
========
</TABLE>
C-9
<PAGE> 75
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The Stellar Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes - The provision (benefit) for income taxes differs from the
amount of income tax determined by applying the applicable U.S. statutory
federal income tax rate to pretax income as a result of the following
differences at December 31:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Income tax provision (benefit), at 34% $(579,075) $(578,359)
Increase (decrease) in rates resulting from:
Non-deductible items 1,201 3,714
State and local taxes, net (61,697) (61,749)
Valuation allowance for recognized
deferred tax assets 639,571 636,394
--------- ---------
Effective tax rates $ -0- $ -0-
========= =========
</TABLE>
Deferred tax assets are comprised of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Business start-up expenditures $1,272,042 $634,695
Depreciation and amortization 31,503 29,278
Loss carryforwards 111,887 111,887
---------- --------
Gross deferred tax assets 1,415,432 775,860
Deferred tax assets valuation allowance (1,415,432) (775,860)
---------- --------
Total deferred tax assets $ -0- $ -0-
========== ========
</TABLE>
Centennial, acquired in 1993, had a net operating loss carryforward of $
47,663.
A valuation allowance was established in the same amount as the deferred tax
assets acquired because the benefit is more likely than not to be lost. Certain
of the acquired net operating losses are subject to limitations pursuant to
provisions of the Internal Revenue Code relating to changes in control. These
provisions can significantly limit the amount of net operating losses available
for utilization in a particular year depending upon numerous factors, including
valuation of the acquired companies. These net operating losses can only be
utilized by the acquired companies in a particular year to the extent of the
fair market value of the acquired companies on the date of the change of control
multiplied by a statutory tax-exempt interest rate, which is approximately 7
percent. The net operating loss carryforwards for U.S. tax purposes expire, if
not utilized against future taxable income, beginning 2006 and continue through
2009.
C-10
<PAGE> 76
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The Stellar Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Related Party Transactions - During 1994, and 1993, STELLAR billed the
Company and its subsidiaries fees for management and accounting services
aggregating $1,150,000 in 1994 and $976,536 in 1993, which were charged to Due
Parent Company as an advance. Stellar charged the Company for common expenses
based on estimated time or charges incurred by Stellar on the Company's behalf.
Management asserts that the fees charged to the Company approximate the cost
that would have been incurred if TSSN had operated on a stand alone basis.
The Company issued a note payable to STELLAR, as of December 31, 1993 in the
amount of $1,258,116 in satisfaction of the balance of the Due Parent Company
account. The note provided for interest at 7% per annum and was payable in
cash or by the issuance of 1,729,908 (as adjusted for stock split) shares of
common stock, at the option of the Company.
On November 30, 1994, the Company satisfied the note payable by issuance of
1,729,908 shares of common stock to STELLAR. In addition, the Company issued
2,018,226 shares of common stock in satisfaction of additional advances by
STELLAR aggregating $403,645.
9. Stockholders' Equity
Change in Authorized Shares and Stock Split - On January 13, 1994, the Board
of Directors amended the Company's Articles of Incorporation to increase the
Company's authorized capital stock from 5,000 shares of common stock to
60,300,000 shares of common stock. The Board of Directors also authorized a
stock split of the Company's common stock equal to 11,000 shares for 1 share,
and changed the par value from $1.00 per share to $.000082918 per share. All
presentations in these financial statements reflect the stock split.
Warrants - On January 15, 1994, the Board of Directors of STELLAR Inc. granted
warrants to the holders of certain STELLAR common stock. The warrants
entitled the holder to purchase one (1) share of common stock for every two (2)
shares of STELLAR common stock held at $.50 per share. Stellar shareholders
exercised warrants to purchase 356,000 shares of common stock with cash
proceeds of $178,250. All remaining warrants expired on February 18, 1994.
C-11
<PAGE> 77
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The Stellar Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Additional Cash Flow Statement Information -
The non-cash effect of the acquisition of Microsonics and the sale of
Microsonics assets during 1992 as follows:
<TABLE>
<CAPTION>
Acquisition Sale of Assets
----------- --------------
<S> <C> <C>
(Increase) decrease in assets:
Furniture, Fixtures and Equipment $(134,079) $132,186
Other assets
Proprietary technology (235,219) 71,892
Other (45,922) 45,922
--------- --------
(415,220) (250,000)
--------- --------
Increase in liabilities:
Accounts payable and accrued liabilities 104,526
Prepayment of royalty income 100,000
--------- --------
Increase (decrease) in cash $(310,694) $350,000
========= ========
</TABLE>
The non-cash effect of the acquisition of Centennial during 1993 as follows:
<TABLE>
<S> <C>
Goodwill $ 155,870
Due to parent (common stock issued by Stellar) (130,000)
---------
Cash investment $ 25,870
=========
</TABLE>
The noncash effect of the acquisition of Collectibles in 1993 follows:
<TABLE>
<S> <C>
Contractual obligation due to Brander $ 100,000
Due to parent - Declaration of distribution of capital
by Stellar (100,000)
---------
$ -0-
=========
</TABLE>
The noncash affect of the transfer of inventories and liabilities to Stellar in
1994 follows:
<TABLE>
<S> <C>
Inventory $ 231,333
Contractual obligation due to Brander (50,000)
Due to parent (181,333)
---------
$ -0-
=========
</TABLE>
In connection with the purchase of TSSN by STELLAR, the Company recorded the
excess purchase price ($2,158) over the net assets acquired as goodwill with a
corresponding credit to additional paid-in capital.
C-12
<PAGE> 78
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The Stellar Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Event -
EVRO Corporation - On March 14, 1995, EVRO Corporation (EVRO) acquired 98.35%
of the issued and outstanding common stock of the Company from STELLAR in
exchange for 16,759,038 shares of EVRO's common stock or 77.1% of the EVRO
shares of common stock which will then be issued and outstanding. EVRO issued
to STELLAR 500,000 shares of restricted common stock at closing and has agreed
to issue the remaining shares following the completion of an increase in EVRO's
authorized shares of common stock. EVRO has agreed to offer to acquire the
remaining 1.65% of the Company's issued and outstanding common stock which are
held by minority shareholders in exchange for an aggregate of 281,418 shares of
EVRO's common stock.
EVRO has formed a wholly owned subsidiary, Technology Holdings, Inc. ("THI"),
which owns all of the assets that were owned by EVRO prior to the TSSN
acquisition. Pursuant to such acquisition, the holders of EVRO's common stock,
other than STELLAR, will be issued a stock dividend consisting of EVRO's Series
D Preferred Stock. EVRO has the right, but not the obligation, to redeem the
Series D Preferred Stock in exchange for all of THI's issued and outstanding
capital stock.
THI is entitled to receive on an annual basis that number of shares of EVRO's
voting common stock ("Special Shares") equal to 20% of the average total assets
of THI over a twelve month period (March 14 through the following March 13 each
year) divided by Two Dollars ($2.00). THI's right to receive the Special
Shares provided is earned pro rata over the applicable twelve month period.
Such entitlement would cease upon the redemption of the Series D Preferred
Stock. STELLAR has the right to purchase from THI any Special Shares of EVRO's
common stock received until June 30, 1997, for an amount equal to the greater
of Two Dollars ($2.00) per share or 50% of the bid price of EVRO's then
publicly traded stock as of the end of the month preceding STELLAR's exercise
of its right to purchase. EVRO is prohibited from pledging, hypothecating or
otherwise encumbering its shares of THI's capital stock.
The Series D Preferred Stock contains a special dividend provision that in the
event such preferred stock is not redeemed by June 30, 1997, EVRO shall, as of
July 1, 1997, declare a stock dividend of its voting common stock payable to the
holders of the Series D Preferred Stock equal to the number of shares of common
stock held by THI as of June 30, 1997. Additional stock dividends shall be
payable to the holders of Series D Preferred Stock each July 1st following July
1, 1997, until EVRO has redeemed its Series D Preferred Stock. The amount of
such additional stock dividend shall equal the number of shares of EVRO's common
stock transferred to THI during the immediately preceding twelve month period.
C-13
<PAGE> 79
THE SPORTS & SHOPPING NETWORK, INC.
(A Development Stage Company)
(A Subsidiary of The Stellar Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Event (cont.)
The Company is currently seeking to raise additional capital through the sale
of the EVRO's capital stock in one or more private equity offerings to
primarily fund the TSSN operations. Upon successful completion of the private
equity offerings, the Company intends to redeem its Series D Preferred Stock in
exchange for all of THI's issued and outstanding capital stock.
For financial reporting purposes this transaction will be accounted for as a
reverse merger under which the companies will be recapitalized to include the
historical financial information of the Company, and the assets and liabilities
of EVRO will be revalued to reflect the market value of EVRO's common stock.
American Collectible Network, Inc.
On April 26, 1995, EVRO Corporation ("EVRO") entered into a binding Letter
of Intent (which was modified on May 5, 1995) to acquire not less than 80% of
America's Collectibles Network, Inc. ("ACN") and to merge ACN into The Sports &
Shopping Network, Inc. ("TSSN") in exchange for the requisite number of EVRO's
preferred stock which shares shall be convertible into 1,850,000 shares of
EVRO's restricted common stock, immediately after the Company increases its
authorized shares of common stock. If the merger has not taken place on or
before May 31, 1995, then either ACN or EVRO shall have the right to terminate
the Letter of Intent. If neither Party has exercised its right to terminate by
June 2, 1995, then the Letter of Intent will automatically be extended to June
30, 1995. The Letter of Intent is void after June 30, 1995. The Company
expects to account for this transaction as a purchase.
In addition, EVRO has also agreed to provide or cause to be provided
approximately $550,000 of working capital to ACN, $50,000 of which is to be
advanced within fifteen (15) business days of the date of the Modification of
the Binding Letter of Intent. Funding of the remaining working capital
commitment is to be provided over the 90 day period immediately following the
completion of the merger. In consideration for agreeing to the provisions in
the Modification of the Binding Letter of Intent, EVRO paid ACN a $50,000
non-refundable deposit.
C-14
