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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
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 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
PART I
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PAGE
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ITEM 1. DESCRIPTION OF BUSINESS............................................................................ 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.......................................... 9
ITEM 3. DESCRIPTION OF PROPERTY........................................................................... 13
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................... 13
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS...................................... 15
ITEM 6. EXECUTIVE COMPENSATION............................................................................ 17
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................... 18
ITEM 8. DESCRIPTION OF SECURITIES......................................................................... 18
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS.............................................................. 21
ITEM 2. LEGAL PROCEEDINGS................................................................................. 21
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS..................................................... 22
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES........................................................... 22
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS......................................................... 25
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PART F/S
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................................................... 27
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PART III
INDEX TO AND DESCRIPTION OF EXHIBITS.......................................................................... 28
SIGNATURES .................................................................................................. 32
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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 changed its name to "The Rose Group
Corporation of Nevada" and also changed its principal business and management 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 6,865,231 shares
are currently issued and outstanding (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 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, rosebaby.com, 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.
Additionally, 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. Based on data compiled in the August 16-23, 1999 issue of
The Industry Standard, there are currently approximately 40,000,000 potential
customers on the World Wide Web each week. Of those approximately 40,000,000
potential customers, research data indicates approximately 38% or approximately
16,600,000 visitors are women between the ages of 18 and 49 which the Company
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believes will be the target market for its 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, but given its frequent usage of the
name on its products, the Company believes that it has trademark protection
rights for the brand name under federal and state law.
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:
E-COMMERCE DIVISION:
By way of an agreement with Sun Remarketing, Inc. of Smithfield,
Utah ("Sun Remarketing"), an Internet designer of E-Commerce websites, which has
experience in the
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processing and fulfillment of orders placed through the Internet, the Company is
allocating and focusing a substantial portion of its resources on Internet sales
of its prenatal and postpartum products. Sun Remarketing is receiving $5,000 per
month for the months of July, August and September, 1999, in addition to share
issuances, as compensation for its development services. See "Recent Sales of
Unregistered Securities". Upon finalizing the website development, the Company
plans to duplicate the technical system so that it may operate and utilize same
directly from its main facility. 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 Internet 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. The Company is currently
developing the rosebaby.com internet website and anticipates that the it will be
fully operational by October 1st of this year. The rosebaby.com website will be
operated by personnel assigned to the Company's separate wholly-owned
subsidiary, Rosebaby. The E-Commerce Division will market the Company's products
and services directly to its targeted consumer base, expectant and new mothers
and other family members. The division has not yet engaged in commercial
activities, but is anticipated to have revenues by the fourth quarter of 1999.
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 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 revenues for the Company. See "Financial Statements".
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CORPORATE DIVISION:
While still in the development stage, it is intended that the
Corporate Division will market and consult directly to Fortune 1000 companies
and government facilities to offer "Turnkey Services" 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. This division has
not yet engaged in commercial activities, but is anticipated to have revenues by
the first quarter of 2000.
Enactment of certain pending federal legislation may be a
significant incentive for companies to utilize the consulting expertise 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.
AGREEMENT WITH LAMAZE. The Company has entered into an exclusive
agreement which extends through December 31, 2001, (the "Lamaze Agreement") with
Lamaze from AMI, Inc. ("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.
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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 also requires the Company to pay LAMI a minimum of
$45,000 in 1999 against sales (the "1999 Payment"). Upon execution of the Lamaze
Agreement the Company paid a $14,000 installment payment of the 1999 Payment and
made an additional $16,000 installment payment on May 15, 1999. The remaining
balance of the 1999 Payment shall be paid as follows: $10,000 on or before
August 15, 1999 and $5,000 on or before September 15, 1999. Beginning in the
year 2000, the Company shall 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 shall be 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 Authorized Products annually. The failure of the
Company to realize the minimum net annual sales levels without payment to LAMI
of the fee associated with the minimum net annual sales levels 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 to finance its
E-Commerce website by offering shares of its Common Stock on a 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 print an initial 1,000,000 rosebaby.com/Lamaze product brochures and
to finance exhibits and representatives of the Company at Lactation Consultants
in Scotsdale, Arizona and the Cologne, Germany Fair. The remaining portion of
the proceeds of such private placement will be used by the Company to purchase
and/or secure the level of inventory required to launch the Company's E-Commerce
website on or about October 1, 1999, 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, including the Lamaze
International Convention to be held in October 1999. The Company anticipates
that its ultimate working capital requirements for fiscal 2000 will be an
additional $1,000,000 to $3,000,000 to meet inventory demands based on expanding
E-Commerce sales.
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
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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, when the Company's E-Commerce business is launched, it
will be 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. The Company does not believe that
Lamaze International or LAMI has entered into any similar arrangements with any
of the Company's competitors. As a result of its arrangement 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 from 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
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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 the major retailers in the United States, such as Target Stores and
Eckerd. At any given time, one of those retailers may account for more than ten
percent of the Company's mass merchant business. Although no negotiations have
taken place to date, the Company desires to enter into sale/supply agreements
for its products 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.
PERSONNEL. The Company currently has five employees (all of whom
are full-time) and two part-time consultants. In connection with the E-Commerce
website, rosebaby.com, the Company is currently interviewing technical persons
to duplicate the computer system being developed for the Company by Sun
Remarketing. The Company anticipates that hiring decisions will be made shortly.
Moreover, once the Company launches its website, an additional ten or more
marketing and support personnel will be hired to work on site at the Company's
main facility. 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. Upon the effectiveness of this Registration Statement,
the Company will be 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 will be 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.
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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
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
SALES
Sales for the six months ended June 30, 1999 were $260,700, as
compared to $82,242 for the six months ended June 30, 1998, an increase of
$178,458 or 217%. 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 six months ended June 30, 1999 were
$159,378, or 61.1% of sales, as compared to $46,053 or 55.9% 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.
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 $101,322 or
38.8% of sales in the six months ended June 30, 1999, as compared to $36,189 or
44.0% of sales achieved during the same period in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses amounted to $326,796 or 125%
of sales for the six months ended June 30, 1999, as compared to $204,579 or 248%
of sales for the same period in 1998. The increase of $122,217 is primarily due
to an increase of salaries and other compensation for services rendered.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 1999 was
$13,950, as compared to an interest expense of $12,400 in the six months ended
June 30, 1998. The primary reason for the $1,550 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 $58,784 in the six months ended June 30, 1999 as compared to the six
months ended June 30, 1998. There was a net loss of $242,574 in 1999 as compared
to a net loss of $183,790 for the comparable period in 1998.
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<PAGE>
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.
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 $31,230 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $117,989 at June 30,
1999, which represented a decrease in the deficit of $73,728 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.
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<PAGE>
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 $182,901 for the six months ended
June 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 $18,042 for the fiscal years ended December 31, 1998 and 1997 and the six
months ended June 30, 1999, respectively. The principal source of cash provided
in these periods was loans from the Company's 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 $239,318 for the years ended December 31, 1998 and 1997 and the
six months ended June 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 six months ended June 30, 1999 primarily resulted from the proceeds of the
sale of Common Stock of $200,100 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 June 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 June 1999, a series of private placements totaling 400,000
shares of Common Stock at a purchase price of $.50 per share was completed by
the Company (the "504 Private Placements"). The Company received gross proceeds
of $200,100 from the 504 Private Placements and such proceeds were utilized to
defray the cost of developing the Company's E-Commerce web site and other
working capital costs.
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
requirements, as well as miscellaneous overhead. Management believes that upon
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<PAGE>
launching the web site, 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 foregoing cash requirements for day-to-day operations, as well
as satisfying legal and accounting costs associated with filing the requisite
reports under the Securities and Exchange Act of 1934. Management believes that
it will be able to achieve a positive cash flow from its E-Commerce operations
when it reaches monthly sales of approximately $1,000,000. However, the Company
has no guaranty that it will be able to achieve this goal prior to December 31,
1999.
As previously stated, the Company believes that a funding in the
approximate amount of $1,000,000 will provide the money required to purchase
and/or secure the level of inventory required to launch the E-Commerce web site
on or about October 1, 1999 and to pay the initial print costs for various
formats of marketing advertisements, as well as fund the Company's attendance
and presentation at various trade shows. The Company anticipates that funding
its expanded operations during fiscal year 2000 will be in the range of
$1,000,000 to $3,000,000. In addition to the foregoing proposed financing, the
Company may require additional funding for expansion. In such event, there can
be no assurance that such funds will be available to the Company on terms
satisfactory to the Company when needed. If the Company is not successful in
raising the above-described funding, it may be forced to cease operations.
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
or is installing all new information technology systems, including computer
hardware and software that are Year 2000 compliant. This is the first generation
of equipment and software for the Company since it has just recently commenced
operations.
The Company plans to contact all material customers, vendors,
suppliers, and non-information technology suppliers (if any) regarding their
Year 2000 state of readiness. This process will be completed within the next
four months. No assurance can be given that the Year 2000 compliance plan will
be completed successfully by the year 2000. The Company's current contingency
plan is simplistic and involves operating on a manual basis for a short period
of time without interruption of service or quality.
Successful and timely completion of the Year 2000 project is
based on management's best estimates derived from assumptions of future events.
These events are inherently uncertain, including the progress and results of
vendors, suppliers, and customers' Year 2000 readiness.
-12-
<PAGE>
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 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 the Company's website, certain software servers and other hardware 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.
Additionally, in order to facilitate the recent move of the Company's principal
location, the Company will be maintaining its prior principal facilities located
at 2073 Porter Lake Drive, Sarasota, Florida until November 1, 1999.
(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 September 15, 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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<PAGE>
<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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<PAGE>
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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<PAGE>
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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<PAGE>
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, by the 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
------------------- -----------------------------
NAME OF INDIVIDUAL RESTRICTED STOCK SECURITIES UNDERLYING
AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS 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
$50,000,000, Mr. Rose's base salary shall be increased to $180,000 per annum.
Mr. Rose's salary shall
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<PAGE>
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 $13,454 as reimbursement for certain
other cash advances. Such amount does not bear interest and is payable on
demand.
INDEMNIFICATION AGREEMENTS. Pursuant to agreements with two
investors, at the sole option of the investors, Mr. Jaffe is obligated to
repurchase all or a portion of 150,000 shares of Common Stock at a price of
seventy-five cents ($.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.
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 September 15, 1999,
there were 6,865,231 shares of Common Stock issued
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<PAGE>
and outstanding, 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 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.
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<PAGE>
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 5,815,000 shares of
which shares the Company has agreed to register approximately 1,080,000 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 September 15, 1999, there were 245
shareholders of record holding Common Stock. However, the Company believes that
there are at least another 100 shareholders whose shares 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.
-21-
<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 shareholder of the Company, has
agreed to repurchase 100,000 of these shares at a price
-22-
<PAGE>
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 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 $50,000. In connection with the
issuance of these shares, Mr. Jaffe, a shareholder of the Company, has agreed to
repurchase 50,000 of these shares at a price of seventy-five cents per share.
The Company has agreed to indemnify Mr. Jaffe for any and all costs and expenses
which he incurs in connection with any litigation resulting from the Company's
sale of Common Stock to such investor. See "Certain Relationships and Related
Transactions". Such issuance was made pursuant to Rule 504 of Regulation D under
the Securities Act.
On April 8, 1999, the Company sold and issued 100,000 shares of
its Common Stock to a sophisticated individual investor, at a purchase price of
fifty cents ($.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 of $20,000. Such issuance was made
pursuant to Rule 505 of Regulation D under the Securities Act.
-23-
<PAGE>
Robert H. Jaffe, a five percent beneficial owner of the Company's Common Stock,
received a five percent finder's fee in connection with this issuance.
On July 9, 1999, the Company sold and issued 50,000 shares of its
Common Stock to a sophisticated individual investor, at a purchase price of
fifty cents ($.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 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 $75,000. Such issuances
were made pursuant to Rule 505 of Regulation D under the Securities Act. Robert
H. Jaffe, a five percent beneficial owner of the Company's Common Stock,
received a five percent finder's fee in connection with those issuances.
On July 27, 1999, the Company sold and issued 10,000 shares of its
Common Stock to a sophisticated individual investor, at a purchase price of
fifty cents ($.50) per share or an aggregate price of $5,000. Such issuance was
made pursuant to Rule 505 of Regulation D under the Securities Act. Robert H.
Jaffe, a five percent beneficial owner of the Company's Common Stock, received a
five percent finder's fee in connection with this issuance.
On August 3, 1999, the Company sold and issued 50,000 shares of
its Common Stock to two sophisticated individual investors, at a purchase price
of fifty cents ($.50) per share or an aggregate price of $25,000. Such issuances
were made pursuant to Rule 505 of Regulation D under the Securities Act. Robert
H. Jaffe, a five percent beneficial owner of the Company's Common Stock,
received a five percent finder's fee in connection with those issuances.
-24-
<PAGE>
On August 5, 1999, the Company sold and issued 200,000 shares of
its Common Stock to three sophisticated investors, at a purchase price of fifty
cents ($.50) per share or an aggregate price of $100,000. Such issuances were
made pursuant to Rule 505 of Regulation D under the Securities Act. Robert H.
Jaffe, a five percent beneficial owner of the Company's Common Stock, received a
five percent finder's fee in connection with those issuances.
On August 13, 1999, the Company sold and issued 30,000 shares of
its Common Stock to three sophisticated individual investors, at a purchase
price of fifty cents ($.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 five percent beneficial owner of the Company's Common
Stock, received a five percent finder's fee in connection with those issuances.
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
-25-
<PAGE>
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 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.
-26-
<PAGE>
<TABLE>
<CAPTION>
PART F/S
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Independent Auditor's Report dated April 8, 1999.................................................... F-1
Consolidated Balance Sheet as of December 31, 1998 (audited) and June 30, 1999
(unaudited)......................................................................................... F-3
Consolidated Statements of Operations for the Years Ending December 31, 1998 and 1997
(audited) and Quarters Ending June 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 Quarters Ending June 30, 1999 and 1998
(unaudited)......................................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ending December 31, 1998 and 1997
(audited) and Quarters Ending June 30, 1999 and 1998 (unaudited).................................... F-8
Notes to Consolidated Financial Statements.......................................................... F-12
</TABLE>
-27-
<PAGE>
PENDER NEWKIRK & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
100 SOUTH ASHLEY DRIVE
SUITE 1650
TAMPA, FL 33602
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>
June 30, December 31,
1999 1998
------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 39,383 $ 1,008
Accounts receivable, factor 28,900 7,797
Inventory 72,256 64,741
Prepaid loan costs 26,675
------------------------------
Total current assets 167,214 73,546
------------------------------
Equipment, net of accumulated depreciation 34,194 19,302
------------------------------
Other assets:
Catalogue and web site costs 217,421 199,972
Offering costs 29,244 47,970
Other assets 2,420 2,937
------------------------------
Total other assets 249,085 250,879
------------------------------
$ 450,493 $ 343,727
------------------------------
------------------------------
</TABLE>
READ INDEPENDENT AUDITORS' REPORT. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable, trade, including related party of
$14,750 and $73,991 at June 30, 1999 and
December 31, 1998, respectively $ 111,726 $ 253,524
Accrued expenses 17,393 11,739
Notes payable and current portion of
long-term debt 156,084
----------------------------------
Total current liabilities 285,203 265,263
----------------------------------
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; 6,188,670
shares issued and outstanding at June 30, 1999 and 5,463,670 shares
issued
and outstanding at December 31, 1998 6,189 5,464
Additional paid-in capital 366,175
Accumulated deficit during development stage (557,074) (314,500)
----------------------------------
Total stockholders' deficit (184,710) (309,036)
----------------------------------
$ 450,493 $ 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,
Six Months Ended Period Ended 1997 (Date of
June 30, December 31, Inception) to
------------------------------------------------------ June 30,
1999 1998 1998 1997 1999
--------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Sales $ 260,700 $ 82,242 $ 195,364 $ 467,199 $ 923,263
Cost of sales 159,378 46,053 116,301 254,341 530,020
--------------------------------------------------------------------------
Gross profit 101,322 36,189 79,063 212,858 393,243
--------------------------------------------------------------------------
Operating expenses:
General and administrative 326,796 204,579 327,025 222,564 876,385
Depreciation and
amortization 3,150 3,000 5,985 2,411 11,546
Interest expense 13,950 12,400 24,800 12,351 51,101
--------------------------------------------------------------------------
Total operating expenses 343,896 219,979 357,810 237,326 939,032
--------------------------------------------------------------------------
Net loss $ (242,574) $ (183,790) $ (278,747) $ (24,468) $ (545,789)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Loss per share $(.08) $(.10) $(.06) $(.07) $(.16)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</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
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Deficit During
Common Stock Paid-In Development Stock
Shares Amount Capital Stage Subscription Total
----------------------- ---------- -------------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Stock issued for cash 100 $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
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Deficit During
Common Stock 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
Net loss for the six-month
period ended June 30,
1999 (unaudited) (242,574) (242,574)
----------------------------------------------------------------------------------------
Balance, June 30, 1999
(unaudited) 6,188,670 $ 6,189 $ 366,175 $ (557,074) $ 0 $ (184,710)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</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>
Six Months Ended
June 30,
---------------------------------
1999 1998
---------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES ---------------------------------
Net loss $ (242,574) $ (183,790)
---------------------------------
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 3,150 3,000
Stock issued for services 153,000
(Increase) decrease in:
Accounts receivable, factor (21,103) 21,346
Inventory (7,515) (2,010)
Catalogue and web site costs (3,742) (103,243)
Other assets (20,758)
Increase (decrease) in:
Accounts payable and other accrued expenses (43,359) 73,731
---------------------------------
Stock payable
Total adjustments 59,673 (7,176)
----------------------------------
Net cash used by operating activities (182,901) (190,966)
----------------------------------
INVESTING ACTIVITIES
Acquisition of equipment (18,042)
Acquisition of Vascular International of
Nevada, Inc., net (6,821)
----------------------------------
Net cash used by investing activities (18,042) (6,821)
----------------------------------
FINANCING ACTIVITIES
Net borrowings on line of credit 21,762
Proceeds from notes payable 100,000
Payments on notes payable (40,678)
Proceeds from note payable, stockholder 194,100
Payments on note payable, stockholder (25,942)
Payments on offering costs (41,866) (14,396)
Proceeds from issuance of common stock 200,100
---------------------------------
Net cash provided by financing activities 239,318 153,762
---------------------------------
NET INCREASE (DECREASE) IN CASH 38,375 (44,025)
CASH AT BEGINNING OF YEAR 1,008 48,644
---------------------------------
CASH AT END OF YEAR $ 39,383 $ 4,619
---------------------------------
---------------------------------
</TABLE>
READ INDEPENDENT AUDITORS' REPORT. THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE>
<TABLE>
<CAPTION>
March 13,
Period Ended 1997 (Date of
December 31, Inception) to
- ------------------ June 30,
1998 1997 1999
- ---------------------------------------
(Unaudited)
<S> <C> <C>
$(278,747) $ (24,468) $(545,789)
- ---------------------------------------
5,985 2,411 11,546
153,000
18,680 (26,477) (28,900)
(143) (64,598) (72,256)
(124,422) (128,164)
(2,970) (23,728)
111,433 46,788 114,862
37,500 37,500
- ---------------------------------------
49,033 (44,846) 63,860
- ---------------------------------------
(229,714) (69,314) (481,929)
- ---------------------------------------
(27,665) (45,707)
(6,821) (6,821)
- ---------------------------------------
(6,821) (27,665) (52,528)
- ---------------------------------------
21,762
100,000
(40,678)
322,138 417,265 739,403
(116,761) (272,642) (389,403)
(16,478) (58,344)
1,000 201,100
- ---------------------------------------
188,899 145,623 573,840
- ---------------------------------------
(47,636) 48,644 39,383
48,644
$ 1,008 $ 48,644 $ 39,383
- ---------------------------------------
- ---------------------------------------
</TABLE>
F-9
<PAGE>
The Rose Group Corporation
of Nevada and Subsidiaries
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
(Unaudited) (Unaudited)
--------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
AND NONCASH INVESTING AND FINANCING ACTIVITIES
Cash paid during the year for interest $ 50,077 $ 0
--------------------------
--------------------------
</TABLE>
Included in accounts payable at June 30, 1999 and 1998 and December 31, 1998
are the approximate amounts of $13,707; $60,900; and $76,000 relating to
catalogue and web site costs and $0; $18,596; and $31,000 relating to
offering costs, respectively.
During the period ended June 30, 1999, the Company adjusted offering costs
and accounts payable by $7,500 for the recognition of various payables.
During the period June 30, 1999, the Company converted approximately $75,000
of accounts payable with a vendor into a short-term note payable.
During the period June 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
- --------------------------- June 30,
1998 1997 1999
- -------------------------------------------------------
(Unaudited)
<S> <C> <C>
$ 0 $ 12,351 $ 60,428
- -------------------------------------------------------
- -------------------------------------------------------
</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
Six Months Ended June 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,
Six Months Ended Period Ended 1997 (Date of
June 30, December 31, Inception) to
--------------------------- -------------------------- June 30,
1999 1998 1998 1997 1999
----------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 260,700 $ 82,242 $ 195,364 $ 467,199 $ 923,263
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net loss $ (242,574) $ (183,790) $ (278,747) $ (31,230) $ (552,551)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic loss per
common stock $ (.08) $ (.10) $ (.06) $(.09) $ (.16)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</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
Six Months Ended June 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, $234,125 and $36,688 for the six months ended June 30, 1999 and 1998,
respectively, and $625,146 for the period March 13, 1997 to June 30, 1999, which
made up 39 percent, 67 percent, 89 percent, 45 percent, and 67 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 $545,789 since inception and has negative working capital of $118,989
as of June 30, 1999. Total liabilities exceed total assets by $185,710 as of
June 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. Subsequent to
June 30, 1999, the Company issued an additional 505,000 shares of common stock
in exchange for $252,500.
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
Six Months Ended June 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 six-month periods ended June 30, 1999 and
1998 and from inception to June 30, 1999, 2) the financial position at
June 30, 1999, and 3) cash flows for the six-month periods ended June
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 June
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
Six Months Ended June 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 and web site are
deferred and amortized over the expected useful life of five years. No
amortization expense has been recorded as of June 30, 1999 since the
catalogue and web site are not yet in service. Non-direct response
advertising costs are charged to expense as incurred and amounted to
$4,914, $6,288, $2,948, $3,194, and $14,150 for 1998, 1997, the six
months ended June 30, 1999 and 1998, and the period March 13, 1997 to
June 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
Six Months Ended June 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>
June 30, December 31,
1999 1998
------------------------------
(Unaudited)
<S> <C> <C>
Finished goods $ 32,404 $ 27,294
Raw materials 39,852 37,447
------------------------------
$ 72,256 $ 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
Six Months Ended June 30, 1999 and 1998 (Unaudited)
4. EQUIPMENT
Equipment consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------------------
(Unaudited)
<S> <C> <C>
Office and computer equipment $ 3,624 $ 3,559
Die cutting and molding equipment 39,290 21,313
Leasehold improvements and other 2,793 2,793
--------------------------------
45,707 27,665
Less accumulated depreciation 11,513 8,363
--------------------------------
$ 34,194 $ 19,302
--------------------------------
--------------------------------
</TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of:
<TABLE>
<CAPTION>
June 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 June 30, 1999);
collateralized by inventory and personally
guaranteed by majority stockholder $ 21,762
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
Six Months Ended June 30, 1999 and 1998 (Unaudited)
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
June 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 34,322
Note payable, majority stockholder; due
December 31, 2001; interest at 6.0% per
annum; unsecured 350,000 $ 350,000
-------------------------------
506,084 350,000
Less amounts currently due 156,084 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 $156,084
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.
Rent expense amounted to $20,081, $13,766, $8,846, $12,598, and $42,693 for
1998, 1997, the six months ended June 30, 1999 and 1998, and the period
March 13, 1997 through June 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
Six Months Ended June 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 June 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 June 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 $30,591 at December 31, 1998 and June 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
Six Months Ended June 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 June 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
Six Months Ended June 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.
F-21
READ INDEPENDENT AUDITORS' REPORT.
<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
Six Months Ended June 30, 1999 and 1998 (Unaudited)
12. EARNINGS PER SHARE
The following data shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock:
<TABLE>
<CAPTION>
March 13,
Six Months Ended Period Ended 1997 (Date of
June 30, December 31, Inception) to
----------------------------------------------------------- June 30,
1999 1998 1998 1997 1999
-------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss $ (242,574) $ (183,790) $ (278,747) $ (24,468) $ (545,789)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Weighted average
number of
common shares
used in basic EPS 2,876,741 1,843,728 4,612,985 330,257 3,353,539
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
13. SUBSEQUENT EVENT
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.
14. YEAR 2000 (UNAUDITED)
As of June 30, 1999, the Company is still in the process of reviewing its
computer systems to identify the systems that could affected by the "Year 2000
Issue." The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. Programs with
this problem may recognize a date using "00" as the year 1900 rather than the
year 2000, resulting in system failures or miscalculations. Although no
assurance can be given, the Company presently believes that existing software is
"Year 2000" compliant and will not pose significant operational problems for the
Company's computer systems. The Company has also been in contact with its major
vendors and customers and believes that their computer systems are also "Year
2000" compliant, although no assurance can be given regarding this.
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>
-28-
<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
11. Statement Re Computation of Per Share Earnings
See Notes to Financial Statements
13. Annual or Quarterly Reports
Not Applicable
14. Material Foreign Patents
Not Applicable
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NAME AND/OR IDENTIFICATION OF EXHIBIT
----------- -------------------------------------
<S> <C>
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
24. Power of Attorney
Not applicable
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NAME AND/OR IDENTIFICATION OF EXHIBIT
----------- -------------------------------------
<S> <C>
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
-31-
<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: September 21, 1999
-32-
<PAGE>
Exhibit 10.7
SKR LAND PARTNERSHIP LEASE
TO
THE ROSE GROUP CORPORATION
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TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
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1.01. Certain Defined Terms............................................................................ 1
1.02. Other Terms...................................................................................... 2
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ARTICLE 2
PREMISES
2.01. Premises and Building............................................................................ 2
2.02. Lease of Premises................................................................................ 2
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ARTICLE 3
NET LEASE
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ARTICLE 4
TERM
4.01. Commencement Date................................................................................ 3
4.02. Term............................................................................................. 3
4.03. Option to Extend................................................................................. 3
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ARTICLE 5
RENT
5.01. Rent............................................................................................. 3
5.02. Payment of Rent.................................................................................. 3
5.03. Consumer Price Index Increases................................................................... 3
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ARTICLE 6
SECURITY DEPOSIT
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ARTICLE 7
USE
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7.01. Limitations...................................................................................... 5
7.02. Nuisances........................................................................................ 5
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ARTICLE 8
MAINTENANCE
8.01. By Tenant........................................................................................ 5
8.02. By Landlord...................................................................................... 5
8.03. Landscaping...................................................................................... 6
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ARTICLE 9
PARKING AREAS
9.01. Public Rights..................................................................................... 6
9.02. Advertising........................................................................................ 6
9.03. Common Usage...................................................................................... 6
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ARTICLE 10
SURRENDER OF PREMISES
10.01. Surrender........................................................................................ 6
10.02. Removal of Fixtures.............................................................................. 6
10.03. Holdover......................................................................................... 6
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ARTICLE 11
QUIET ENJOYMENT
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ARTICLE 12
ASSIGNMENT
12.01. Limitations...................................................................................... 7
12.02. Bankruptcy....................................................................................... 8
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ARTICLE 13
UTILITIES
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13.01. Utilities and Janitorial Services................................................................ 8
13.02. Trash............................................................................................ 8
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ARTICLE 14
SIGNAGE
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ARTICLE 15
ALTERATIONS TO THE PREMISES
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ARTICLE 16
LIENS
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ARTICLE 17
INSURANCE
17.01. Required Coverages............................................................................... 9
17.02. Minimum Requirements............................................................................ 10
17.03. Claims.......................................................................................... 10
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ARTICLE 18
CASUALTY
18.01. Partial Destruction............................................................................. 10
18.02. Other Conditions................................................................................ 11
18.03. Abatement....................................................................................... 11
18.04. Termination by Tenant........................................................................... 11
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ARTICLE 19
INDEMNIFICATION
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ARTICLE 20
INSPECTION AND REPAIR
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ARTICLE 21
RESTRICTIVE COVENANTS
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21.01. Restrictive Covenants........................................................................... 12
21.02. Association..................................................................................... 12
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ARTICLE 22
DEFAULT
22.01. Event of Default................................................................................ 12
22.02. Remedies........................................................................................ 13
22.03. Nonexclusive Remedies........................................................................... 14
22.04. Interest........................................................................................ 14
22.05. Default by Landlord............................................................................. 15
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ARTICLE 23
WAIVER; ESTOPPEL; ACCORD AND SATISFACTION
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ARTICLE 24
SUBORDINATION AND NONDISTURBANCE
24.01. Subordination................................................................................... 15
24.02. Nondisturbance.................................................................................. 16
24.03. Rights of Security Instrument Holder............................................................ 16
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ARTICLE 25
CONDEMNATION
25.01. Taking.......................................................................................... 17
25.02. Damages......................................................................................... 17
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ARTICLE 26
TAXES
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26.01. Taxes on Property............................................................................... 17
26.02. Taxes on Rent................................................................................... 17
26.03. Payment by Landlord............................................................................. 18
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ARTICLE 27
RIGHT TO SELL
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ARTICLE 28
NOTICES
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ARTICLE 29
ENVIRONMENTAL MATTERS
29.01. Tenant's Restrictions........................................................................... 18
29.02. Environmental Clean-up.......................................................................... 19
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ARTICLE 30
BROKERAGE COMMISSIONS
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ARTICLE 31
ATTORNEY'S FEES
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ARTICLE 32
LIMITATION OF LIABILITY
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ARTICLE 33
MISCELLANEOUS
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33.01. Entire Agreement................................................................................ 20
33.02. Severability.................................................................................... 20
33.03. Force mAjeure................................................................................... 20
33.04. Radon........................................................................................... 21
33.05. Exhibits........................................................................................ 21
33.06. Governing Law................................................................................... 21
33.07. Binding Effect.................................................................................. 21
33.08. Usage........................................................................................... 21
33.09. No Third Party RightS........................................................................... 21
33.10. No Recording.................................................................................... 21
33.11. Time of Essence................................................................................. 21
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<PAGE>
LEASE
THIS LEASE is made and entered into this ______ day of August
1999 by and between SKR LAND PARTNERSHIP, A FLORIDA GENERAL PARTNERSHIP, as
Landlord, and THE ROSE GROUP CORPORATION, A NEVADA CORPORATION, as Tenant.
W I T N E S S E T H:
In consideration of the mutual covenants and agreements hereinafter set
forth, and the rent reserved by Landlord to be paid by Tenant, Landlord hereby
leases and demises unto Tenant, and Tenant hereby does lease from Landlord, that
certain real property situated in Sarasota County, Florida, hereinafter
described, for the terms, and at the rentals, and upon the terms and conditions,
hereinafter set forth:
ARTICLE 1
DEFINITIONS
1.01. CERTAIN DEFINED TERMS. As used herein, the following capitalized
terms shall have the following meanings (such meanings to be applicable to both
the singular and the plural form of the terms defined):
"ATTORNEY'S FEES" shall mean reasonable attorney's fees
incurred by a party, including attorney's fees for arbitration, trial, and
appellate proceedings.
"BUILDING" shall have the meaning set forth in Article 2.1.
"COMMENCEMENT DATE" shall have the meaning set forth in
Article 4.1.
"EVENT OF DEFAULT" shall have the meaning set forth in
Article 21.1.
"GOVERNMENTAL REGULATIONS" shall mean all laws, ordinances,
and regulations now or hereafter enacted by any Federal, state, or local
governmental or quasi-governmental body having jurisdiction of the Premises or
the Building.
"HAZARDOUS SUBSTANCES" shall mean flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under any
Governmental Regulations.
"INDEMNIFY" shall mean to hold harmless from, and defend
against, all claims, demands, actions, causes of action, losses, expenses,
damages, liabilities, and Attorney's Fees arising out of or incurred in
connection with an identified circumstance, incident, condition, relationship,
time period, or other matter.
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"LANDLORD" shall mean SKR LAND PARTNERSHIP, a Florida
general partnership, any successor or legal representative of it, or any person
to whom all rights of Landlord, under this Lease are hereafter assigned pursuant
to a duly executed written instrument.
"PREMISES" shall have the meaning set forth in Article 2.1.
"SECURITY INSTRUMENT" shall have the meaning act forth in
Article 23.1.
"TAKING" shall have the meaning set forth in Article 24.1.
"TENANT" shall mean The Rose Group Corporation of Nevada, a
Nevada corporation, to transact business in the State of Florida under the name
of Fresh Babies, Inc., its successors and permitted assigns.
1.02. OTHER TERMS. All capitalized terms used in this Lease which are
not defined in this Article I shall have the meanings set forth elsewhere in
this Lease.
ARTICLE 2
PREMISES
2.01. PREMISES AND BUILDING. Landlord is the owner of that certain
parcel of land (the "Premises") in Sarasota County. Florida. more particularly
described as follows:
That portion of Lot 12, Unit 2, Northgate Center Subdivision,
as per plat thereof recorded in Plat Book 28. Pages 7 - 7(c)
of the Public Records of Sarasota County, Florida described on
Exhibit "A" consisting of a building of approximately 9,300
square feet, 14 parking spaces, and adjacent premises; which
Building parking spaces and adjacent premises are identified
on Exhibit A by orange outlining and cross hatching.
2.02. LEASE OF PREMISES. The real property hereby leased by Landlord
unto Tenant consists of the Premises, together with the Building and other
improvements constructed thereon, including an alarm system and existing pallet
racking, mezzanine shelving and warehousing shelving. It is agreed Tenant may
install a microwave antenna to the side or roof of the building.
ARTICLE 3
NET LEASE
Except for the monetary obligations of Landlord expressly
set forth herein, this Lease is intended in all respects to be a net lease, and
Tenant shall pay to Landlord, net throughout the term hereof, the rent amounts
set forth in Article 5, free of any offset, abatement, or other deduction
whatsoever. Landlord shall not be required to make any payments of any kind
whatsoever with respect to the Premises, except as may be expressly set forth to
the contrary herein.
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ARTICLE 4
TERM
4.01. COMMENCEMENT DATE. As used herein, the "Commencement Date" shall
mean the date of this Lease first above written.
4.02. TERM. The initial term of this Lease, and the accrual of rents
hereunder, shall commence on the Commencement Date and shall terminate on August
31, 2002, unless sooner terminated by the mutual written agreement of Landlord
and Tenant or extended pursuant to Article 4.3.
4.03. OPTION TO EXTEND. Provided Tenant is not in default under this
Lease Agreement, Tenant shall have the option to extend this Lease Agreement for
one (1) additional term of three (3) years by providing Lessor with written
notice of Tenant's election to exercise the option to extend, which written
notice must be given by Tenant and received by Landlord at least 90 days prior
to the date of termination of the initial term. The renewal term shall be on the
same terms and conditions of this Lease Agreement, except for the provisions
regarding the amount of rent. The amount of rent for each year of the renewal
term (years four, five and six) shall be determined by yearly increasing the
monthly rent paid during the third year of the initial term by increases in the
Consumer Price Index utilizing the formula in Article 5.3. In no event, shall
the rent be decreased from an existing level as a result of adjustment based
upon the Consumer Price Index.
ARTICLE 5
RENT
5.01. RENT. During the initial term of this Lease, Tenant shall pay to
Landlord, without demand, setoff, or deduction, monthly rent payments of
$3,875.00 as increased by increases in Consumer Price Index as hereinafter set
forth.
5.02. PAYMENT OF RENT. The monthly payments of rent shall be payable in
advance on the first day of each calendar month. If the Commencement Date is not
on the first day of a calendar month, then the monthly rental for the period
between the Commencement Date and the first day of the following month shall be
prorated, on a per diem basis, and shall be payable on the Commencement Date. In
addition, an amount equal to the monthly rent for the first full calendar month
and the last full calendar month of the term of this Lease shall be paid by
Tenant to Landlord on the Commencement Date. The monthly rent for the last month
shall be prorated, on a per diem basis, as of the last day of the Lease term.
5.03. CONSUMER PRICE INDEX INCREASES. For each year of this Lease
(initial and renewal terms) after the first lease year (the "Base Year"), the
rent stated hereinabove shall be adjusted on the basis of any increase in the
cost of living as reported in the Consumer Price Index for All Urban Consumers
(CPI-U), All Items, United States City Average (1982-1984 equals 100) (the
"Index") published by the Bureau of Labor Statistics (the "Bureau") of the
United States Department of Labor, between the most recent available monthly
Index figure (the "Adjustment Level") and the monthly Index figure for the same
month in the prior year (the
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"Base Level"). The rent for each month of the term of this Lease after the
Base Year shall be computed by multiplying the then current monthly rent of
the prior year by a fraction, the numerator of which shall be the Adjustment
Level, and the denominator of which shall be the Base Level. Stated as a
mathematical formula, the adjusted monthly rent shall be computed as follows:
Adjusted Monthly Rent for = Adjustment Level x Prior Year Monthly Rent
Each Year of Term ------------------------------------------
after Base Year Base Level
If the compilation and/or publication of the Index shall be
transferred to any other department, bureau, or agency of the United States
Government, or if the Bureau shall adopt a successor Index, the Index published
by such successor department, bureau or agency shall be adopted and used as a
standard for computing adjustments to the rent. At or prior to the commencement
of each lease year, Lessor shall compute the amount of annual adjusted rent to
be paid by Lessee during such lease year and shall notify Lessee thereof in
writing, setting forth the manner in, and statistics upon, which adjusted rent
was computed. If the annual amount of adjusted rent payable during any lease
year alter the Base Year has not been computed by the due date of the first
installment(s) thereof, Lessee shall continue to pay monthly installments of
rent at the rate applicable during the preceding Lease Year until the amount of
the new installments has been computed. If the new installments shall be greater
than installments due during the preceding year, Lessee shall pay the deficiency
with the installment next maturing. In no event shall the rent be decreased from
an existing level as a result of adjustment based upon the Consumer Price Index.
The maximum increase per year is 5%.
ARTICLE 6
SECURITY DEPOSIT
On or before the Commencement Date, Tenant shall pay to
Landlord a security deposit (the "Security Deposit") in an amount equal to
$3,875.00. Upon the occurrence of any default by Tenant, Landlord may, from time
to time, without prejudice to any other remedy, use the Security Deposit to the
extent necessary to pay any arrears of rent, or to pay any other sums owed to
Landlord, or to pay the cost of any damage, injury, expense, or liability caused
by any default by Tenant hereunder. Any remaining balance of (he Security
Deposit shall be returned by Landlord to Tenant within a reasonable period of
time after the termination or expiration of this Lease. The Security Deposit
shall not be considered an advance payment of rent or a measure of Landlord's
damages in case of default by Tenant. Tenant shall not be entitled to receive,
and shall not receive, any interest on the Security Deposit, and Landlord may
commingle the same with other monies of Landlord. In the event Landlord applies
the Security Deposit or any portion thereof to the payment of any sum described
above without this Lease terminating contemporaneously therewith, Tenant shall
immediately deposit with Landlord an amount of money equal to the amount so
applied, and such amount shall be deemed to be part of the Security Deposit. In
the event of a sale or transfer of Landlord's interest hereunder, Landlord shall
have the right to transfer the Security Deposit to such purchaser or transferee,
in which event Tenant shall look only to such purchaser or transferee for the
return of the Security
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Deposit, and Landlord shall thereupon be released from all liability to Tenant
for the return of the Security Deposit.
ARTICLE 7
USE
7.01. LIMITATIONS. Tenant shall use the Premises exclusively for the
operation of Office and Warehouse and for no other use or purpose whatsoever.
Tenant shall comply with all Governmental Regulations, and such reasonable rules
and regulations as may be established by Landlord, pertaining to Tenants use of
the Premises. Rules and regulations established by Landlord shall not materially
interfere with the reasonable conduct of Tenant's business.
7.02. NUISANCES. Tenant shall not make, suffer, or permit any unlawful,
improper. or offensive use of the Premises, or any part thereof, or permit any
nuisance thereon. Tenant shall not make any use of the Premises which would make
void or voidable, or cause an increase in the cost of, any policy of fire or
extended coverage insurance covering the Premises or the Building. Tenant shall
not permit rubbish, refuse, or garbage to accumulate, or any fire or health
hazard to exist, upon or about the Premises. Tenant shall not leave the Premises
vacant or suffer or permit any waste or mistreatment thereof.
ARTICLE 8
MAINTENANCE
8.01. BY TENANT. Tenant shall maintain the Premises and the Building
(including, without limitation, the parking lot utility lines, connections, and
facilities; the Building's foundation, exterior walls, doors, windows,
structural elements, roof, plumbing, and electrical, mechanical, air
conditioning, and sewer systems; the interior of the Building, and all
alterations to the Building made by Tenant pursuant to Article 15) in a clean
and sightly condition, in good and substantial repair, and in conformity with
Governmental Regulations; PROVIDED, however, that Tenant shall not he liable for
or required to make any repairs to the Premises or Building which are required
by, related to, or arise out of the negligence, fault, misfeasance, or
malfeasance of Landlord or its employees, agents, invitees, or licensees, or
which are required due to structural defects in the Building's foundation,
exterior walls, structural elements, roof, or parking lot, or for replacement of
roof for reasons not related to lack of tenant maintenance. Building and all
components are under one year warranty.
8.02. BY LANDLORD. Notwithstanding anything to the contrary contained
herein, Landlord shall not be obligated to maintain or make repairs or
replacements to the Premises or the Building except for repairs required due to
structural defects in the Building's foundation, exterior walls, structural
elements, roof, or parking lot. If Tenant refuses to make any repairs for which
Tenant is liable and such repairs are undertaken by Landlord, such repairs shall
be solely at the expense of Tenant, and Tenant shall pay such expense within 15
days after notice thereof from Landlord.
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8.03. LANDSCAPING. Landlord shall maintain the landscaping, including
care for grass and shrubbery, and Tenant shall reimburse Landlord the expense of
such maintenance within fifteen (15) days after notice thereof from Landlord.
ARTICLE 9
PARKING AREAS
9.01. PUBLIC RIGHTS. To the extent that it is necessary to prevent the
acquisition of public rights in and to the Premises, Landlord may from time to
time temporarily close portions of the parking areas, erect private boundary
markers, and take such other steps as Landlord deems appropriate for that
purpose. Such action shall not constitute or be considered an eviction or
disturbance of Tenant's quiet possession of the Premises.
9.02. ADVERTISING. Neither the parking areas nor any other exterior
portion of the Premises shall be used by Tenant, or any agent or employee of
Tenant, for any advertising, political campaigning, or other similar use,
including, without limitation, the dissemination of advertising or campaign
leaflets or flyers.
9.03. COMMON USAGE. The driveways adjacent the leased Premises and
giving access to neighboring building and its parking are to be used in common
with the occupant of the adjacent building. Tenant agrees to cooperate in use of
the entryway, driveway, and parking areas so not to interfere with the use of
the occupant of the adjacent building. The dumpster located on the leased
Premises may be required by governmental authorities to be used by not only the
building on the leased Premises but also by the adjacent building and Tenant
agrees to such joint use and for that purpose gives access to the occupant of
the adjacent building for utilization of the dumpster.
ARTICLE 10
SURRENDER OF PREMISES
10.01. SURRENDER. Tenant shall, upon expiration of the term hereof, or
any earlier termination of this Lease for any cause, surrender to Landlord the
Premises, including, without limitation, all alterations, improvements, and
other additions thereto that have been made or installed by either party in or
upon the Premises, in good and clean condition and repair, ordinary wear and
tear and casualty damage, if any, excepted.
10.02. REMOVAL OF FIXTURES. If Tenant is not then in default, Tenant
may remove (and shall remove at Landlord's request) its signs and other
non-attached personal property (including but not limited to all of Tenant's
furniture, equipment, and trade fixtures). Tenant may not remove other fixtures
or property of Landlord leased by Landlord to Tenant pursuant to this Lease.
Tenant shall repair and correct any damage caused by removal of signs or other
property.
10.03. HOLDOVER. If Tenant fails to surrender the Premises in
accordance with the provisions of Article 10.1: (a) Tenant's holding over in
possession of the Premises shall be construed to be a tenancy at sufferance; and
(b) during the period of Tenant's holdover, Tenant
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shall pay to Landlord monthly rent at double the rate set forth in Article 5.1,
unless Landlord has approved in writing a holdover term specifying a lesser
rent.
ARTICLE 11
QUIET ENJOYMENT
Landlord covenants that so long as Tenant pays the rent
reserved in this Lease and performs its agreements hereunder, Tenant shall have
the right to quietly enjoy and use the Premises for the term of this Lease,
subject to the provisions hereof; Governmental Regulations; and restrictions,
reservations, mortgages, and easements of record. Landlord represents and
warrants to, and covenants with, Tenant (as applicable) that: (a) Landlord owns
fee simple title to the Premises; and (b) Landlord shall pay all sums due under,
and keep in good standing, all Security Instruments, if any, encumbering the
Premises.
ARTICLE 12
ASSIGNMENT
12.01. LIMITATIONS. Tenant shall not assign this Lease or any right
hereunder, nor sublet all or any part of the Premises, without first obtaining
the express prior written consent of Landlord, which consent shall not be
unreasonably withheld.
(a) Notwithstanding the foregoing provisions of this
Article 12.1, Landlord shall not withhold consent to an assignment of this
Lease, or a sublease of all or any part of the Premises, to an entity
controlled by, controlling, or under common control with Tenant.
(b) Should Landlord consent to an assignment of this Lease,
or to a sublease, Tenant shall guarantee payment of all rent herein reserved and
performance of all obligations herein until the expiration of the term hereof,
and no failure of Landlord to collect promptly from any assignee or sublessee or
enforce performance of such obligations shall release or relieve Tenant from its
guaranty or obligation of payment of such rents and performance of such
obligations.
(c) The consent by Landlord to any assignment or sublease
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or sublease. Receipt by Landlord of rental due hereunder
from any party other than Tenant shall not be deemed to be a consent to any such
assignment or sublease or relieve Tenant of its obligation to pay rental or
other charges for thc full term of this Lease.
(d) Each assignment or sublease to which there has been
consent by Landlord, or for which Landlord's consent is not required, shall be
by instrument in writing, in form satisfactory to Landlord and executed by
Tenant and the assignee or sublessee, by which the assignee or sublessee shall
agree in writing for the benefit of Landlord to assume, be bound by, and perform
the terms, covenants, and conditions of this Lease. An executed copy of such
written instrument shall be promptly delivered to Landlord.
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12.02. BANKRUPTCY. Notwithstanding any provisions of Article 12.1 to
the contrary, in the event that this Lease is attempted to be assumed under
Federal bankruptcy law by a trustee in bankruptcy for Tenant or by Tenant as
debtor in possession (collectively referred to as `Trustee"), and there then
exists an Event of Default, such attempted assumption shall not be effective
unless Trustee: (a) cures, or provides adequate assurance that it will promptly
cure, such default; (b) compensates, or provides adequate assurance that it will
promptly compensate, Landlord for any actual pecuniary loss to Landlord
resulting from such default; and (c) provides adequate assurance of future
performance of Tenant's obligations and covenants under this Lease. For purposes
of this Article 12.2, "adequate assurance of future performance" shall be deemed
to include, without limitation, assurance of source of rental and other
consideration due under this Lease. If Landlord shall not be permitted to
terminate this Lease as provided herein because of the provisions of the Federal
Bankruptcy Code (currently Title II of the United States Cede), Trustee shall,
within 15 days after request by Landlord to the bankruptcy court, assume or
reject this Lease, and neither Tenant nor Trustee shall seek or request any
extension or adjournment of such time requirement. In no event after the
assumption of this Lease by Trustee shall any existing default remain uncured
for a period in excess of 10 days. Landlord shall have no obligation to provide
Trustee with any service or utilities unless Trustee shall have paid, and is
current on all payments of, the rental obligations due under this Lease.
ARTICLE 13
UTILITIES
13.01. UTILITIES AND JANITORIAL SERVICES. Tenant shall pay all costs
and expenses for all utilities (including water, sewer, electricity, gas, and
telephone) and janitorial services furnished to the Premises by order of Tenant
during the term of this Lease.
13.02. TRASH. Tenant shall place all garbage and trash from the
Building in trash bins to be placed upon the Premises by Tenant or by the entity
providing trash removal service to the Building. Tenant shall pay the cost of
trash removal service.
ARTICLE 14
SIGNAGE
Except for existing Building signs as of the Commencement
Date, Tenant shall not place upon any exterior door, roof, wall, or window of
the Building any sign, decoration, lettering, awning, canopy, or advertising
matter or other thing of any kind, or place any freestanding sign within or upon
the Premises, without first obtaining Landlord's express prior written consent,
which consent shall not be unreasonably withheld. Tenant shall maintain any such
sign, awning, canopy, decoration, lettering, advertising matter, or other thing
approved by Landlord in good condition and repair at all times and remove the
same at the end of the term of this Lease as and if requested by Landlord. Upon
removal thereof, Tenant shall repair any damage to the Premises or the Building
caused by such installation or removal.
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ARTICLE 15
ALTERATIONS TO THE PREMISES
Tenant shall make no alteration or addition to the Premises,
without first obtaining the express prior written consent of Landlord, which
consent shall not be unreasonably withheld. Landlord's consent to any alteration
or addition to the Premises shall create no responsibility or liability on the
part of Landlord for their completeness, design sufficiency, or compliance with
Governmental Regulations.
ARTICLE 16
LIENS
Tenant shall make full and prompt payment of all sums
necessary to pay for the cost of repairs, alterations, improvements, changes, or
other work done by Tenant to the Premises. Tenant shall indemnify Landlord
against all such costs and liabilities incurred by Tenant, and against all
construction liens arising out of any such work, which may be asserted, claimed,
or charged against Landlord, the Premises, or the Building. Notwithstanding
anything to the contrary in this Lease, the interest of Landlord in the Premises
shall not be subject to liens for improvements made by or for Tenant, whether or
not the same shall be made or done in accordance with this Lease or otherwise.
In no event shall Landlord or the interest of Landlord in the Premises be liable
for, or subjected to, any liens under the Florida Construction Lien Law for
improvements or work made by or for Tenant. In the event any notice or claim of
lien shall be asserted of record against the interest of Landlord in the
Premises on account of any improvement or work done by or for Tenant or any
person claiming by, through, or under Tenant, or the cost of which is the
responsibility of Tenant, Tenant shall have such notice or claim of lien
canceled and discharged of record as a claim against the interest of Landlord in
the Premises (either by payment and satisfaction or by removal by transfer to
bond or deposit as permitted by law) within 10 days after notice to Tenant by
Landlord. Any fees and costs incurred by Landlord resulting from a lien as
described in this Article 16 shall be paid by Tenant; including Attorney's Fees.
ARTICLE 17
INSURANCE
17.01. REQUIRED COVERAGES. Tenant shall obtain prior to the
Commencement Date, and shall maintain in force throughout the term hereof,
either by "blanket" policy or separate policies, the following types of
insurance coverage:
(a) CASUALTY INSURANCE. Fire, wind, storm, flood (if the
Building is in a flood zone), vandalism, malicious mischief, and extended
coverage, insuring the Building and all fixtures and other property of Landlord
leased by Landlord to Tenant pursuant to this Lease for the full replacement
value thereof, without deduction for depreciation. With respect to flood
insurance, however, the amount of coverage shall be the maximum amount eligible
for coverage under the National Flood Insurance Program.
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(b) LIABILITY INSURANCE. Comprehensive public liability
insurance covering claims for personal injury, death, and property damage
arising out of Tenant's use or occupation of the Premises, having a combined
single limit of liability of not less than $2,000,000 arising out of any one
occurrence and a limit of liability of not less than $500,000 for property
damage.
(c) GLASS INSURANCE. All plate glass on or enclosing the
Building; PROVIDED, HOWEVER, that Tenant shall have the option to self-insure
such items.
(d) RENT LOSS INSURANCE. Rent insurance against loss of
income arising out of damage or destruction by lightning, fire, vandalism,
malicious mischief, and such other hazards as are required to be insured against
pursuant to Article 17.1 .A, in an amount equal to not less than 100 percent of
12 months' gross rental income from the Premises hereunder.
(e) WORKERS' COMPENSATION. Workers' compensation insurance
for the benefit of all its employees entering upon the Premises as a result of
or in connection with their employment by Tenant.
17.02. MINIMUM REQUIREMENTS. All insurance policies shall be issued by
companies acceptable to Landlord and licensed and registered to operate in the
State of Florida, and shall be in form reasonably satisfactory to Landlord.
Tenant shall provide Landlord with copies of the policies or certificates
evidencing that Tenant's insurance is in full force and effect and stating the
terms thereof Landlord shall have the right, but not the obligation, to obtain
any such insurance and to pay the premiums therefor: (a) by delivery of notice
to Tenant at least 30 days prior to the expiration of the then applicable
insurance term; or (b) at any time without notice should Tenant fail to provide
any such insurance. In the event Landlord obtains any such insurance, the entire
amount of the premiums therefor shall be immediately due and payable by Tenant
to Landlord. In the event of any damage covered under the policy or policies
obtained by Tenant under Article 17.1 .A - 17.1 .D, all insurance proceeds for
such damage shall be paid to Landlord All insurance policies shall name
Landlord, Security Instrument holders, and Tenant as insureds, and shall provide
that Landlord and Security Instrument holders shall be given a minimum of 30
days written notice by registered mail by the insurance company prior to
cancellation, termination, or change in such insurance.
17.03. CLAIMS. To the extent that either Landlord or Tenant may have
claims against the other for casualty damage to the Premises, the Building, or
improvements or personal property located thereon (including business
interruption caused thereby), which claims are covered by insurance payable to
and protecting the claiming party, the claiming party shall exhaust all claims
under such insurance before asserting any claims against the other party. The
foregoing shall apply to claims for damage whether such damage is caused, wholly
or partially, by the negligence or other fault of the other party or its
employees, agents, invitees, or licensees.
ARTICLE 18
CASUALTY
18.01. PARTIAL DESTRUCTION. Except as otherwise provided in
Article 18.2, if the Building is damaged by fire or other casualty insured
under the insurance policies required by
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Article 17, then upon Landlord's receipt of the insurance proceeds, but not
later than 60 days after the casualty occurs, Landlord shall commence the repair
and restoration of the Building to substantially the condition thereof
immediately prior to such damage, and shall thereafter use reasonably diligent
efforts to complete such repair and restoration, limited, however, to the extent
of the insurance proceeds received by Landlord therefor.
18.02. OTHER CONDITIONS. If, as a result of fire or other casualty, the
Building is rendered wholly untenantable, the Building is damaged in whole or in
part as a result of a risk not covered by the insurance policies set forth in
Article 17.1 .A - 17.1 .D, or the Building is damaged to an extent of greater
than 50 percent of the Building's then replacement value, then Landlord may
elect either to repair the damage or to terminate this Lease by notice of such
termination given to Tenant within 30 days after the date of such casualty. Upon
such termination, Tenant's liability for the rents reserved hereunder shall
cease as of the effective date of the termination, subject, however, to the
provisions for abatement of rent set forth in Article 18.3.
18.03. ABATEMENT. If, by reason of fire or other casualty, greater than
50 percent of the Building is rendered untenantable, the rent shall be fully
abated. If, by reason of fire or other casualty, 50 percent or less of the
Building is rendered untenantable, the rent shall be abated proportionately on a
square footage basis as to that portion of the Building rendered untenantable.
Such abatement shall terminate upon substantial completion of repairs to the
Building or upon Tenant's resumption of business operations within the damaged
portion of the Building, whichever shall first occur. Except for the abatement
of rent as set forth above, Tenant shall not be entitled to, and hereby waives
all claims against Landlord for, any compensation or damage for loss of use of
the whole or any part of the Building or for any inconvenience or annoyance
occasioned by any such damage or repair.
18.04. TERMINATION BY TENANT. If Landlord elects, or is required, to
repair damage to the Building pursuant to Articles 18.1 or 18.2 and fails to
commence such repairs within 60 days after the date of the casualty giving rise
to such repairs, Tenant may elect to terminate this Lease by notice of such
termination given to Landlord upon the expiration of such 60-day period. If,
after commencing such repairs, Landlord fails to use reasonably diligent efforts
to complete such repairs, Tenant shall give Landlord notice of such failure, and
Landlord shall thereafter have 15 days in which to undertake such reasonably
diligent efforts. If Landlord thereafter fails to undertake and diligently
pursue such efforts, Tenant may elect to terminate this Lease by notice of such
termination to Landlord.
ARTICLE 19
INDEMNIFICATION
Landlord shall not be liable for injury or damage caused to
any person or property by reason of: (a) the failure of Tenant to perform any of
its covenants or agreements hereunder; or (b) any existing defect in the
Premises or Building. Tenant shall Indemnify Landlord against all loss, damage,
claim, demand, liability or expense by reason of any damage or injury to persons
(including loss of life) or property which may arise as a result of, in
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connection with, or in any way related to, the occupancy or use of the Premises
by Tenant, whether or not occurring or resulting in damage or injury within the
Premises. Tenant acknowledges that the foregoing provisions of this Article 19
shall apply to all activities on the Premises, even if such activities are prior
to the Commencement Date. Notwithstanding the foregoing provisions of this
Article 19, Tenant shall have no obligation to Indemnify Landlord against claims
arising solely from the negligence of Landlord or the failure of Landlord to
perform its obligations under this Lease.
ARTICLE 20
INSPECTION AND REPAIR
Landlord and its representatives shall have the right at any
reasonable time to enter upon the Premises for the purpose of inspection or
making repairs or otherwise to protect Landlord's interest, but the right of
Landlord to enter, repair, or do anything else to protect Landlord's interest,
or the exercise or failure to exercise such right, shall in no way diminish
Tenant's obligations or enlarge Landlord's obligations under this Lease, affect
any right of Landlord, or create any duty or liability of Landlord to Tenant or
any third party. Except in case of an emergency: (a) Landlord shall give Tenant
reasonable advance notice of Landlord's intention to enter upon the Premises
pursuant to the provisions of this Article 20; and (b) Landlord and its
representatives shall not materially interfere with the reasonable conduct of
Tenant's business in the exercise of Landlord's rights under the provisions of
this Article 20.
ARTICLE 21
RESTRICTIVE COVENANTS
21.01. RESTRICTIVE COVENANTS. The Premises are subject to the terms and
conditions of restrictive covenants recorded in Official Records Book 1454,
page 147, Public Records of Sarasota County, Florida (the "Restrictive
Covenants"). Tenant shall comply in all respects with the Restrictive
Covenants and all rules, regulations, guidelines, procedures, and standards
adopted or promulgated pursuant thereto.
21.02. ASSOCIATION. The Restrictive Covenants are subject to
enforcement by a nonprofit corporation known us Northgate Center Subdivision,
Unit No. 2 Owners' Association, Inc. (the "Association"). The Association is
empowered to levy assessments against the Premises and other property subject to
the Restrictive Covenants to provide funds for the payment of certain common
maintenance expenses and other expenses incurred by the Association in the
performance of its obligations under the Restrictive Covenants. Landlord shall
pay any assessments or other charges levied by the Association against the
Premises.
ARTICLE 22
DEFAULT
22.01. EVENT OF DEFAULT. The occurrence of any of the following events,
acts, or circumstances shall constitute an "Event of Default". Notwithstanding
the foregoing, a late fee
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of 5% shall be due if any rental installment is 10 days or more late, which
shall not be construed to extend any due date or require Landlord to accept any
payment more than 30 days after its due date.
(a) Failure by Tenant to make any rental or other payment
due hereunder within 30 days after the same shall become due;
(b) Failure by Tenant to observe, perform, or comply with
any of the terms, covenants. agreements, or conditions contained in this Lease
(other than as specified in Article 22.1 .A), and the continuance of such
failure for 20 days after Landlord has given Tenant notice of such failure. If
Tenant has promptly commenced and diligently pursued remedial action within such
20-day period but has been unable to cure its default prior to the expiration
thereof, such 20-day period shall be extended for the minimum time reasonably
required for the completion of Tenant's remedial action, provided Tenant
continues to pursue such remedial action;
(c) The bankruptcy of, or appointment of a receiver or
trustee for, Tenant, unless the same is vacated or dismissed within 20 days;
(d) Tenant's voluntarily petitioning for relief under, or
otherwise seeking the benefit of, any bankruptcy, reorganization, or insolvency
law;
(e) The sale of Tenant's interest under this Lease by
execution or other legal process;
(f) Tenant's abandonment or vacation of the Premises for a
period of 20 consecutive business days during the term of this Lease;
(g) Tenant's making an assignment of a material portion of
its assets for the benefit of creditors;
(h) Tenant's failure to maintain its status as a corporation
in good standing in the state of its incorporation, or Tenant's dissolution or
liquidation;
(i) Tenant's sale of all, or substantially all, of its
assets.
22.02. REMEDIES. Upon the occurrence of an Event of Default, Landlord,
at its option and at any time thereafter, may pursue, exercise, and enforce
either the remedy set forth in Article 22.2.A or the remedy set forth in
Article 22.2.B, without notice or demand except as hereinafter provided.
(a) Enter upon and take possession of the Premises, using
such force or means as may be necessary and legally permitted, and dispossess
and remove all persons, goods and chattels, without liability to Tenant in law
or in equity for any damages caused by such removal, possession, and entry. Upon
such entry by Landlord, Tenant shall at once surrender possession of the
Premises and shall be liable in damages and subject to equitable action for
failure to do so. Surrender of the Premises shall not in and of itself
constitute a termination of this Lease or
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relieve Tenant from any of the terms, covenants, and conditions hereof. After
resuming possession of the Premises, Landlord may:
(1) Relet, as Tenant's agent and without terminating
this Lease, the Premises for such amounts and upon such terms and
conditions as Landlord may deem best under the circumstances, whereupon
Tenant shall be liable to Landlord in general damages for the
difference between the rentals and other charges stipulated to be paid
by Tenant and what Landlord is able to recover from a re-letting, after
deducting any Attorney's Fees, commissions, and other expenses paid by
Landlord with respect to such re-letting; or
(2) Terminate this Lease, whether or not the Premises
or any part thereof shall have been relet, by notice to Tenant,
whereupon this Lease shall end; provided, however, that no such
termination of this Lease shall relieve Tenant of its liability and
obligations under this Lease incurred prior to such termination. Upon
such termination, Tenant shall be immediately liable for the damages,
present and prospective, which are the necessary and direct result of
Tenant's breach, as well as for any special damages as may have
resulted from such breach.
(b) Treat this Lease as remaining in existence, curing
Tenant's default by performing or paying the obligation which Tenant has
breached. All sums paid or expenses incurred by Landlord directly or indirectly
in curing Tenant's default shall become immediately due and payable. If the
breach consists of a failure to pay the rent stipulated in this Lease and
Landlord elects to treat this Lease as remaining in existence, Landlord may take
such action as is necessary to recover the rent due as each installment matures
or for the whole amount at the end of the term, or Landlord may upon the breach
declare the entire remaining unpaid rent for the balance of the term hereof
immediately due and payable (which remaining unpaid rent shall be determined by
multiplying the rent in effect for the month of default by the remaining number
of months of the term of the lease) and take such action as is necessary to
recover same.
22.03. NONEXCLUSIVE REMEDIES. The remedies for which provision is made
in this Article 22 shall not be exclusive, and in addition thereto, Landlord may
pursue such other remedies as are provided by law upon the occurrence of an
Event of Default In any event, and irrespective of any option exercised by
Landlord, Tenant shall pay to Landlord all costs and expenses incurred by
Landlord, including Attorney's Fees, in connection with collection of rent or
damages or enforcing other rights of Landlord under this Article 22, whether or
not Landlord elects to terminate this Lease by reason of such Event of Default.
Tenant hereby expressly waives all rights of redemption, if any, granted by or
under any present or future law in the event Tenant shall be evicted or
dispossessed for any cause, or in the event Landlord shall obtain possession of
the Premises by virtue of the provisions of this Lease, or otherwise.
22.04. INTEREST. Any sums due under this Lease from Tenant to Landlord
and not paid on the date due shall bear interest from the date due at the
maximum rate permitted by law until fully paid.
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22.05. DEFAULT BY LANDLORD. Landlord shall be deemed in default under
this Lease in the event Landlord fails to observe, perform, or comply with any
of the terms, covenants, agreements, or conditions contained in this Lease, and
such failure continues for a period of 20 days after Tenant has given Landlord
notice of such failure. If Landlord has promptly commenced and diligently
pursued remedial action within such 20-day period but has been unable to cure
its default prior to the expiration thereof; such 20-day period shall be
extended for the minimum time reasonably required for the completion of
Landlord's remedial action, provided Landlord continues to diligently pursue
such remedial action. In the event of default by Landlord:
(a) If Landlord's default renders the Premises wholly
untenantable then Tenant shall have the right to terminate this Lease upon 30
days notice to Landlord, whereupon both parties shall bc relieved of all further
obligations hereunder; or
(b) Tenant may, upon written notice to Landlord, cure such
default by performing or paying the obligation which Landlord has breached. In
such case, all reasonable expenses incurred by Tenant in curing Landlord's
default shall be due and payable from Landlord to Tenant within 10 days after
delivery of notice to Landlord of the amount of such expenses. If Landlord fails
to pay such expenses within such 10-day period, Tenant may deduct the amount of
such expenses from the next due installments of rent.
ARTICLE 23
WAIVER; ESTOPPEL; ACCORD AND SATISFACTION
The failure of a party to insist, in any one or more
instances, upon strict performance of any covenants or agreements of this Lease,
or to exercise any option of such party herein contained, shall not be construed
as a waiver or relinquishment of any right or remedy of such party hereunder and
shall not be deemed a waiver of any subsequent breach or default by the other
party of the covenants or conditions herein. Receipt of rent by Landlord, with
knowledge of the breach of any covenant or agreement hereof, shall not be deemed
a waiver of such breach. No waiver by a party of any provision hereof shall be
deemed to have been made unless expressed in writing and signed by such party.
Neither a payment by Tenant or receipt by Landlord of an amount which is less
than the amount then due pursuant to the terms of this Lease, nor any
endorsement or statement on any check or any letter accompanying any check or
payment hereunder, shall be deemed an accord and satisfaction. Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of the rent or other amount then due or to pursue any other remedy
provided in this Lease.
ARTICLE 24
SUBORDINATION AND NONDISTURBANCE
24.01. SUBORDINATION. All rights and interests of Tenant hereunder are
and shall be and remain subject, subordinate, and inferior to all mortgages,
trust deeds, ground leases, or security instruments (each of which shall be
referred to herein as a "Security Instrument"), heretofore or hereafter given
and encumbering the Premises, or any part thereof, and to all
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renewals, modifications, consolidations, replacements, and extensions of any
such Security Instrument. The rights of the holder of any Security Instrument
shall at all times be and remain prior and superior to all rights and interests
of Tenant. This provision shall operate as a subordination agreement with
respect to all Security Instruments and all renewals, modifications,
consolidations, replacements, and extensions thereof. If the holder of a
Security Instrument, or any person, firm, or corporation agreeing to make a loan
secured by a Security Instrument on the Premises, shall require confirmation of
any subordination for which provision is herein made or a separate subordination
agreement with respect to any transaction, Tenant shall execute such
confirmation or subordination agreement in the form required by such Security
Instrument holder or other person, firm, or corporation agreeing or proposing to
make a loan secured by a Security Instrument on the Premises. In the event any
proceedings are brought for foreclosure of, or in the event of the exercise of
any power of sale under, any Security Instrument, Tenant shall attorn to the
Security Instrument holder or purchaser upon any such foreclosure or sale and
recognize such holder or purchaser as the Landlord under this Lease.
24.02. NONDISTURBANCE. Notwithstanding the provisions of Article 24.1,
provided that Tenant is current in payment of rent and is not otherwise in
default under the terms of this Lease, Tenant's rights to peaceful occupation
and possession of the Premises in accordance with the provisions of this Lease
shall not be disturbed for the term of this Lease. Landlord shall cause the
holder of any Security Instrument that is hereafter given by Landlord as an
encumbrance on the Premises to execute and deliver to Tenant an agreement
acknowledging Tenant's rights under this Article 24.2.
24.03. RIGHTS OF SECURITY INSTRUMENT HOLDER. In the event that a
Security Instrument holder or third party should take title to the Premises
through foreclosure or otherwise as a result of the default of Landlord, then in
that event the Security Instrument holder or third party title holder shall not:
(a) be liable for a prior act or default of Landlord or be subject to any
defense or offsets available to Tenant against Landlord; (b) be liable for any
construction obligations of Landlord, including repairs or renovations following
a Taking or casualty; (c) be liable for any prepaid rent or deposits paid by
Tenant except to the extent same are actually received by the Security
Instrument holder or third party title holder; or (d) be liable for any
modification of this Lease except where approved in writing by the Security
Instrument holder.
(a) As long as the Premises are subject to the lien of a
Security Instrument, then this Lease and Tenant's tenancy shall remain in full
force and effect notwithstanding: (I) any delay or omission by the Security
Instrument holder in exercising, or any waiver by the Security Instrument holder
of, any right or remedy under the Security Instrument; (2) any amendment of; or
supplement to, the Security Instrument which does not affect any rights of
Tenant under this Lease; or (3) any bankruptcy, receivership, consolidation,
reorganization, dissolution, liquidation, or similar proceeding with respect to
Landlord. This Lease shall remain in full force and effect, and Tenant's
obligations hereunder shall not be modified, impaired, or diminished, in the
event a Security Instrument holder acquires title to the Premises through a
foreclosure or conveyance in lieu of foreclosure, provided only that the
Security Instrument holder, as successor in interest to Landlord, performs the
obligations of Landlord hereunder accruing from and after the date such Security
Instrument holder acquires title to the Premises.
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(b) Tenant shall provide to any Security Instrument holder
or third party taking title to the Premises through foreclosure, within 10 days
of written request to Tenant, an estoppel certificate certifying that this Lease
is unmodified and in full force and effect, or that this Lease is in full force
and effect as modified, and stating the modifications. Such estoppel certificate
shall also state the amount of monthly rent, the date to which the rent has been
paid in advance, and the amount of any security deposit or prepaid rent. The
estoppel certificate shall be in form reasonably satisfactory to the Security
Instrument holder or third party taking title to the Premises through
foreclosure.
ARTICLE 25
CONDEMNATION
25.01. TAKING. In the event a part of the Premises be taken by reason
of the exercise of the right of eminent domain by any public or quasi-public
authority, or be conveyed in settlement of threatened eminent domain proceedings
(both of which are referred to as a "Taking"), there shall be an equitable
abatement of the rental. Such equitable abatement shall result in the decrease
of rental payable by the percentage decrease in the square footage of the
Building resulting from the Taking. If the Taking involves all the Premises or
such a substantial and material portion of the. Premises as will reasonably
preclude Tenant from operating Tenant's business on the Premises, then this
Lease shall terminate as of the date the condemning authority acquires
possession of the Premises.
25.02. DAMAGES. Landlord reserves unto itself, and Tenant assigns to
Landlord, all rights to damages accruing on account of any Taking of any part of
the Premises, or by reason of any act of any public or quasi-public authority
for which damages are payable; PROVIDED, HOWEVER, that Tenant may recover from
the condemning authority an amount payable for business damages. Tenant shall
execute such instruments of assignment as may be required by Landlord; join with
Landlord in any petition for the recovery of damages, if requested by Landlord;
and turn over to Landlord any damages (other than Tenant's business damages)
that may be recovered in connection with a Taking. Landlord does not reserve to
itself, and Tenant does not assign to Landlord, any damages payable for trade
fixtures installed by Tenant at its cost and expense and which are not to remain
part of the Premises upon a termination or expiration of the term of this Lease,
as set forth in Article 10.2.
ARTICLE 26
TAXES
26.01. TAXES ON PROPERTY. Tenant shall pay all ad valorem taxes or
other assessments levied or assessed against the Premises before they become
delinquent. Tenant shall pay all ad valorem taxes or other assessments levied or
assessed against Tenant's personal property, including trade fixtures, located
on the Premises and will cause such personal property to be assessed directly to
Tenant.
26.02. TAXES ON RENT. Tenant shall pay all sales, use, and excise taxes
levied, assessed, or payable on all amounts payable under this Lease (which
taxes shall be paid to
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Landlord along with each monthly installment of rent), or on, or on account of,
the leasing of the Premises to Tenant.
26.03. PAYMENT BY LANDLORD. If Tenant fails to pay any taxes or
assessments required to be paid by Tenant hereunder and Landlord pays such
amounts, Tenant shall thereafter pay to Landlord on demand, as additional rent
hereunder, all taxes and assessments paid by Landlord, together with any
interest or penalty incurred by Landlord due to Tenant's failure to pay such
amounts in a timely manner. The foregoing is in addition to, and not a
limitation of; any other remedies of Landlord provided in this Lease.
ARTICLE 27
RIGHT TO SELL
Landlord is entitled to sell the Premises at Landlord's
discretion. Should Landlord sell or convey the title to the Premises, Tenant
shall be obligated to Landlord's successor in title and shall be required to
maintain adherence to the conditions and requirements of this Lease. In the
event of a proposed sale by Landlord, Tenant shall execute an estoppel
certificate or such other documentation as may be reasonably required by
Landlord. In the event of assignment of this Lease by Landlord in conjunction
with Landlord's sale or conveyance of the Premises, Landlord shall thereafter be
relieved of all obligations or liability arising under this Lease.
ARTICLE 28
NOTICES
All notices required by the terms of this Lease shall be in
writing. Notices may be sent by first class, certified U.S. Mail, return receipt
requested; by personal delivery, including delivery by courier services; or by
telecopy. Notices shall be deemed given three days following the date of
mailings, if notice is given by mail; upon receipt, if notice is given by
personal delivery; or at the time of transmission, if the notice is given by
telecopy. All notices and payments to be made to Landlord under the terms of
this Lease shall be delivered to Landlord at 635 South Orange Avenue, Suite 16,
Sarasota, Florida 34236. All notices to be sent to Tenant under the terms of
this Lease, and legal notices which might be delivered to Tenant in conjunction
with actions concerned with enforcement of terms of this Lease or recoveries
thereunder, shall be delivered to Tenant at the Premises.
Either party may change its address for notices by notifying
the other party of such change.
ARTICLE 29
ENVIRONMENTAL MATTERS
29.01. TENANT'S RESTRICTIONS. Tenant shall not cause or permit to
occur:
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(a) Any violation of Governmental Regulations related to
environmental conditions on, under, or about the Premises, or arising from
Tenant's use or occupancy of the Premises, including, but not limited to, soil
and ground water conditions; or
(b) The use, generation, release, manufacture, refining,
production, processing, storage, or disposal of any Hazardous Substances on,
under, or about the Premises, or the transportation to or from the Premises of
any Hazardous Substances, except in compliance with Governmental Regulations.
29.02. ENVIRONMENTAL CLEAN-UP. Tenant shall, at Tenant's own expense,
comply with all Governmental Regulations regulating Tenant's use, generation,
storage, transportation, or disposal of Hazardous Substances.
Furthermore:
(a) Tenant shall, at Tenant's own expense, make all
submissions to, provide all information required by, and comply with all
requirements of, governmental authorities pursuant to Governmental Regulations.
(b) Should any governmental authority or third party demand
that a clean-up plan be prepared and that a clean-up be undertaken because of
any deposit, spill, discharge, or other release of Hazardous Substances caused
by Tenant or Tenant's officers, agents, employees, invitees, or licensees that
occurs during the term of this Lease at, from, or about the Premises, then
Tenant shall, at Tenant's own expense, provide, submit, and implement the
required plans and all related bonds and other financial assurances.
(c) Tenant shall promptly provide all information regarding
the use, generation, storage, transportation, or disposal of Hazardous
Substances that is requested by Landlord. If Tenant fails to fulfill any duty
imposed under this Article 29.2 within a reasonable time, Landlord may do so at
Tenant's expense. In such case, Tenant shall cooperate with Landlord in order to
prepare all documents Landlord deems necessary or appropriate to determine
Tenant's compliance with Governmental Regulations, and Tenant shall execute all
such documents promptly upon Landlord's request. No such action by Landlord and
no attempt made by Landlord to mitigate damages under any Governmental
Regulations shall constitute a waiver of any of Tenant's obligations under this
Article 29.
(d) Tenant shall Indemnify Landlord against all liability
arising from: (1) any deposit, spill, discharge, or other release of Hazard s
Substances that occurs during the term of this Lease at or from the Premises or
as a result of Tenant's prior and future use or occupancy of the Premises;
(2) Tenant's failure to provide all information, make all submissions, and
take all steps required by all governmental authorities under Governmental
Regulations; or (3) Tenant's failure to comply with Tenant's obligations
under this Article 29. Tenant's obligations and liabilities under this
Article 29 shall survive the expiration or termination of this Lease.
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ARTICLE 30
BROKERAGE COMMISSIONS
Tenant warrants to Landlord that this Lease was not procured
by any real estate broker other than Richardson Kleiber Walter Realty and Re/Max
Properties. Tenant shall Indemnify Landlord against any claim to a real estate
commission arising out of this Lease made by any broker with whom Tenant has
dealt.
ARTICLE 31
ATTORNEY'S FEES
In the event of litigation affecting the rights of either
party under this Lease, thc losing party shall pay thc prevailing party's costs,
expenses, and Attorney's Fees incurred in the enforcement of the prevailing
party's rights hereunder.
ARTICLE 32
LIMITATION OF LIABILITY
Notwithstanding anything in this Lease to the contrary,
Landlord's liability under this Lease shall be limited solely to Landlord's
interest in the Premises and the Building, together with the rents and profits
accruing therefrom after a default by Landlord, as such interest is constituted
from time to time. Landlord shall have no personal liability with respect to
this Lease.
ARTICLE 33
MISCELLANEOUS
33.01. ENTIRE AGREEMENT. This Lease and the exhibits attached hereto
constitute the sole and exclusive agreement between the parties with respect to
the Premises. No amendment, modification, or revision of this Lease shall be
effective unless in writing and executed by Landlord and Tenant.
33.02. SEVERABILITY. If any term or provision of this Lease or the
application thereof to any present or future circumstances, to any extent, be
held to be invalid or unenforceable by a court of competent jurisdiction, the
remainder of this Lease shall be in full force and effect, and only the
provision found to be unenforceable shall be stricken from the terms hereof.
33.03. FORCE MAJEURE. Should a party be unable to perform any of its
obligations contained in this Lease due to circumstances beyond its control,
including but not limited to labor disputes; Governmental Regulations: fire or
other casualty: acts of the other party or the other party's employees, agents,
contractors, subcontractors, or invitees; inability to obtain material or
services; strikes; or acts of nature, such party shall not be considered in
default under the terms of this Lease, the time for performance by such party of
the obligation shall be extended for a period of time equal to the length of the
delay caused by such circumstances, and
-20-
<PAGE>
the other party shall not be excused from the obligation to pay all amounts and
charges required under this Lease as the same become due except as otherwise
expressly provided herein.
33.04. RADON. Florida law requires the following statement in
connection with the lease of any building in Florida: RADON GAS: Radon is a
naturally occurring radioactive gas that, when it has accumulated in a building
in sufficient quantities, may present health risks to persons who are exposed to
it over time. Levels of radon that exceed federal and state guidelines have been
found in buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your county public health unit.
33.05. EXHIBITS. All Exhibits referred to herein are incorporated by
reference and made a part of this Lease.
33.06. GOVERNING LAW. This Lease shall be construed according to
Florida law.
33.07. BINDING EFFECT. The terms and conditions of this Lease are
binding upon the heirs, successors, and assigns of the parties hereto. The
obligations of Tenant hereunder shall be joint and several.
33.08. USAGE. Whenever used herein, the singular number shall include
the plural and the plural the singular, and the use of any gender shall include
all genders. Titles of articles, paragraphs, and subparagraphs of this Lease are
for convenience only and neither limit nor amplify the provisions of this Lease.
33.09. NO THIRD PARTY RIGHTS. The provisions of this Lease are for the
exclusive benefit of Landlord and Tenant, and except for rights expressly
granted to third parties by the terms hereof, no third party shall have any
right or claim against Landlord or Tenant by reason of such provisions or be
entitled to enforce any of such provisions against Landlord or Tenant
33.10. NO RECORDING. Neither this Lease nor any portion hereof shall be
recorded unless both parties hereto agree in writing.
33.11. TIME OF ESSENCE. Time is of the essence of this Lease.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the day and
year first above mentioned.
Signed, sealed, and delivered in
the presence of:
SKR LAND PARTNERSHIP,
a Florida general partnership
/s/ By: /s/ Wendell F. Kent
- -------------------------------- ------------------------------------
Wendell F. Kent, as Trustee under
- -------------------------------- Agreement dated May 9, 1995, as
As to Landlord General Partner
LANDLORD
THE ROSE GROUP CORPORATION OF NEVADA,
a Nevada corporation
/s/ By: /s/ Sheldon R. Rose
- -------------------------------- ------------------------------------
Sheldon R. Rose, as its President
- --------------------------------
As to Tenant TENANT
-22-
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We hereby consent to the use of our Auditors' opinion, dated April 8,
1999, in the June 30, 1999 Form 10-SB Amendment No. 1 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.
Certified Public Accountants
Tampa Florida
September 21, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001091810
<NAME> THE ROSE GROUP CORPORATION OF NEVADA
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 39,383
<SECURITIES> 0
<RECEIVABLES> 28,900
<ALLOWANCES> 0
<INVENTORY> 72,256
<CURRENT-ASSETS> 167,214
<PP&E> 45,707
<DEPRECIATION> 11,513
<TOTAL-ASSETS> 450,493
<CURRENT-LIABILITIES> 285,203
<BONDS> 0
0
0
<COMMON> 6,189
<OTHER-SE> 366,175
<TOTAL-LIABILITY-AND-EQUITY> 450,493
<SALES> 260,700
<TOTAL-REVENUES> 260,700
<CGS> 159,378
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 329,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,950
<INCOME-PRETAX> (242,574)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (242,574)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
