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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
--------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission File No. 0-7870
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EVRO CORPORATION
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(Name of Small Business Issuer in Its Charter)
Florida 59-3229961
- ------------------------------ -------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3101 SW 34th Avenue 905-427, Ocala, Florida 34474
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(Address of Principal Executive Offices) (Zip Code)
(407) 397-0550
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(Issuer's Telephone Number, Including Area Code)
10002 Princess Palm Avenue, Suite 304, Tampa, Florida 33619
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(Former name, former address and former fiscal year, if changed since last
year.)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 18, 1995, the
Company had 2,497,957 shares of Common Stock outstanding, no par value.
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EVRO CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 10,909
Notes receivable (current portion) 125,000
Due from Affiliate 73,789
Other receivables 28,136
Inventories - net 222,824
Prepaid expenses 11,538
Net current assets of discontinued operations 150
-----------
Total current assets 472,346
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PROPERTY AND EQUIPMENT
(less accumulated depreciation of $ 437,496) 3,493,687
INVESTMENTS AND OTHER ASSETS:
Notes receivable (less current portion) 20,000
Investments and loan receivable 130,308
Proprietary technology 122,495
Unamortized goodwill 3,344,115
Other - net 15,665
Net other assets of discontinued operations 19,984
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Total other assets 3,652,567
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TOTAL ASSETS $ 7,618,600
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 957,842
Accounts payable 484,981
Amounts due to affiliates 391,603
Other current liabilities 668,022
Net current liabilties of discontinued operations 208,576
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Total current liabilities 2,711,024
LONG-TERM DEBT:
Long-term debt 1,656,851
Refundable memberships 40,000
Net long-term debt of discontinued operations 7,566
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TOTAL LIABILITIES 4,415,441
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STOCKHOLDERS' EQUITY:
Preferred stock, no par value
Series C convertible preferred stock 954,000
Series D convertible preferred stock 4,084,153
Series E convertible preferred stock 30,000
Series F convertible preferred stock 1,274
Common stock, no par value 3,670,218
Unearned compensation (1,566,237)
Accumulated deficit (3,928,446)
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3,244,962
Less: Common stock in treasury, 458 common shares at cost (41,803)
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TOTAL STOCKHOLDERS' EQUITY 3,203,159
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,618,600
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See notes to consolidated financial statements
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EVRO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
06/30/95 06/30/94 06/30/95 06/30/94
-------- -------- -------- --------
SALES AND REVENUES
Memberships and other revenues $ 394,587 $ $ 515,218 $
Product sales 44,069 1,065 176,278 2,147
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438,656 1,065 691,496 2,147
COST OF SALES AND REVENUES 219,560 483 482,145 274
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GROSS MARGIN 219,096 582 209,351 1,873
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OPERATING EXPENSES:
Selling, general and administrative 974,349 60,179 1,188,665 144,323
Management and accounting services
provided by The Stellar Companies, Inc. 312,500 287,500 625,000 575,000
Depreciation and amortization 103,037 8,280 128,405 16,560
----------- --------- ----------- ---------
1,389,886 355,959 1,942,070 735,883
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OPERATING LOSS OF CONTINUING OPERATIONS (1,170,790) (355,377) (1,732,719) (734,010)
OTHER INCOME (EXPENSES)
Interest expense (44,190) (22,319) (87,054) (44,034)
Other-net 4,666 8,983
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NET LOSS OF CONTINUING OPERATIONS (1,210,315) (377,696) (1,810,791) (778,044)
LOSS OF DISCONTINUED OPERATIONS 14,993 (33,164)
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NET LOSS $(1,195,322) $(377,696) $(1,843,955) $(778,044)
=========== ========= =========== =========
NET LOSS PER SHARE $ (0.55) $ (0.81) $ (1.24) $ (1.66)
=========== ========= =========== =========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,155,238 468,100 1,491,637 468,100
=========== ========= =========== =========
See notes to consolidated financial statements
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EVRO CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED June 30, 1995
(Unaudited)
Common Stock Treasury Stock Preferred Stock
Shares $ Shares $ Series C Series D Series E
------ ---------- ------ ----------- -------- --------- --------
Balance, January 1, 1995 59,734,634 $ 4,953 $ $ $ $ $
Adjustment to reflect reverse
purchase acquisition of EVRO
Corporation (57,536,677) 6,251,957 292 (26,602)
Issuance of Preferred Series D
Convertible Preferred Stock, no par
value (16,985 shares) (4,084,153) 4,084,153
Issuance of Preferred Series E
Convertible Preferred Stock, no par
value (30,000 shares) (30,000) 30,000
Return and cancellation of common
stock issued to STELLAR in exchange
for 1,274 shares of Series F Convertible
Preferred Stock, no par value (500,000) (1,274)
Proceeds from sale of common stock 224,000 162,500
Proceeds from sale of Series C
Convertible Preferred Stock, no par
value (65,500 shares) (67,515) 655,000
Common stock issued pursuant to the
1995 Employee Stock Compensation
Plan 550,000 1,693,750
Stock compensation earned during the
six months ended June 30, 1995
Series C Convertible Preferred Stock
issued:
As collateral for note payable
(26,000 shares) (260,000) 260,000
In settlement of litigation (3,900 shares) 39,000
Purchase of treasury shares 166 (15,201)
Loss for the six months ended
June 30, 1995
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Balance - June 30, 1995 2,471,957 $3,670,218 $458 $(41,803) $954,000 $4,084,153 $30,000
========= ========== ==== ======== ======== ========== =======
Additional
Paid in Unearned Accumulated
Series F Capital Compensation Deficit
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Balance, January 1, 1995 $ $ 2,167,804 $ $(2,084,491)
Adjustment to reflect reverse
purchase acquisition of EVRO
Corporation (2,167,804)
Issuance of Preferred Series D
Convertible Preferred Stock, no par
value (16,985 shares)
Issuance of Preferred Series E
Convertible Preferred Stock, no par
value (30,000 shares)
Return and cancellation of common
stock issued to STELLAR in exchange
for 1,274 shares of Series F Convertible
Preferred Stock, no par value 1,274
Proceeds from sale of common stock
Proceeds from sale of Series C
Convertible Preferred Stock, no par
value (65,500 shares)
Common stock issued pursuant to the
1995 Employee Stock Compensation
Plan (1,693,750)
Stock compensation earned during the
six months ended June 30, 1995 127,513
Series C Convertible Preferred Stock
issued:
As collateral for note payable
(26,000 shares)
In settlement of litigation (3,900 shares)
Purchase of treasury shares
Loss for the six months ended
June 30, 1995 (1,843,955)
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Balance - June 30, 1995 $1,274 $ 0 $(1,566,237) $(3,928,446)
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EVRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
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06/30/95 06/30/94
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,843,955) $ (778,044)
Adjustments to reconcile net loss to net cash utilized by
operating activities:
Discontinued operations 33,164
Depreciation and amortization 128,405 16,560
Compensation for financial consulting services
paid in common stock 127,513
Imputed interest related to reverse purchase of
of EVRO Corporation 17,903
Settlement of litigation by issuance of common
stock 39,000
Decrease in other receivables 16,554 4,711
Increase in inventories (49,905) (5,687)
(Increase) Decrease in prepaid expenses and deposits 39,279 (1,532)
Increase in accounts payable 272,152 75,902
Increase in other liabilities 107,720
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Net cash used in continuing operations (1,112,170) (688,090)
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Net cash used in discontinued operations (59,205)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (30,231)
Costs of acquiring EVRO Corporation (100,000)
Cash acquired in reverse purchase of EVRO
Corporation 2,349
Investment in and loan to America's
Collectibles Network, Inc. (100,000)
Note receivable 20,795
Other non-current assets (11,611)
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Net cash used in investing activities (218,698) 0
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CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable 550,000
Repayment of borrowings (60,942)
Proceeds from sale of common stock 162,500 178,250
Proceeds from sale of Series C Convertible
Preferred Stock 587,485
Purchase of treasurey stock (15,201)
Working capital advances from/to affiliates
The STELLAR Companies, Inc. 266,332 509,120
American Clinical Laboritories, Inc. (98,339)
Repayment of refundable memberships 9,080
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Net cash provided by financing activities 1,400,915 687,370
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NET INCREASE (DECREASE) IN CASH 10,842 (720)
CASH, BEGINNING OF PERIOD 67 949
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CASH, END OF PERIOD $ 10,909 $ 229
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SUPPLEMENTAL DISCLOSURES:
Interest paid $ 58,559 $ 0
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See notes to consolidated financial statements
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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 June 30, 1995, and for the six months
ended June 30, 1995 and 1994, 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 in Notes 3 and 4 to the Consolidated Financial Statements, the
Company on March 14, 1995, acquired 98% of the issued and outstanding common
shares of The Sports & Shopping Network, Inc., ("TSSN") a Florida corporation.
For financial reporting purposes, this transaction was accounted for as a
reverse purchase acquisition under which the companies were recapitalized to
include the historical financial information of TSSN and the assets and
liabilities of the Company revalued to reflect the market value of the
Company's outstanding shares. As closing occurred on March 14, 1995, the
middle of a month, the accounts of TSSN have been consolidated with the Company
as of February 28, 1995, a date that lies within the date on which the
transaction was initiated and the date of closing. The historical financial
statements prior to February 28, 1995, included herein, are those of TSSN.
The Company's significant accounting policies are described in the notes to the
December 31, 1994 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 1995
presentation.
The consolidated financial statements include the accounts of EVRO
and its subsidiaries, Technology Holdings, Inc. ("THI"), Treasure Rockhound
Ranches, Inc. ("Treasure Rockhound"), Lintronics Technologies, Inc.
("Lintronics"), Tres Rivers, Inc. ("Tres Rivers"), EVRO Trading Corporation
("EVRO Trading"), The Good Health Channel, Inc. ("Good Health"), and The
Sports & Shopping Network, Inc. All significant intercompany transactions and
accounts have been eliminated in consolidation.
2. BASIS OF ACCOUNTING
The consolidated financial statements of EVRO Corporation and its
subsidiaries 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 has incurred
operating losses in 1993, 1994 and during the six months ended June 30, 1995,
which have adversely reduced the Company's liquidity and capital resources.
The Company is in default of a note payable in the amount of $550,000
due June 24, 1995 which is secured by all the Common Stock of TSSN held by the
Company. In addition, the Company is in default of a note payable in the
amount of $200,000 due August 15, 1995, as extended, which is secured by 26,000
shares of the Company's Series C Convertible Preferred Stock. (See Note 6;
Notes Payable and Long Term Debt).
The ability of the Company to continue as a going concern is dependent
upon the successful completion of a private equity offering and attaining
future profitable operations.
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3. SIGNIFICANT TRANSACTIONS
FORMATION OF TECHNOLOGY HOLDINGS INC. - On January 20, 1995, EVRO Corporation
organized THI as a Florida corporation, and contributed its assets and
liabilities together with 100% of the issued and outstanding common stock of
Lintronics, Treasure Rockhound, Tres Rivers, Performance Holdings, Inc. a
Florida corporation ("Performance") and EVRO Trading , and 60% of the issued
and outstanding common stock of Good Health into THI in exchange for all of the
issued and outstanding stock of THI.
ACQUISITION OF THE SPORTS & SHOPPING NETWORK, INC. - On March 14, 1995, the
Company acquired 98% of the issued and outstanding common shares of The Sports
& Shopping Network, Inc., a Florida corporation, from The STELLAR Companies,
Inc., a Florida corporation ("STELLAR"). In connection with the acquisition of
the controlling interest in TSSN, EVRO agreed to issue 16,759,038 shares of
EVRO's common stock, or 90.8% of the Company's 18,457,037 shares of common
stock which will then be issued and outstanding. EVRO issued STELLAR 500,000
shares of common stock at the closing and agreed to issue the remaining shares
following completion of an increase in EVRO's authorized shares of common
stock.
On April 19, 1995, EVRO requested that STELLAR return to it the 500,000
shares of common stock. In exchange for returning 500,000 shares of common
stock, EVRO agreed to issue 1,000,000 additional shares of its restricted
common stock immediately following EVRO successfully increasing its authorized
common stock. In addition, EVRO agreed to issue to STELLAR 500 shares of
Series F Convertible Preferred Stock (Series F Preferred Stock") and, from time
to time, additional Series F Preferred Stock in an amount equal in voting
rights with any subsequent shares of common stock or preferred stock issued by
the Company. The Series F Preferred Stock is convertible, at the option of the
holder, into shares of the Company's restricted common stock following
completion of an increase in EVRO's authorized shares of common stock on a
10,000 for 1 basis. STELLAR has informed the Company that it intends to
convert all Series F Preferred Stock it holds upon EVRO completing the increase
in the authorized shares of common stock. Each share of Series F Preferred
Stock entitles the holder thereof to one thousand votes on each matter with
respect to which a vote is required of the holders of EVRO's common stock. Any
common shares issued to STELLAR pursuant to the conversion of the Series F
Preferred Stock reduces the obligation of EVRO to issue STELLAR the 17,759,038
shares of restricted common stock, as amended, following completion of an
increase in EVRO's authorized shares of common stock. During the period April
1, 1995 through June 30, 1995, EVRO issued 550,000 shares of common stock
pursuant to the EVRO Corporation 1995 Employee Stock Compensation Plan and
224,000 shares of common stock sold for $162,500, net of legal costs
aggregating $12,500, in private placements to accredited investors. As of June
30, 1995, STELLAR held 1,274 shares of Series F Convertible Preferred Stock.
In the event of liquidation or dissolution of the Company, whether
voluntary or otherwise, after payment of the debts and liabilities of the
Company and before any distribution shall be made to the holder of any class of
common stock of the Company, STELLAR shall be entitled to receive $1.00 per
share of Series F Convertible Preferred Stock in cash (an aggregate of $1,274
as of June 30, 1995), subject to the first priority of (a) all holders of the
Company's Series A 10% Preferred Shares and Series B 8% Preferred Shares to
receive $1.00 per share in cash plus all accrued but unpaid dividends; (b) all
holders of Series C Convertible Preferred Stock to receive $10.00 per share in
cash; (c) the holders of Series D Convertible Preferred Stock to receive, on a
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pro rata basis, all of the THI Common Stock owned by the Company; and all
holders of Series E Convertible Preferred Stock to $1.00 per share in cash.
Pursuant to the agreement between EVRO and STELLAR, EVRO will offer to
acquire the remaining 2% of TSSN's issued and outstanding shares of common
stock held by its minority shareholders in exchange for EVRO's common stock on
the same basis as was offered to STELLAR for an aggregate of 281,418 shares of
EVRO's common stock.
On January 12, 1995, EVRO purchased the option to acquire TSSN from Boyar
Holdings, Inc. ("BHI"). Pursuant to the Assignment of Option Agreement, EVRO
agreed to issue to BHI 30,000 shares of the Company's Series E Convertible
Preferred Stock ("Series E Preferred Stock") which shall be convertible into
3,000,000 shares of the Company's restricted common stock following completion
of an increase in EVRO's authorized shares of common stock. In the event of
liquidation or dissolution of the Company, whether voluntary or otherwise,
after payment of the debts and liabilities of the Company and before any
distribution shall be made to the holder of any class of common stock of the
Company, the holders of the Series E Preferred Stock shall be entitled to
receive $1.00 per share in cash (an aggregate of $30,000), subject to the first
priority of (a) all holders of the Company's Series A 10% Preferred Shares and
Series B 8% Preferred Shares to receive $1.00 per share in cash plus all
accrued but unpaid dividends; (b) all holders of Series C Convertible Preferred
Stock to receive $10.00 per share in cash; and (C) the holders of Series D
Convertible Preferred Stock to receive, on a pro rata basis, all of the THI
Common Stock owned by the Company.
In conjunction with the TSSN acquisition, American Clinical Labs, Inc.
("ACL") the holder of 587,719 shares of EVRO's common stock, provided to
STELLAR an irrevocable power of attorney and proxy with full power of
substitution, to represent ACL or any assignee thereof at all regular and
special meetings of shareholders, or in connection with any other shareholder
action of EVRO, but only in ACL's capacity as the owner of record of, and to
vote the shares of the common stock of the Company which are owned by ACL as of
March 14, 1995 ("the Shares"). This power of attorney shall be effective from
March 14, 1995 to the date the Shares represent less than five percent (5%) of
the Company's issued and outstanding shares of common stock.
EVRO has formed a wholly-owned subsidiary, THI, which owns all of the
assets that were owned by EVRO prior to the TSSN acquisition. Pursuant to such
acquisition, the holders of record of EVRO's common stock as of March 27, 1995,
will be issued a stock dividend consisting of EVRO's Series D Convertible
Preferred Stock ("Series D Preferred Stock"), which will have limited voting
rights. EVRO has the right, but not the obligation, to redeem the Series D
Preferred Stock in exchange for all of THI's issued and outstanding capital
stock. In the event of liquidation or dissolution of the Company, whether
voluntary or otherwise, after payment of the debts and liabilities of the
Company and before any distribution shall be made to the holder of any class of
common stock of the Company, the holders of the Series D Preferred Stock shall
be entitled to receive all of the THI Common Stock owned by the Company,
subject to the first priority of (a) all holders of the Company's Series A 10%
Preferred Shares and Series B 8% Preferred Shares to receive $1.00 per share in
cash plus all accrued but unpaid dividends, and (b) all holders of Series C
Convertible Preferred Stock to receive $10.00 per share in cash.
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
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($2.00). THI's right to receive the Special Shares provided is earned prorata
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.
ACQUISITION OF AMERICA'S COLLECTIBLES NETWORK, INC.
On April 26, 1995, EVRO entered into a binding Letter of Intent (which
was modified on May 5, 1995) to acquire America's Collectibles Network, Inc.
("ACN") and to merge ACN into TSSN, an EVRO subsidiary, in exchange for the
requisite number of EVRO's Series H preferred stock which shares shall be
convertible into 1,850,000 shares of EVRO's restricted common stock immediately
upon EVRO completing the necessary filings required to increase its authorized
shares of common stock from 2,500,000 to 35,000,000. The transaction has been
placed on hold as ACN would qualify as a significant subsidiary as defined by
the Securities Acts of 1933 and 1934. ACN is unable to provide the Company
with required audited financial statements for a fiscal year period prior to
the acquisition. The parties continue to explore other contractual
arrangements that may result in the eventual acquisition of ACN in mid 1996.
EVRO has paid to ACN a $50,000 non-refundable deposit, together with a
loan in the amount of $50,000. The loan is payable on demand on June 2, 1996
without interest and is secured by ACN's inventories. The non-refundable
deposit and loan are included on the Consolidated Balance Sheet in Investments
and Loan receivable.
ACN currently broadcasts its programming 24 hours per day on Satellite
which is available in 4,500,000 households. ACN has specialized in selling
high-end and custom made jewelry and gemstones as well as unique collectibles
and limited sports related merchandise.
SALE OF EVRO TRADING CORPORATION
On March 1, 1995 it was determined by THI and the Company that further
funding of EVRO Trading would be halted as no significant products had been
sold nor had a distribution network been established. Subsequently, a dispute
arose between THI and the Company, and the President of EVRO Trading in which
certain claims were asserted by both parties. As a part of a settlement
agreement entered into on March 24, 1995 with the President of EVRO Trading,
THI transferred ownership of 55% of the common stock of EVRO Trading to him in
exchange for an arrangement whereby the Company would maintain a 45% interest
in the common stock of EVRO Trading, with no obligation for additional funding.
Both parties also signed mutual
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general releases and noncompete agreements in connections with the settlement.
On March 24, 1995, THI also executed a 10 day secured promissory note ("Note")
for $30,776.99 in favor of the President of EVRO Trading which represents
amounts due the President of EVRO Trading and a consultant for back salary,
fees and expenses. The Note was secured by the remaining 45% of the common
stock of EVRO Trading ("Security"). On April 3, 1995, THI defaulted on the
Note and surrendered the Security to the President of EVRO Trading.
SALE OF CERTAIN ASSETS OF THE GOOD HEALTH CHANNEL , INC.
On April 28, 1995, Good Health and THI entered into an Asset Purchase
Agreement (the "Agreement") to sell significantly all of the assets of Good
Health and certain noncompete covenants of Good Health, THI and D. Jerry
Diamond to Better Health Network, Inc., a Florida corporation for consideration
of $25,000 cash and a contingent promissory note of up to $1,575,000. The
promissory note does not accrue interest and is payable from gross revenues of
the buyer in monthly installments equal to 3% of gross revenues of the
preceding calendar month, determined based upon the cash method of accounting,
reduced for sales tax, if any, and adjusted for customer refunds and credits,
until THI has received $100,000 and thereafter equal to 2% of the gross
revenues until THI has received the remaining balance under the note. No gain
or loss will result from this transaction as the carrying value of the assets
approximately equal the cash consideration of $25,000. Any payments received
pursuant to the promissory note will be recognized as income upon receipt.
4. ACCOUNTING FOR ACQUISITION OF THE SPORTS & SHOPPING NETWORK, INC.
For financial reporting purposes, this transaction was accounted for as a
reverse purchase acquisition under which the companies 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. The market value of the Company's outstanding
shares ($4,084,153) was based on the month end trading range of the Company's
common stock for the three months, December, 1994 and January and February,
1995. The carrying value of EVRO's assets reflect their approximate fair
market value. The cost of the acquisition aggregated $305,000, including a
finders fee of $150,000 and legal costs of $155,000. The excess purchase
price, including the costs of acquisition, over and the above the net assets of
EVRO Corporation was allocated to goodwill. The goodwill is being amortized on
a straight line basis over 10 years. No value has been assigned to the
minority shareholders of TSSN as the book value of the net assets of TSSN was
negative as of March 16, 1995.
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 cost of acquisition and net income for the period from
February 28, 1995 to March 14, 1995 were reduced by imputed interest of $17,903
using a 10% annual rate of interest. The historical financial statements
prior to February 28, 1995, included herein, are those of TSSN.
As described in Note 3; Significant Transactions; Acquisition of The
Sports & Shopping Network, Inc., certain elements of the transaction were not
completed as of June 30, 1995, such as the issuance of the Series D Preferred
Stock to the holders of record of EVRO's common stock as of March 27, 1995 and
the issuance 17,759,038 shares of EVRO's common stock to
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STELLAR and the acquisition of the common stock of TSSN held by the minority
shareholders following completion of an increase in EVRO's authorized shares of
common stock. To more clearly reflect the effect of the acquisition for
financial reporting purposes, and to enhance comparability of the current
year's interim financial statements, management has elected to account for this
transaction as if all elements of the transaction had been completed as of June
30, 1995.
The calculations of loss per share for the three months and six months
ended June 30, 1995 were based on the weighed average number of shares as
follows: (a) for the period January 1, 1995 through March 14, 1995, the number
of common shares to be issued to STELLAR (500,000 shares) and (b) for the
period from March 14, 1995 through June 30, 1995, the actual number of EVRO
shares outstanding. For the three months and six months ended June 30, 1994,
the weighted average number of shares for each period was based on the number
of EVRO common shares to be issued to STELLAR (500,000 shares) adjusted for the
effect of a November 30, 1994 change in the number of issued shares of TSSN
held by STELLAR.
Condensed Proforma Combined Statements of Operations for the three month
and six month periods ended June 30, 1995 and 1994 follow which have been
prepared as if EVRO had been acquired as of the beginning of each of the
respective periods. The proforma weighed average number of shares used to
compute the proforma loss per share was based on the actual number of EVRO
shares outstanding, adjusted for the number of common shares issued to STELLAR
(500,000 shares). For the three months and six months ended June 30, 1994, the
number of EVRO common shares issued to STELLAR (500,000 shares) were adjusted
for the effect of a November 30, 1994 change in the number of issued shares of
TSSN held by STELLAR.
Condensed Proforma Combined Statement of Operations
Three Months Ended Six Months Ended
------------------- ----------------
06/30/95 06/30/94 06/30/95 06/30/94
-------- -------- -------- --------
Sales and revenues $ 438,656 $ 203,788 $ 865,720 $ 481,979
Cost of sales and revenues 219,560 158,039 495,810 332,936
----------- ---------- ----------- ---------
Gross margin 219,096 45,749 369,910 149,043
Operating expenses 1,396,967 645,640 2,175,463 1,652,476
----------- ---------- ----------- ---------
Operating loss of continuing
operations (1,177,871) (599,891) (1,805,553) (1,503,433)
Other income (expense) (39,524) (61,865) (80,349) (101,354)
----------- ---------- ----------- ---------
Net loss from continuing operations (1,217,395) (661,756) (1,885,902) (1,604,787)
Loss from discontinued operations 15,013 (248,622) (129,869) (322,417)
----------- ---------- ----------- ---------
Net loss $(1,202,382) $ (910,378) $( 2,015,771) $(1,927,204)
=========== ========== =========== ---------
Net loss per share $ (0.56) $ (0.55) $ (0.93) $ (1.24)
=========== ========== ============ =========
Average number of common shares
outstanding 2,155,238 1,648,289 2,166,917 1,554,517
=========== ========== ============ =========
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5. INVENTORIES
As of June 30, 1995, inventories were comprised of sports memorabilia
($208,246) and Cager Classic apparel ($14,578). Inventories are carried at the
lower of cost (determined on a first-in, first-out basis) or market.
Inventories aggregating $127,896 are held by vendors to which the Company has
outstanding accounts payable aggregating $114,039. The inventory of sports
memorabilia has been pledged as security to $2,000,000 of promissory notes
issued by STELLAR pursuant to a private placement offering dated March 21,
1993.
6. NOTES PAYABLE AND LONG TERM DEBT
Short term notes payable consists of the following:
Note payable to company at 10% per annum interest, due
June 24, 1995, secured by TSSN Common Stock $ 550,000
Note payable to an individual at 15% per annum interest, due
August 15, 1995, as extended, having 26,000 shares of
Series C Convertible Preferred Stock as collateral 200,000
Note payable to a related party at 7% per annum interest, due
December 31, 1995, as extended. 30,000
Note payable to an individual due June 15, 1995. 10,000
Note payable to a bank at 11.5% per annum interest, payable in
monthly installments of $2,200 including interest, due
August 26,1995. 4,348
Note payable to an individual due in December, 1995 3,600
-----------
$ 804,615
===========
Long term debt consists of the following:
Note payable to an individual at 10% per annum interest, payable
in monthly installments of $9,914 including interest, with a
balloon payment due in February 1998, having land and 27,500
shares of common stock as collateral. $ 448,152
Note payable to individuals at 8% per annum interest, payable in
monthly installments of $3,375 including interest, due in 2001,
having land, buildings and equipment as collateral. 450,843
Note payable to a partnership at 8% per annum interest, payable in
monthly installment of $4,610 including interest, with a balloon
payment due in July 1996, having land, buildings and equipment
as collateral. 354,140
Contract payable on purchase of mobile home park at 10.4% per
annum interest, payable in monthly installments of $3,500 including
interest, having the mobile home park as collateral. 252,879
Note payable to individuals at 10% per annum interest, payable in
monthly installments of $2,901 including interest, due in 2001,
having land, buildings and equipment as collateral. 254,039
Note payable to a bank at 10.45% per annum interest, payable in
monthly installments of $1,504 including interest, due in 1998, having
land as collateral. 50,025
-----------
1,810,078
Less current portion (153,227)
-----------
$ 1,656,851
===========
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On April 10, 1995 the Company borrowed $550,000 from Genesee Cattle Co.
("Genesee"). The promissory note provides that the principal and accrued
interest, to be paid at a rate equal to 10% per annum, shall be due and payable
on June 24, 1995. The note is secured by all of the common stock of The Sports
& Shopping Network, Inc. held by the Company. The note is also personally
guaranteed by the Company's President and Chief Executive Officer. In
addition, the Company entered into a consulting agreement with Genesee for
financial public relations and promotion services through June 9, 1995. The
agreement provides for compensation to Genesee of $50,000 payable on or before
May 31, 1995. The Company is in default on the note payable to Genesee. The
consulting fees also remain unpaid.
In addition, the Company is in default of the note payable in the amount
of $200,000 due August 15, 1995, as extended, which is secured by 26,000 shares
of the Company's Series C Convertible Preferred Stock.
Maturities of the long term debt over the next five years are as follows:
Year ended June 30,
--------------------
1996 $ 153,227
1997 463,481
1998 341,571
1999 53,680
2000 and thereafter 798,120
-------------
$ 1,810,079
=============
7. COMMON AND PREFERRED STOCK
On January 26, 1995, the Board of Directors of EVRO authorized a 20:1
reverse stock split of its common and preferred stock.
COMMON STOCK - The Company has authorized common stock of 2,500,000 shares
without par value, of which 2,471,957 shares were issued at June 30, 1995, of
which 458 shares were held in the treasury.
Restricted common shares issued are valued by management for financial
statement reporting purposes at the approximate market price per share less an
appropriate discount to account for the inherent lack of marketability.
In December 1994, the EVRO Corporation adopted a non-qualified 1,000,000
share stock option plan for directors and employees. The stock option plan
provides for the granting of shares at market value and payment to be in cash
or note payable in two years with interest to accrue at an annual rate equal to
that rate of interest from time to time announced by the Internal Revenue
Service as its minimum stated interest rate (determined as of the date of the
note and thereafter annually on the first business day of each succeeding
year). The note is collateralized by the stock exercised under the option.
On January 4, 1995, the Company granted options to purchase 1,000,000 shares
of common stock (50,000 shares after consideration of 20:1 reverse
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stock split) to its directors and employees at $.125 per share pursuant to the
non-qualified stock option plan. During January, 1995, all options were
exercised for $10,000 in cash and $115,000 in notes receivable.
Effective April 18, 1995, the Company adopted the 1995 Employee Stock
Compensation Plan (the "Plan"). No shares may be issued after April 15, 2000.
The maximum number shares of common stock which may be awarded pursuant to the
Plan is 800,000 shares. Awards of common stock may be made as compensation for
services rendered, directly or in lieu of other compensation payable, or as a
bonus in recognition of past service or performance. As of June 30, 1995, the
Company had awarded 550,000 shares of common stock for legal and financial
consulting work to be completed over a period of two years. The fair market
value of the common stock awards aggregated $1,693,750 based upon the average
of the closing bid and ask prices of the common stock on the date of awards
which averages ranged from $2.22 to $3.72 per share. The compensation is being
allocated over the life of the service contracts. During the three months
ended June 30, 1995, compensation aggregating $127,513 was charged to selling,
general and administrative expense. The unearned compensation at June 30, 1995
of $1,566,237 is shown as a separate reduction of stockholders' equity. The
Company registered 600,000 shares pursuant the Plan with the Securities and
Exchange Commission by the filing of two Form S-8's which became effective on
April 25, 1995 and June 7, 1995.
PREFERRED STOCK - The Company has authorized preferred stock of 1,250,000
shares without par value.
Series C Convertible Preferred Stock - The Board of Directors has
established this series with 500,000 shares authorized, with a stated value of
$10.00 per share. This series is to be sold to accredited investors through
private placements.
The Series C Preferred Stock has no voting rights except as provided by
operation of law and shall not bear dividends. As long as the Series C
Preferred Stock is outstanding, the Company cannot without the affirmative vote
or the written consent as provided by law of 80% of the holders of the
outstanding shares, voting as a class, change the preferences, rights or
limitations with respect to the Series C Preferred Stock in any material
respect prejudicial to the holders thereof, or increase the authorized number
of shares of such Series.
Shares of Series C Preferred Stock may be redeemed in whole or in part, at
the option of the Company, at any time on or after April 15, 1996 at a price
equal to the sum of $10.00 per share. Each holder of Series C Preferred Stock
shall have the right on or before April 15, 1997, to convert each share into
fully paid and nonassessable shares of the Company's Common Stock at a
conversion price equal to 50% of the Common Stock's market value. The market
value 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 the National Association of Securities
Dealers, Inc. Automated Quotation System (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
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traded, the net book per share as reflected on the Company's audited balance
sheet for it's latest fiscal year ending prior to the valuation date. In the
event the Series C Preferred Stock in 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.
At June 30, 1995, the Company had sold 65,500 shares of Series C Preferred
Stock Outstanding for $587,485 in cash, net of sales commissions and closing
costs of $67,515. In addition, the Company issued 26,000 shares of Series C
Preferred Stock to be held as collateral against a $200,000 note payable due
August 15, 1995, which is in default, and 3,900 shares of Series C Preferred
Stock in settlement of litigation.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's Common Stock, each holder of Series C
Preferred Stock shall be entitled to receive, out of the net uses of the
Company, the sum of $10.00 in cash for each share of Series C Preferred Stock
held subject to the first priority of all holders of Series A 10% Preferred
Stock and Series B 8% Preferred Stock to receive $1.00 in cash plus all accrued
but unpaid dividends.
Series D Convertible Preferred Stock - The Board of Directors has established
this series with 16,800 shares authorized, no par value.
Pursuant to the acquisition of TSSN, EVRO will issue one share of Series D
Preferred Stock for each 100 shares of issued and outstanding Common Stock (See
Note 3; Significant Transactions; Acquisition of The Sports and Shopping
Network, Inc.). The Series D Preferred Stock will be issued to all holders of
Common Stock of record as of March 27, 1995, except for STELLAR. The Company
intends to issue the stock certificates on or about August 28, 1995.
The Series D Preferred Stock has no voting rights except as provided by
operation of law and as long as any Series D Preferred Stock remains
outstanding, the Company shall not, without the affirmative vote or written
consent of the holders of a majority of the Series D Preferred Stock:
(a) change the preferences, rights or limitations with respect to the
Series D Preferred Stock, or increase the authorized number of shares of
such Series, but nothing herein contained shall require such a vote or
consent (i) in connection with any increase in the total number of
authorized shares of the Corporation's common stock; or (ii) in connection
with the authorization, designation, increase or issuance of any class or
series of stock holding a ranking subordinate to the Series D preferred
stock;
(b) cause THI to issue additional capital stock;
(c) pledge, hypothecate or otherwise encumber the THI common stock held
by the Company; or
(d) take any other action which will restrict the Company's ability to
conduct the conversion of the Series D Preferred Stock.
Series E Convertible Preferred Stock - The Board of Directors has established
this series with 30,000 shares authorized, no par value.
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The holder of each of Series E Preferred Stock is entitled to one vote on
each matter with respect to which a vote is required of the shareholders of the
Company's Common Stock. As long as the Series E Preferred Stock is
outstanding, the Company cannot without the affirmative vote or the written
consent as provided by law of 80% of the holders of the outstanding shares,
voting as a class, change the preferences, rights or limitations with respect
to the Series E Preferred Stock in any material respect prejudicial to the
holders thereof, or increase the authorized number of shares of such Series.
Series E Preferred Stock shall not bear dividends.
Each holder of Series E Preferred Stock shall have the right, at his
option, at any time after the Company increases its authorized common shares,
to convert each share into fully paid and nonassessable shares of the Company's
Common Stock at a conversion ratio of 100 shares of Common Stock for each share
of Series E Preferred Stock.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's Common Stock, each holder of Series E
Preferred Stock shall be entitled to receive, out of the net uses of the
Company, the sum of $1.00 in cash for each share of Series E Preferred Stock
held subject to the first priority of (a) all holders of Series A 10% Preferred
Stock and Series B 8% Preferred Stock to receive $1.00 in cash plus all accrued
but unpaid dividends; (b) all holders of Series C Preferred Stock to receive
$10.00 per share in cash; and (c) all holders of Series D Preferred Stock to
receive, on a pro rata basis, the Company's shares of capital stock of THI.
Series F Convertible Preferred Stock - The Board of Directors has established
this series with 1,680 shares authorized, no par value.
As of June 30, 1995, the Company had issued 1,274 shares of Series F Preferred
Stock to STELLAR (See Note 3; Significant Transactions; Acquisition of The
Sports and Shopping Network, Inc.).
The holder of each of Series F Preferred Stock is entitled to 1,000 votes
on each matter with respect to which a vote is required of the shareholders of
the Company's Common Stock. As long as the Series F Preferred Stock is
outstanding, the Company cannot without the affirmative vote or the written
consent as provided by law of 80% of the holders of the outstanding shares,
voting as a class, change the preferences, rights or limitations with respect
to the Series F Preferred Stock in any material respect prejudicial to the
holders thereof, or increase the authorized number of shares of such Series.
Series F Preferred Stock shall not bear dividends.
Each holder of Series F Preferred Stock shall have the right, at his
option, at any time after the Company increases its authorized common shares,
to convert each share into fully paid and nonassessable shares of the Company's
Common Stock at a conversion ratio of 10,000 shares of Common Stock for each
share of Series F Preferred Stock.
In the event of liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or otherwise, after payment of the debts and
other liabilities of the Company and before any distribution shall be made to
the holder of any class of the Company's Common Stock, each holder of Series F
Preferred Stock shall be entitled to receive, out of the net uses of the
Company, the sum of $1.00 in cash for each share of Series F Preferred Stock
held subject to the first priority of (a) all holders of Series A 10% Preferred
Stock and Series B 8% Preferred Stock to
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receive $1.00 in cash plus all accrued but unpaid dividends; (b) all holders of
Series C Preferred Stock to receive $10.00 per share in cash; (c) all holders
of Series D Preferred Stock to receive, on a pro rata basis, the Company's
shares of capital stock of THI; and (d) all holders of Series E Preferred
Stock to receive $1.00 per share in cash.
8. MATERIAL TRANSACTIONS WITH RELATED PARTIES
During the six months ended June 30, 1995 and 1994, STELLAR charged TSSN
$625,000 and $575,000, respectively, for management and accounting services
which were accrued to Amounts Due to Affiliates. For the six months ended June
30, 1994, TSSN accrued interest at 7% per annum ($44,034) on to a note payable
to STELLAR dated December 31, 1993 in the principal amount of $1,258,116. The
accrual was made directly to Amounts Due to Affiliates. During the six months
ended June 30, 1995 and 1994, TSSN made net cash payments to STELLAR of
$358,668 and $46,034, respectively. As of June 30, 1995, Amounts due to
STELLAR aggregated $391,603.
During the four months ended June 30, 1995, The Company repaid certain
advances from and made advances, net, to ACL aggregating $98,339. As of June
30, 1995, the advances due from ACL aggregated $73,789.
During the four months ended June 30, 1995, the Company paid Dale A.
Fullerton, former Chairman of the Board, President and former majority
shareholder of the Company $15,201 for the purchase of 166 shares of common
stock of the Company to be held in treasury. Such amounts were paid pursuant
to a settlement agreement between Fullerton and EVRO Corporation entered into
during June 1994.
9. DISCONTINUED OPERATIONS
Lintronics has been engaged in the business of the development,
manufacture and sale of medical scanning devices used to assist physicians in
the detection of breast abnormalities. During 1993, Lintronics was advised by
the U. S. Food and Drug Administration ("FDA") that the FDA deemed
transillumination devices, including Lintronics' products, to be
non-efficacious and that Lintronics must discontinue the manufacture and sale
of its transillumination products until further clinical trials are
successfully completed under the FDA's IDE process and determined to be
substantially equivalent to legally marketed products. Following this
determination by the FDA, Lintronics planned to use third party, foreign,
subcontract facilities to manufacture its product and to use Imaging
Technologies, Inc. ("Imaging"), a foreign subsidiary, wholly-owned by
Lintronics to market and distribute its video breast imaging systems in the
foreign marketplace. Recent developments within the FDA have indicated a
decision to classify all transillumination devices as a Class III device,
according to a report in the January 13, 1995 issue of Federal Register . In
that publication, it was stated that "FDA concluded that the transillumination
devices are not clinically effective for the diagnosis or detection of breast
cancer or other breast abnormalities or conditions, and that the use of the
technique may contribute to the delay of detection of lesions in the early
stages of cancer, when the disease is most treatable. At this time, therefore,
the distribution of breast transillumination devices or any multipurpose
transillumination device that is labeled, promoted, or intended for use in the
breast is in violation of the law, regardless of whether the device is labeled
for independent use or adjunctive use with mammography. FDA has initiated
enforcement actions against manufacturers who have continued to distribute
17
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transilluminators". With this FDA pronouncement, and Imaging's inability to
establish a foreign distribution network for Lintronics' product line,
Lintronics plans to discontinue its operation with respect to light imaging
devices. The operations of Imaging and EVRO Trading, a related company, have
been reflected as discontinued operations in the Consolidated Financial
Statements for the three months and six months ended June 30, 1995 and
Condensed Proforma Combined Statements of Operations for the three months and
six months ended June 30, 1995 and 1994.
On February 22, 1994, the Company purchased 60% of the issued and
outstanding shares of common stock of Good Health. Good Health specializes
in providing health information programming designed for physician waiting
rooms, and also provides a unique, out-of-home advertising medium for consumer
and pharmaceutical companies. During 1994, Good Health's efforts to obtain
funding for equipment leasing and sign up sufficient advertisers to underwrite
its programming were unsuccessful. These shortcomings and the significant
losses generated by the operation caused the Company to begin efforts to
dispose of Good Health in early 1995. Accordingly, the operations of Good
Health have been reflected as discontinued operations in the Unaudited
Consolidated Financial Statements for the three months and six months ended
June 30, 1995 and Condensed Proforma Combined Statements of Operations for the
three months and six months ended June 30, 1995 and 1994.
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19
10. ADDITIONAL CASH FLOW STATEMENT INFORMATION
The noncash effect of the acquisition of TSSN is summarized below:
INCREASE IN ASSETS:
Notes receivable (current portion) $ 30,795
Other receivables 44,690
Prepaid expenses and deposits 18,238
Net current assets of discontinued operations 12,959
Increase in current assets 109,031
Property and equipment 3,456,725
Notes receivable (less current portion) 135,000
Investment in partnership 30,405
Unamortized goodwill 3,282,237
Net other assets of discontinued operations 34,378
------------
Total increase in assets 7,045,427
------------
INCREASE IN LIABILITIES:
Notes payable and current portion of
long-term debt 404,619
Accounts payable 186,319
Amounts due to affiliates 24,550
Other current liabilities 353,421
Net current liabilities of discontinued
operations 259,125
------------
Increase in current liabilities 1,228,029
Long-term debt 1,721,016
Refundable memberships 39,920
Net long-term debt of discontinued
operations 10,260
------------
Total increase in liabilities 2,990,225
------------
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
Common stock 2,137,804
Additional paid in capital (2,167,804)
Treasury Stock (26,602)
------------
Total increase in stockholders' equity 4,057,551
------------
Total increase in liabilities and stockholders'
equity 7,047,776
------------
CASH ACQUIRED $ 2,349
============
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20
Other noncash transactions which occurred during the six months ended June
30, 1995 are as follows:
Common stock issued pursuant to the 1995
Employee Stock Compensation Plan
(550,000 shares) $ (1,693,750)
Compensation earned during the period 127,513
Unearned compensation as of June 30, 1995 1,566,237
Issuance of Series C Convertible Preferred
Stock (260,000 shares as collateral for
a note payable and 39,000 in settlement of
litigation) (299,000)
Common stock 260,000
Selling, general and administrative costs 39,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
GENERAL OVERVIEW
On March 14, 1995, the Company acquired 98% of the issued and
outstanding common shares of The Sports & Shopping Network, Inc., a Florida
corporation, from The Stellar Companies, Inc., a Florida corporation
("STELLAR"). In connection with the acquisition of the controlling interest in
TSSN, EVRO agreed to issue 16,759,038 shares of EVRO's common stock, or 90.8%
of the Company's 18,457,037 shares of common stock which will then be issued
and outstanding. EVRO issued STELLAR 500,000 shares of common stock at the
closing and has agreed to issue the remaining shares following completion of an
increase in EVRO's authorized shares of common stock.
On April 19, 1995, EVRO requested that STELLAR return to it the
500,000 shares of common stock. In exchange for returning 500,000 shares of
common stock, EVRO agreed to issue 1,000,000 additional shares of its
restricted common stock immediately following EVRO successfully increasing its
authorized common stock. In addition, EVRO agreed to issue to STELLAR 500
shares of Series F Convertible Preferred Stock ("Series F Preferred Stock") and,
from time to time, additional Series F Preferred Stock in an amount equal in
voting rights with any subsequent shares of common stock or preferred stock
issued by the Company. The Series F Preferred Stock is convertible, at the
option of holder, into shares of the Company's restricted common stock
following completion of an increase in EVRO's authorized shares of common stock
on a 10,000 for 1 basis. STELLAR has informed the Company that it intends to
convert all Series F Preferred Stock it holds upon EVRO completing the increase
in the authorized shares of common stock. Each share of Series F Preferred
Stock entitles the holder thereof to one thousand votes on each matter with
respect to which a vote is required of the holders of EVRO's common stock. Any
common shares issued to STELLAR pursuant to the conversion of the Series F
Preferred Stock reduces the obligation of EVRO to issue STELLAR the 17,759,038
shares of restricted common stock, as amended, following completion of an
increase in EVRO's authorized shares of common stock. During the period April
1, 1995 through June 30, 1995, EVRO issued 550,000 shares of common stock
pursuant to the EVRO Corporation 1995 Employee Stock Compensation Plan and
224,000 shares of common stock sold for $162,500 net of legal costs aggregating
$12,500, in private placements to accredited investors. As of June 30 1995,
STELLAR held 1,274 shares of Series F Convertible Preferred Stock.
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21
Pursuant to the agreement between EVRO and STELLAR, EVRO will offer to
acquire the remaining 2% of TSSN's issued and outstanding shares of common
stock held by its minority shareholders in exchange for EVRO's common stock on
the same basis as was offered to STELLAR for an aggregate of 281,418 shares of
EVRO's common stock.
EVRO has formed a wholly-owned subsidiary, THI, which owns all of the
assets that were owned by EVRO prior to the TSSN acquisition. Pursuant to such
acquisition, the holders of record of EVRO's common stock as of March 27, 1995,
will be issued a stock dividend consisting of EVRO's Series D Convertible
Preferred Stock ("Series D Preferred Stock"), which will have limited voting
rights. EVRO has the right, but not the obligation, to redeem the Series D
Preferred Stock in exchange for all of THI's issued and outstanding capital
stock.
The Company is currently seeking to raise additional capital through
the sale of the Company'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 was accounted for
as a reverse purchase acquisition under which the companies 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. The market value of the Company's
outstanding shares ($4,084,153) was based on the month end trading range of the
Company's common stock for the three months, December, 1994 and January and
February, 1995. The carrying value of EVRO's assets reflect their approximate
fair market value. The cost of the acquisition aggregated $305,000, including
a finders fee of $150,000 and legal costs of $155,000. The excess purchase
price, including the costs of acquisition, over and the above the net assets of
EVRO Corporation was allocated to goodwill. The goodwill is being amortized
on a straight line basis over 10 years. No value has been assigned to the
minority shareholders of TSSN as the book value of the net assets of TSSN was
negative as of March 16, 1995.
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 cost of acquisition and net income for the period
from February 28, 1995 to March 14, 1995 were reduced by imputed interest of
$17,903 using a 10% annual rate of interest. The historical financial
statements prior to February 28, 1995, included herein, are those of TSSN.
As described in Note 3; Significant Transactions; Acquisition of The
Sports & Shopping Network, Inc., certain elements of the transaction were not
completed as of June 30, 1995, such as the issuance of the Series D Preferred
Stock to the holders of record of EVRO's common stock as of March 27, 1995 and
the issuance 17,759,038 shares of EVRO's common stock to STELLAR and the
acquisition of the common stock of TSSN held by the minority shareholders
following completion of an increase in EVRO's authorized shares of common
stock. To more clearly reflect the effect of the acquisition for financial
reporting purposes, and to enhance comparability of the current year's interim
financial statements, management has elected to account for this transaction as
if all elements of the transaction had been completed as of June 30, 1995.
The calculations of loss per share for the three months and six months
ended June 30, 1995 were based on the weighted average number of shares of
follows: (a) for the period January 1, 1995 through March 14, 1995, the number
of common shares to be issued to STELLAR (500,000 shares) and (b) for the
period from March 14, 1995 through June 30, 1995, the actual number of EVRO
shares
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Pursuant to the agreement between EVRO and STELLAR, EVRO will offer to
acquire the remaining 2% of TSSN's issued and outstanding shares of common
stock held by its minority shareholders in exchange for EVRO's common stock on
the same basis as was offered to STELLAR for an aggregate of 281,418 shares of
EVRO's common stock.
EVRO has formed a wholly-owned subsidiary, THI, which owns all of the
assets that were owned by EVRO prior to the TSSN acquisition. Pursuant to such
acquisition, the holders of record of EVRO's common stock as of March 27,
1995, will be issued a stock dividend consisting of EVRO's Series D Convertible
Preferred Stock ("Series D Preferred Stock"), which will have limited voting
rights. EVRO has the right, but not the obligation, to redeem the Series D
Preferred Stock in exchange for all of THI's issued and outstanding capital
stock.
The Company is currently seeking to raise additional capital through
the sale of the Company'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 was accounted for
as a reverse purchase acquisition under which the companies 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. The market value of the Company's
outstanding shares ($4,084,153) was based on the month end trading range of the
Company's common stock for the three months, December, 1994 and January and
February, 1995. The carrying value of EVRO's assets reflect their approximate
fair market value. The cost of the acquisition aggregated $305,000, including
a finders fee of $150,000 and legal costs of $155,000. The excess purchase
price, including the costs of acquisition, over and the above the net assets of
EVRO Corporation was allocated to goodwill. The goodwill is being amortized on
a straight line basis over 10 years. No value has been assigned to the
minority shareholders of TSSN as the book value of the net assets of TSSN was
negative as of March 16, 1995.
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 cost of acquisition and net income for the period
from February 28, 1995 to March 14, 1995 were reduced by imputed interest of
$17,903 using a 10% annual rate of interest. The historical financial
statements prior to February 28, 1995, included herein, are those of TSSN.
As described in Note 3; Significant Transactions; Acquisition of The
Sports & Shopping Network, Inc., certain elements of the transaction were not
completed as of June 30, 1995, such as the issuance of the Series D Preferred
Stock to the holders of record of EVRO's common stock as of March 27, 1995 and
the issuance 17,759,038 shares of EVRO's common stock to STELLAR and the
acquisition of the common stock of TSSN held by the minority shareholders
following completion of an increase in EVRO's authorized shares of common
stock. To more clearly reflect the effect of the acquisition for financial
reporting purposes, and to enhance comparability of the current year's interim
financial statements, management has elected to account for this transaction as
if all elements of the transaction had been completed as of June 30, 1995.
The calculations of loss per share for the three months and six months
ended June 30, 1995 were based on the weighted average number of shares as
follows: (a) for the period January 1, 1995 through March 14, 1995, the number
of common shares to be issued to STELLAR (500,000 shares) and (b) for the
period from March 14, 1995 through June 30, 1995, the actual number of EVRO
shares
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outstanding. For the three months and six months ended June 30, 1994, the
weighted average number of shares for each period was based on the number of
EVRO common shares to be issued to STELLAR (500,000 shares) adjusted for the
effect of a November 30, 1994 change in the number of issued shares of TSSN
held by STELLAR.
HISTORIC EVRO GENERAL OVERVIEW
In 1994, Lintronics Technologies, Inc. ("Lintronics"), a wholly-owned
subsidiary of Technology Holdings, Inc. ("THI"), which is a wholly-owned
subsidiary of the Company, planned to use third party, foreign, subcontract
facilities to manufacture its product and to use Imaging Technologies, Inc.
("Imaging"), a foreign subsidiary, wholly-owned by Lintronics to market and
distribute its video breast imaging systems in the foreign marketplace. The
Company also announced a potential joint venture with a foreign research and
development firm specializing in light imaging. In January 1995, the FDA made
a pronouncement that all transillumination devices are not clinical effective
for the diagnosis or detection of breast abnormalities or conditions, and that
the use of the technique may contribute to the delay of detection of lesions in
the early stages of cancer when the disease is most treatable. Therefore, the
FDA indicated that it intended to classify all such devices as a Class III
device requiring substantial clinical trials and additional costs to the
manufacturer. The FDA's decision has forced the Company to reverse its
decision to continue the manufacturing and sale of its transillumination
devices through a foreign network.
In June 1994, the Company formed EVRO Trading Corporation as a
wholly-owned subsidiary for the purpose of establishing an international
distribution network to distribute medical equipment and supplies. On March 1,
1995 it was determined by THI and the Company that further funding of EVRO
Trading would be halted as no significant products had been sold nor had a
distribution network been established. Subsequently a dispute arose between
THI and the Company, and the President of EVRO Trading in which certain claims
were asserted by both parties. As a part of a settlement agreement entered
into on March 24, 1995 with the President of EVRO Trading, THI transferred
ownership of 55% of the common stock of EVRO Trading to him in exchange for an
arrangement whereby the Company would maintain a 45% interest in the common
stock of EVRO Trading, with no obligation for additional funding. Both parties
also signed mutual general releases and noncompete agreements in connections
with the settlement. On March 24, 1995, THI also executed a 10 day secured
promissory note ("Note") for $30,776.99 in favor of the President of EVRO
Trading which represents amounts due the President of EVRO Trading and
consultant for back salary, fees and expenses. The Note was secured by the
remaining 45% of the common stock of EVRO Trading ("Security"). On April 3,
1995, THI defaulted on the Note and surrendered the Security to the President
of EVRO Trading.
The operations of Imaging and EVRO Trading, a related company, have
been reflected as discontinued operations in the Consolidated Financial
Statements for the three months and six months ended June 30, 1995.
During 1994, the Company acquired 60% of the issued and outstanding
common stock of The Good Health Channel, Inc. ("Good Health"). Good Health
specializes in providing health information programming designed for physician
waiting rooms, and also provides a unique, out-of-home advertising medium for
consumer and pharmaceutical companies. During 1994, Good Health's efforts to
provide funding for equipment leasing and sign up sufficient advertisers to
underwrite its programming were unsuccessful. These shortcomings and the
significant losses generated by its operations caused the Company to begin
efforts to dispose of Good Health in early 1995. On April 28, 1995, Good
Health and THI entered into an Asset Purchase Agreement (the "Agreement") to
sell significantly all of the assets of Good Health and certain noncompete
covenants of Good Health, THI and D. Jerry Diamond to Better Health Network,
Inc., a Florida corporation for
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consideration of $25,000 cash and a contingent promissory note of up to
$1,575,000. The promissory note does not accrue interest and is payable from
gross revenues of the buyer in monthly installments equal to 3% of gross
revenues of the preceding calendar month, determined based upon the cash method
of accounting, reduced for sales tax, if any, and adjusted for customer refunds
and credits, until THI has received $100,000 and thereafter equal to 2% of the
gross revenues until THI has received the remaining balance under the note. No
gain or loss will result from this transaction as the carrying value of the
assets approximately equal to the cash consideration of $25,000. The ultimate
collection of the contingent promissory note is uncertain and largely dependent
upon the success of Better Health Network, Inc. in establishing future
profitable operations. Accordingly, the Company has utilized the cost recovery
method of accounting for this transaction. Any payments received pursuant to
the promissory note will be recognized as income upon receipt. The operations
of Good Health have been reflected as discontinued operations in the Unaudited
Consolidated Financial Statements for the three months and six months ended
June 30, 1995.
In July, 1994, the Company entered into an Agreement with Three Rios,
Ltd. to acquire a 46-acre recreational vehicle campground. Prior to the
closing of the Agreement, the Company assigned its rights to acquire the
campground to Tres Rivers, Inc., a Texas corporation ("Tres Rivers"). Tres
Rivers incurred losses during the remainder of 1994 related to the acquisition
itself as well as costs related to administrative start-up and ongoing
maintenance and repair. In the first quarter of 1995, Tres Rivers' off-season,
Tres Rivers also incurred losses related to maintenance, repair and
administrative costs.
PLAN OF OPERATION
TSSN and its subsidiaries are all 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 specializing in the marketing
of sports memorabilia, apparel and related merchandise through satellite,
television broadcasting 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 the viability of TSSN's programming, the operations were discontinued
in late February 1995 until TSSN could obtain broadcasting capability and
distribution at more favorable economic costs.
TSSN currently has no employees. TSSN's officers are employees of and
are compensated by STELLAR. STELLAR provides management services pursuant to a
Management Services Agreement (the "Agreement"). STELLAR provides to TSSN
personnel, supplies, equipment, technical office, administrative and accounting
services, management expertise, and other resources. Fees accrued for these
services aggregated $625,000 and $575,000 for the six months ended June 30,
1995 and 1994, respectively. As TSSN initiates its business plan, Management
expects to hire 2 to 6 employees.
The Company intends to acquire the technical capabilities necessary to
broadcast its programming across America. On April 26, 1995, EVRO entered into
a binding Letter of Indent (which was modified on May 5, 1995) to acquire
America's Collectible Network, Inc. ("ACN") and to merge ACN into TSSN. ACN is
a 24 hour per day television shopping network. Currently, ACN broadcasts its
programming primarily on Satellite which is available in 4,500,000 households.
ACN has specialized in selling high-end and custom made jewelry and gemstones
as well as unique collectibles and limited sports related merchandise. ACN has
approximately 45 employees. The transaction has been placed on hold as ACN
would quality as a significant subsidiary as defined by the Securities Acts
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of 1933 and 1934. ACN is unable to provide the Company with required audited
financial statements for a fiscal year period prior to the acquisition. The
parties continue to explore other contractual arrangements that may result in
the eventual acquisition of ACN in mid 1996.
On August 28, 1995, the Company entered into an agreement to acquire
Winsat Communication Corporation ("Winsat") based in Largo, Florida. Winsat
provides satellite communications, consulting and broadcasting support to the
television industry. This year, Winsat has provided uplink services for the
Outdoor Channel, Billy Graham World Crusade from Puerto Rico, Miss Tennessee
Pageant, Miss Florida Pageant, Video Catalog Channel, Shop at Home, ACN, Martin
Marietta Aerospace and many others. The acquisition of Winsat will provide
additional technical capabilities to TSSN toward solidifying the Company's
ability to broadcast TSSN programming using our own facilities. On August 31,
1995, the Company executed a lease agreement to lease a 9,000 square foot
television studio complex with sound stages and production equipment located in
Altamonte Springs, Florida. Combining the technical capabilities of Winsat
with the operating television studio facility will provide the Company with the
infrastructure necessary to broadcast its programming across America. During
1955, TSSN intends to acquire an independent television network and/or the
purchase of time from independent cable and television networks to provide
distribution beyond primary satellite only to television broadcast stations and
cable networks.
RESULTS OF OPERATIONS
Following is a discussion of the Company's results of operations for
the three month and six month periods ended June 30, 1995 and 1994. The
Company's net loss increased from $378,000 during the three months ended June
30, 1994 to $1,195,000 for the same period in 1995. The Company's net loss
increased from $778,000 during the six months ended June 30, 1994 to $1,844,000
for the same period in 1995. Such changes are primarily attributed to (a) the
loss from operations of historic EVRO and its subsidiaries for the period March
1, 1995 through June 30, 1995 ($365,000), (b) increased accounting, legal, and
financial consulting services and other costs incurred to support the Company's
acquisition and financing activities ($472,000), (C) the loss on sale of sports
memorabilia in January and February 1995 ($131,000) and (d) the amortization of
the goodwill relating to the acquisition of EVRO ($50,000).
Revenues from memberships and other reflect the operations of historic
EVRO and its subsidiaries since February 28, 1995. Revenues from product sales
($176,000) for the 1995 periods reflect the sale of sports memorabilia through
a contractual arrangement with ViaTV Network located in Knoxville, Tennessee
during January and February. Certain of the sales were not shipped until the
second quarter of 1995. The cost of sales of sports memorabilia was $160,000.
The cost of sales was approximately 30-35% higher than would normally be
expected due to the high costs of sports memorabilia inventory acquired at the
time TSSN and its subsidiaries were founded and high product costs directly
attributable to the initial low sales volume levels. Broadcasting and
distribution costs (included in selling, general and administrative costs
during the three months ended March 31, 1995) were $147,000. Broadcasting and
distribution costs were expensed as incurred with no allocation to sales
backlog.
Selling, general and administrative expenses for the six months ended
June 30, 1995 are comprised of (a) costs of $317,000 attributable to TSSN and
its subsidiaries, (b) costs of $400,000 attributable to historic EVRO and its
subsidiaries, and (C) costs of $472,000 for legal, accounting and consulting
services and other costs incurred in support of the Company's acquisition and
financing activities.
LIQUIDITY AND CAPITAL RESOURCES
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The Company has incurred operating losses in 1993, 1994 and for the
three months ended June 30, 1995 which have adversely reduced the Company's
liquidity and capital resources. In addition, TSSN will require substantial
capital infusion to fully establish its operations. The ability of the Company
to continue as a going concern is dependent upon the successful completion of a
private equity offering and attaining future profitable operations. The
Company currently expects to complete one or more private equity placements to
provide the necessary capital to establish its operations by late fall. There
is no assurance that the Company will be successful in its private equity
offering. If the Company is not successful in completing these private equity
placements, then there will be serious doubts whether the Company will be able
to continue as a going concern. EVRO, prior to the acquisition of TSSN, met
its operating cash requirements from loans from American Clinical Labs, Inc.,
the majority shareholder prior to the acquisition of TSSN, and stock sales and
related transactions.
THI's two remaining operating subsidiaries, Treasure Rockhound and
Tres Rivers, principally meet their cash requirements from operations.
Improvements to the operations are paid for from cash flow from operations and
borrowing.
The Company is not currently generating positive cash flow and may not
for the remainder of 1995. The Company's ability to generate adequate cash to
meet its needs has been dependent upon the sale of the Company's common stock
for cash and the conversion of debt and expenses to equity from the Company's
common and preferred stock. While Management of the Company expects that cash
generated from its subsidiaries' operations and private equity placements will
fulfill its cash requirements for 1995, it cannot predict the outcome of any
ongoing financial arrangements.
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ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
(A) EXHIBITS
Sequentially
EXHIBIT # DESCRIPTION OF DOCUMENT Numbered Pages
- --------- ----------------------- --------------
10.1 Promissory Note of EVRO Corporation ("Debtor") payable 28
to the order of Genesee Cattle Co. ("Holder") for the principal
sum of $550,000.
10.2 Escrow Agreement, dated April 10, 1995, by and among Genesee 29
Cattle Co. ("Creditor"), EVRO Corporation, and Scolaro,
Shulman, Cohen, Lawler, & Berstein, P.C. ("Escrow Agent")
27 Financial Data Schedule (for SEC use only) 34
(B) REPORTS ON FORM 8-K
Form 8-K dated April 26, 1995 reporting a Binding Letter of Intent to acquire
America's Collectibles Network, Inc. ("ACN") and to merge ACN into The Sports
& Shopping Network, Inc. and that on April 28, 1995, The Good Health Channel,
Inc. ("TGHC") and Technology Holdings, Inc. ("THI"), subsidiaries of EVRO
Corporation, entered into an Asset Purchase Agreement to sell certain assets of
TGHC and certain noncompete covenants of TGHC, THI, and D. Jerry Diamond to
Better Health Network, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this 10-QSB report to be signed on its behalf by the undersigned
thereunto duly authorized.
EVRO CORPORATION
Date August 31, 1995 By /s/ O. Don Lauher
--------------------------------- -------------------------
O. Don Lauher
Chief Financial Officer
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