<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
---------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
-------------------- ----------------
Commission File No. 0-7870
------
EVRO CORPORATION
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Florida 59-3229961
- -------------------------------------- ---------------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1509 S. Florida Avenue, Lakeland, Florida 33803
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(941) 683-6467
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
523 Douglas Avenue, Altamonte Springs, Florida 32714
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last year.)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of June 7, 1996, the
Company had 2,497,665 shares of Common Stock outstanding, no par value.
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EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash $ 44,615
Notes and other receivables 54,003
Inventories 77,814
Prepaid expenses 125,000
------------
TOTAL CURRENT ASSETS 301,432
PROPERTY, EQUIPMENT, AND PROGRAM LIBRARY
(less accumulated depreciation of $809,117) 5,194,130
OTHER ASSETS
Goodwill (less accumulated amortization of $563,475) 11,527,022
Other - net 2,096,615
------------
TOTAL ASSETS $ 19,119,199
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 1,506,060
Notes payable - related parties 251,982
Convertible debentures 1,979,157
Accounts payable 3,962,276
Accrued liabilities 2,465,735
Amounts due to affiliates 536,537
------------
Total current liabilities 10,701,747
LONG-TERM DEBT:
Convertible debentures 4,213,002
Long-term debt 1,397,552
Other 546,463
------------
TOTAL LIABILITIES 16,858,764
------------
MINORITY INTEREST 202,968
------------
PREFERRED STOCK - SERIES C SUBJECT TO
REPURCHASE AGREEMENT 500,100
------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 1,250,000 shares
authorized, 353,604 shares issued and outstanding 17,720,934
Common stock, no par value, 2,500,000 shares
authorized, 2,497,665 shares issued and outstanding 0
Accumulated deficit (14,810,109)
------------
2,910,825
Less:
Unearned compensation (1,237,523)
Subscription receivable (115,000)
Common stock held by subsidiary - 542 shares (935)
------------
TOTAL STOCKHOLDERS' EQUITY 1,557,367
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,119,199
============
</TABLE>
See notes to consolidated financial statements
2
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EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended March 31,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Sales and Revenues
Rental, memberships and other revenues $ 299,802 $ 120,631
Programming and advertising 353,160
Product sales 6,987 132,209
------------ ----------
659,949 252,840
Cost of Sales and Revenues 953,488 189,292
------------ ----------
Gross Margin (293,539) 63,548
------------ ----------
Operating Expenses:
Selling, general and administrative 1,972,843 287,609
Management and accounting services 190,000 190,000
Depreciation and amortization 339,915 25,205
------------ ----------
2,502,758 502,814
------------ ----------
Operating Loss of Continuing Operations (2,796,297) (439,266)
Other Income (Expenses)
Interest expense (207,510) (42,864)
Costs associated with convertible debenture
modifications and defaults (508,976)
Other-net 8,830 4,317
------------ ----------
Net Loss from Continuing Operations (3,503,953) (477,813)
Loss of Discontinued Operations (48,157)
------------ ----------
Net Loss $ (3,503,953) $ (525,970)
============ ==========
Loss per Share Data:
Net Loss from Continuing Operations $ (1.40) $ (0.58)
Loss of Discontinued Operations - (0.06)
------------ ----------
Net Loss $ (1.40) $ (0.64)
============ ==========
Average Number of Common Shares
Outstanding 2,497,665 820,662
============ ==========
</TABLE>
See notes to consolidated financial statements
3
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EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Common
------------ Preferred Accumulated Unearned Notes Stock Held
Shares $ Stock Deficit Compensation Receivable by THI
------ - ----- ------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 2,497,665 $ 0 $ 16,933,434 $ (11,306,156) $ (1,504,725) $ (115,000) $ (664)
Proceeds from sale of
preferred stock
Series C Convertible
Preferred - 15,000 shares 150,000
Series K Convertible
Preferred - 17 Shares 637,500
Series F Convertible Preferred
Stock issued to acquire the
minority interest of The
Sports & Shopping Network,
Inc. - 28.1418 shares 0
Purchase of common stock by
Technology Holdings, Inc. -
126 shares (271)
Stock compensation earned
during the three months
ended March 31, 1996 267,202
Loss for the three months
ended March 31, 1996 (3,503,953)
--------- --------- ------------ ------------- ------------ ---------- ------
BALANCE - MARCH 31, 1996 2,497,665 $ 0 $ 17,720,934 $ (14,810,109) $ (1,237,523) $ (115,000) $ (935)
========= ========= ============ ============= ============ ========== ======
</TABLE>
<PAGE> 5
EVRO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended March 31,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,503,953) $ (525,970)
Adjustments to reconcile net loss to net cash utilized by
operating activities:
Depreciation and amortization 339,915 25,205
Compensation for financial consulting services
paid in common and preferred stock 267,202
Costs associated with convertible debenture
modifications or defaults 508,976
Other, net 45,687
Decrease in current assets 7,033 (21,827)
Increase in accounts payable and accrued liabilities 159,803 188,596
------------ ----------
NET CASH USED IN OPERATING ACTIVITIES (2,175,337) (333,996)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of EVRO Corporation 9,102
Note receivable 26,451
Other non-current assets (31,102) 10,344
------------ ----------
NET CASH USED IN INVESTING ACTIVITIES (31,102) 45,897
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Convertible debentures 2,032,101
Repayment of debt (427,334) (21,077)
Proceeds from sale of preferred stock 787,500
Recision of preferred stock sale (250,000)
Working capital advances from/to affiliates, net 94,591 307,055
Deferred RV lot rental (7,755)
Purchase of EVRO common stock (11,400) (3,800)
Other 9,080
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,217,703 291,258
------------ ----------
NET INCREASE (DECREASE) IN CASH 11,264 3,159
CASH, BEGINNING OF PERIOD 33,351 67
------------ ----------
44,615 3,226
Cash of discontinued operations (308)
------------ ----------
CASH, END OF PERIOD $ 44,615 $ 2,918
============ ==========
Supplemental Disclosures:
Interest paid $ 52,271 $ 11,507
============ ==========
</TABLE>
See notes to consolidated financial statements
5
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EVRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The financial statements of EVRO Corporation ("EVRO" and the
"Company") and its subsidiaries as of March 31, 1996, and for the three months
ended March 31, 1996 and 1995, are unaudited and, in the opinion of management
reflect all adjustments necessary for a fair presentation of such data. All
such adjustments made were of a normal recurring nature, except as more fully
described below. On March 14, 1995, the Company acquired 98.35% of the issued
and outstanding common shares of The Sports & Shopping Network, Inc., ("TSSN")
a Florida corporation and on October 10, 1995 acquired Channel America
Television Network, Inc., ("Channel America"), a Delaware corporation. For
financial reporting purposes, the acquisition of TSSN was accounted for as a
reverse purchase acquisition under which the companies were recapitalized to
include the historical financial information of TSSN and the assets and
liabilities of the Company revalued to reflect the market value of the
Company's outstanding shares. As closing occurred on March 14, 1995, the
middle of a month, the accounts of TSSN have been consolidated with the Company
as of February 28, 1995, a date that lies within the date on which the
transaction was initiated and the date of closing. The historical financial
statements prior to February 28, 1995, included herein, are those of TSSN. The
accounts of Channel America have been consolidated with the Company for the
three months ended March 31, 1996. The Company's significant accounting
policies are described in the notes to the December 31, 1995 financial
statements and there have been no material changes in significant accounting
policies from those described therein. Certain amounts for the prior year have
been reclassified to conform to the 1996 presentation.
The consolidated financial statements include the accounts of EVRO and
its subsidiaries, Technology Holdings, Inc., a Florida corporation ("THI"),
TSSN, The Shopping Connection, Inc., a Florida corporation ("TSC"), and
Channel America. THI is a holding company with two wholly owned operating
subsidiaries, Treasure Rockhound Ranches, Inc., a Texas corporation ("Treasure
Rockhound") and Tres Rivers, Inc., a Texas corporation ("Tres Rivers"). THI
has one wholly owned inactive subsidiary, Lintronics Technologies, Inc.
("Lintronics"), whose operations were terminated in 1994. TSSN has two
wholly-owned subsidiaries, International Sports Collectibles, Inc. and
Microsonics International, Inc., both Florida corporations and an 80% owned
subsidiary, Centennial Sports Promotions, Inc., a Missouri corporation.
Channel America has one wholly-owned subsidiary, Channel America LPTV License
Subsidiary, Inc., whose operations were discontinued in 1992.
2. BASIS OF ACCOUNTING
The consolidated financial statements have been presented on the basis
that they are a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the
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normal course of business and, accordingly, no adjustments have been recorded
because of this uncertainty. The Company has incurred net losses during 1994
and 1995 and the three months ended March 31, 1996 of $1,703,000, $7,899,000,
and $3,504,000 respectively, which have adversely reduced the Company's
liquidity and capital resources. At March 31, 1996, the Company had current
assets of $301,000 and current liabilities of $10,702,000 or a working capital
deficit of $10,401,000.
As of June 7, 1996, the Company is in default on all of its
convertible debentures as a result of the Company's failure to obtain
authorization for the issuance of the Common Stock on a timely basis. These
Debentures provide that in the event authorization for issuance of the common
stock is not obtained before 75 or 90 days from date of issue, the Company is
required to redeem the Debentures at an amount equal to the value of the common
stock into which the Debentures would have been convertible at the date of
redemption. As of June 7, 1996, the common stock equivalent value of the
Debentures aggregated $8,699,000. The Company is negotiating the extension of
the mandatory redemption dates with all of the Debenture holders.
EVRO intends to schedule a shareholders meeting at which EVRO will
ask its shareholders to increase the number of shares of EVRO's authorized
common and preferred stock. If the shareholders of EVRO do not approve the
increase in EVRO's authorized common stock, the holders of EVRO's Debentures
will likely demand the repayment of amounts owed to them in cash rather than
convert such Debentures into shares of EVRO's common stock as EVRO will not be
able to issue additional common shares.
The Company is also in default of a note payable to Genesee Cattle Co.
in the amount of $248,000 due June 24, 1995, including accrued interest, and
consulting fees of $50,000. The note payable is collateralized by all the
common stock of the company's subsidiary TSSN. On May 21, 1996, the note
holder filed a civil action to collection all monies due in the U.S. District
Court for the District of Colorado against the Company, Stephen H. Cohen, a
Director, individually, and Daniel M. Boyer, Special Legal Counsel to the Board
of Directors, individually, guarantor of the note payable. The Company is also
in default of a consulting contract with Southern Resource Management Inc.
regarding the payment of $335,000 in fees. This obligation is collateralized
by 60 shares of Series J Convertible Preferred Stock ("Series J Preferred
Stock") which is convertible into 3,000,000 shares of the common stock of the
Company, and by the personal guarantees of D. Jerry Diamond Director and Daniel
M. Boyer.
As of June 7, 1996, Technology Holdings is in default on notes payable
aggregating $963,370 and Channel America is in default on notes payable
aggregating $830,309.
In addition, TSSN and its subsidiaries are considered to be
development stage companies as defined in Financial Accounting Standard No. 7
which will require substantial capital infusion to fully establish their
operations. As more fully described below, management of the Company believes
that it has put into place a business plan that will provide for positive
operating results and allow for the settlement of its liabilities in a timely
manner, however, should existing creditors demand immediate payment, at the
present time the Company does not have a readily available
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<PAGE> 8
source of additional capital nor a source of long term financing to allow for
the repayment of those creditors. Although the Company has plans in process
which it believes will allow it to obtain additional and other financing, there
can be no assurance that such plans will be implemented successfully.
The Company's current business focus is to develop and expand its home
shopping and entertainment business. The Company plans to attain future
profitable operations by developing and/or expanding (1) sources of supply of
products that it will sell at retail; (2) the ability to acquire and/or produce
and broadcast television shopping and entertainment programming; and (3) a
distribution network for such programming.
3. ACCOUNTING FOR ACQUISITION OF THE SPORTS & SHOPPING NETWORK, INC.
On March 14, 1995, the Company acquired 98.35% of the issued and
outstanding common shares of TSSN from The Stellar Companies, Inc. ("Stellar").
For financial reporting purposes, the acquisition of TSSN was accounted for as
a reverse purchase acquisition under which the companies were recapitalized to
include the historical financial information of TSSN and the assets and
liabilities of the Company were revalued to reflect the market value of the
Company's outstanding shares. As closing occurred in the middle of a month on
March 14, 1995, the transaction has been recorded as of February 28, 1995, a
date that lies within the date on which the transaction was initiated and the
date of closing. Accordingly, the financial statements for the quarter ended
March 31, 1995 reflect the operations of TSSN for the quarter ended March 31,
1995 and the operations of EVRO Corporation for the month ended March 31, 1995.
The cost of acquisition and net income for the period from February 28, 1995 to
March 14, 1995 have been reduced by imputed interest of $17,903 using a 10%
annual rate of interest.
The calculations of loss per share for the three months ended March
31, 1995 were based on the weighted average number of shares as follows: (a)
for the period January 1, 1995 through March 14, 1995, the number of common
shares (500,000 shares) to be issued to The Stellar Companies, Inc.,
("Stellar"), the seller of TSSN, and (b) for the period from March 14, 1995
through March 31, 1995, the actual number of EVRO shares outstanding.
4. ACQUISITION OF CHANNEL AMERICA TELEVISION NETWORK, INC.
During 1995, the Company executed agreements with Channel America, for
the acquisition of 100% of the issued and outstanding shares of the common
stock of Channel America for a purchase price of $7,000,000, comprised of cash
of $1,000,000 and $6,000,000 of the Company's Series H Convertible Preferred
Stock ("Series H Preferred"). The cash portion of the purchase price,
$600,000, was paid as of March 31, 1996 and $400,000 was paid by a promissory
note bearing interest of 8% per annum, which is due and payable April 7, 1996.
The
8
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Company has agreed to pay to Channel America an additional 100,000 shares of
common stock or its equivalent in preferred stock, together with $50,000 in
cash, to extend the note to June 15, 1996.
The Company has made working capital advances to Channel America of
$1,368,391 as of March 31, 1996.
On October 10, 1995, Channel America issued 27,500,000 shares of its
common stock to the Company for the $1,000,000 of the purchase price. The
27,500,000 shares of Channel America common stock will represent at least 51%
of the issued and outstanding shares of Channel America when it completes the
conversion of the outstanding notes payable and preferred stock into common
stock as described below.
The Company issued into escrow $6,000,000 (48,000 shares) of its
Series H Preferred for the remaining 49% of the common shares of Channel
America. Under the terms of the agreements, as amended, between the companies,
the Series H Preferred is convertible into a maximum of 3,000,000 shares of the
Company's common stock, unless the market price of such common shares was less
than $2.00 per share as of December 31, 1995. If the market price of the
Company's common stock was less than $2.00 per share at December 31, 1995, then
the number of common shares would be increased to attain the ascribed value of
$6,000,000. At December 31, 1995, the average of the closing bid and ask
prices for the Company's common stock was $1.5938. Accordingly, the Company
shall issue, upon conversion of the Series H Preferred, 3,764,588 shares of
the Company's common stock to the minority shareholders of Channel America.
The Series H Preferred will be held in escrow, pending (a) the conversion of an
aggregate of 90% of Channel America's notes payable and preferred stock (which
totaled $7,769,000 as of June 30, 1995) into shares of Channel America's common
stock; (b) the Company increasing the number of its authorized shares of common
stock; and (c) the Company registering the shares of common stock underlying
the Series H Preferred with the Securities and Exchange Commission.
The conversion of an aggregate of 90% of Channel America's note and
preferred stock holders into shares of Channel America's common stock was a
significant consideration in the Company's decision to acquire Channel America.
Before the closing of the agreements on October 10, 1995, Channel America
provided to the Company written acceptances from note and preferred stock
holders whereby the holders accepted the Conversion Plan to convert their notes
and preferred stock into Channel America's common stock. The written
acceptances represented in excess of 80% of the total notes payable and
preferred stock outstanding as of June 30, 1995. As of December 31, 1995,
note and preferred stock holders aggregating $3,773,000, or 49% of the notes
payable and preferred stock outstanding as of June 30, 1995, had been converted
into shares of Channel America's common stock. In addition, note and preferred
stock holders aggregating $2,618,000, or 34% of the notes payable and preferred
stock outstanding as of June 30, 1995, had committed, but had not yet converted
into additional shares of Channel America's common stock. The Company recorded
the conversion of both groups of debt and equity holders as if their conversion
had occurred on October 1, 1995.
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5. CONVERTIBLE DEBENTURES AND SUBSEQUENT EVENT
As of December 31, 1995 the Company issued $1,000,000 of 8.5%
Convertible Debentures due October 31, 2000 and $500,000 of 9.5% Convertible
Debentures due November 27, 2000. During January and February, 1996, the
Company issued an additional $3,040,000 of 8.5% Convertible Debentures of
which $1,890,000 are due January 31, 1998 and $1,150,,000 are due on $October
31, 2000 (collectively referred to as the "Debentures"). The Debentures were
issued to individuals and corporations located outside of the United States.
The holders of the Debentures are entitled, at their option, at any time
commencing 41 days after issue to convert any or all of the original principal
amounts of the Debenture into shares of common stock of the Company, at a
conversion price per share equal to 50%-70% of the market price of the
Company's common stock. Market price is defined as the average closing bid
price for the five business days immediately preceding the conversion date or
immediately preceding the debenture subscription date, whichever is lower.
The Debentures, as amended, provide that a penalty of 10% to 20% of
the face value of the Debentures be added to principal in the event that the
Company does not obtain shareholder authorization to increase its authorized
shares of common stock necessary to satisfy the Company's conversion obligation
under the Debentures by certain dates. The Company has not obtained the
authorization for the issuance of this common stock and accordingly recorded
additional principal due on the Debentures.
The Debentures provide that in the event authorization for issuance of
the Common Stock is not obtained before 75 or 90 days from date of issue, the
Company is required to redeem the Debentures at an amount equal to the value of
the common stock into which the Debentures would have been convertible at the
date of redemption. As of March 31, 1996, Debentures with original principal
amounts of $1,600,000 were outstanding for periods beyond the 75 or 90 days
from date of issue, of which the Company obtained extensions of the mandatory
redemption dates for Debentures with original principal amounts of $500,000
until May 15, 1996 and $300,000 until June 1, 1996. Debentures with original
principal amounts of $800,000 are in default. The liability of the Debentures
in default as of March 31, 1996 are recorded at their common stock equivalent
value of $1,979,157.
Costs associated with convertible debenture modifications and defaults
were comprised of (1) additional principal of $304,000 pursuant to the terms of
the Debentures, (2) additional principal of $79,000 resulting from agreements
to extend mandatory redemption dates, and (3) adjustment of liability on
debentures in default to common stock equivalent value of $125,974.
As of June 7, 1996, all of the debentures are in default as a result
of the Company's failure to obtain authorization for the issuance of the Common
Stock on a timely basis. The common stock equivalent value of the Debentures
at June 7, 1996 aggregated $8,699,000. The Company is negotiating with each of
its Debenture holders to obtain extension of the mandatory redemption dates.
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6. NOTES PAYABLE
Notes and mortgage notes payable, as of March 31, 1996, are comprised
of the following:
<TABLE>
<CAPTION>
Related
Parties Other
------- -----
<S> <C> <C>
Note payable to a company at 10% per annum interest, due December 5,
1995, having as collateral TSSN common stock. $ $ 200,000
Mortgage payables to banks and individuals (7) at 10-10.52% per annum
interest, payable in monthly installments including interest aggregating
$17,714, due February, 1998 through 2001, having as collateral land,
buildings, and equipment located at the Company's RV campgrounds, stock
of Treasure Rockhound, and 27,500 shares of the Company. 1,854,767
Note payable to an individual at 15% per annum interest, due May 31,
1996, as extended, having as collateral 26,000 shares of Series C
Convertible Preferred Stock. 200,000
Notes payable to banks at 11-14% per annum interest, payable in monthly
installments including interest aggregating $614, due February, 1998 through
August, 2000, having as collateral equipment located at the RV campgrounds. 13,651
Notes payable to former lessor and supplier, non-interest bearing,
payable in monthly installments of $13,583. 26,867
Note payable to a corporation at 7% per annum interest, due December 31,
1995, as extended, without collateral. 30,000
Debt of Channel America:
Senior convertible debentures payable at 10% per annum interest,
principal and interest due March 31, 1995 having as collateral all
tangible and intangible assets of Channel America. 5,000
Subordinated notes payable at 10% per annum interest, due December 196,825 295,219
31, 2000.
Fixed rate notes payable at 10% per annum, due August 31, 1996,
having as collateral certain broadcast stations and construction
permits owned by Channel America. 20,157 48,498
Five year notes payable at 10% per annum interest, due 1995 to 2000. 230,118
Two year notes payable at 10% per annum interest, due 1995 and 1996. 30,000
Fixed rate note payable on demand at 15% interest per annum. 4,492
--------- ----------
Total notes and mortgage payables 251,982 2,903,612
Less current portion 251,982 1,506,060
--------- ----------
Long term notes and mortgages $ 0 $1,397,552
========= ==========
</TABLE>
On April 10, 1995, the Company borrowed $550,000 from Genesee Cattle
Company ("Genesee"). The promissory note bears interest at the rate of 10% per
annum. The note was originally due and payable on June 24, 1995. Genesee
agreed to extend the term of the note until December 5, 1995. As of March 31,
1996, the Company has paid $350,000 of principal on the note.
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The note is currently in default. The note has as collateral all of the common
stock of TSSN held by the Company. The note is also personally guaranteed by
Daniel M. Boyar, Special Legal Counsel to the Board of Directors. In addition,
the Company entered into a consulting agreement with Genesee for financial
public relations and promotion services. Under the terms of this agreement, as
amended, the Company was required to pay the consulting fees of $50,000 on
December 5, 1995. The Company is in default on payment under this agreement.
On May 21, 1996, the note holder filed a civil action in the U.S. District
Court seeking collection of the note and consulting fees (See Note 7 -
Commitments, Contingencies and Litigation).
On December 2, 1994, the Company borrowed $200,000 from an individual.
The promissory note provides for interest at the rate of 15% per annum. The
note was originally due and payable on June 5, 1995. The individual agreed to
various extensions to May 31, 1996. The note has as collateral 26,000 shares
of the Company's Series C Preferred Stock.
As of June 7, 1996, THI is in default on an unsecured note payable of
$16,667 and three mortgage notes payable aggregating $946,703 secured by Tres
Rivers RV campgrounds and a mobile home park.
Channel America is in default with respect to its long-term debt and,
accordingly, the entire amount has been classified as current liabilities. As
more fully described in Note 4 - Acquisition of Channel America Television
Network, Inc., the conversion of an aggregate of 90% of Channel America's note
and preferred stock holders into shares of Channel America's common stock was a
determinative item in the Company's decision to acquire Channel America. The
following debt of Channel America was outstanding as of March 31, 1996, for
which the holders had accepted the Conversion Plan to convert their notes into
Channel's America's common stock. The debt was considered to have been
converted in the recording of the acquisition of Channel America.
<TABLE>
<CAPTION>
Related
Parties Other
------- -----
<S> <C> <C>
Senior convertible debentures payable at 5% per annum interest, principal
and interest due September 30, 1996 having as collateral all tangible and
intangible assets of Channel America $ 62,500 $ 500,000
Senior convertible debentures payable at 10% per annum interest,
principal and interest due March 31, 1995 having as collateral all
tangible and intangible assets of Channel America 50,000 25,000
Subordinated notes payable at 10% per annum interest, due December 31, 2000 80,754 39,247
Fixed rate notes payable at 10% per annum, due August 31, 1996, having as
collateral certain broadcast stations and construction permits owned by
Channel America collateral 320,770 787,171
</TABLE>
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<TABLE>
<S> <C> <C>
Five year notes payable at 10% per annum interest, due 1995 to 2000 78,360
Two year notes payable at 10% per annum interest, due 1995 and 1996 408,906
-------- ----------
Total notes payable $922,930 $1,429,778
======== ==========
</TABLE>
According to the Conversion Plan, the total notes payable of
$2,352,708 summarized above, together with accrued interest of $226,841,
convert into 7,962,060 shares of common stock of Channel America.
Maturities of long term debt over the next five years are as follows:
<TABLE>
<CAPTION>
Year Ended
March 31 Amount
-------- ------
<S> <C>
1997 $1,867,203
1998 300,735
1999 265,131
2000 152,493
2001 and thereafter 570,032
----------
$3,155,594
==========
</TABLE>
7. COMMITMENTS, CONTINGENCIES AND LITIGATION
An agreement with Mr. Dale A. Fullerton, a former Chairman of the
Board, President and the largest shareholder of the Company, provides that Mr.
Fullerton has the right, but not the obligation, to sell 5,000 shares of the
Company's common stock (100,000 shares before the reverse stock split of
January 1995) to the Company over a 120 month period beginning in August, 1994
for an aggregate of $456,032. The discounted difference between the repurchase
price of the stock and the current value of the Company's common stock is
included in accrued liabilities ($22,516) and other debt ($235,144).
On November 1, 1995, pursuant to a Stock Purchase Agreement, the
Company sold to an accredited investor, 50,000 shares of Series C Preferred for
$500,000. The buyer has an option at any time prior to August 15, 1996, as
amended, to put the shares back to the Company at a redemption price of $10.00
per share. As security for the agreement by the Company to buy back any shares
put to the Company, the Company has pledged all common shares of Channel
America owned by the Company and 40 shares of The Company's Series J
Convertible Preferred Stock ("Series J Preferred"), representing the equivalent
of 2,000,000 common shares upon conversion. In addition, the Company entered
into a five-year consulting agreement, as amended, with Southern Resource
Management, Inc., of which the investor is president. The amended agreement
provides for payments of $100,000 on February 8, 1996; $25,000 on March 15,
1996; and $125,000 each on
13
<PAGE> 14
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
Southern Resource Management, Inc. may elect to accelerate all of the payments
as a result of the default.
The Company has agreed to rescind the sale of 42,000 shares of Series
C Preferred Stock, sold on May 31, 1995, at its sales price of $420,000 plus
interest of $30,000. The recision was made due to the Company's inability to
obtain an increase in its authorized common shares on a timely basis. As of
March 31, 1996, the Company has repaid $250,000 of the purchase price. For
financial statement purposes, the remaining liability of $200,000, including
accrued interest, has been included in accrued liabilities.
The Company is in default of a $550,000 note payable to Genesee Cattle
Co. due December 5, 1995, as amended. As of March 31, 1996, the Company has
repaid $350,000 of principal of the note, leaving a balance due of $248,000,
including accrued interest of $48,000. In addition, the Company owes to Genesee
Cattle Co. consulting fees of $50,000. The note has as collateral all of the
common stock of TSSN held by the Company. On May 21, 1996, Bryan K. Foster
doing business as Genesee Cattle Co. filed a civil action in the U.S. District
Court for the District of Colorado against the Company, Daniel M. Boyar, the
Special Legal Counsel to the Board of Directors, individually, guarantor of the
note payable, and Stephen H. Cohen, a Director of the Company, individually.
The action seeks repayment of all monies due. The plaintiff alleges fraud by
Boyar and Cohen in the inducement of the loan and forbearance from bringing
suit. The defendants deny the allegations and will vigorously defend the
charges. In addition, the action alleges that 50,000 shares of Series C
Convertible Preferred Stock issued to Genesee Cattle Co. will have, upon
conversion into common stock, a market price less than $1,000,000 in value as
promised by the Company. The Company believes that the Series C Convertible
Preferred Stock issued fulfills the stock obligation to Genesee Cattle Co. in
full.
On September 8, 1995, the Company received notice from the Osceola
County, Florida Clerk of Circuit Court, of a default judgement filed against
International Sports Collectibles, Inc., a wholly owned subsidiary of TSSN, and
Stellar, in favor of Dreams Franchise Corporation, a California corporation, on
November 28, 1994 in the amount of $117,492. This liability has been recorded
and is included in accounts payable as of December 31, 1995.
The Company is the subject of an informal private inquiry which has
been initiated by the staff of the Securities and Exchange Commission. The
actions under examination apparently involve the
14
<PAGE> 15
sale by the Company of shares of its common stock at prices lower than that
described in its private placement memorandum dated December 17, 1992; its
failure to modify favorable press statements when the Company became aware that
the initial statements were no longer accurate; the allegedly improper
registration of shares under Form S-8 registration statements; and the
allegedly improper reliance upon the transactional exemption afforded by
Regulation S, in connection with several offers and sales of shares of its
common stock. No allegations have been made and management believes that its
actions were proper.
8. MINORITY INTEREST
Minority Interest represents the par value and paid in capital of the
unconverted preferred stock of Channel America, together with accrued dividends
of $15,958. The preferred stock provides for payment of annual dividends in
the amount of six percent (6%) per annum through December 31, 1996, and
seventeen percent (17%) per annum thereafter. The preferred stock is
redeemable by Channel America, at its option, at any time at a redemption price
of 105% of its par value, provided that the subordinated notes payable due
December 31, 2000 have been fully paid. Upon failure of Channel America to pay
two consecutive dividends, the holders of the preferred stock have the right to
gain control of the Board of Directors of Channel America and convert their
shares of preferred stock into an aggregate of fifty percent (50%) of the
Company's outstanding common stock. As of March 31, 1996, Channel America has
failed to pay the 1995 dividend which aggregates approximately $13,000 for the
unconverted preferred stock.
As more fully described in Note 4 - Acquisition of Channel America
Television Network, Inc., the conversion of an aggregate of ninety percent
(90%) of Channel America's notes payable and preferred stock into shares of
Channel America's common stock was a significant consideration in the Company's
decision to acquire Channel America. As of March 31, 1996, 32,710 shares of
preferred stock were outstanding ($327,100) for which the holders had accepted
the Conversion Plan to convert their preferred stock into Channel's America's
common stock and were eliminated in the recording of the acquisition of Channel
America.
9. COMMON AND PREFERRED STOCK
COMMON STOCK - The Company has authorized common stock of 2,500,000
shares without par value, of which 2,497,665 shares were issued at March 31,
1996, of which 542 shares were held by Technology Holdings, Inc.
PREFERRED STOCK - The Company has authorized preferred stock of
1,250,000 shares without par value. As of March 31, 1996, the following series
of preferred stock were authorized and outstanding.
15
<PAGE> 16
<TABLE>
<S> <C>
Series A 10% Convertible Preferred Stock, $20 par value, 100,000 shares authorized,
no shares issued or outstanding $ 0
Series C Convertible Preferred Stock, $10 stated value, 500,000 shares authorized,
210,400 shares issued and outstanding 2,146,100
Series D Convertible Preferred Stock, no par value, 17,000 shares authorized and
16,984.9 shares issued and outstanding 4,084,153
Series E Convertible Preferred Stock, no par value, 30,000 shares authorized, issued
and outstanding 30,000
Series F Convertible Preferred Stock, no par value, 1,680 shares authorized,
1,352.5912 shares issued and outstanding 171,328
Series H Convertible Preferred Stock, no par value, 100,000 shares authorized, 48,000
shares issued and outstanding 6,000,000
Series I Convertible Preferred Stock, no par value, 7,000 shares authorized, 6,750
shares issued and outstanding 440,943
Series J Convertible Preferred Stock, no par value, 100 shares authorized, issued and
outstanding 5,000,000
Series K Convertible Preferred Stock, no par value, 100 shares authorized, no shares
issued or outstanding 768,510
Series L Convertible Preferred Stock, no par value, 100 shares authorized, no shares
issued or outstanding 0
Series M Convertible Preferred Stock, no par value, 40,000 shares authorized, issued
and outstanding 0
-----------
Total Preferred Stock, 795,980 shares designated; 353,604.4912 shares of
designated series issued and outstanding 18,641,034
Less Series C Convertible Preferred Stock (See Note :
Shares subject to agreement to rescind sale thereof (42,000 shares) (420,000)
Shares subject to repurchase agreement (50,000 shares) (500,100)
-----------
Adjusted Preferred Stock $17,720,934
===========
</TABLE>
Series B 8% Preferred Stock was canceled by the Board of Directors
during 1995. Series G Preferred Stock has not been designated nor issued.
Series L Convertible Preferred Stock has been designated by the Board of
Directors, but, no shares were issued as of March 31, 1996. A description of
rights and preferences of each Series of Preferred Stock is included in the
Notes to the
16
<PAGE> 17
Consolidated Financial Statements for the year ended December 31, 1995 set
forth in the Company's 1995 Form 10-KSB except as set forth below.
During the three months ended December 31, 1995, the Company sold
15,000 shares of Series C Preferred Stock to an accredited investor for
$150,000.
On January 15, 1996, the Company issued 28.1418 shares of Series F
Convertible Preferred Stock in exchange for the remaining 1.65% of TSSN's
issued and outstanding shares of common stock held by the minority
shareholders. The shares were recorded at their liquidation value of $1 per
share with a corresponding charge to Series M Convertible Preferred Stock,
which had the lowest liquidation preference rights with a recorded value.
SERIES K CONVERTIBLE PREFERRED STOCK - The Board of Directors
established this series with 100 shares authorized, no par value. This series
was intended to be sold to accredited investors through private placements.
During the three months ended March 31, 1996, the Company sold 17 shares of
Series K Convertible Preferred Stock ("Series K Preferred Stock") to an
accredited investor located outside the United States for $637,500, net of
sales commissions and closing costs of $212,500.
The Series K Preferred Stock has no voting rights except as provided
by operation of law does not bear dividends, and is not redeemable. As long as
the Series K Preferred Stock is outstanding, the Company cannot without the
affirmative vote or the written consent as provided by law of 80% of the
holders of the outstanding shares, voting as a class, change the preferences,
rights or limitations with respect to the Series K Preferred Stock in any
material respect prejudicial to the holders thereof, or increase the authorized
number of shares of such Series.
Each holder of Series K Preferred Stock shall have the right, at his
option, at any time after the Company increases its authorized common shares,
to convert each share into fully paid and nonassessable shares of the Company's
common stock at a conversion price equal to 55% of the common stock's market
value. The Shares being converted shall be multiplied by 50,000 before
determining the common shares to be received. Market value is defined to be
the average closing price per share of the Company's common stock for the ten
day period prior to conversion. The Series K Preferred Stock automatically
converts to common shares on June 30, 1997.
In the event of liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's common stock, each holder of Series K
Preferred Stock shall be entitled to receive the sum of $50,000 in cash for
each share of Series K Preferred Stock held subject to the first priority of
all holders of all prior series of preferred stock.
17
<PAGE> 18
10. MATERIAL TRANSACTIONS WITH RELATED PARTIES
During both the three months ended March 31, 1996 and 1995, Stellar
billed TSSN $190,000 for management and accounting services performed on the
Company's behalf, which were charged to the intercompany advance account.
Stellar charged TSSN based upon estimated time and charges incurred by Stellar
on the Company's behalf. Management asserts that the fees charged to the
Company approximate the costs that would have been incurred by TSSN if it had
operated on a stand alone basis. During the three months ended March 31, 1996,
the Company made net payments of $83,765 to Stellar. During the three months
ended March 31, 1995, Stellar made net cash advances to TSSN of $136,614. As
of March 31, 1996, Amounts due to Stellar aggregated $536,537.
American Clinical Labs, Inc. ("ACL"), the Company's majority
shareholder prior to the TSSN acquisition, 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. During the
three months ended March 31, 1996, the Company paid to ACL on a net basis,
$15,403, including an amounts due ACL at December 31, 1995 of $ 11,644. At
March 31, 1996, ACL owed the Company 3,759. During March 1995, ACL advanced
the Company $82,610 for working capital.
During the period April 1, 1996 through June 7, 1996, ACL has made
working capital advances of $287,247 to the Company. The Company has agreed to
repay the advances by the issuance to ACL of sufficient shares of convertible
preferred stock which will convert into 422,422 shares of common stock.
[Balance of page intentionally left blank]
18
<PAGE> 19
11. BUSINESS SEGMENTS
The Company has identified its major lines of business to be the RV
campgrounds, broadcasting and shopping. The results of operations by major
lines of business for the three months ended March 31, 1996 are summarized
below:
<TABLE>
<CAPTION>
RV
Campgrounds Broadcasting Shopping Corporate Total
----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales and revenues $ 299,802 $ 353,160 $ 6,987 $ 0 $ 659,949
Cost of sales and revenues 173,915 742,510 37,063 0 953,488
---------- ----------- --------- ----------- -----------
Gross margin 125,887 (389,350) (30,076) 0 (293,539)
Operating expenses 280,772 449,113 738,345 694,613 2,162,843
Depreciation and amortization 92,419 239,314 8,182 0 339,915
---------- ----------- --------- ----------- -----------
Income (loss) from operations (247,304) (1,077,777) (776,603) (694,613) (2,796,297)
Other items (47,260) (23,098) (22) (637,276) (707,656)
---------- ----------- --------- ----------- -----------
Net income (loss) $ (294,564) $(1,100,875) $(776,625) $(1,331,889) $(3,503,953)
========== =========== ========= =========== ===========
Identifiable assets $6,897,077 $10,052,905 $ 354,887 $ 1,814,330 $19,119,199
========== =========== ========= =========== ===========
</TABLE>
[Balance of page intentionally left blank]
19
<PAGE> 20
12. ADDITIONAL CASH FLOW STATEMENT INFORMATION
The noncash effect of the acquisition of TSSN as of February 28, 1995
is summarized below:
<TABLE>
<S> <C>
INCREASE IN ASSETS:
Notes and other receivables $ 81,141
Prepaid expenses 18,788
----------
Increase in current assets 99,929
Property, equipment, and program library 3,487,891
Unamortized goodwill 3,595,592
Other assets 168,617
----------
Total increase in assets 7,352,029
----------
INCREASE IN LIABILITIES:
Notes payable and current portion of long-term debt 428,638
Accounts payable 654,495
Amounts due to affiliates 24,550
Accrued liabilities 145,995
----------
Increase in current liabilities 1,253,678
Long-term debt 1,731,276
Other liabilities 292,024
----------
Total increase in liabilities 3,276,978
----------
Minority interest
CHANGE IN STOCKHOLDERS' EQUITY:
Issuance of Series D Convertible Preferred Stock (16,985 shares) 4,084,153
Issuance of Series E Convertible Preferred Stock (30,000 shares) 30,000
Issuance of Series H Convertible Preferred Stock (48,000 shares)
Common stock 3,460,823
Additional paid in capital (3,490,823)
----------
Total increase in stockholders' equity 4,084,153
----------
Total increase in liabilities and stockholders' equity 7,361,131
----------
CASH ACQUIRED (INVESTED) $ 9,102
==========
</TABLE>
20
<PAGE> 21
13. PROFORMA FINANCIAL INFORMATION
The Condensed Proforma Combined Statement of Operations shown below
for the three month period ended March 31, 1995 has been prepared as if TSSN
and Channel America had been acquired as of January 1, 1995, adjusted to
reflect an increase in amortization resulting from goodwill recorded in the
mergers and the reduction of interest expense and dividends payable relating to
the conversion of notes payable and preferred stock (See Note 4 - Acquisition
of Channel America Television Network, Inc.). The proforma weighted average
number of shares used to compute the proforma loss per share was based on the
actual number of EVRO shares outstanding, adjusted for the number of common
shares issued to Stellar (500,000 shares).
Condensed Proforma Combined Statement of Operations
For The Three Months Ended March 31, 1995
<TABLE>
<S> <C>
Sales and revenues $ 791,767
Cost of sales and revenues 918,457
-----------
Gross margin (126,690)
Operating expenses 1,113,920
-----------
Operating loss of continuing operations (1,240,610)
Other income (expense) (56,535)
-----------
Loss from continuing operations $(1,297,145)
===========
Loss per share from continuing operations $ (0.60)
===========
Average number of common shares outstanding 2,178,726
===========
</TABLE>
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The following is a discussion of The Company's results of operations
for the three months ended March 31, 1995 and 1996. The Company's net loss
increased from $526,000 or $(.64) per share in 1995 to $3,504,000 in 1996 or
$1.40 per share. The increase is primarily attributable to (1) the loss from
operations of $1,101,000 of Channel America for the three months ended March
31, 1996, which was not acquired until October 10, 1995, including amortization
of goodwill of $141,000, (2) an increase in the loss from operations of
$167,000 of THI (historic EVRO) for three months ended March 31, 1996 as
compared to the comparable period of the prior year for which operations of THI
were included only for the month March, 1995, including additional amortization
of goodwill of $41,000 (this loss was incurred in the business historically
operated by EVRO), (3) an increase in the loss from shopping operations of
$378,000, (4) an increase in corporate overhead of $695,000, including
accounting, legal and financial consulting services and other costs to support
the Company's acquisition and financial activities of $559,000, (5) interest
and other financing costs $128,000 associated with new corporate borrowings,
and (6) costs associated with convertible debenture modifications and defaults
of $509,000.
Revenues, listed as "Rental, memberships, and other revenues" of
$121,000 and $300,000 for the three months ended March 31, 1995 and 1996,
respectively, on the Company's Consolidated Statements of Operations reflect
the operations of the Company's RV campgrounds (historic EVRO and its
subsidiaries). The revenues for the three months ended March 31, 1995 reflect
the operations of the RV Campgrounds only for the month of March, 1995, while
revenues for the three months ended March 31, 1996, reflect the operations of
the RV Campgrounds for the full three month period. Programming and
advertising revenues, in the amount of $353,000 reflect the operations of
Channel America for the three months ended March 31, 1996.
In mid-January, 1996, TSSN initiated the sale of jewelry, gem stones
and non-sports collectibles on a limited basis through TSC from a television
studio facility located in Altamonte Springs, Florida. The shopping broadcast
was limited primarily to satellite only homes. As more fully explained later,
the Company temporarily discontinued the shopping operations in late February
1996. Revenues from these limited operations were $7,000. Revenues from
product sales totaling $177,000, for the three months ended March 31, 1995,
reflect sales of sports memorabilia through a contractual arrangement with VIA
TV Network located in Knoxville, Tennessee during January and February 1995.
The sales volume was largely attributable to cable distribution of the
Nostalgia Network.
Cost of sales and revenues for the three months ended March 31, 1996
is comprised of the costs associated with the RV campgrounds, totaling
$174,000, Channel America, totaling $743,000, and shopping operations, totaling
$37,000. Cost of sales and revenues for the three months ended March 31, 1995
is comprised of the costs associated with the RV campgrounds, totaling $69,000,
22
<PAGE> 23
and shopping operations, totaling $120,000. The cost of sales in 1995 for
shopping operations, which reflect the sale of sports memorabilia, were
approximately 30-35% higher than would normally be expected due to product
selection and high product costs directly attributable to the initial low sales
volume levels. Channel America incurred a negative gross margin of $389,000
for the three months ended March 31, 1996, which was primarily attributable to
unsold advertising time.
Selling, general and administrative expenses for the three months
ended March 31, 1996 totaled $281,000 for RV campground operations, $449,000
for operations of Channel America, $738,000 for the shopping operations, and
$695,000 for corporate expenses and consulting services and other costs
incurred in support of the Company's acquisition and financing activities.
Selling, general and administrative expenses for the three months ended March
31, 1995 totaled $69,000 for RV campground operations and $219,000 for the
shopping operations. Selling general and administrative costs for shopping
operations increased $519,000 from 1995 to 1996. The increase for shopping
operations was primarily attributed to costs of distribution of $227,000,
payroll and related costs of $170,000, costs of studio facility of $90,000 and
other of $32,000, incurred to support the initial shopping operations.
During both the three months ended March 31, 1995 and 1996, Stellar
billed TSSN $190,000 for management and accounting services performed on
TSSN's or EVRO's behalf. Stellar charged TSSN based upon estimated time and
charges incurred by Stellar on the Company's behalf. Management believes that
the fees charged to the Company and TSSN approximate the costs that would have
been incurred by TSSN if it had operated on a stand alone basis.
Interest expense for the three months ended March 31, 1996 were
$208,000 as compared to $43,000 for the comparable period in 1995. The
increase is directly attributable to new financing required to support the
Company's acquisitions and business operations. Accrued interest for the three
months ended March 31, 1996 for the Debentures was $117,000, including
amortization of loan costs of $43,000. Costs associated with convertible
debenture modifications and defaults were comprised of (1) additional principal
of $304,000 pursuant to the terms of the Debentures, (2) additional principal
of $79,000 resulting from agreements to extend mandatory redemption dates, and
(3) adjustment of liability on debentures in default to common stock equivalent
value of $125,974.
In April, 1995, TGHC, Inc., an inactive subsidiary, received a
promissory note in exchange for the sale of substantially all of the assets of
TGHC. As the ultimate collection of the contingent promissory note is
uncertain and largely dependent upon the success of the acquiring entity,
Better Health Network, Inc., establishing future profitable operations, the
Company utilized the cost recovery method of accounting for this transaction.
The payments received pursuant to the promissory note, which are based on a
percentage of the sales generated by Better Health Network, will be recognized
as income upon receipt. As of March 31, 1996 no income had been recognized by
the Company.
23
<PAGE> 24
PLAN OF OPERATION
TSSN
TSSN are considered to be in the development stage as defined in
Financial Accounting Standard No. 7. TSSN is engaged in the development of a
television shopping network marketing its products through satellite,
television broadcast stations and cable networks.
In November 1994, TSSN initiated the sale of sports memorabilia on a
limited basis (6 to 21 hours per week) through a contractual arrangement with
ViaTV Network located in Knoxville, Tennessee. Initially the broadcast was
limited to satellite only homes; however, beginning in January 1995, TSSN sales
programming was broadcast over the Nostalgia Network for 6 hours per week.
While these sales activities confirmed, in management's opinion, the viability
of TSSN's programming, the operations were discontinued in late February 1995
until TSSN could independently obtain broadcasting capability and distribution
at more favorable economic costs. In January 1996, TSSN initiated the sale of
jewelry, gem stones and non-sports collectibles on a limited basis. The
shopping broadcast was limited primarily to satellite only homes. In 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 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 83 affiliates with a potential reach of approximately
35 million US households, including 9.5 million direct cable homes and 4.6
million satellite homes. The Company intends to initially commence
broadcasting the programming of TSC, 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.
24
<PAGE> 25
The Company plans to obtain funds to satisfy its cash requirements from the
issuance of its capital stock or from issuance of its debt securities, however,
the Company currently has no commitments to receive either debt or equity
financing and no assurance can be given that the Company will be successful in
obtaining additional equity or debt funding.
OUTLOOK
The Company has established the following objectives to achieve
profitable operations in 1996, assuming the Company is successful in its
capital raising efforts:
1. Strengthen its management team, including recruiting
experienced Chief Executive Officers for both the Company and
Channel America;
2. Consolidate the operations of Channel America and TSSN into a
television studio facility in California. This consolidation
will provide for considerable cost savings as it will allow
for the use of common uplink and transponder facilities, as
well as reducing related overhead costs;
3. Obtain Nielsen ratings of Channel America's programming to
facilitate the sale of advertising time to national
advertisers;
4. Enhance the programming of Channel America through joint
ventures with partners such as MIT-F/x, Inc. to distribute a
computer animated television series called WINGS Angela and
SBI Communications to broadcast an interactive live television
bingo game show; and
5. To further diversify the geographic regions and seasonal
variations of its RV park division, the Company is currently
negotiating the purchase of a fully developed RV park and
campground in the northeast United States, which includes
approximately 400 sites.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses in 1994, 1995, and for the
three months ended March 31, 1996, of $1,703,000, $7,899,000 and $3,504,000,
respectively, which have adversely reduced The Company's liquidity and capital
resources. In addition, TSSN and Channel America will require a substantial
capital infusion to fully establish their respective operations. The Company
anticipates that it will continue to incur losses throughout its 1996 fiscal
year.
As of December 31, 1995 the Company issued $1,000,000 of 8.5%
Convertible Debentures due October 31, 2000 and $500,000 of 9.5% Convertible
Debentures due November 27, 2000. During January and February, 1996, the
Company issued an additional $3,040,000 of 8.5%
25
<PAGE> 26
Convertible Debentures of which $1,890,000 are due January 31, 1998 and
$1,150,000 are due on October 31, 2000 (collectively referred to as the
"Debentures"). The Debentures were issued to individuals and corporations
located outside of the United States. The holders of the Debentures are
entitled, at their option, at any time commencing 41 days after issue to
convert any or all of the original principal amounts of the Debenture into
shares of common stock of the Company, at a conversion price per share equal to
50%-70% of the market price of the Company's common stock. Market price is
defined as the average closing bid price for the five business days immediately
preceding the conversion date or immediately preceding the debenture
subscription date, whichever is lower.
The Debentures, as amended, provide that a penalty of 10% to 20% of
the face value of the Debentures be added to principal in the event that the
Company does not obtain shareholder authorization to increase its authorized
shares of common stock necessary to satisfy the Company's conversion obligation
under the Debentures by certain dates. The Company has not obtained the
authorization for the issuance of this common stock and accordingly recorded
additional principal due on the Debentures.
The Debentures provide that in the event authorization for issuance of
the Common Stock is not obtained before 75 or 90 days from date of issue, the
Company is required to redeem the Debentures at an amount equal to the value of
the common stock into which the Debentures would have been convertible at the
date of redemption. As of June 7, 1996, all of the debentures are in default
as a result of the Company's failure to obtain authorization for the issuance
of the Common Stock on a timely basis. The common stock equivalent value of
the Debentures at June 7, 1996 aggregated $8,699,000. The Company is
negotiating with each of its Debenture holders to obtain extension of the
mandatory redemption dates.
During the first quarter of 1996, the Company sold 15,000 shares of
Series C Preferred Stock and 17 shares of Series K Preferred Stock for
$787,500, net of sales commissions of $212,500.
During 1996, the Company used the net cash of $2,826,000 that it
received from the issuance of its Debentures and sale of preferred stock in
the following manner: (1) payments to Channel America for its acquisition
($300,000); (2) advances to or payments on behalf of Channel America
($671,000); (3) legal and accounting fees incurred to complete certain filings
with the Securities and Exchange Commission ($160,000); (4) debt service and
working capital to fund the operations of THI ($234,000); (5) payment to
Stellar for management and accounting services ($103,000); (6) working capital
for operations of TSSN and TSC ($330,000); (7) working capital for corporate
overhead operations ($138,000); (8) repayment of outstanding debt, the proceeds
of which were previously used for working capital purposes ($350,000); (9)
consulting services ($290,000); and (10) the redemption of previously issued
shares of The Company's Series C Preferred ($250,000).
During the period April 1, 1996 through June 7, 1996, ACL has made
working capital advances of $287,000 to the Company. The Company has agreed to
repay the advances by the issuance to ACL of sufficient shares of convertible
preferred stock which will convert into 422,422
26
<PAGE> 27
shares of common stock. The Company used the working capital advances in the
following manner: (1) debt service and working capital to fund the operations
of THI ($230,000); (2) legal and accounting fees incurred to complete certain
filings with the Securities and Exchange Commission ($40,000); and (3) working
capital for corporate overhead operations ($17,000).
On November 1, 1995, pursuant to a Stock Purchase Agreement, the
Company sold to an accredited investor, 50,000 shares of Series C Preferred for
$500,000. The buyer has an option, for a period of six months following the
date of issuance, to put the shares back to the Company at a redemption price
of $10.00 per share. As security for the agreement by the Company to buy back
any shares put to the Company, the Company has pledged all common shares of
Channel America owned by the Company and 40 shares of the Company's Series J
Convertible Preferred Stock ("Series J Preferred"), representing the equivalent
of 2,000,000 common shares upon conversion. In addition, the Company entered
into a five-year consulting agreement, as amended, with Southern Resource
Management, Inc., of which the investor is president. The amended agreement
provides for payments of $100,000 on February 8, 1996; $25,000 on March 15,
1996; and $125,000 each on November 1, 1996, 1997, 1998 and 1999. The Company
shall deliver to the consultant, on or before March 15, 1996, either a letter
of credit in the amount of $400,000 or a "Satisfaction Payment" of $400,000 in
cash. The Company has pledged 60 shares of the Company's Series J Preferred,
representing the equivalent of 3,000,000 common shares upon conversion, as
security for payment of the Satisfaction Payment of $400,000. In addition, D.
Jerry Diamond and Daniel M. Boyar personally guaranteed the obligations of the
Company pursuant to the Stock Purchase Agreement and Consulting Agreement. 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 Southern Resource Management, Inc. may elect to accelerate all of
the payments as a result of the default.
The Company is also in default of a note payable to Genesee Cattle Co.
in the amount of $248,000 due June 24, 1995, including accrued interest, and
consulting fees of $50,000. The note payable is collateralized by all the
common stock of the company's subsidiary TSSN. On May 21, 1996, the note
holder filed a civil action to collection all monies due in the U.S. District
Court for the District of Colorado against the Company, Stephen H. Cohen, a
Director, individually, and Daniel M. Boyer, individually, guarantor of the
note payable.
The Company is currently experiencing a significant deficiency in
working capital and Channel America and TSSN (the Company's primary future
operating subsidiaries) have operated since their inception with a negative
working capital position. As of March 31, 1996, the Company had current assets
of $301,000 and current liabilities of $10,702,000, or a working capital
deficiency of $10,401,000. The Company is currently in default on various
notes payable aggregating approximately $2,091,000 and all of its Debentures
which have stock common equivalent values of $8,699,000. 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
27
<PAGE> 28
management's ability to attain and maintain profitable operations; to obtain
favorable financing arrangements; to retire its current indebtedness; and, to
raise additional capital.
The Company intends to schedule a shareholders meeting at which the
Company will ask its shareholders to increase the number of shares of the
Company's authorized common and preferred stock. If the shareholders of the
Company do not approve the increase in the Company's authorized common stock,
the holders of the Company's Debentures will likely demand the repayment of
amounts owed to them in cash rather than convert such Debentures into shares of
the Company's common stock as the Company will not be able to issue additional
common shares. Thus, it is critical to the success of the Company that the
shareholders of the Company's common stock increase the authorized shares of
the Company's common stock. Not only are the increased shares needed for
possible issuance to Debenture holders, but, such shares are also required to
raise additional capital for the Company. On the other hand, if the
shareholders of the Company fail to increase the authorized shares of the
Company's preferred stock, the Company does not envision that such action will
materially impact the Company, although it will limit the Company's ability to
engage in certain financing transactions requiring the issuance of preferred
stock. If the shareholders of the Company do not approve an increase in the
Company's common stock, the Company will likely seek to renegotiate the terms
of its existing Debentures to extend the maturity date thereof, however, there
can be no assurance that the Debenture holders would extend the terms of the
Debentures in which case, if payment of a substantial amount of the Debentures
were demanded, the Company would likely be unable to meet such request.
Despite the inability of the Company to establish positive cash flow
from its operations, it has been able to raise capital through the issuance of
its debentures and its preferred stock, however, there can be no assurance that
the Company will be able to continue to issue its securities.
[Balance of page intentionally left blank]
28
<PAGE> 29
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
27.0 Financial Data Schedule (for SEC use only)
</TABLE>
(B) REPORTS ON FORM 8-K
Amendment No. 1 to Form 8-K dated September 18, 1995 reporting acquisition of
Channel America Television Network, Inc. filed on February 27, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
EVRO CORPORATION
Date June 12, 1996 By /s/ O. Don Lauher
--------------------------- ----------------------------------
O. Don Lauher
Chief Financial Officer
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EVRO CORPORATION FOR THE THREE MONTHS ENDED MARCH 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 44,615
<SECURITIES> 0
<RECEIVABLES> 54,003
<ALLOWANCES> 0
<INVENTORY> 77,814
<CURRENT-ASSETS> 301,432
<PP&E> 6,003,247
<DEPRECIATION> 809,117
<TOTAL-ASSETS> 19,119,199
<CURRENT-LIABILITIES> 10,701,747
<BONDS> 0
0
17,720,934
<COMMON> 0
<OTHER-SE> (16,163,567)
<TOTAL-LIABILITY-AND-EQUITY> 19,119,199
<SALES> 6,987
<TOTAL-REVENUES> 659,949
<CGS> 37,063
<TOTAL-COSTS> 953,488
<OTHER-EXPENSES> 3,002,904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207,510
<INCOME-PRETAX> (3,503,953)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,503,953)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,503,953)
<EPS-PRIMARY> (1.40)
<EPS-DILUTED> (1.40)
</TABLE>
