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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 3
to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
THE ROSE GROUP CORPORATION OF NEVADA
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(Name of Small Business Issuer in Its Charter)
NEVADA 59-3575972
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1535 NORTHGATE BOULEVARD, SARASOTA, FLORIDA 34234
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(Address of Principal Executive Offices) (Zip Code)
(941) 359-1795
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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NOT APPLICABLE
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(Title of Class)
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(Title of Class)
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FORWARD-LOOKING STATEMENTS
THIS REGISTRATION STATEMENT ON FORM 10-SB (THIS "REGISTRATION
STATEMENT") CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING, WITHOUT LIMITATION, STATEMENTS
REGARDING THE GROWTH STRATEGIES OF THE ROSE GROUP CORPORATION OF NEVADA (THE
"COMPANY") AND ANTICIPATED TRENDS IN THE BUSINESS AND DEMOGRAPHICS OF THE
COMPANY. THE COMPANY, A DEVELOPMENT STAGE COMPANY, CAUTIONS READERS THAT CERTAIN
FACTORS AND UNCERTAINTIES MAY AFFECT THE COMPANY'S ACTUAL RESULTS AND COULD
CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS THAT
MAY BE DEEMED TO HAVE BEEN MADE IN THIS REGISTRATION STATEMENT OR THAT ARE
OTHERWISE MADE BY OR ON BEHALF OF THE COMPANY. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED IN THIS REGISTRATION STATEMENT THAT ARE NOT STATEMENTS OF HISTORICAL
FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, WORDS SUCH AS "MAY", "EXPECT", "BELIEVE",
"ANTICIPATE", "INTEND", "COULD", "ESTIMATE" OR "PLANS" OR THE NEGATIVE OR OTHER
VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS.
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE BASED LARGELY
ON THE COMPANY'S EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF FACTORS AND
UNCERTAINTIES. FACTORS THAT MAY AFFECT THE COMPANY'S RESULTS INCLUDE, BUT ARE
NOT LIMITED TO, THE COMPANY'S LIMITED OPERATING HISTORY, ITS ABILITY TO PRODUCE
ADDITIONAL PRODUCTS AND SERVICES, ITS DEPENDENCE ON KEY PERSONNEL, MARKET
ACCEPTANCE, ITS NEED FOR ADDITIONAL FINANCING AND COMPETITION FROM ITS
COMPETITORS. ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN SHOULD BE EVALUATED
IN LIGHT OF THE ABOVE FACTORS, AS WELL AS THE FACTORS AND UNCERTAINTIES
DESCRIBED ELSEWHERE IN THIS REGISTRATION STATEMENT.
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TABLE OF CONTENTS
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PAGE
PART I
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ITEM 1. DESCRIPTION OF BUSINESS............................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........................................10
ITEM 3. DESCRIPTION OF PROPERTY...........................................................................14
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................15
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......................................17
ITEM 6. EXECUTIVE COMPENSATION............................................................................19
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................20
ITEM 8. DESCRIPTION OF SECURITIES.........................................................................20
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS..............................................................23
ITEM 2. LEGAL PROCEEDINGS.................................................................................23
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.....................................................24
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES...........................................................24
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................................................28
PART F/S
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS....................................................................30
PART III
INDEX TO AND DESCRIPTION OF EXHIBITS..........................................................................31
SIGNATURES....................................................................................................35
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PART I
The Company is filing this Registration Statement on a voluntary
basis in order to facilitate the Company's Common Stock being quoted on the
National Association of Securities Dealers, Inc. Over-the-Counter ("OTC")
Bulletin Board.
ITEM 1. DESCRIPTION OF BUSINESS.
ORGANIZATION AND ACQUISITION ACTIVITIES. The Rose Group
Corporation of Nevada (the "Company") was originally organized as Vascular
International of Nevada, Inc. ("Vascular") by the filing of Articles of
Incorporation with the Secretary of State of the State of Nevada on February 13,
1996. Vascular was a development stage company which owned certain medical
technology related to synthetic vascular implants and developed and marketed
such medical technology together with related products and software. Vascular
had very limited operations and generated minimal revenues. Pursuant to an
Exchange of Stock Agreement and Plan of Reorganization, dated as of December 15,
1997, Vascular acquired The Rose Group Corporation ("Rose Group Delaware"), a
privately held Delaware subchapter S corporation which was in the business of
manufacturing and selling prenatal and postpartum products. Concurrently with
the closing of the acquisition, Vascular abandoned its efforts to further
develop and market its medical technology, changed its name to "The Rose Group
Corporation of Nevada" and changed its principal business, management and
operations to reflect the operations of Rose Group Delaware. As a consequence of
the above transaction, effective March 13, 1997, the Company became the holding
company of its wholly-owned operating subsidiary, Rose Group Delaware. In
February 1998, the Company terminated the subchapter S corporation status of
Rose Group Delaware. In order to facilitate expansion of its E-Commerce
business, on April 29, 1999, the Company incorporated another wholly-owned
subsidiary, Rosebaby.com of Utah, Inc. ("Rosebaby").
The Company is a development stage enterprise which is devoting a
substantial portion of its efforts to establishing a new business. Since its
inception, the Company's operations have required, rather than provided, cash
and the Company has incurred operating losses. There is no assurance that the
losses will not continue or that the Company will become profitable in the
future.
The Company is authorized to issue 50,000,000 shares of common
stock, par value $.001 per share (the "Common Stock"), of which 7,845,670 shares
were issued and outstanding as of November 30, 1999 (108,698 of such shares are
held in treasury), and 2,000,000 shares of Class A preferred stock, par value
$.001 per share (the "Preferred Stock"), of which no shares are currently issued
and outstanding.
GOING CONCERN QUALIFICATION. As noted in the Company's financial
statements, the presence of operating losses, negative working capital and
stockholders' deficit raise substantial doubt as to the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern will be questionable until such time as it is able to generate
sufficient revenues in excess of its expenses to sustain its normal business
activity. Until that time, the Company will depend on its ability to raise
additional capital through either loans or equity offerings, as more fully
described elsewhere in this Registration Statement.
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BUSINESS STRATEGY. Management of the Company plans to continue to
develop the Company as a healthcare/selfcare manufacturer/wholesaler, mass
market seller to retail outlets and direct seller to consumers through Internet
E-Commerce facilities (rosebaby.com) of prenatal and postpartum products and
related consulting services which are marketed under the nationally known
trademark and brand name "Lamaze" and the brand name "The Natural Choice". The
Company also intends to market other brands of prenatal and postpartum products
as well as products for babies through Internet sales.
The Company plans to establish marketing strength primarily
through its relationship with Lamaze from AMI, Inc. ("LAMI"). The Company is
currently permitted to use the "Lamaze" brand name on various maternity support
hose and nursing shawl products which it markets and the Company intends to seek
approval from LAMI to use the "Lamaze" brand name on additional products in the
future. The Lamaze brand name provides immediate recognition and acceptance by
the consumer. The Company anticipates reaching a projected 2,500,000 expectant
mothers as well as family members who attend Lamaze classes each year. It is
estimated that approximately 150,000 Lamaze classes are taught each year. The
expectant mothers and fathers who attend such classes will be the target market
for the Company. The Company's plan is to invite expectant mothers and other
members of the family who are participants in the Lamaze method of childbirth
and childcare to visit the Company's website, www.rosebaby.com, and to review
the various products that will be offered on an E-Commerce basis. The existence
of the Company's website also is contemplated to be highlighted by distribution
through nurses and lactation consultants of the Company's rosebaby.com/Lamaze
products brochure, a brochure which has been developed by the Company and
approved by LAMI and Lamaze International. The distribution of this brochure
will enable the targeted consumer market to easily locate the variety of
prenatal and postpartum products to be offered by the Company.
It is anticipated that copies of the Company's rosebaby.com/Lamaze
products brochure will be distributed to 11,000 certified childbirth educators
in the United States, 7,000 maternity nurses in hospitals throughout the country
and an additional 5,000 Spanish-speaking childbirth educators. In total, the
Company intends to distribute 25 copies of its rosebaby.com/Lamaze products
brochure to each of the educators and nurses described above. In addition, the
Company also intends to be an advertiser in LAMAZE PARENTS MAGAZINE and LAMAZE
BABY MAGAZINE which will be handed out and/or mailed to all Lamaze classroom
attendees. The Company does not believe that the recently announced sale by
Lamaze International of Lamaze Publishing, which publishes magazines and videos
under the Lamaze label, will adversely effect its program to be an advertiser in
the various Lamaze magazines. Rather, the Company intends to work with the new
publisher to determine what synergy there can be to increase recognition of the
rosebaby.com website as a source of high quality, specialty maternity/new baby
products.
During the next twelve months, the Company's plan of operation is
to look to further expansion on the World Wide Web, through its website,
rosebaby.com, which became operational on October 1, 1999. Based on data
compiled in the August 16-23, 1999 issue of The Industry Standard, there are
currently over 40,000,000 visitors to the World Wide Web each week.
Additionally, based upon statistics compiled by the United States Bureau of the
Census and American Baby Magazine, there are approximately 3,950,000 babies born
each year in the United
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States. By offering specialty maternity/new baby products, as well as a variety
of other products which will keep a new baby attired, healthy and amused during
the first 4 to 5 years of its life, the Company's rosebaby.com website is
designed to attract not only new and expectant mothers, but also fathers,
grandparents, aunts, uncles and other friends and family members of the new
mother and new baby who may also have a need or desire to purchase such
products. The Company believes that the World Wide Web will become the major
resource for the Company's future growth and expansion.
Accordingly, the Company's primary current focus is on developing
a sophisticated website for the maternity/new baby market. Management will
incorporate an on-line ordering service and offer a secured website to increase
the Company's on-line E-Commerce. To facilitate the on-line ordering process,
the Company, acting through it wholly owned subsidiary Rosebaby, has applied for
and established accounts with the following credit facilities: American Express,
Visa and MasterCard. The Company intends to develop other marketing concepts
such as discount coupons, promotional telephone cards and the establishment of a
program tentatively identified as "Rosebaby Associates" which will source
professional services through the Company's website to the Company's customers.
The Company also plans to seek Fortune 1000 company sponsors for
its website such as car, camcorder, and diaper manufacturers, as well as banking
facilities. The Company believes that it will be able to attract these companies
as sponsors for its website because many of these companies are currently
sponsors for websites that sell competing products or websites that sell
products targeted to the same market as the Company products are targeted. It is
anticipated that as the Company develops its target market of new mothers/babies
it will develop an array of sponsors who will pay for the privilege of reaching
the same targeted consumer market, which is the strategic business goal of the
Company.
SELFCARE/HEALTHCARE, PRENATAL AND POSTPARTUM PRODUCTS. The
Company's primary business is to be a healthcare/selfcare
manufacturer/wholesaler, mass market seller to retail outlets and direct seller
to consumers through Internet E-Commerce facilities (rosebaby.com) of
prenatal/maternity products, postpartum/mother and baby products and related
lactation consulting services, specializing in fulfilling the needs of expectant
and breastfeeding women as well as infant needs. The principal products marketed
by the Company are various types of breast pads, breast shells, pad holders,
nursing shawls, nursing pillows, foot rests, breast pumps, lumbar supports,
maternity support hose, support garments and other related products. All of
these products are currently marketed under the brand name "The Natural Choice",
with the exception of the maternity support hose and the nursing shawls which
are marketed under the brand name "Lamaze". "The Natural Choice" is a brand name
which the Company acquired from a previous competitor in 1997. The Company does
not have a registered trademark on the name "The Natural Choice".
BUSINESS DIVISIONS OF THE COMPANY. The Company has organized
itself into three main divisions each of which supplements the activities of the
others. Those divisions can be described as follows:
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E-COMMERCE DIVISION:
The operations of the Company's E-Commerce Division will be
conducted through the Company's website, rosebaby.com, which became operational
on October 1, 1999. The Company's website received a total of approximately
132,470 hits during the period from October 1, 1999 through November 19, 1999.
However, to date, revenues received by the Company from sales of its products
and services through its website have been minimal. The Company expects that the
number of hits on the website and the revenues resulting from sales through the
website will increase substantially once the existence of the Company's website
is made known to attendees of Lamaze classes through distribution of the
rosebaby.com/Lamaze products brochure. As more fully described below, Sun
Remarketing, Inc. ("Sun Remarketing") of Smithfield, Utah has been engaged by
the Company to operate the website. The Company's wholly-owned subsidiary,
Rosebaby, currently employs 12 people who will provide customer service,
warehouse fulfillment and other related services in connection with sales
anticipated to be made through the Company's website.
The Company is currently allocating a substantial portion of its
resources towards developing and significantly increasing the sales of its
products and services through its website to its targeted consumer base. The
Company expects that its website will be its primary source of revenue for the
years 2000 and 2001. For the first full year of website operations, the Company
anticipates that it will achieve a five percent penetration of the potential
annual market of 2,500,000 expectant and breastfeeding mothers who attend Lamaze
class and can utilize Internet facilities and/or the Company's toll free order
number (1-87-rosebaby). Although the Company believes that a five percent market
penetration of Lamaze class attendees is reasonable based upon its internal
market research and the prior experience of its management team, no assurance
can be given, however, that such level of market penetration will be realized.
In April 1999, the Company entered into an oral arrangement with
Sun Remarketing, Inc. ("Sun Remarketing") pursuant to which Sun Remarketing
assisted the Company with the design, development, construction and initiation
of operation of the Company's website and agreed to render certain computer
engineering and other operational support services in connection with the
continuing operation of the website. The oral arrangement was recently
memorialized into a written agreement dated as of October 15, 1999 (the "Sun
Remarketing Agreement"), by and between Sun Remarketing and the Company. Sun
Remarketing is a designer of E-Commerce websites based in Smithfield, Utah which
has experience is the design and construction of websites that process and
fulfill orders through the Internet.
Pursuant to the Sun Remarketing Agreement, Sun Remarketing is
responsible for providing all of the hardware, software and related design and
computer engineering services necessary to create and operate the Company's
website. Sun Remarketing is also obligated to register the Company's website
with search engines such as Yahoo, Lycos and Excite, to obtain credit card
processing approvals for the website and to render other related operational
support and consulting services to the Company, including rendering advice with
respect to banner advertising and other new advertising concepts for the
Internet.
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In July 1999, the Company issued 50,000 shares of its Common Stock
to Sun Remarketing in partial compensation for services rendered in connection
with the initial design and construction of the Company's website. See "Recent
Sales of Unregistered Securities". Additionally, under the terms of the Sun
Remarketing Agreement, the Company is obligated to pay Sun Remarketing a minimum
monthly fee of $5,000 a month commencing in June 1999 for its computer
engineering services. If the value of the computer engineering services rendered
or performed exceeds $5,000 per month, the Company is obligated to pay Sun
Remarketing for the excess work at the rate of $50 per hour for executive
computer specialists and/or management executives, $35 per hour for senior
computer specialists and $25 per hour for junior computer specialists. To date,
the Company has paid Sun Remarketing a total of approximately $49,800 in cash
compensation for services rendered and the Company is current in all payments
required to be made under the Sun Remarketing Agreement.
The Sun Remarketing Agreement also granted Sun Remarketing or its
principal officer the right to purchase an additional 50,000 shares of Common
Stock at a price of $.50 per share at any time on or before August 15, 1999.
This right was exercised in full by the principal officer of Sun Remarketing in
July 1999 and the Company received final payment in full of the subscription
price for such shares on October 15, 1999. See "Recent Sales of Unregistered
Securities".
The Sun Remarketing Agreement does not contain a definitive date
upon which it will terminate and become null and void. However, either party may
cancel the Agreement at any time after December 31, 1999 upon sixty (60) days
written notice to the other party. If the Sun Remarketing Agreement is still in
force and effect after December 31, 1999, Sun Remarketing, or its principal
officer, has the right to purchase an additional 50,000 shares of Common Stock
at a price of $.50 per share at any time on or after January 1, 2000 and prior
to December 31, 2000.
In order to facilitate its operation, the Company's servers and
other hardware and software necessary to operate its website are located at Sun
Remarketing's facility in Utah and the website is currently operated by Sun
Remarketing from this location. The Company is in the process of installing a
system of duplicate servers and other hardware and software at its facilities in
Sarasota, Florida which gives the Company the ability to operate its website
from that location. The Company expects that the installation of this system
will be completed on or before January 1, 2000. This duplicate backup system can
be utilized by the Company to continue the operation of the website in the event
that any technical or other difficulties are encountered with the primary system
located in Utah. This duplicate backup system also gives the Company the
flexibility to assume operational control of the website from Sun Remarketing in
the future if it deems it appropriate to do so.
MASS MERCHANT DIVISION:
Presently, the Mass Merchant Division designs, develops, markets
and distributes nursing breast pads, nursing breast pad holders, nursing foot
rests, nursing breast pillows, breast milk refrigeration bags, manual breast
pumps, nursing breast shells, nursing privacy shawls and maternity compression
hose. The above products are marketed through the Company's sales
representatives to retail outlets such as Target Stores, Babies-R-Us, Eckerd
Drug, and others, as well as to various
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food and drug chains and specialty stores, located primarily in the United
States. Such products are generally distributed or shipped to the mass merchant
customers from the Company's main facility in Sarasota, Florida. Currently, the
Company has not entered into any marketing, distribution or supply agreements.
In the future, the Company plans to expand its mass merchant sales
force and offer additional products to its mass merchant customers, such as
infant layette products. To that end, the Company is presently seeking the
approval of LAMI to use the "Lamaze" brand name on such additional products. In
addition, the Company plans to develop and market a rosebaby.com brand line for
sale in upscale department and specialty stores. The Company anticipates that
the rosebaby.com brand line may include the following products: diaper cover
sheets, pull-up shirts, snap-side shirts, receiving blankets, training pants,
bibs, wash cloths and hooded towels, and that such products will be distributed
in the same manner as those currently offered by the Mass Merchant Division.
The Mass Merchant Division is the only division currently
generating significant revenues for the Company. See "Financial Statements".
CORPORATE DIVISION:
While still in the development stage, it is intended that the
Corporate Division will offer "turnkey" consulting services to Fortune 1000
companies and government facilities to help such organizations establish
acceptable, attractive and clean on-site nursing facilities to accommodate
nursing mothers while employed with those organizations. The services
contemplated to be offered by the Corporate Division include a national
lactation consultant hotline for employees of subscribing companies and monthly
support services for the corporate human resources department. The consulting
services to be rendered by the Corporate Division will be developed and
established under the supervision and direction of Dr. Francine H. Nichols, a
consultant to the Company and a member of its Board of Directors. The Company
anticipates that Dr. Nichols' status as an expert in maternal and child
healthcare and her notoriety and reputation in the childcare industry will give
the Corporate Division the necessary credibility to successfully market its
services to Fortune 1000 companies. Dr. Nichols and Sheldon Rose, Chief
Executive Officer, President and Chairman of the Board of the Company, will be
responsible for staffing this Division and marketing and selling the consulting
services of this Division. This Division has not yet engaged in commercial
activities, but is anticipated to begin rendering services and receiving revenue
during fiscal year 2000.
Enactment of certain pending federal legislation may be a
significant incentive for companies to utilize the consulting services and
products of the Company. Particularly, The Breastfeeding Promotion and
Employers' Tax Incentive Act of 1999 (HR 1163) was introduced to Congress during
the 1999 legislative session. This bill encourages employers to set up a safe,
private and sanitary environment for women to express or pump breast milk by
providing a tax credit for employers who set up a lactation location, purchase
or rent lactation related equipment, hire a lactation consultant or otherwise
promote a lactation friendly environment. This bill was referred to the House
Ways and Means Committee on May 17, 1999 where it is still currently pending. No
assurance can be given that such legislation will be enacted.
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AGREEMENT WITH LAMAZE. The Company has entered into an exclusive
agreement which extends through December 31, 2001 (the "Lamaze Agreement") with
LAMI, a for-profit affiliate of the Lamaze Organization, the number one
childbirth and infant care educator in the United States. The Lamaze Agreement
permits the Company, with prior approval from Lamaze, to use the "Lamaze" label
on certain maternity support hose and nursing shawls. In addition to the
provisions of the Lamaze Agreement, LAMI and the Company have also agreed that
(i) Lamaze International will distribute the Company's rosebaby.com/Lamaze
product brochure to participants in Lamaze classroom training, and (ii) the
Company may distribute Lamaze products through the rosebaby.com internet
website, its Mass Merchant Division and its Corporate Division.
Specifically, the Lamaze Agreement grants the Company the
exclusive rights to manufacture, supply, advertise, offer for sale, promote and
sell certain Lamaze products consisting of maternity support hose and a nursing
shawl (the "Authorized Products") within the United States of America, its
territories and possessions. Except as otherwise set forth in the Lamaze
Agreement, LAMI will not grant any sales rights to any third party for the
manufacture or sale of any of the Authorized Products. LAMI retains the right to
sell any Authorized Product through its own network with the agreement of the
Company. Although the Lamaze Agreement grants the Company exclusive rights to
the Authorized Products, it does not prohibit Lamaze International or LAMI from
marketing and selling, or entering into agreements with third parties, including
competitors of the Company, to market and sell, other prenatal and postpartum
products under the brand name "Lamaze" which would compete with the other
products being offered by the Company. Although the Company has no way of
verifying whether any such agreements exist, to the knowledge of the Company,
neither Lamaze International nor LAMI has entered into any such agreements with
third-party competitors.
In consideration for such rights, the Lamaze Agreement requires
the Company to pay to LAMI a fee equal to nine percent of the net sales of the
Authorized Products to its operating subsidiaries who in turn will sell the
products to mass merchants or ultimate consumers through the rosebaby.com
website. The Lamaze Agreement required the Company to pay LAMI a minimum of
$45,000 in 1999 against net sales of Authorized Products and this payment has
been made in full. Beginning in the year 2000, the Company is also required to
pay a minimum of $45,000 against sales in the sum of $22,500 on each January
15th and July 15th of every year. All of the above payments are non-refundable
advances on the fee due to LAMI upon same year net sales of Authorized Products
and shall therefore be credited against the fees payable on such sales. Pursuant
to the Lamaze Agreement, the Company agrees to sell a minimum of $500,000 of
Authorized Products annually. So long as the Company pays the minimum annual fee
of $45,000 for such year, the failure of the Company to sell a minimum of
$500,000 of Authorized Products during a year will not constitute a breach of
the Lamaze Agreement. The failure of the Company to sell a minimum of $500,000
of Authorized Products in a year without payment to LAMI of the minimum annual
fee of $45,000 for such year constitutes a material breach of the Lamaze
Agreement which permits LAMI to terminate the Lamaze Agreement in accordance
with its terms.
FUNDING ACTIVITIES. During the period commencing on July 1, 1999
and ending on September 15, 1999, the Company raised capital by offering shares
of its Common Stock on a
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private placement basis in compliance with Regulation D of the Securities and
Exchange Commission. A portion of the proceeds from such private placement
financing were used by the Company to finance the costs and development of its
website, to pay the costs of printing an initial 500,000 rosebaby.com/Lamaze
product brochures and to finance exhibits and attendance by representatives of
the Company at Lactation Consultants in Scotsdale, Arizona, the Cologne, Germany
Fair and the recently held Lamaze International Convention in Toronto, Canada.
The remaining portion of the proceeds of such private placement will be used by
the Company to print an additional 500,000 rosebaby.com/Lamaze product
brochures, to purchase and/or secure inventory, to pay for the initial print
advertisements in LAMAZE PARENTS MAGAZINE and LAMAZE BABY MAGAZINE as well as
other consumer publications, and to finance exhibits and representatives of the
Company at future conferences/tradeshows where the Company intends to meet and
exchange marketing concepts with existing and potential suppliers. The Company
anticipates that its working capital requirements for fiscal 2000 will be an
additional $1,000,000 to $1,500,000.
SECURE MANUFACTURING RESOURCES AND SUPPLIERS/DISTRIBUTION. The
Company contracts for the manufacture of its prenatal and postpartum products
through a group of independent manufacturing suppliers. The Company currently
has ongoing relationships with several domestic and foreign manufacturers for
its products. As of the date hereof, the Company's principal manufacturers are
Mid-Town Sewing of Middletown, New York and T&T, Inc. (Thanh Nguyen) of
Sarasota, Florida. The Company has not entered into any formal contractual
relationship with such manufacturers. Rather, the Company ships the manufacturer
the necessary raw materials for manufacture and negotiates the price thereof on
a per piece basis. Additionally, the Company currently manufacturers the breast
pads that it markets and distributes through its Mass Merchant Division and
could likewise purchase the equipment necessary to manufacture certain other
products offered by the Company.
In some instances, the manufacturers distribute the finished
products to the mass merchant customers, but, generally the Company packages and
distributes the products from its main facility. Though still finalizing the
process, the Company also intends to process and fulfill orders from its
E-Commerce division directly from its main facility. There can be no guarantee,
however, that the Company will be able to successfully secure adequate
distribution facilities or that upon securing same, will be able to successfully
implement the mass distribution process necessary to service its E-Commerce
customers. It is anticipated, however, that the Company can temporarily
outsource distribution requirements to meet any foreseeable product demand.
COMPETITION. The Company believes that, by virtue of its
relationship with Lamaze, it is in an advantageous competitive situation with
other existing E-Commerce competitors that sell maternal and baby products. As a
consequence of the Lamaze Agreement, the Company has acquired the right to use
the "Lamaze" name on its maternity support hose and nursing shawl products and
it intends to seek approval to use the name on additional products in the
future. Pursuant to its relationship with Lamaze International, the Company has
also secured the agreement of Lamaze to distribute its rosebaby.com/Lamaze
product brochure to participants in Lamaze classroom training. Although the
Company has no way of verifying whether any such agreements exist, to the
knowledge of the Company, neither Lamaze International nor LAMI has entered into
any similar arrangements with any of the Company's competitors. As a result of
its arrangement
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with Lamaze, the Company has the opportunity to have a one-on-one relationship
with its targeted customer base during the prenatal period through the Lamaze
classroom programs and also has the ability to target new mothers and infants
through distribution of the rosebaby.com/Lamaze product brochure. The product
line to be offered by the Company's website consists of products from
preconception to postpartum and addresses the needs of infants from the age of
one day old to three years old. It is intended that the products will be
upscale, high quality products geared toward an increasingly sophisticated,
technically-oriented domestic and international market.
While the Company believes it has a competitive edge as a
consequence of the Lamaze Agreement, it does face considerable, well-financed
competitors with existing websites such as Ibaby.com, Babycenter.com and
Etoys.com. With respect to the Mass Merchant business operations, the Company
has competition from several well-established distributors of
prenatal/post-partum products such as Gerber, Evenflo and Avent. Almost all of
the Company's competitors and potential competitors presently have considerably
greater financial and other resources, experience and market penetration than
does the Company.
RAW MATERIALS. The only raw material which the Company
substantially utilizes in its operations is fabric. The Company purchases fabric
from a variety of suppliers based upon best price estimates. There are various
alternative suppliers which could either replace or supplement those which are
currently utilized by the Company.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS. Given the nature of
the E-Commerce business, the Company does not expect that any single customer
will account for a significant percentage of its E-Commerce business. The
Company does not anticipate that any one or a few customers of its Corporate
Division will account for a substantial portion of such division's revenues. The
Mass Merchant Division has historically relied on sales to major retailers in
the United States, such as Target Stores, Babies-R-Us and Eckerd, for a
substantial portion of its revenue. In the years 1997 and 1998 and for the nine
months ended September 30, 1999, sales to one major retailer, Target Stores,
comprised 67%, 39% and 62.9%, respectively, of total sales for the Mass Merchant
Division during those periods. The Company does not currently have any written
contractual arrangements relating to the sale and/or supply of its products with
any major retailer, and, although no negotiations have taken place to date, the
Company is seeking to enter such agreements with one or more large retailers. No
assurance can be given, however, that the Company will be able to enter into any
such agreements.
INTELLECTUAL PROPERTY RIGHTS. At this time, Rosebaby has applied
with the United States Patent and Trademark Office for the trademark
"ROSEBABY.COM". To date, the application is still pending and the trademark has
not been secured. The Company recently also filed to copyright its website,
rosebaby.com, as well as the "rosebaby" logo of a baby nestled within a single
red rose.
The Company has entered into a Licensing Agreement with Valda K.
Hemming, d/b/a Pretty/Private, dated January 9, 1998, whereby it is granted a
license to manufacture, arrange for the manufacture and sell a patented product
known as the "Privacy Shawl", Patent No. 5,008960. Pursuant to such agreement,
the Company pays Pretty/Private a royalty fee equal to 7.5% of the net selling
price of each shawl.
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<PAGE>
PERSONNEL. The Company currently has fifteen employees (all of
whom are full-time) and two part-time consultants. It is anticipated that
additional other employees will be hired as the needs of the Company require.
REPORTS TO SHAREHOLDERS. The Company intends to furnish its
shareholders with annual reports containing audited financial statements and
such other periodic reports as the Company may determine to be appropriate or as
may be required by law. The Company is required to file annual and quarterly
reports, proxy materials and other reports required under the Securities
Exchange Act of 1934 (the "Exchange Act") and regulations of the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements, and
other information filed by the Company is available for inspection and copying
at the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at 7
World Trade Center, Suite 1300, New York, New York 10048, and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth St., N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a World Wide Website on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in
conjunction with the Company's Financial Statements (and related notes thereto)
included elsewhere in this Registration Statement.
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-branded 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. The decrease in cost of sales as a percentage of sales is due to the
change in product mix.
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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 WEBSITE EXPENSES
Catalogue and website 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 website based marketing tool during 1999.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 1999 was
$20,700, as compared to interest expense of $18,600 in the nine months ended
September 30, 1998. The primary reason for the $2,100 increase in interest
expense was due to obtaining more debt.
LOSS BEFORE INCOME TAXES
The preceding factors combined to show a decrease in net income
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.
TWELVE MONTHS ENDED DECEMBER 31, 1998 AND 1997
SALES
Sales for the year ended December 31, 1998 were $195,364, as
compared to $467,199 for the year ended December 31, 1997, a decrease of
$271,835 or 58.2%. This decrease is primarily the result of the fact that the
Company employees focused more upon development activities relating to the
Company's web site and E-Commerce Division than selling activities during fiscal
1998.
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COST OF SALES
Cost of sales for the year ended December 31, 1998 was $116,301
or 59.5% of sales, as compared to $254,341 or 54.4% of sales for the year ended
December 31, 1997. The decrease in cost of sales was primarily the result of
lower sales. The increase in cost of sales as a percentage of sales is a result
of the product mix sold during 1998 versus 1997.
As a result of the foregoing, gross profit decreased in 1998 to
40.5% of sales from 45.6% of sales in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses amounted to $327,025 or 167%
of sales in 1998 as compared to $222,564 or 47.6% of sales in 1997. The increase
of $104,461 is primarily due to an increase in salaries from $25,000 to $102,000
due to the addition of employees in the first full year of operations. Such
expenses included payroll, rent, and related overhead costs of $273,000.
INTEREST EXPENSE
Interest expense was $24,800 in 1998 as compared to $12,351 in
1997. 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 produce a loss before income
taxes of $278,747 as compared to a loss before income taxes of $24,468 in 1997.
LIQUIDITY AND 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 June 1999, the Company consummated
private placements of 400,000 shares of its Common Stock. The Company's
operating activities used cash of $229,714 and $69,314 for the years ended
December 31, 1998 and 1997, respectively, and $560,010 for the nine months ended
September 30, 1999. The principal use of cash in 1998 and 1997 was to finance
operating expenses.
The Company's investing activities used cash of $6,821; $27,665;
and $37,963 for the fiscal years ended December 31, 1998 and 1997 and the nine
months ended September 30, 1999, respectively. The principal source of cash
provided in these periods was loans from the Company's
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President, Sheldon R. Rose, in the approximately amount of $400,000. 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 $188,899;
$145,623, and $657,053 for the years ended December 31, 1998 and 1997 and the
nine months ended 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 of $672,067 and from the bridge loan
described below. See "Recent Sales of Unregistered Securities."
In January 1999, Rose Group Delaware, d/b/a in the State of
Florida as "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 lender. The loan bears interest at a rate of six percent 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 lender.
See "Recent Sales of Unregistered Securities."
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 Company received gross proceeds of $683,500 from
these private placements and such proceeds have been or will be utilized by the
Company to finance the costs and development of its website, print
rosebaby.com/Lamaze product brochures, purchase inventory and to finance other
working capital expenses.
In October 1999, the Company's website, rosebaby.com, became
operational and the Company arranged to print 500,000 rosebaby.com/Lamaze
product brochures. The Company anticipates that sales from its website will
initially be slow, but will increase substantially after the existence of the
website is made known to attendees of Lamaze classes through distribution of the
rosebaby.com/Lamaze product brochures.
The Company has entered into a Factoring Agreement with Bay View
Funding whereby Bay View Funding 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, legal
and accounting costs associated with Securities and Exchange Commission filing
requirements, as well as miscellaneous overhead. Management anticipates that the
Company's existing cash resources and cash generated from operations will not be
sufficient to fund its day-to-day operations during fiscal year 2000 and that it
will require additional funding in the range of $1,000,000 to $1,500,000 during
such year. The Company anticipates that it will seek
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such funding through private placements of its securities, bank borrowings
and/or other sources of financing. There can be no assurance that such funding
will be available to the Company on terms satisfactory to the Company. The
inability of the Company to secure such funding on terms acceptable to the
Company will adversely affect its operations and may force it to cease
operations.
Management believes that it will be able to achieve a positive
cash flow from operations when monthly sales from the Company's website reach
approximately $1,000,000. When monthly sales reach such level, management
anticipates that the Company's existing cash resources and cash generated from
operations will be sufficient to fund the Company's ongoing operations and
provide for the 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.
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 has contacted all material customers, vendors,
suppliers, and non-information technology suppliers regarding their Year 2000
state of readiness and, based on such discussions, the Company does not
anticipate that those customers, vendors and suppliers will have any Year 2000
related problems. 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.
ITEM 3. DESCRIPTION OF PROPERTY.
(a) LOCATION, OWNERSHIP STATUS AND DESCRIPTION OF PRINCIPAL
PROPERTIES. The Company's principal facility has been recently relocated to 1535
Northgate Boulevard, Sarasota, Florida 34234. The Company leases approximately
9,300 square feet of space at such location pursuant to a written lease
agreement at a rental cost of $3,875 per month, as increased by increases in the
Consumer Price Index on an annual basis. The lease expires on August 31, 2002.
The facility
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is currently utilized for both the administrative and distribution aspects of
the Company's business. Management believes that the Company's facilities are
adequately insured and are currently suitable as the main administrative office
and distribution facilities.
Except as stated below, the Company does not have any additional
facilities, and there are currently no proposed plans for the renovation,
improvement or development of the facilities currently being leased by the
Company. In connection with the services to be rendered by Sun Remarketing in
developing and operating the Company's website, certain servers and other
hardware and software of the Company will be located at the offices of Sun
Remarketing in Smithfield, Utah, as well as other site locations in the
Sarasota, Florida area.
(b) INVESTMENT POLICIES. Currently, the Company does not have
policies regarding the acquisition of assets primarily for possible capital gain
or income. The Company does not presently hold any investments in real estate,
interests in real estate, real estate mortgages or securities of or interests in
persons primarily engaged in real estate activities.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock by each person or group that
is known by the Company to be the beneficial owner of more than five percent of
its outstanding Common Stock, each director of the Company, each person named in
the Summary Compensation Table, and all directors and executive officers of the
Company as a group as of November 30, 1999. Unless otherwise indicated, the
Company believes that the persons named in the table below, based on information
furnished by such owners, have sole voting and investment power with respect to
the Common Stock beneficially owned by them, subject to community property laws,
where applicable.
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES OF COMMON PERCENTAGE OWNERSHIP OF
BENEFICIAL OWNER STOCK BENEFICIALLY OWNED COMMON STOCK OUTSTANDING
---------------- ------------------------ ------------------------
<S> <C> <C>
Sheldon R. Rose 4,225,000(1) 56.98%
8990 Wembley Court
Sarasota, FL 34238
Robert H. Jaffe 985,650(2) 14.05%
8 Mountain Avenue
Springfield, NJ 07081
Dr. Francine H. Nichols 150,000(3) .024%
2138 California Street, N.W.
Suite 203
Washington, D.C. 20008
Steven H. Rose 150,000(3) .024%
483 Alexander Palm Road
Boca Raton, FL 33432
Spencer Halper 100,000 .016%
15 Ardsleigh Place
Jamesburg, NJ 08831
All Directors and Officers 4,625,000(4) 61.54%
as a Group (4 Persons)
</TABLE>
(1)Includes currently exercisable options to purchase 550,000 shares of
Common Stock. The Option Agreements which govern the terms of the noted
options provide that the amount of shares which the holder may purchase
upon exercise shall double upon the Company reaching $100,000,000 in
gross sales provided the holder is still a key employee, officer,
director, consultant or legal counsel of the Company.
(2)Includes currently exercisable options to purchase 150,000 shares of
Common Stock and 135,750 shares held by Portfolio Promotions
International, Ltd., of which Mr. Jaffe is the sole shareholder. The
Option Agreements which govern the terms of the noted options provide
that the amount of shares which the holder may purchase upon exercise
shall double upon the Company reaching $100,000,000 in gross sales
provided the holder is still a key employee, officer, director,
consultant or legal counsel of the Company.
(3)Includes currently exercisable options to purchase 50,000 shares of
Common Stock. The Option Agreements which govern the terms of the noted
options provide that the amount of shares which the holder may purchase
upon exercise shall double upon the Company reaching $100,000,000 in
gross sales provided the holder is still a key employee, officer,
director, consultant or legal counsel of the Company.
(4)Includes an aggregate of 650,000 shares of Common Stock issuable upon
exercise of outstanding options and warrants. The Option Agreements
which govern the terms of the noted options provide that the amount of
shares which the holder may purchase upon exercise shall double upon the
Company reaching $100,000,000 in gross sales provided the holder is
still a key employee, officer, director, consultant or legal counsel of
the Company.
The Company currently has no arrangements which may result in a
change of control.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors, executive officers and significant employees of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
<S> <C> <C>
Sheldon R. Rose 60 Chief Executive Officer, President and Chairman
of the Board
Dr. Francine H. Nichols 62 Director
Spencer Halper 64 Director
Steven H. Rose 54 Director
Lori M. Majeski 42 Vice President - Marketing
Mark C. Nicholas 31 Vice President - Operations
</TABLE>
MR. SHELDON R. ROSE. Mr. Rose has had extensive business
experience with American Machine & Foundry Co. (1960-1964) where he completed
his services as the Manager of Long Range Planning for the Aerospace General
Engineering Division. Mr. Rose also worked for Cutler Hammer as a Sales Engineer
from 1964-1968. From 1969-1972, he was Vice President of Marketing for Computer
Solutions, Inc., where he provided computer hardware and software related
services to accountants, distributors and small to medium size business
organizations. From 1972-1975, he was Corporate Acquisition Marketing Manager
for Teleprocessing Industries, a division of Western Union. In 1975-1982, he was
President of Ambassador Corporation, a prenatal and postpartum product services
company. From 1982 through approximately March, 1997, he was affiliated with
Diplomat Corporation as its founder, Chairman and Chief Executive Officer.
DR. FRANCINE H. NICHOLS. Dr. Nichols currently acts as an
outside director and consultant to the Company. Dr. Nichols obtained her Ph.D.
degree in nursing from the University of Texas in 1984, with an emphasis on
parent/child research and child health issues. Dr. Nichols presently serves as
President of MCH Consultants specializing in maternal and child health care. She
is also the author of numerous books, articles and film productions related to
"How To's" on infant care with particular emphasis on infant products. She was a
Visiting Associate Professor in the School of Nursing at the Catholic University
of America in Washington, D.C. from 1991 through 1993. Dr. Nichols has also had
extensive affiliations with The University of Kansas School of Medicine and
Wichita State University where she has been a Clinical Assistant Professor of
Pediatrics (School of Medicine) and Associate Professor (School for Nursing) in
charge of The Maternal Child Nursing Graduate Program. She was also President
and board member of ASPO/LAMAZE from 1984 through 1991, the National LAMAZE
Childbirth Organization headquartered in Washington, D.C.
MR. SPENCER HALPER. Mr. Halper has had extensive business
experience in developing business into leading national brands in the specialty
catalog industry. He started Consumer Distributing Catalog Showrooms in 1973
through 1976 as director of advertising and marketing.
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Mr. Halper worked for Haliover Direct (1976-1995) in various capacities,
including Executive Vice President of the Specialty Catalog Division.
MR. STEVEN H. ROSE. Mr. Rose has been Chairman and President
of Rose Research for approximately the past eight years and has been actively
engaged in the marketing research field for more than twenty-five years. Mr.
Rose is an Executive Member of the American Marketing Association and has made
numerous speeches to various client and trade organizations. In addition, he has
been quoted in a number of marketing books and publications pertaining to
research and new methodological applications in the 1990's. Prior to forming
Rose Research, Mr. Rose has been associated with Daniel Yankelovich for nearly
twenty years. From the early days of Yankelovich, Skelly and White, to becoming
a founding partner of the Daniel Yankelovich Group/DYG, Mr. Rose has been at the
forefront of the marketing research industry.
MS. LORI M. MAJESKI. Ms. Majeski has been actively
engaged in the marketing and product development field for over twenty years,
and has spent the past four years operating her own consulting company. Her
consulting activities focus upon retail, marketing, merchandising and product
development services for children's educational toys, juvenile accessories and
infant and children's apparel. Prior to founding her own consulting company, Ms.
Majeski worked for Mamiye Brothers, Inc. (1994-1995) and Donnkenny, Inc.
(1993-1994) where she was directly responsible for the design, product
development, production and merchandising of high-end children's wear apparel
lines for the Walt Disney Company and affiliated entities thereof.
MR. MARK C. NICHOLAS. Mr. Nicholas began his career in 1989
with Diplomat Corporation, a NASDAQ publicly traded corporation. His
responsibilities during his eight year tenure with Diplomat Corporation included
serving as Director of Operations and directing all of the warehouse and
distribution functions for over 150 products. Part of his responsibilities
included distribution of products to mass merchants and a National LAMAZE Premie
Catalogue. Mr. Nicholas has an Associates Degree in Business Management from
Rockland Community College, Suffern, New York.
All of the above individuals, with the exception of Ms.
Majeski, have held their respective positions since March 13, 1997. Ms. Majeski
has been the Vice President-Marketing since July 6, 1999.
FAMILY RELATIONSHIPS. Sheldon R. Rose and Steven H. Rose are
brothers and Mark C. Nicholas is the son-in-law of Sheldon R. Rose. There are no
other family relationships among the Company's directors and/or executive
officers.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. To the best of
management's knowledge, during the past five years, no present or former
director or executive officer of the Company:
(1) has filed a petition under federal bankruptcy laws or any
state insolvency law, had a receiver, fiscal agent or similar officer appointed
by a court for the business or property of such person, or any partnership in
which he was a general partner at or within two years before the time
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of such filing, or any corporation or business association of which he was an
executive officer at or within two years before the time of such filing;
(2) was convicted in a criminal proceeding or named the subject
of a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction in a civil
action, the Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated any federal or state securities law.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation paid by the
Company to, as well as any other compensation paid to or earned by, the Chief
Executive Officer of the Company and those executive officers compensated at or
greater than $100,000 for services rendered to the Company in all capacities
during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
NAME OF INDIVIDUAL RESTRICTED STOCK SECURITIES
AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS UNDERLYING OPTIONS
<S> <C> <C> <C> <C> <C>
Sheldon R. Rose, Chief 1998 $120,000 - - -
Executive Officer, 1997 14,381 - - -
President and Chairman of
the Board
</TABLE>
The Company has reserved 250,000 shares of Common Stock for
issuance upon exercise of options that may be granted to retain future
management professionals.
COMPENSATION OF DIRECTORS. Outside directors of the Company are
currently entitled to receive $500 per diem for attendance at meetings of the
Board of Directors.
COMPENSATION AGREEMENTS. The Company has entered into an
employment agreement effective July 1, 1999 with Sheldon R. Rose. Pursuant to
such employment agreement, Mr. Rose will act as Chairman, Chief Executive
Officer and President of the Company and will be entitled to an annual salary of
$120,000. Upon the Company achieving gross sales in an amount equal to
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$50,000,000, Mr. Rose's base salary shall be increased to $180,000 per annum.
Mr. Rose's salary shall again be increased to $240,000 per annum upon the
Company achieving gross sales equal to $100,000,000. Thereafter, Mr. Rose shall
receive an additional $30,000 per annum for every $50,000,000 increase in gross
sales. The employment agreement shall remain in effect until July 1, 2004, at
which time such agreement will be automatically extended for successive one year
periods unless either party notifies the other to the contrary by not less than
sixty days written notice.
In the event of a change of control of the Company, the successor
entity has the right to terminate the Employment Agreement, in which instance
such entity shall make payment to Mr. Rose in an amount equal to two times his
then current annual salary.
The Company has entered into consulting arrangements with Dr.
Francine H. Nichols and Spencer Halper, each of whom is a director of the
Company. Pursuant to those arrangements, the Company pays, on a retainer basis,
consulting fees of $1,000 per month, plus reimbursement of expenses to Dr.
Nichols and Mr. Halper.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
LOANS. As of December 31, 1998 the Company issued a promissory
note to Sheldon R. Rose, the Chairman, Chief Executive Officer and President of
the Company, in the principal amount of $350,000 in order to evidence its
obligation to repay certain advances made by Mr. Rose to the Company for the
payment of various business expenses. Such promissory note bears interest at a
rate of six percent per annum, payable annually, and the principal amount
thereof is due and payable in full, on December 31, 2001. In addition, the
Company also owes Mr. Rose an additional $13,454 as reimbursement for certain
other cash advances. Such amount does not bear interest and is payable on
demand.
INDEMNIFICATION AGREEMENTS. Pursuant to agreements with two
investors, at the sole option of the investors, Robert H. Jaffe, a greater than
five percent beneficial owner of the Company's Common Stock, is obligated to
repurchase all or a portion of 150,000 shares of Common Stock at a price of
seventy-five cents ($.75) per share at any time during the period commencing
March 25, 2000 and ending September 30, 2000. The Company has indemnified Mr.
Jaffe for any and all costs and expenses which he may incur in connection with
any litigation resulting from the Company's sale of Common Stock to such
investors.
ITEM 8. DESCRIPTION OF SECURITIES.
QUALIFICATION. The following statements constitute brief summaries
of the Company's Articles of Incorporation and Bylaws, as amended. Such
summaries do not purport to be complete and are qualified in their entirety by
reference to the full text of the Articles of Incorporation and Bylaws.
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The Company's Articles of Incorporation authorize it to issue up
to 50,000,000 shares of Common Stock, $.001 par value per share and 2,000,000
shares of Preferred Stock, $.001 par value per share. As of November 30, 1999,
there were 7,845,670 shares of Common Stock issued and outstanding with 108,698
of such shares being held in treasury. None of the Company's 2,000,000 shares of
Preferred Stock are currently issued or outstanding.
COMMON STOCK. The Company's Articles of Incorporation authorize it
to issue up to 50,000,000 shares of Common Stock, $.001 par value per share. All
outstanding shares of Common Stock are legally issued, fully paid and
non-assessable.
LIQUIDATION RIGHTS. Upon liquidation or dissolution, each
outstanding share of Common Stock will be entitled to share equally in the
assets of the Company legally available for distribution to shareholders after
the payment of all debts and other liabilities.
DIVIDEND RIGHTS. Except with regard to the Preferred Stock, there
are no limitations or restrictions upon the rights of the Board of Directors to
declare dividends out of any funds legally available therefor. The Company has
not paid dividends to date and it is not anticipated that any dividends will be
paid in the foreseeable future. The Board of Directors initially may follow a
policy of retaining earnings, if any, to finance the future growth of the
Company. Accordingly, future dividends, if any, will depend upon, among other
considerations, the Company's need for working capital and its financial
condition at the time.
VOTING RIGHTS. Holders of shares of Common Stock of the Company
are entitled to cast one vote for each share held at all shareholders meetings
for all purposes.
OTHER RIGHTS. Shares of Common Stock are not redeemable, have
no conversion rights and carry no preemptive or other rights to subscribe to or
purchase additional shares of Common Stock in the event of a subsequent
offering.
Nevada law does not require shareholder approval for the issuance
of authorized but unissued shares of Common Stock. Such issuances may be made
for a variety of corporate purposes, including future private and public
offerings to raise additional capital or to facilitate corporate acquisitions.
PREFERRED STOCK. The Company currently has no plans to issue any
of its Preferred Stock. The Company's Board of Directors does, however, have the
authority, without action by the shareholders, to issue all or any portion of
the authorized but unissued Preferred Stock.
The Preferred Stock is non-voting and non-assessable and it is not
subject to recall. The Preferred Stock, when issued, shall be entitled to
priority over the Common Stock in the payment of any dividends, such that no
dividend may be paid on the Common Stock until any declared dividend is paid
upon all Preferred Stock. Further, no dividend shall be paid on the Common
Stock, unless and until a dividend at least one percent higher than that paid on
the Common Stock for the equivalent period is paid on the Preferred Stock. The
Preferred Stock, when issued, shall also have
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<PAGE>
priority over the Common Stock in the event of a dissolution and in all other
manners and events as Nevada corporate law shall now or hereafter provide.
The Company considers it desirable to have Preferred Stock
available to provide increased flexibility in structuring possible future
financings and in meeting corporate needs which may arise. If opportunities
arise that would make it desirable to issue Preferred Stock through either
public offerings or private placements, the provision for Preferred Stock in the
Company's Articles of Incorporation would avoid the possible delay and expense
of a shareholders' meeting, except as may be required by law or regulatory
authorities. Issuance of the Preferred Stock will result, however, in a class of
securities outstanding that would have certain preferences with respect to
dividends and liquidation over the Common Stock which would result in dilution
of the income per share and net book value of the Common Stock. The Board of
Directors does not intend to issue any Preferred Stock except in circumstances
which it deems to be in the best interest of the Company and its shareholders.
DEBT AND OTHER SECURITIES. The Company is not registering
any security other than its Common Stock.
CHANGE OF CONTROL. There are currently no provisions in the
Company's Articles of Incorporation or Bylaws that would delay or prevent a
change of control of the Company.
TRANSFER AGENT. Atlas Stock Transfer of Salt Lake City, Utah
serves as the Company's transfer agent.
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<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
MARKET INFORMATION. The Company has no public trading market for
its Common Stock. Although the Company intends to seek a quotation for its
shares of Common Stock on the National Association of Securities Dealers, Inc.
OTC Bulletin Board in the future, there is no assurance the Company will do so,
nor is there any assurance that should the Company succeed in obtaining a
listing for its securities on the OTC Bulletin Board or on some other exchange,
that a trading market for the Company's Common Stock will develop. The amount of
Common Stock that is subject to outstanding options or warrants to purchase or
securities convertible into Common Stock is 1,050,000 shares. The amount of
Common Stock that can be sold pursuant to Rule 144 of the Securities Act of
1933, as amended (the "Securities Act") is approximately 6,455,000 shares of
which shares the Company has agreed to register approximately 1,720,000 shares
under the Securities Act for future sale by the holders thereof. Also, there is
currently no Common Stock that is being or is proposed to be publicly offered by
the Company, the offering of which could have a material effect on the market
price of the Company's Common Stock.
STOCKHOLDERS. The Company's transfer agent, Atlas Stock Transfer
of Salt Lake City, Utah, confirms that as of November 30, 1999, there were 268
shareholders of record holding Common Stock. However, the Company believes that
there are at least another 100 shareholders whose shares of Common Stock are
held in street name.
DIVIDENDS. To date, the Company has not paid any dividends on its
Common Stock. The payment of dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements and financial condition and other relevant
factors. The Board does not intend to declare any dividends in the foreseeable
future, but instead intends to retain all earnings, if any, for use in the
Company's business operations. Under Nevada corporate law, dividends may be paid
out of surplus or, in case there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or the proceeding fiscal year.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings, and
to the best of management's knowledge, no such proceeding by or against the
Company has been threatened. To management's knowledge, no governmental
authority is contemplating the institution of a proceeding against the Company.
None of the Company's directors, officers, affiliates or beneficial owners of
five percent or more of any class of the Company's voting securities are a party
adverse to the Company nor do any of the foregoing individuals have a material
interest adverse to the Company.
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<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
During the Company's two most recent fiscal years or any later
interim period, there have been no changes in or disagreements with the
Company's principal independent accountants or a significant subsidiary's
independent accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1996, the Company (operating as Vascular International of
Nevada, Inc.) initially issued 14,000,000 shares of its Common Stock to the
shareholders of its then public parent corporation, Vascular International,
Inc., as a 1:1 share dividend, whereby the assets and shareholders of the parent
corporation were effectively transferred to the Company. Such issuance was made
pursuant to Section 4(2) of the Securities Act.
In December 1997, the Company issued 600,000 shares (after giving
effect to a reserve stock split) of its Common Stock to its then present
management and affiliates for the purpose of securing interim capitalization of
$14,500 and reorganizational services. Such issuance was made pursuant to
Section 4(2) of the Securities Act.
On December 15, 1997, the Company authorized a 50:1 reverse stock
split and issued 20,000 post-reverse split shares of its Common Stock to a
director, 20,000 post-reverse split shares of its Common Stock to its Utah-based
legal counsel and 25,000 post-reverse split shares of its Common Stock to its
President. Such issuance was made pursuant to Section 4(2) of the Securities
Act.
On December 15, 1997, the Company entered into an Exchange of
Stock Agreement and Plan of Reorganization with Rose Group Delaware whereby the
Company issued, effective March 13, 1997, 4,500,000 shares of its Common Stock
to the sole shareholder of Rose Group Delaware, in exchange for all of his
shares in Rose Group Delaware. Such issuance was made pursuant to Section 4(2)
of the Securities Act.
Pursuant to a letter termination agreement, dated November 17,
1998, the Company agreed to issue a total of 75,000 shares of its Common Stock
and to repay an outstanding advance to a consulting company as compensation for
services rendered and in full release of all obligations under a Financial
Consulting Agreement, by and between the Company and the consulting company
dated January 22, 1998, as amended by letter agreement dated May 8, 1998.
Subsequent to March 31, 1999, the subject 75,000 shares were issued pursuant to
Section 4(2) of the Securities Act.
On March 24, 1999, the Company sold and issued 200,000 shares of
its Common Stock to a sophisticated corporate investor, at a purchase price of
fifty cents per share or an aggregate price of $100,000. Upon issuance, the
Company agreed that it would not issue shares of Common Stock in excess of ten
percent of the amount outstanding on March 24, 1999 for a price less than fifty
cents per share without the prior approval of the investor. In connection with
the issuance of these shares, Mr. Jaffe, a greater than five percent beneficial
owner of the Company's Common Stock, has agreed
-24-
<PAGE>
to repurchase 100,000 of these shares at a price of seventy-five cents per
share. The Company has agreed to indemnify Mr. Jaffe for any and all costs and
expenses which he may incur in connection with any litigation resulting from the
Company's sale of Common Stock to such investor. See "Certain Relationships and
Related Transactions". Such issuance was made pursuant to Rule 504 of Regulation
D under the Securities Act.
On March 24, 1999, in consideration for a $100,000 bridge loan,
the Company sold and issued options to purchase 100,000 shares of its Common
Stock at a purchase price of fifty cents ($.50) per share to Andrew Freundlich.
Such options are exercisable at any time until June 30, 2001, and are subject to
adjustments for stock splits, exchange of shares or otherwise. The $100,000
bridge loan is evidenced by a promissory note, which bears interest at a rate of
six percent per annum and is due and payable on March 15, 2000, with interest to
be paid quarterly. Upon default, such note will bear interest at eighteen
percent. Robert H. Jaffe, a greater than five percent beneficial owner of the
Company's Common Stock, received a $5,000 finder's fee in connection with the
bridge loan and related issuance and Mr. Freundlich received a $15,000 placement
fee. Such issuance was made pursuant to Section 4(2) of the Securities Act.
On March 26, 1999, the Company issued 50,000 shares of its Common
Stock to Robert H. Jaffe in payment for services rendered thereby in connection
with the (i) negotiation of reductions in various outstanding Company
obligations, and (ii) introduction to companies that could aid in the
preparation of an E-Commerce website. Such issuance was made pursuant to Section
4(2) of the Securities Act.
On March 26, 1999, the Company issued 50,000 shares of its Common
Stock to each of Steven H. Rose, Dr. Francine H. Nichols, Spencer Halper and
Mark C. Nicholas for services rendered to the Company during the first quarter
of 1999. Such issuance was made pursuant to Section 4(2) of the Securities Act.
On March 30, 1999, the Company sold and issued 100,000 shares of
its Common Stock to a sophisticated individual investor, at a purchase price of
fifty cents per share or an aggregate price of $50,000. In connection with the
issuance of these shares, Mr. Jaffe, a greater than five percent beneficial
owner of the Company's Common Stock, has agreed to repurchase 50,000 of these
shares at a price of seventy-five cents per share. The Company has agreed to
indemnify Mr. Jaffe for any and all costs and expenses which he incurs in
connection with any litigation resulting from the Company's sale of Common Stock
to such investor. See "Certain Relationships and Related Transactions". Such
issuance was made pursuant to Rule 504 of Regulation D under the Securities Act.
On April 8, 1999, the Company sold and issued 100,000 shares of
its Common Stock to a sophisticated individual investor, at a purchase price of
fifty cents ($.50) per share or an aggregate price of $50,000. Such issuance was
made pursuant to Rule 504 of Regulation D under the Securities Act.
On July 1, 1999, the Company sold and issued 40,000 shares of its
Common Stock to a charitable investment fund, at a purchase price of fifty cents
($.50) per share or an aggregate price
-25-
<PAGE>
of $20,000. Such issuance was made pursuant to Rule 505 of Regulation D under
the Securities Act. Robert H. Jaffe, a greater than five percent beneficial
owner of the Company's Common Stock, received a five percent finder's fee in
connection with this issuance.
On July 9, 1999, the Company sold and issued 50,000 shares of its
Common Stock to a sophisticated individual investor, at a purchase price of
fifty cents ($.50) per share or an aggregate price of $25,000. Such issuance was
made pursuant to Rule 505 of Regulation D under the Securities Act.
On July 12, 1999, the Company sold and issued 50,000 shares of its
Common Stock to a sophisticated individual investor, at a purchase price of
fifty cents ($.50) per share or an aggregate price of $25,000. Such issuance was
made pursuant to Rule 505 of Regulation D under the Securities Act. Robert H.
Jaffe, a greater than five percent beneficial owner of the Company's Common
Stock, received a five percent finder's fee in connection with this issuance.
On July 14, 1999, in recognition of their efforts on behalf of the
Company, the Company issued options to purchase 550,000 shares of Common Stock
at $1.00 per share to Sheldon R. Rose, options to purchase 150,000 shares at
$1.00 per share to Robert H. Jaffe and options to purchase 50,000 shares at
$1.00 per share to each of Steven H. Rose, Dr. Francine H. Nichols, Lori M.
Majeski, Mark C. Nicholas and Jared Rose. The amount of shares underlying each
of the above-noted options shall double upon the Company achieving gross sales
in excess of $100,000,000 provided the individual is still a key employee,
officer, director, consultant or legal counsel of the Company. Such issuance was
made pursuant to Section 4(2) of the Securities Act.
On July 21, 1999, the Company issued 50,000 shares of Common Stock
to Sun Remarketing as part of Sun Remarketing's agreement to render certain
services to the Company in connection with the development of its website. Such
issuance was made pursuant to Section 4(2) of the Securities Act.
On July 21, 1999, the Company sold and issued 150,000 shares of
its Common Stock to four sophisticated individual investors, at a purchase price
of fifty cents ($.50) per share or an aggregate price of $75,000. Such issuances
were made pursuant to Rule 505 of Regulation D under the Securities Act.
Robert H. Jaffe, a greater than five percent beneficial owner of the Company's
Common Stock, received a five percent finder's fee in connection with those
issuances.
On July 27, 1999, the Company sold and issued 10,000 shares of its
Common Stock to a sophisticated individual investor, at a purchase price of
fifty cents ($.50) per share or an aggregate price of $5,000. Such issuance was
made pursuant to Rule 505 of Regulation D under the Securities Act. Robert H.
Jaffe, a greater than five percent beneficial owner of the Company's Common
Stock, received a five percent finder's fee in connection with this issuance.
On August 3, 1999, the Company sold and issued 50,000 shares of
its Common Stock to two sophisticated individual investors, at a purchase price
of fifty cents ($.50) per share or an aggregate price of $25,000. Such issuances
were made pursuant to Rule 505 of Regulation D under
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<PAGE>
the Securities Act. Robert H. Jaffe, a greater than five percent beneficial
owner of the Company's Common Stock, received a five percent finder's fee in
connection with those issuances.
On August 5, 1999, the Company sold and issued 200,000 shares of
its Common Stock to three sophisticated investors, at a purchase price of fifty
cents ($.50) per share or an aggregate price of $100,000. Such issuances were
made pursuant to Rule 505 of Regulation D under the Securities Act. Robert H.
Jaffe, a greater than five percent beneficial owner of the Company's Common
Stock, received a five percent finder's fee in connection with those issuances.
On August 13, 1999, the Company sold and issued 30,000 shares of
its Common Stock to three sophisticated individual investors, at a purchase
price of fifty cents ($.50) per share or an aggregate price of $15,000. Such
issuances were made pursuant to Rule 505 of Regulation D under the Securities
Act. Robert H. Jaffe, a greater than five percent beneficial owner of the
Company's Common Stock, received a five percent finder's fee in connection with
those issuances.
On August 19, 1999, the Company issued and sold 200,000 shares of
Common Stock to an existing shareholder of the Company at a purchase price of
fifty cents ($.50) per share or an aggregate price of $100,000. The issuance of
these 200,000 shares was completed in compliance with Section 4(2) of the
Securities Act.
On August 23, 1999, the Company sold and issued 105,000 shares of
its Common Stock to five sophisticated individual investors, at a purchase price
of fifty cents ($.50) per share or an aggregate price of $52,500. Such issuances
were made pursuant to Rule 505 of Regulation D under the Securities Act. Robert
H. Jaffe, a greater than five percent beneficial owner of the Company's Common
Stock, received a five percent finder's fee in connection with those issuances.
On August 31, 1999, the Company sold and issued 52,000 shares of
its Common Stock to four sophisticated individual investors, at a purchase price
of fifty cents ($.50) per share or an aggregate price of $26,000. Such issuances
were made pursuant to Rule 505 of Regulation D under the Securities Act. Robert
H. Jaffe, a greater than five percent beneficial owner of the Company's Common
Stock, received a five percent finder's fee in connection with those issuances.
On September 13, 1999, the Company sold and issued 30,000 shares
of its Common Stock to two sophisticated individual investors, at a purchase
price of fifty cents ($.50) per share or an aggregate price of $15,000. Such
issuances were made pursuant to Rule 505 of Regulation D under the Securities
Act. Robert H. Jaffe, a greater than five percent beneficial owner of the
Company's Common Stock, received a five percent finder's fee in connection with
those issuances.
During October 1999, the Company sold and issued 640,000 shares of
its Common Stock to thirteen 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 five percent beneficial owner of the Company's Common
Stock, received a five percent finder's fee in connection with those issuances.
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<PAGE>
All of the above purchasers acquired the securities for investment
and there was no general advertising or general solicitations in connection with
the offer and sale of the securities. The Company believes that each purchaser
was given access to financial and other information with respect to the Company
and in connection with these sales. Other than the transactions listed above,
the Company has carried out no other unregistered sales of securities since its
incorporation.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Nevada law, director immunity from liability to a
corporation or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a corporation's Articles of Incorporation
(which is not the case with the Company's Articles of Incorporation). Excepted
from that immunity are: (i) a willful failure to deal fairly with the
corporation or its shareholders in connection with a matter in which the
director has a material conflict of interest; (ii) a violation of criminal law
(unless the director had reasonable cause to believe that his or her conduct was
lawful or no reasonable cause to believe that his or her conduct was unlawful);
(iii) a transaction from which the director derived an improper personal profit;
and (iv) willful misconduct.
Under certain circumstances, Nevada law provides for
indemnification of the Company's officers, directors, employees and agents
against liabilities that they may incur in such capacities. In general, any
officer, director, employee or agent may be indemnified against expenses, fines,
settlements or judgments arising in connection with a legal proceeding to which
such person is a party, if that person's actions were in good faith, were
believed to be in the Company's best interest, and were not unlawful. Unless
such person is successful upon the merits in such action, indemnification may be
awarded only after a determination by independent decision of the Board of
Directors, by legal counsel, or by a vote of the shareholders, that the
applicable standard of conduct was met by the person to be indemnified.
The circumstances under which indemnification is granted in
connection with an action brought on behalf of the Company is generally the same
as those set forth above; however, with respect to such actions, indemnification
is granted only with respect to expenses actually incurred in connection with
the defense or settlement of the action. In such actions, the person to be
indemnified must have acted in good faith and in a manner believed to have been
in the Company's best interest, and must not have been adjudged liable for
negligence or misconduct.
The foregoing is only a summary description and is qualified in
its entirety by reference to the applicable Nevada Revised Statutes,
specifically Sections 78.037, 78.295, 78.300, 78.7502, 78.751 and 78.752
thereof.
Section 4.3 of the Company's Articles of Incorporation limits
directors' personal liability to the Company or its shareholders to acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, including repayment of distributions made in violation of Nevada Corporate
law. Article V of the Company's Bylaws provides for indemnification of corporate
agents in certain instances and authorizes the purchase of liability insurance
with regard thereto. The statutory provisions also grant the Company the power
to purchase and maintain insurance which
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<PAGE>
protects its officers and directors against any liabilities incurred in
connection with their services in such positions, and such a policy may be
obtained by the Company.
Except as otherwise disclosed in "Certain Relationships and
Related Transactions", as of the date hereof, the Company has no contracts in
effect providing any person or entity with any specific rights of
indemnification although the Company's Bylaws may authorize its Board of
Directors to enter into and deliver such contracts to provide a person or entity
with specific rights of indemnification in addition to the rights provided in
the Articles of Incorporation and Bylaws to the fullest extent provided under
Nevada law. The Company has no special insurance against liability although the
Company's Bylaws provide that the Company may, unless prohibited by Nevada law,
maintain such insurance.
Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers and controlling persons
of the Company, the Company has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceedings) is
asserted by such director, officer or controlling person in connection with any
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issues.
INDEMNIFICATION OF DIRECTORS, OFFICERS OR OTHER PERSONS
CONTROLLING THE COMPANY FOR LIABILITIES ARISING UNDER THE SECURITIES ACT IS HELD
TO BE AGAINST PUBLIC POLICY BY THE COMMISSION AND IS, THEREFORE, UNENFORCEABLE.
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<PAGE>
PART F/S
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditor's Report dated April 8, 1999................................................................F-1
Consolidated Balance Sheet as of December 31, 1998 (audited) and
September 30, 1999 (unaudited)..................................................................................F-3
Consolidated Statements of Operations for the Years Ending December 31,
1998 and 1997 (audited) and the Nine Months Ended September 30,
1999 and 1998 (unaudited).......................................................................................F-5
Consolidated Statements of Changes in Stockholder's Deficit for the Years Ending
December 31, 1998 and 1997 (audited) and the Nine Months Ended September 30,
1999 and 1998 (unaudited).......................................................................................F-6
Consolidated Statements of Cash Flows for the Years Ending December 31,
1998 and 1997 (audited) and the Nine Months Ended September 30,
1999 and 1998 (unaudited).......................................................................................F-8
Notes to Consolidated Financial Statements......................................................................F-12
</TABLE>
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<PAGE>
Independent Auditors' Report
Board of Directors
The Rose Group Corporation of Nevada and Subsidiaries
(A Development Stage Enterprise)
Sarasota, Florida
We have audited the accompanying balance sheet of The Rose Group Corporation of
Nevada and Subsidiaries (a development stage enterprise) as of December 31, 1998
and the related statements of operations, changes in stockholders' deficit, and
cash flows for the period March 13, 1997 (date of inception) to December 31,
1997 and the year ended December 31, 1998. These consolidated financial
statements are the responsibility of the management of The Rose Group
Corporation of Nevada and Subsidiaries. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Rose Group
Corporation of Nevada and Subsidiaries (a development stage enterprise) as of
December 31, 1998 and the results of its operations and its cash flows for the
period indicated above in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that The Rose Group Corporation of Nevada and Subsidiaries will continue as a
going concern. As disclosed in Note 1 to the consolidated financial statements,
the operating losses of approximately $303,000 from inception to December 31,
1998, negative working capital of approximately $192,000 as of
F-1
<PAGE>
December 31, 1998, and stockholders' deficit of approximately $310,000 as of
December 31, 1998 raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Management plans to raise additional capital through a private placement of the
Company's common stock and a subsequent secondary public offering as more fully
discussed in Note 1 to the consolidated financial statements.
Certified Public Accountants
Tampa, Florida
April 8, 1999
F-2
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 60,088 $ 1,008
Accounts receivable, factor 21,120 7,797
Advances to stockholder 43,583
Inventory 125,469 64,741
Prepaid loan costs 24,700
Total current assets 274,960 73,546
----------------------
Equipment, net of accumulated depreciation 52,615 19,302
----------------------
Other assets:
Catalogue costs 199,972
Offering costs 47,970
Other assets 12,824 2,937
----------------------
Total other assets 12,824 250,879
----------------------
$340,399 $343,727
======================
</TABLE>
READ INDEPENDENT AUDITORS' REPORT. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities:
Accounts payable, trade, including related party of
$34,350 and $73,991 at September 30, 1999 and
December 31, 1998, respectively $ 123,140 $ 253,524
Accrued expenses 10,938 11,739
Notes payable and current portion of
long-term debt 143,539
---------------------------------------
Total current liabilities 277,617 265,263
---------------------------------------
Long-term liabilities:
Note payable, stockholder 350,000 350,000
Stock payable 37,500
---------------------------------------
Total long-term liabilities 350,000 387,500
---------------------------------------
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 at September 30, 1999 and 5,463,670 shares
issued
and outstanding at December 31, 1998 7,206 5,464
Additional paid-in capital 815,785
Stock subscription receivable (12,500)
Accumulated deficit during development stage (1,097,709) (314,500)
---------------------------------------
Total stockholders' deficit (287,218) (309,036)
---------------------------------------
$ 340,399 $ 343,727
=======================================
</TABLE>
F-4
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
March 13,
Nine Months Ended Period Ended 1997 (Date of
September 30, December 31, Inception) to
-------------------------- -------------------------- September 30,
1999 1998 1998 1997 1999
-----------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Sales $ 336,913 $ 136,614 $ 195,364 $ 467,199 $ 999,476
Cost of sales 182,882 70,571 116,301 254,341 553,524
-----------------------------------------------------------------------------
Gross profit 154,031 66,043 79,063 212,858 445,952
-----------------------------------------------------------------------------
Operating expenses:
General and administrative 667,863 245,515 327,025 222,564 1,217,452
Catalogue and web site
expenses 244,027 244,027
Depreciation and
amortization 4,650 4,488 5,985 2,411 13,046
Interest expense 20,700 18,600 24,800 12,351 57,851
-----------------------------------------------------------------------------
Total operating expenses 937,240 268,603 357,810 237,326 1,532,376
-----------------------------------------------------------------------------
Net loss $ (783,209) $ (202,560) $ (278,747) $ (24,468) $ (1,086,424)
=============================================================================
Loss per share $(.17) $(.11) $(.06) $(.07) $(.29)
=============================================================================
</TABLE>
READ INDEPENDENT AUDITORS' REPORT. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Deficit
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
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>
Stock issued for cash 100 $ 1,000 $ 1,000
(March 1997)
Net loss for the period $ (24,468) (24,468)
----------------------------------------------------------------------------------------
Balance, December 31, 1997 100 1,000 (24,468) $ (23,468)
Acquisition of company 5,463,670 5,464 $ 412,093 (404,414) $ (14,500) (1,357)
(March 1998)
Recapitalization of
company (March 1998) (100) (1,000) (412,093) 393,129 14,500 (5,464)
Net loss for year (278,747) (278,747)
----------------------------------------------------------------------------------------
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 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
</TABLE>
READ INDEPENDENT AUDITORS' REPORT. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Deficit
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
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>
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>
READ INDEPENDENT AUDITORS' REPORT. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (783,209) $ (202,560)
------------------------------
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 4,650 4,488
Stock issued for services 178,000
(Increase) decrease in:
Accounts receivable, factor (13,323) 24,419
Inventory (60,728) (4,065)
Catalogue costs 124,422 (122,927)
Other assets (29,187)
Increase (decrease) in:
Accounts payable and other accrued expenses 19,365 31,060
Stock payable
------------------------------
Total adjustments 223,199 (67,025)
------------------------------
Net cash used by operating activities (560,010) (269,585)
------------------------------
INVESTING ACTIVITIES
Acquisition of equipment (37,963)
Acquisition of Vascular International of
Nevada, Inc., net (6,821)
-------------------------------
Net cash used by investing activities (37,963) (6,821)
-------------------------------
FINANCING ACTIVITIES
Net borrowings on line of credit 24,895
Proceeds from notes payable 100,000
Payments on notes payable (56,356)
Advances to stockholder (43,583)
Proceeds from note payable, stockholder 294,321
Payments on note payable, stockholder (53,429)
Payments on offering costs 47,970 (14,873)
Proceeds from issuance of common stock 584,127
------------------------------
Net cash provided by financing activities 657,053 226,019
------------------------------
NET INCREASE (DECREASE) IN CASH 59,080 (50,387)
CASH AT BEGINNING OF YEAR 1,008 48,644
------------------------------
CASH AT END OF YEAR $ 60,088 $ (1,743)
==============================
</TABLE>
READ INDEPENDENT AUDITORS' REPORT. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE>
<TABLE>
<CAPTION>
March 13,
1997 (Date of
Period Ended Inception) to
DECEMBER 31, September 30,
1998 1997 1999
- --------------------------------------------------------
(Unaudited)
<S> <C> <C>
$ (278,747) $ (24,468) $ (1,086,424)
- --------------------------------------------------------
5,985 2,411 13,046
178,000
18,680 (26,477) (21,120)
(143) (64,598) (125,469)
(124,422)
(2,970) (32,157)
111,433 46,788 177,586
37,500 37,500
- --------------------------------------------------------
49,033 (44,846) 227,386
- --------------------------------------------------------
(229,714) (69,314) (859,038)
- --------------------------------------------------------
(27,665) (65,628)
(6,821) (6,821)
- --------------------------------------------------------
(6,821) (27,665) (72,449)
- --------------------------------------------------------
24,895
100,000
(56,356)
(43,583)
322,138 417,265 739,403
(116,761) (272,642) (389,403)
(16,478) 31,492
1,000 585,127
- --------------------------------------------------------
188,899 145,623 991,575
- --------------------------------------------------------
(47,636) 48,644 60,088
48,644
$ 1,008 $ 48,644 $ 60,088
========================================================
</TABLE>
F-9
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
(Unaudited) (Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
AND NONCASH INVESTING AND FINANCING ACTIVITIES
<S> <C> <C>
Cash paid during the year for interest $ 20,077 $ 0
===============================
</TABLE>
Included in accounts payable at December 31, 1998 is the approximate amount
of $76,000 relating to catalogue costs. At September 30, 1999 and 1998 and
December 31, 1998 are the approximate amounts of $0; $18,596; and $31,000
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.
READ INDEPENDENT AUDITORS' REPORT. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-10
<PAGE>
<TABLE>
<CAPTION>
March 13,
Period Ended 1997 (Date of
December 31, Inception) to
- ---------------------------------- September 30,
1998 1997 1999
- --------------------------------------------------------
(Unaudited)
<S> <C> <C>
$ 0 $ 12,351 $ 33,051
========================================================
</TABLE>
F-11
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and 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
Nine Months Ended Period Ended Inception) to
SEPTEMBER 30, DECEMBER 31, September 30,
1999 1998 1998 1997 1999
--------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 336,913 $ 136,614 $ 195,364 $ 467,199 $ 999,476
==========================================================================
Net loss $ (783,209) $ (202,560) $ (278,747) $ (31,230) $ (1,093,186)
==========================================================================
Basic loss per
common stock $(.17) $(.11) $(.06) $(.09) $(.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 website and
supplemental catalogues.
READ INDEPENDENT AUDITORS' REPORT.
F-12
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and 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 $77,648 in 1998, $313,373 in
1997, $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 39 percent, 67 percent, 62.9 percent, 26.8 percent, and 60.8
percent of total sales for those periods, respectively.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. The Company incurred operating
losses of $1,086,424 since inception and has negative working capital of $2,657
as of September 30, 1999. Total liabilities exceed total assets by $287,218 as
of September 30, 1999.
In view of these matters, realization of a major portion of the assets in the
accompanying consolidated balance sheet is dependent upon continued operations
of the Company, which, in turn, is dependent upon the Company's ability to meet
its financing requirements and the success of its future operations. Management
believes that actions presently taken to raise additional capital by means of a
private placement sale of its common stock and a subsequent secondary public
offering, to become a full SEC reporting company, and to revise the operating
methods of the Company to include substantial commerce over the Internet provide
the opportunity for the Company to continue as a going concern.
READ INDEPENDENT AUDITORS' REPORT.
F-13
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
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 nine-month periods 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 June 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.
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 December 31, 1998 and
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 five to fifteen 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.
READ INDEPENDENT AUDITORS' REPORT.
F-14
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Costs to design and produce the Company's catalogue are deferred and
amortized over the expected useful life. No amortization expense has
been recorded as of December 31, 1998 since the catalogue is not yet in
service. During the period ended September 30, 1999, the Company
transitioned the capitalized costs of developing the printed catalogues
into a web site based marketing tool. Therefore, in accordance with
Financial Accounting Standards Board No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed," the
Company expensed all costs incurred to develop the catalogue and web
site. Non-direct response advertising costs are charged to expense as
incurred and amounted to $4,914, $6,288, $7,657, $2,240, and $18,859 for
1998, 1997, 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.
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.
READ INDEPENDENT AUDITORS' REPORT.
F-15
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, December 31,
1999 1998
---------------------------------------
(Unaudited)
<S> <C> <C>
Finished goods $ 58,115 $ 27,294
Raw materials 41,045 37,447
Supplies inventory 26,309
---------------------------------------
$ 125,469 $ 64,741
=======================================
</TABLE>
READ INDEPENDENT AUDITORS' REPORT.
F-16
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
4. EQUIPMENT
Equipment consists of:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------------------------
(Unaudited)
<S> <C> <C>
Office and computer equipment $ 4,698 $ 3,559
Die cutting and molding equipment 56,132 21,313
Leasehold improvements and other 4,798 2,793
----------------------------------
65,628 27,665
Less accumulated depreciation 13,013 8,363
----------------------------------
$ 52,615 $ 19,302
==================================
</TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------------------------
(Unaudited)
<S> <C> <C>
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
</TABLE>
READ INDEPENDENT AUDITORS' REPORT.
F-17
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------
(Unaudited)
<S> <C> <C>
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 $ 350,000
---------------------------------
493,539 350,000
Less amounts currently due 143,539 0
---------------------------------
$ 350,000 $ 350,000
=================================
</TABLE>
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 of less than one year. Monthly rent payments are $1,043.
The Company entered into a lease agreement on August 19, 1999 for the leasing of
new corporate and warehouse space. Monthly lease payments will be $3,875. The
lease expires on August 31, 2002.
Rent expense amounted to $20,081, $13,766, $20,327, $16,924, and $54,174 for
1998, 1997, the nine months ended September 30, 1999 and 1998, and the period
March 13 1997 through September 30, 1999, respectively.
READ INDEPENDENT AUDITORS' REPORT.
F-18
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
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 15 to 25 percent payable upon collection of the receivable by Bayview.
The Company is charged various factoring and financing fees amounting to one
percent for each ten-day period the receivables are not collected by Bayview.
The amounts shown on the balance sheet at December 31, 1998 and September 30,
1999 represent the unfunded portion of the receivables not yet collected by
Bayview.
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 amounts of $37,962
and $39,597 at December 31, 1998 and September 30, 1999, respectively, 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 its inception to February 28, 1998, the Subsidiaries, with the
consent of its 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.
READ INDEPENDENT AUDITORS' REPORT.
F-19
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
9. INCOME TAXES (CONTINUED)
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.
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>
READ INDEPENDENT AUDITORS' REPORT.
F-20
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
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 six-month period commencing in March
2000 and ending in September 2000.
During March 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 March 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.
READ INDEPENDENT AUDITORS' REPORT.
F-21
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
For the Year Ended December 31, 1998,
the Period March 13, 1997 (Date of Inception)
through December 31, 1997, and the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)
11. STOCKHOLDERS' EQUITY AND OTHER RELATED PARTY TRANSACTIONS (CONTINUED)
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.
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
Nine Months Ended Period Ended Inception) to
September 30, December 31, September 30,
1999 1998 1998 1997 1999
--------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss $ (783,209) $ (202,560) $ (278,747) $ (24,468) $ (1,086,424)
==========================================================================
Weighted average
number of
common shares
used in basic EPS 4,541,660 1,843,728 4,612,985 330,257 3,683,147
==========================================================================
</TABLE>
READ INDEPENDENT AUDITORS' REPORT.
F-22
<PAGE>
PART III
ITEM 1. INDEX TO AND DESCRIPTION OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. NAME AND/OR IDENTIFICATION OF EXHIBIT
<S> <C>
1. Underwriting Agreement
Not Applicable
2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
2.1** Exchange of Stock Agreement and Plan of
Reorganization by and between the Company
(as Vascular International of Nevada, Inc.)
and Rose Group Delaware, dated December 15,
1997
3. Articles of Incorporation and Bylaws
3.1** Articles of Incorporation of Vascular
International of Nevada, Inc., filed
February 13, 1996.
3.2** Certificate of Amendment of Articles of
Incorporation of Vascular International of
Nevada, Inc., changing name of company to The
Rose Group Corporation of Nevada, filed
March 13, 1997.
3.3** Bylaws of The Rose Group Corporation
of Nevada (then named Vascular
International of Nevada, Inc.)
4. Instruments Defining the Rights of Security Holders
Not Applicable
5. Opinion of Legality
Not Applicable
7. Opinion on Liquidation Preference
Not Applicable
8. Opinion on Tax Matters
Not Applicable
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NAME AND/OR IDENTIFICATION OF EXHIBIT
<S> <C>
9. Voting Trust Agreement and Amendments
Not Applicable
10. Material Contracts
10.1** Lease Agreement for
2073 Porter Lake Drive, Sarasota Florida for
period September 1, 1998 to August 31, 1999
10.2** Employment Agreement by and between the
Company and Sheldon R. Rose effective as of
July 14, 1999
10.3** Licensing Agreement for "Privacy Shawl" by
and between the Company and Pretty/Private,
dated January 9, 1998
10.4** Exclusive Sales Agreement by and
between the Company and LAMAZE for AMI, Inc.
effective as of February 24, 1999
10.5** Factoring Agreement and amendments thereto,
by and between the Company and Bay View
Funding dated August 5, 1997 and March 22,
1999, respectively
10.6** Line of Credit Agreement, by and between The
Rose Group Company of Delaware d/b/a in
Florida as Fresh Babies, Inc. and AmSouth
Bank of Florida, dated January 25, 1999
10.7** Lease Agreement for 1535 Northgate
Boulevard, Sarasota, Florida for the period
September 1, 1999 to August 31, 2002
10.8** Agreement, dated as of October 15, 1999,
by and between Sun Remarketing, Inc. and the
Company
11. Statement Re Computation of Per Share Earnings
See Notes to Financial Statements
13. Annual or Quarterly Reports
Not Applicable
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NAME AND/OR IDENTIFICATION OF EXHIBIT
<S> <C>
14. Material Foreign Patents
Not Applicable
15. Letter on Unaudited Interim Financial Information
Not Applicable
16. Letter on Change in Certifying Accountants
Not Applicable
17. Letter on Director Resignation
Not Applicable
18. Letter on Change in Accounting Principles
Not Applicable
19. Reports Furnished to Security Holders
Not applicable
20. Other Documents or Statements to Security Holders
Not applicable
21. Subsidiaries of Small Business Issuer
21.1** List of Subsidiaries
22. Published Report Regarding Matters Submitted to
Vote of Security Holders
Not applicable
23. Consent of Experts and Counsel
23.1* Consent of Pender Newkirk & Company,
Certified Public Accountants
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NAME AND/OR IDENTIFICATION OF EXHIBIT
<S> <C>
24. Power of Attorney
Not applicable
25. Statement of Eligibility of Trustee
Not applicable
26. Invitations for Competitive Bids
Not applicable
27.* Financial Data Schedule
99. Additional Exhibits
Not Applicable
</TABLE>
- ----------------------------
* Filed herewith
** Previously filed
-34-
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ROSE GROUP CORPORATION OF NEVADA
By: /s/ SHELDON R. ROSE
---------------------------------
SHELDON R. ROSE, President
Date: December 2, 1999
-35-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our Auditors' opinion, dated April 8, 1999,
in the September 30, 1999 Form 10-SB Amendment No. 3 to be filed by The Rose
Group Corporation of Nevada, Inc. accompanying the financial statements of The
Rose Group Corporation of Nevada, Inc. as of December 31, 1998 and 1997 and the
results of operations and its cash flows for the years ended December 31, 1998
and 1997.
/s/ Pender Newkirk & Company
- -------------------------------
Certified Public Accountants
Tampa, Florida
December 2, 1999
<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>
