<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB A-1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the three and nine months ended September 30, 1999 and 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________, 19__, to __________, 19__.
Commission File Number 0-26857
THE ROSE GROUP CORPORATION
OF NEVADA
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Nevada 59-3575972
------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1535 Northgate Boulevard, Sarasota, Florida 34234
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(941) 359-1795
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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.
X YES NO
--- ---
There were 7,845,670 shares of the Registrant's $.0001 par value common stock
outstanding as of November 30, 1999.
Transitional Small Business Format (check one) Yes NO X
--- ---
<PAGE>
The Rose Group Corporation of
Nevada and Subsidiaries
(A DEVELOPMENT STAGE ENTERPRISE)
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Matters
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
CONTENTS
Consolidated Financial Statements:
<TABLE>
<S> <C>
Consolidated Balance Sheet...................................................................................1
Consolidated Statements of Operations........................................................................2
Consolidated Statements of Changes in Stockholders' Deficit..................................................3
Consolidated Statements of Cash Flows ......................................................................4-5
Notes to Consolidated Financial Statements.................................................................6-15
</TABLE>
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Balance Sheet
September 30, 1999 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 60,088
Accounts receivable, factor 21,120
Advance to stockholder 43,583
Inventory 125,469
Prepaid loan costs 24,700
Total current assets 274,960
------------
Equipment, net of accumulated depreciation 52,615
------------
Other assets 12,824
------------
$ 340,399
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable, trade, including related party of $34,350 $ 123,140
Accrued expenses 10,938
Notes payable and current portion of long-term debt 143,539
------------
Total current liabilities 277,617
------------
Long-term liabilities:
Note payable, stockholder 350,000
------------
Stockholders' deficit
Preferred stock; $.001 par value; 2,000,000 shares authorized;
no shares issued and outstanding
Common stock; $.001 par value; 50,000,000 shares authorized;
7,205,670 shares issued and outstanding 7,206
Additional paid-in capital 815,785
Stock subscription receivable (12,500)
Accumulated deficit during development stage (1,097,709)
------------
Total stockholders' deficit (287,218)
------------
$ 340,399
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS. 1
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
March 13,
1997 (Date of
Three Months Ended Nine Months Ended Inception) to
September 30, September 30, September 30,
--------------------------- ------------------------ ---------------
1999 1998 1999 1998 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 76,213 $ 54,372 $ 336,913 $ 136,614 $ 999,476
Cost of sales 39,580 24,517 182,882 70,571 553,524
--------------------------------------------------------------------------------
Gross profit 36,633 29,855 154,031 66,043 445,952
--------------------------------------------------------------------------------
Operating expenses:
General and administrative 324,911 40,936 667,863 245,515 1,217,452
Catalogue and web site
expenses 26,606 244,027 244,027
Depreciation and
amortization 1,500 1,496 4,650 4,488 13,046
Interest expense 6,750 2,067 20,700 18,600 57,851
--------------------------------------------------------------------------------
Total operating expenses 359,767 44,499 937,240 268,603 1,532,376
--------------------------------------------------------------------------------
Net loss $ (323,134) $ (14,644) $ (783,209) $ (202,560) $ (1,086,424)
================================================================================
Loss per share $ (.07) $ (.01) $ (.17) $ (.11) $ (.29)
================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS. 2
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Deficit
Nine Months Ended September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Deficit During
------------------ Paid-In Development Stock
Shares Amount Capital Stage Subscription Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 5,463,670 5,464 (314,500) (309,036)
Sale of stock for cash, net of
offering cost of $21,750
(unaudited) (March 1999) 300,000 300 127,950 128,250
Stock options issued in
connection with loan
(unaudited) (March 1999) 5,400 5,400
Stock issued for and
contribution of services
(unaudited) (March 1999) 250,000 250 152,750 153,000
Sale of stock for cash, net of
offering costs of $7,350
(unaudited) (June 1999) 100,000 100 42,650 42,750
Stock issued in connection
with accounts payable
(June 1999) (unaudited) 75,000 75 37,425 37,500
Sale of stock for cash, net
of offering costs of
$58,840 (September
1999) (unaudited) 967,000 967 424,660 (12,500) 413,127
Stock issued for services
(September 1999)
(unaudited) 50,000 50 24,950 25,000
Net loss for the nine-month
period ended September 30,
1999 (unaudited) (783,209) (783,209)
---------------------------------------------------------------------------------------
Balance, September 30, 1999
(unaudited) 7,205,670 $ 7,206 $ 815,785 $ (1,097,709) $ (12,500) $ (287,218)
=======================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS. 3
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
March 13,
1997 (Date of
Nine Months Ended Inception) to
September 30, September 30,
------------------------------------------------
1999 1998 1999
------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (783,209) $ (202,560) $(1,086,424)
------------------------------------------------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 4,650 4,488 13,046
Stock issued for services 178,000 178,000
(Increase) decrease in:
Accounts receivable, factor (13,323) 24,419 (21,120)
Inventory (60,728) (4,065) (125,469)
Catalogue costs 199,972 (122,927)
Other assets (29,187) (32,157)
Increase (decrease) in:
Accounts payable and other accrued expenses (56,185) 31,060 177,586
Stock payable 37,500
------------------------------------------------
Total adjustments 223,199 (67,025) 227,386
Net cash used by operating activities (560,010) (269,585) (859,038)
------------------------------------------------
INVESTING ACTIVITIES
Acquisition of equipment (37,963) (65,628)
Acquisition of Vascular International of
Nevada, Inc., net (6,821) (6,821)
------------------------------------------------
Net cash used by investing activities (37,963) (6,821) (72,449)
FINANCING ACTIVITIES
Net borrowings on line of credit 24,895 24,895
Proceeds from notes payable 100,000 100,000
Payments on notes payable (56,356) (56,356)
Advances to stockholder (43,583) (43,583)
Proceeds from note payable, stockholder 294,321 739,403
Payments on note payable, stockholder (53,429) (389,403)
(Payments) borrowings on offering costs (39,970) (14,873) 31,492
Proceeds from issuance of common stock 672,067 585,127
------------------------------------------------
Net cash provided by financing activities 657,053 226,019 991,575
------------------------------------------------
NET INCREASE (DECREASE) IN CASH 59,080 (50,387) 60,088
CASH AT BEGINNING OF PERIOD 1,008 48,644
------------------------------------------------
CASH AT END OF PERIOD $ 60,088 $ (1,743) $ 60,088
================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS. 4
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
March 13,
1997 (Date of
Nine Months Ended Inception) to
September 30, September 30,
------------------------------------------------
1999 1998 1999
------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
AND NONCASH INVESTING AND FINANCING ACTIVITIES
Cash paid during the year for interest $ 20,700 $ 33,051
================================================
</TABLE>
Included in accounts payable at September 30, 1999 and 1998 are the
approximate amounts of $235 and $31,500 relating to offering costs,
respectively.
During the nine months ended September 30, 1999, the Company adjusted
offering costs and accounts payable by $7,500 for the recognition of various
payables.
During the nine months ended September 30, 1999, the Company converted
approximately $75,000 of accounts payable with a vendor into a short-term
note payable.
During the nine months ended September 30, 1999, the Company issued an
option agreement for 100,000 shares of common stock as an incentive to a
lender. The value of these options as calculated by the Black-Scholes
option-pricing model was approximately $5,400, which is shown as a prepaid
loan cost in the accompanying balance sheet.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS. 5
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
1. BACKGROUND INFORMATION AND GOING CONCERN
On March 10, 1998, The Rose Group Corporation of Nevada (the "Parent"), formerly
known as Vascular International of Nevada, Inc., acquired all of the outstanding
common stock of The Rose Group Corporation, a Delaware corporation and all stock
of Rosebaby.com of Utah, Inc., a Utah corporation (the "Subsidiaries"). The
consolidated entity will be referred to as the "Company." For accounting
purposes, the acquisition has been treated as a recapitalization of The Rose
Group Corporation with The Rose Group Corporation as the acquirer (reverse
acquisition). The historical financial statements prior to March 10, 1998 are
those of The Rose Group Corporation. Pro forma information giving effect to the
acquisition as if the acquisition took place on March 13, 1997 (date of
inception of The Rose Group Corporation) is as follows:
<TABLE>
<CAPTION>
March 13,
1997 (Date of
Three Months Ended Nine Months Ended Inception) to
September 30, September 30, September 30,
--------------------------------------------------------------------------
1999 1998 1999 1998 1999
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 76,213 $ 54,372 $ 336,913 $ 136,614 $ 999,476
--------------------------------------------------------------------------
Net loss $ (323,134) $ (14,644) $ (783,209) $ (202,560) $ (1,093,186)
==========================================================================
Basic loss per
common stock $ (.07) $ (.01) $ (.17) $ (.11) $ (.30)
</TABLE>
The Parent was incorporated in the state of Nevada on February 6, 1996 and was a
public shell corporation at the time of acquisition. The Rose Group Corporation
was incorporated in the state of Delaware on March 13, 1997. Rosebaby.com of
Utah, Inc. was incorporated on April 29, 1999. These companies are wholly owned
subsidiaries of the Parent.
Management of the Company plans to continue to develop the Company as a prenatal
and postpartum selfcare and healthcare manufacturer, wholesaler, mass marketer
to retail outlets, and direct seller to consumers through its internet
e-commerce facilities of certain products and related consulting services that
are marketed under the nationally known trademark and brand name "LAMAZE." The
Company also intends to market other nationally known brands of products for
newborns and toddlers through its ROSEBABY.COM internet e-commerce web site and
supplemental catalogues.
6
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
1. BACKGROUND INFORMATION AND GOING CONCERN (CONTINUED)
The corporate headquarters is located in Sarasota, Florida.
The Company is considered a development stage enterprise devoting substantially
all of its efforts to establishing customers and vendor relationships,
establishing complete product lines, and raising capital through private
placement sales.
The Company had sales to a significant customer of $41,215 and $30,716 for the
three months ended September 30, 1999 and 1998, respectively; $212,010 and
$36,711 for the nine months ended September 30, 1999 and 1998, respectively; and
$603,031 for the period March 13, 1997 to September 30, 1999; which made up 56.3
percent, 54.0 percent, 62.9 percent, 26.8 percent, and 60.8 percent of total
sales for those periods, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed are:
The accompanying consolidated financial statements include the accounts
of the Parent and its wholly owned subsidiaries, The Rose Group
Corporation (a Delaware corporation), and Rosebaby.com of Utah, Inc. (a
Utah corporation). All significant intercompany transactions have been
eliminated in the consolidation.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of 1) the
results of operations for the three and nine months ended September 30,
1999 and 1998 and from inception to September 30, 1999, 2) the financial
position at September 30, 1999, and 3) cash flows for the nine-month
periods ended September 30, 1999 and 1998 and from inception to
September 30, 1999, have been made.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
7
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue is recognized once products are shipped. The Company sells to
its customers based on its standard credit policies and reviews accounts
receivable providing for any bad debts. At September 30, 1999,
management believes all accounts receivable are fully collectible and no
allowance for bad debt is required.
Inventory is stated at the lower of cost (first-in, first-out) or
market.
Equipment is recorded at cost. Depreciation is calculated by the
accelerated method over the estimated useful lives of the assets,
ranging generally from 5 to 15 years. Additions to and major
improvements of equipment are capitalized. Maintenance and repair
expenditures are charged to expense as incurred. As equipment is sold or
retired, the applicable cost and accumulated depreciation are eliminated
from the accounts and any gain or loss is recorded.
In connection with the Company's private placement, offering costs are
deferred and are offset against the proceeds of the offering or expensed
if the total offering is unsuccessful, both on a pro rata basis.
Non-direct response advertising costs are charged to expense as incurred
and amounted to $4,700, $7,657, $2,240, and $18,859 for the three months
ended September 30, 1999, the nine months ended September 30, 1999 and
1998, and the period March 13, 1997 to September 30, 1999, respectively.
When the Company has long-lived assets that have a possible impairment
indicator, the Company estimates the future cash flows from the
operation of these assets. If the estimated cash flows recoup the
recorded value of the assets, they remain on the books at that value. If
the net recorded value cannot be recovered, the assets are written down
to their fair market value if lower than the recorded value. No
long-lived assets have been impaired since the inception of the Company.
8
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Financial Accounting Standards Board issued Statement No. 123 (FASB
No. 123), "Accounting for Stock-Based Compensation," effective for
fiscal years beginning after December 15, 1995. This statement provides
that expense equal to the fair value of all stock-based awards on the
date of the grant be recognized over the vesting period. Alternatively,
this statement allows entities to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," whereby compensation expense is recorded on the date the
options are granted to employees equal to the excess of the market price
of the underlying stock over the exercise price. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma disclosure of the provisions of FASB No. 123.
Basic loss per share (EPS) is computed by dividing loss available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
from the exercise or conversion of securities into common stock. Diluted
EPS are not presented because they are anti-dilutive.
In accordance with the Securities and Exchange Commission Staff
Accounting Bulletin 1:B, the Company recorded as an expense and as
additional paid-in capital the estimated fair value for services
provided to it by its president and vice president of operations that
were not paid with cash.
3. INVENTORY
Inventory consists of:
<TABLE>
<CAPTION>
September 30,
1999
----------------
<S> <C>
Finished goods $ 58,115
Raw materials 41,045
Supplies inventory 26,309
----------------
$ 125,469
----------------
----------------
</TABLE>
9
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
4. EQUIPMENT
Equipment consists of:
<TABLE>
<CAPTION>
September 30,
1999
-----------------
<S> <C>
Office and computer equipment $ 4,698
Die cutting and molding equipment 56,132
Leasehold improvements and other 4,798
-----------------
65,628
Less accumulated depreciation 13,013
-----------------
$ 52,615
=================
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of:
September 30,
1999
-----------------
Line of credit payable; maximum borrowing $30,000; due on demand;
interest at 2.0% over prime (7.75% at September 30, 1999);
collateralized by inventory and personally
guaranteed by majority stockholder $ 24,895
Note payable; interest at 6.0%; interest only
payments due quarterly; due March 15,
2000; unsecured and personally
guaranteed by a stockholder 100,000
Note payable; interest at 9.8%; $5,226 payable
per month including interest; due January 25,
2000; unsecured 18,644
Note payable, majority stockholder; due
December 31, 2001; interest at 6.0% per
annum; unsecured 350,000
-----------------
493,539
Less amounts currently due 143,539
-----------------
$ 350,000
-----------------
</TABLE>
10
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The following is a schedule by year of the principal payments required on these
notes payable and long-term debt:
<TABLE>
<S> <C>
1999 $143,539
2000 $350,000
</TABLE>
6. LEASE COMMITMENTS
The Company rents office space under an operating lease with a remaining lease
term greater than one year. Monthly rent payments are $3,805.
The following is a schedule by year of the lease payments required:
<TABLE>
<S> <C>
1999 $ 19,375
2000 46,500
2001 46,500
2002 31,000
-----------
$ 143,375
</TABLE>
Rent expense amounted to $11,580, $4,325, $20,327, $16,924, and $54,174 for
three months ended September 30, 1999 and 1998, the nine months ended September
30, 1999 and 1998, and the period March 13 1997 through September 30, 1999,
respectively.
7. ACCOUNTS RECEIVABLE, FACTOR
The Company entered into an agreement to sell its accounts receivable, with
recourse, to Bayview Growth Corporation (Bayview). The agreement calls for the
immediate payment of 85 percent and 75 percent of the face value of the accounts
receivable at September 30, 1999 and December 31, 1998, respectively, with the
remaining percent payable upon collection of the receivable by Bayview. The
Company is charged various factoring and financing fees amounting to one percent
for each 10-day period the receivables are not collected by Bayview. The amounts
shown on the balance sheet September 30, 1999 represent the unfunded portion of
the receivables not yet collected by Bayview.
11
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
7. ACCOUNTS RECEIVABLE, FACTOR (CONTINUED)
In the event of a default, or 90 days from invoice date, the Company must
repurchase the accounts receivable from Bayview. Losses from defaults have not
been significant. The Company is contingently liable in the amount of $39,597 at
September 30, 1999 relating to such receivables sold with recourse.
8. OTHER COMMITMENTS
On February 28, 1999, the Company executed an exclusive agreement with LAMAZE
from AMI, Inc. This agreement allows the Company to use the "LAMAZE" trademark
on the advertising, packaging, and marketing materials related to maternity
support hose, nursing shawls, and other products as submitted to and approved by
LAMAZE. The Company is required to pay a fee of nine percent of the net sales
(sales less returns and allowances) of the authorized products (listed above)
with a minimum yearly fee of $45,000 payable in installments on January 15th and
July 15th of every year.
9. INCOME TAXES
From the date of inception to February 28, 1998, the Subsidiaries, with the
consent of the stockholders, elected to be taxed under the Internal Revenue Code
as an S corporation. In lieu of corporate income taxes, the stockholders of an S
corporation are taxed on their proportionate share of the Company's taxable
income or loss. As of the date of the merger with Vascular International of
Nevada, Inc., the Subsidiaries became C corporations and will be taxed as such.
The Company has a loss carryforward of approximately $134,000 as of December 31,
1998 that may be applied against future taxable income. This loss gives rise to
a deferred tax asset at December 31, 1998 of approximately $35,185. Management
has established a valuation allowance equal to the amount of the deferred tax
asset due to the uncertainty of the Company's realization of this benefit.
<TABLE>
<S> <C>
Loss carryforward $ 35,185
Less valuation allowance 35,185
----------
Net deferred tax assets $ 0
==========
</TABLE>
The loss carryforward expires on December 31, 2013.
12
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
10. STOCK OPTIONS
The Company issues stock options as incentives to lenders. The exercise price of
the options are equal to the price at which the Company last sold shares of its
common stock. The life of the options equal approximately 2.5 years.
The following is a summary of the status of stock options outstanding and
exercisable at September 30, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Average Remaining Average
Exercise Price Number Contractual Life Exercise Price
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$.50 100,000 2.25 years $.50
</TABLE>
The weighted average fair value of the options at their grant date during 1999
was $.50. The estimated fair value of each option granted is calculated using
the Black-Scholes option-pricing model. The following summarizes the weighted
average of the assumptions used in the model:
<TABLE>
<S> <C>
Risk-free interest rate 5.11%
Expected years until exercised 2.25
</TABLE>
11. STOCKHOLDERS' EQUITY AND OTHER RELATED PARTY TRANSACTIONS
In December 1997, The Rose Group Corporation of Nevada (f/k/a Vascular
International of Nevada, Inc.) completed a private issuance of its securities to
present management and affiliated parties wherein 600,000 shares (post-reverse
split) were issued for interim capitalization of $14,500 and reorganizational
services rendered.
In March 1999, the Board of Directors authorized the Company to issue and sell
300,000 shares of the common stock of the Company at $.50 per share pursuant to
Rule 504, Regulation D. In addition, the Board of Directors also authorized a
right to "put back" all or part of 150,000 shares of the 300,000 shares
purchased to a certain stockholder during a nine-month period commencing in
March 2000 and ending in September 2000.
13
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
11. STOCKHOLDERS' EQUITY AND OTHER RELATED PARTY TRANSACTIONS (CONTINUED)
During the nine months ended September 30, 1999, the Company issued 250,000
shares of common stock in exchange for services rendered by management. The cost
of the services has been charged to operations and capital has been increased by
$125,000, representing the excess of the cost of the services over the par value
of the common stock. In accordance with SFAS 123 "Accounting for Stock-Based
Compensation," the fair value of the equity instrument was used. The value
assigned of $.50 per share was determined from the most recent third party sale
of common stock.
During the nine months ended September 30, 1999, the Company recorded the fair
value of services rendered by the president and vice president of operations
from January 1, 1999 through March 31, 1999 by charging operations $28,000 and
additional paid-in capital in accordance with Staff Accounting Bulletin 1:B.
During June 1999, the Company issued 75,000 shares of common stock in exchange
for services rendered by a consulting firm. The cost of the service has been
charged to operations and capital has been increased by $37,500. In accordance
with SFAS 123 "Accounting for Stock-Based Compensation," the fair value of the
equity instrument was used. The value assigned of $.50 per share was determined
from the most recent third party sale of common stock.
During July 1999, the Company committed to issue and subsequently issued 50,000
shares of common stock in exchange for services rendered by a consulting firm.
The cost of the services has been charged to web site costs and capital has been
increased by $25,000, representing the excess of the cost of the services over
the par value of the common stock. In accordance with SFAS 123, "Accounting for
Stock Based Compensation," the fair value of the equity instrument was used. The
value assigned of $.50 per share was determined from the most recent third party
sale of common stock.
14
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
12. EARNINGS PER SHARE
The following data shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock:
<TABLE>
<CAPTION>
March 13,
1997 (Date of
Three Months Ended Nine Months Ended Inception) to
September 30, September 30, September 30,
--------------------------------------------------------------------------
1999 1998 1999 1998 1999
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss $ (323,124) $ (14,644) $ (783,209) $ (202,560) $ (1,086,424)
==========================================================================
Weighted average
number of
common shares
used in basic EPS 4,541,660 1,843,726 4,541,660 1,843,728 3,683,147
==========================================================================
</TABLE>
13. SUBSEQUENT EVENTS
On October 7, 1999,the Company entered into a 36-month capital lease. The lease
includes various office furniture, computers, and warehouse equipment. The cost
of the various equipment is $36,187, with monthly lease payments of $1,693.
15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED,"
"BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL,"
"COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE
OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH
STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT
LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN,
POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND
COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET
PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH
ARE BEYOND THE COMPANY'S CONTROL, INCLUDING, WITHOUT LIMITATION, THE RISKS
DESCRIBED UNDER THE CAPTION "BUSINESS." SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED,
BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE
FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY
STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements (and related notes thereto) included elsewhere
herein.
RESULTS OF OPERATIONS -
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SALES
Sales for the period ended September 30, 1999 were $76,213 as compared to
$54,372 for the period ended September 30, 1998, an increase of $21,841 or
40.2%. This increase is primarily the result of the distribution of LAMAZE-brand
products to Target Stores and Babies-R-Us. Also, the Company is beginning to
slowly refocus from the development of its web site and brochures to its
marketing force.
COST OF SALES
Cost of sales for the period ended September 30, 1999 was $39,580 (or 51.9% of
sales) compared to $24,517 (or 45.1% of sales) for the period ended September
30, 1998. The increase in cost of sales is due to the increase of sales, with
the decrease in the percentage of cost of sales being due to the change in
product mix.
<PAGE>
As a result of the foregoing, the Company realized an increase in gross profit
in 1999 as compared to 1998, with a gross profit of $36,633 (or 48.1%) of sales
in the period ended September 30, 1999 versus $29,855 (or 54.9%) of sales
achieved during the same period in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses amounted to $324,911 (or 426% of sales) for
the three months ended September 30, 1999 as compared to $40,936 (or 75.3% of
sales) in 1998. The increase of $283,975 for the period is primarily due to an
increase in salaries, overhead expenses, and other compensation for services
rendered.
CATALOGUE AND WEB SITE EXPENSES
Catalogue and web site expenses amounted to $26,606 for the three months ended
September 30, 1999 as compared to $0 for the same period in 1998. The increase
is the result of the Company proceeding with the development of their web site
during 1999.
INTEREST EXPENSE
Interest expense for the period ended September 30, 1999 was $6,750 as compared
to $2,067 for the same period in 1998. The increase is the result of an increase
in debt acquired to proceed with the Company's development of its E-Commerce
Division.
LOSS BEFORE INCOME TAXES
The preceding factors combined to show an increase in net loss totaling $308,490
in the period ended September 30, 1999 as compared to the period ended September
30, 1998. There was a net loss of $323,134 for the period ended September 30,
1999 as compared to a net loss of $14,644 for the comparable period in 1998.
RESULTS OF OPERATIONS -
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SALES
Sales for the nine months ended September 30, 1999 were $336,913 as compared to
$136,614 for the nine months ended September 30, 1998, an increase of $200,299
or 147%. This increase is primarily the result of the distribution of
LAMAZE-brand products to Target Stores and Babies-R-Us.
COST OF SALES
Cost of sales for the nine months ended September 30, 1999 were $182,882 (or
54.3% of sales) as compared to $70,571 (or 51.7% of sales) for the same period
in 1998. The increase in cost of sales is due to the increase of sales, with the
decrease in cost of sales as a percentage of sales is due to the change in
product mix.
<PAGE>
As a result of the foregoing, the Company realized an increase in gross profit
in 1999 as compared to 1998, with a gross profit of $154,031 (or 45.7% of sales)
in the nine months ended September 30, 1999, as compared to $66,043 (or 48.3% of
sales) achieved during the same period in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses amounted to $667,863 (or 198% of sales) for
the nine months ended September 30, 1999 as compared to $245,515 (or 180% of
sales) for the same period in 1998. The increase of $422,348 is primarily due to
an increase of salaries and other compensation for services rendered.
CATALOGUE AND WEB SITE EXPENSES
Catalogue and web site expenses amounted to $244,027 for the nine months ended
September 30, 1999 as compared to $0 for the same period in 1998. The increase
is the result of the Company transitioning the capitalized costs of developing
printed catalogues into a web site based marketing tool during 1999.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 1999 was $20,700 as
compared to an interest expense of $18,600 in the nine months ended September
30, 1998. The primary reasons for the $2,100 increase in interest expense was
due to obtaining more debt.
LOSS BEFORE INCOME TAXES
The preceding factors combined to show an increase in net loss totaling $580,649
in the nine months ended September 30, 1999 as compared to the nine months ended
September 30, 1998. There was a net loss of $783,209 in 1999 as compared to a
net loss of $202,560 for the comparable period in 1998.
LIQUIDITY OF CAPITAL RESOURCES
The Company had a working capital deficit of $2,657 at September 30, 1999, which
represented a decrease in the deficit of $189,060 from the working capital
deficit of $191,717 at December 31, 1998. The decrease in the deficit is mainly
due to raising working capital through a private placement of the Company's
common stock.
From inception, the Company's operations have been funded by operating revenue,
capital contributions, loans from corporate officers, and a bank line of credit.
In addition, through September 1999, the Company consummated private placements
of 1,367,000 shares of its common stock. The Company's operating activities used
cash of $560,010, $269,585, and $859,038 for the nine months ended September 30,
1999 and 1998 and the period March 13, 1997 to September 30, 1999, respectively.
The principal use of cash in 1999 and 1998 was to finance operating expenses.
<PAGE>
The Company's investing activities used cash of $37,963, $6,821, and $72,449 for
the nine months ended September 30, 1999 and 1998 and the period March 13, 1997
to September 30, 1999, respectively. The principal use of cash in these periods
was for the acquisition of various types of equipment.
The Company's financing activities provided cash of $657,053, $226,019, and
$991,575 for the nine months ended September 30, 1998 and 1998 and the period
March 13, 1997 to September 30, 1999, respectively. Loans from Sheldon R. Rose
and utilization of the Company's line of credit were the principal sources of
cash in these periods. The cash provided by the Company's financing activities
for the nine months ended September 30, 1999 primarily resulted from the
proceeds of the sale of common stock and from the bridge loan described below.
In January 1999, the Company, through Rose Group Delaware, using the state of
Florida corporate assumed name "Fresh Babies, Inc.," obtained a line of credit
facility of $30,000 from AmSouth Bank of Florida. Such line bears interest at a
rate of 2% over prime (7.75% at September 30, 1999), is due on demand, and is
secured by a pledge of all inventory and is personally guaranteed by a majority
stockholder.
In March 1999, a bridge loan in the amount of $100,000 was obtained from one
investor. The loan bears interest at a rate of 6% per annum and is due on March
15, 2000. In connection with the bridge loan, the Company issued options to
purchase 100,000 shares of common stock to the investor.
As of September 1999, a series of private placements totaling 1,367,000 shares
of common stock at a purchase price of $.50 per share was completed by the
Company (the "504 Private Placements"). The Company received gross proceeds of
$683,500 from the 504 Private Placements and such proceeds were utilized to
defray the cost of developing the Company's E-Commerce web site and other
working capital costs.
In October 1999, the Company, through its subsidiaries, Rose Group Delaware and
RoseBaby.com, put both the catalogue and web site into service. The Company
anticipates an increase in sales starting out slowly as the information is
distributed and then increasing once information has been circulated.
The Company has entered into a Factoring Agreement with Bayview Growth
Corporation (Bayview) whereby Bayview purchases certain receivables of the
Company for an advance price equal to 85% of the face value of such receivables
and receives a factoring and financing fee for such services.
During the next twelve months, the Company's cash requirements will include,
among other things, its lease payments on the Company's office space, salaries
payable, payments pursuant to contractual arrangements, and legal and accounting
costs associated with Securities and Exchange, as well as miscellaneous
overhead. Management believes that upon launching the web site, the Company's
existing cash resources and cash generated from operations will be sufficient to
fund the Company's on-going operations and provide for the foregoing cash
requirements for day-to-day operations, as well as satisfying legal and
accounting costs associated with filing the requisite reports under the
Securities and Exchange Act of 1934. Management believes that it will be able to
achieve a positive cash flow from its E-Commerce operations when it reaches
monthly sales of approximately $1,000,000. However, the Company has no guarantee
that it will be able to achieve this goal prior to December 31, 1999.
<PAGE>
YEAR 2000 COMPLIANCE ISSUES
The Company has established a plan to address Year 2000 issues. This plan
encompasses the phases of awareness, assessment, renovation, validation, and
implementation. These phases will enable the Company to identify risks, develop
action plans, perform adequate testing, and determine if its processing systems
will be Year 2000 ready. Successful implementation of this plan is expected to
mitigate any extraordinary expenses related to the Year 2000 issue. The Company
has a reasonable basis to conclude that the Year 2000 issue will not materially
affect future financial results, or cause reported financial information not to
be necessarily indicative of future operating results or future financial
conditions. This basis is due to the fact that the Company has recently
completed the purchase and installation of a new information technology system
consisting of a network of personal computers and other hardware and software
that is Year 2000 compliant.
The Company plans to contact all material customers, vendors, suppliers, and
non-information technology suppliers (if any) regarding their Year 2000 state of
readiness. This process will be completed within the next four months. No
assurance can be given that the Year 2000 compliance plan will be completed
successfully by the year 2000. The Company's current contingency plan is
simplistic and involves operating on a manual basis for a short period of time
without interruption of service or quality.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from assumptions of future events. These
events are inherently uncertain, including the progress and results of vendors,
suppliers, and customers' Year 2000 readiness.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, based upon advice of
counsel and consideration of all facts available at this time, the ultimate
disposition of these matters will not have a material adverse effect on the
financial position, results of operations, or liquidity of the Company.
ITEM 2. CHANGES IN SECURITIES
During the three-month period ended September 30, 1999, there was no
modification of any instruments defining the rights of holders of the Company's
common stock and no limitation or qualification of the rights evidenced by the
Company's common stock as a result of the issuance of any other class of
securities or the modification thereof.
During October 1999, the Company sold and issued 640,000 shares of its common
stock to 13 sophisticated individual investors at a purchase price of $.50 per
share, or an aggregate price of $320,000. Such issuances were made pursuant to
Rule 505 of Regulation D under the Securities Act. Robert H. Jaffe, a greater
than 5% beneficial owner of the Company's common stock, received a 5% finders
fee in connection with those issuances.
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the three-month period ended September 30, 1999, the Company was not in
default on any of its indebtedness.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three-month period ended September 30, 1999, the Company did not
submit any matters to a vote of its security holders.
ITEM 5. OTHER MATTERS
The Company does not have any material information to report with respect to the
three-month period ended September 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are:
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereto duly authorized:
THE ROSE GROUP CORPORATION
OF NEVADA AND SUBSIDIARIES
Dated: December 2, 1999 By: /s/ SHELDON R. ROSE
------------------ ---------------------------------------
Sheldon R. Rose
President and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 60,088
<SECURITIES> 0
<RECEIVABLES> 64,703
<ALLOWANCES> 0
<INVENTORY> 125,469
<CURRENT-ASSETS> 274,960
<PP&E> 65,628
<DEPRECIATION> (13,013)
<TOTAL-ASSETS> 340,399
<CURRENT-LIABILITIES> 277,617
<BONDS> 493,539
0
0
<COMMON> 7,206
<OTHER-SE> 803,285
<TOTAL-LIABILITY-AND-EQUITY> 340,399
<SALES> 336,913
<TOTAL-REVENUES> 336,913
<CGS> 182,882
<TOTAL-COSTS> 182,882
<OTHER-EXPENSES> 937,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (783,209)
<INCOME-TAX> 0
<INCOME-CONTINUING> (783,209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (783,209)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
