As filed with the Securities and Exchange Commission on March _, 2000
Registration No. 333-92299
U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
AMENDMENT NO. ONE
to
FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ROEX, INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)
California 2833 86-0888532
- ----------------------------- ---------------------------- -----------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Code Number)
2801 BUSINESS CENTER DRIVE, SUITE 185 IRVINE, CA 92612 (949) 476-8675
--------------------------------------------------------------------
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
Rodney H. Burreson, President Roex, Inc.
2081 Business Center Drive, Suite 185
Irvine, CA 92612
-----------------------------------------------------------
(Name, address, and telephone number of agent for service)
Copies to:
William B. Barnett, Esq.
Law Offices of William B. Barnett
15233 Ventura Boulevard, Suite 1110
Sherman Oaks, CA 91403
<PAGE>ii
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statementfor
the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
underthe Securities Act, check the following box and list the Securities
Actregistration statement number of the earlier effective Registration
statement for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Share
- ------------------------- ----------------------- ----------------------- ----------------------- -----------------------
Common Stock 1,000,000 $ 5.00 $5,000,000 $1,475#
Total 1,000,000 $5,000,000 $1,475
- ------------------------- ----------------------- ----------------------- ----------------------- -----------------------
# Estimated solely for purposes of calculating the registration fee.
</TABLE>
<PAGE>iii
We may amend this registration statement on such date or dates as may be
necessary to delay its effective date until we file a further amendment which
specifically states that this registration statement shall later become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the registration statement becomes effective on a date that the Securities and
Exchange Commission, acting under Section 8(a), may determine.
<PAGE>1
SUBJECT TO COMPLETION. DATED MARCH ___, 2000
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE'RE NOT ALLOWED TO SELL THE COMMON STOCK OFFERED BY THIS PROSPECTUS
UNTIL THE REGISTRATION STATEMENT THAT WE HAVE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") BECOMES EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS
NOT AN OFFER TO SELL OUR STOCK NOR DOES IT SOLICIT OFFERS TO BUY OUR STOCK IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
1,000,000 Shares
ROEX, INC.
Common Stock
This is an initial public offering of shares of ROEX, Inc. All of the 1,000,000
shares of common stock are being sold by ROEX's officers and directors directly
to the investors. Although we reserve the right to engage an underwriter or
broker/dealer, no underwriter or broker/dealer has been retained at this time by
us to assist in the sale of the shares.
There is no public market for the shares covered by this offering. Upon the
close of this offering, application will be made for quotation of the common
stock on the NASD's OTC Bulletin Board under the symbol "ROEX.
The shares offered in this Offering are highly speculative and involve a high
degree of risk to public investors and should be purchased only by persons who
can afford to lose their entire investment. SEE "RISK FACTORS" BEGINNING ON PAGE
7 TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF OUR SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS ILLEGAL.
Underwiting
Price to Discounts and Proceeds to
Public Commissions Company
-------------- ------------------ -------------
Per Share $ 5.00 -- $ 5.00
- ----------------- -------------- ------------------- -------------
Total - Minimum $2,500,000 -- $2,500,000
- ----------------- -------------- ------------------- -------------
Total - Maximum $5,000,000 -- $5,000,000
The date of this Prospectus is March ____, 2000.
<PAGE>2
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from or
additional to that contained in this prospectus. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of time of delivery of this prospectus or of any sale of our common stock.
UNTIL _________, 2000 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNHSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
TABLE OF CONTENTS
PAGE
Prospectus Summary........................................................3
Risk Factors..............................................................7
Additional Information....................................................9
Forward-Looking Statements...............................................10
How To Purchase Shares...................................................10
Dilution.................................................................11
Use of Proceeds..........................................................12
Dividend Policy..........................................................13
Capitalization...........................................................13
Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................14
Business.................................................................16
Management...............................................................30
Principal Shareholders...................................................35
Method of Distribution...................................................36
Shares Eligible for Future Sale..........................................37
Description of Capital Stock.............................................38
Legal Matters............................................................39
Experts..................................................................39
Index to Financial Statements...........................................F-1
<PAGE>3
PROSPECTUS SUMMARY
Our Business
Roex, Inc. was incorporated in California on October 5, 1994 to develop and
market its own line of dietary supplement products using scientifically based
branded ingredients. These products are not intended to diagnose, treat, cure or
prevent any disease. Our founder and President, Rodney H. Burreson, has been an
athlete and body builder for a number of years and has experienced a myriad of
ailments and injuries resulting from these activities. He became committed to
finding and developing non-pharmaceutical solutions to improve his own quality
of life. Not content with the then current products and formulas on the market,
Mr. Burreson, through education and research, began to develop his own formulas
that combined the highest quality and best ingredients to form more
comprehensive products that would meet his own specific health needs. Our first
product was the super antioxidant, called Procyanidin or PC-95, a grape seed
extract, which was first sold in April 1995. Since introducing PC-95, we have
added twelve more dietary supplement products to our product line and we are
committed to providing only the highest quality products to meet its customers'
specific health needs. We have grown from under a million dollars of annual
sales to approximately $4 million in 1998, and $5.7 million in 1999. We
currently market our products primarily through radio programming. Mr. Burreson
appears live on local talk radio shows in New York, Los Angeles and Southern
Florida. The format is one-half and one-hour radio infomercials, with
interactive customer call-ins. We recently added Internet e-commerce as a
vehicle for marketing Roex products. Our radio programs now promote our web
site, the web site promotes the radio programs, and we expect this synergy to
accelerate sales.
Our Address/How to Contact Us
Our principal executive office is located at 2081 Business Center Drive, Suite
185, Irvine, California 92612 and our telephone number is (949) 476-8675, our
FAX number is (949) 476-8682. Our main website address is www.roex.com.
THE OFFERING
Common Stock offered
by the Company(1). . . . . . . . . 1,000,000 Shares (maximum offering)
. . . . . . . . . 500,000 Shares (minimum offering)
Common Stock to be outstanding
after this Offering . . . . . . . 6,288,584 Shares (maximum offering)
. . . . . . . 5,788,584 Shares (minimum offering)
Use of Proceeds . . . . . . . . . . . We will use the proceeds to,
increase our inventory of products,
add new radio markets, reduce our
debt and for working capital and
other general corporate purposes.
<PAGE>4
FINANCIAL DATA
The following table summarizes the financial data of our business. You should
read this information with the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and notes to those statements included elsewhere in this prospectus.
Year
Ended
December 31
------------------------
1999 1998
---------- ----------
Operating Data
Net Sales $5,736,832 $3,934,910
Net Income (Loss) $ 534,132 $ (463,264)
Net Income (Loss)
Per Share:
Basic $ 0.10 $ (0.10)
Diluted $ 0.09 $ (0.10)
Weighted Average
Common Equivalent
Shares Outstanding:
Basic 5,288,296 4,826,870
Diluted 6,362,146 4,826,870
December 31 December 31
1999 1998
------------- --------------
Balance Sheet Data
Working Capital(Deficit) $ (175,910) $ (267,223)
Total Assets 810,763 383,182
Net Stockholders'
Equity(Deficit) (395,159) (940,541)
<PAGE>5
RISK FACTORS
An investment in our Common Stock offered hereby is speculative in nature and
involves a high degree of risk. In addition to the other information contained
in this prospectus, the following factors should be considered carefully before
making any investment decisions with respect to purchasing our Common Stock.
Risks Associated With Our Company.
Our business has only recently shown a profit. Since we commenced operations in
October 1994, we have accumulated net losses through December 31, 1999 of
$1,027,846 and a stockholders' deficit of $395,159. We lost money for the years
1997 and 1998. Although we operated profitably for the year ended December 31,
1999, we still had a net working capital deficit of $175,910. Although we expect
to be profitable for the year ending December 31, 2000, we cannot assure that a
year-end profit will be realized or that profitability will continue in the
future.
Any Effect of Unfavorable Publicity is Particularly Harmful to our Industry. We
believe that the dietary supplement market is affected by national media
attention regarding the consumption of dietary supplements. Future scientific
research or publicity may not be favorable to the dietary supplement industry or
to any particular product, and may not be consistent with earlier favorable
research or publicity. Because we are dependent on consumers' perceptions, any
adverse publicity associated with illness or other adverse effects resulting
from the consumption of our products, or any similar products distributed by
other companies, and future reports of research that are perceived as less
favorable or that question earlier research, could have a material adverse
effect on our business, financial condition and results of operations. Thus, the
mere publication of reports asserting that such products may be harmful, or
questioning their efficacy could have a material adverse effect on our business,
regardless of whether such reports are scientifically supported or whether the
claimed harmful effects would be present at the dosages recommended for such
products.
We Are Dependent On New Radio Markets for Future Growth. We believe the growth
of our net sales is substantially dependent upon our ability to open up new
radio markets. Currently, 90% of our sales are generated from our radio health
shows in New York City, Los Angeles, Miami and Tampa. Our business plan is to
expand our radio health show to between four and eight additional cities in the
<PAGE>6
next twelve months. The success of these radio shows depend on a number of facts
including the following:
. selection of radio stations and time slots that appeal to the demographics
of our customers (e.g. individuals over 45 years of age)
. consumer acceptance (ratings) of the show
. consumer acceptance of our products advertised on the show
. competition from other health and talk shows on the same or other stations
. changes in radio station policy which removes the program from their
schedule
We can't guarantee that we will be successful in new radio markets. In addition,
even if we are successful in some new radio markets, we may not be able to
maintain that success over time.
Our Business is subject to compliance with Various Government Regulations. We
are subject to regulation by numerous governmental agencies, the most active of
which is the U.S. Food and Drug Administration, which regulates our products
under the Federal Food, Drug and Cosmetic Act. In addition, the Federal
Communications Commission regulates on air content of radio shows. These
regulations involve, among other things:
- - the formulation, manufacturing, packaging, labeling, distribution,
importation, sale and storage of our products;
- - health and safety;
- - product claims and advertising by us.
If we fail to comply with applicable FDA or FCC regulatory requirements, it may
result in, among other things, injunctions, product withdrawals, recalls,
product seizures, fines and criminal prosecution.
If We Lose Our Key Personnel, Especially Our Founder and Spokesperson, Rodney
Burreson, Our Business May Suffer. We depend substantially on the continued
services and performance of our senior management and, in particular, Mr.
Burreson. Our business may be hurt if he or one or more of our senior management
or key employees leave Roex. Although we have an employment agreement with Mr.
Burreson for an initial term of five years, this does not guarantee that he will
remain with us for the entire term. If we lose the services of Mr. Burreson or
any of these executive officers or other key employees, we may not be able to
attract and retain additional qualified personnel to fill their positions in the
future. We have recently obtained a $1,000,000 key man life insurance policy, of
which we will be the beneficiary, on the life of Mr. Burreson.
Failure Of Our Outside Suppliers To Provide Our Products In Sufficient
Quantities and In a Timely Fashion May Cause Our Business To Suffer. All of our
products are provided by outside suppliers. Our profit margins and ability to
deliver our products on a timely basis are dependent upon the ability of our
outside suppliers to provide quality products in a timely and cost-efficient
manner. Three large companies provide 60% of our products. Our ability to enter
new markets and sustain satisfactory levels of sales in each market is dependent
upon the ability of these or other suitable outside suppliers to respond to our
needs. Further, the development of new products in the future will depend in
part on these outside suppliers. The failure of any supplier to provide the
products or ingredients of products that we require could have an adverse effect
<PAGE>7
on our business, profitability and growth prospects.
We are smaller than most of our national competitors and, consequently, we may
lack the financial resources to enter new markets or increase existing market
share. We compete with many companies marketing products similar to the ones we
sell. Most of these companies have longer histories, more products and greater
name recognition and financial resources than we do. Many of our competitors
have thousands of distributors operating under network marketing systems and
others are selling products through the traditional retail stores. Our primary
competitors include Metagenics, Twin Labs, Enzymatic Therapy, Country Life,
Natreol and Now Foods. Our business, profitability and growth prospects could be
hurt if we are unable to compete successfully against our competitors. If our
information technology systems fail, we would not be able to conduct our
day-to-day business. Depending upon the severity and duration of the failure and
our ability to remedy the cause, our business could be hurt.
RISKS ASSOCIATED WITH THIS OFFERING
We are selling the shares covered by this offering ourselves without the
assistance of an underwriter or broker/dealer. We are making this offering
without the benefit of an underwriter. Underwriters typically review a company
in great detail as part of their due diligence process. No underwriter has
reviewed Roex, our management, business plan, operations, financials or
competitiveness in our marketplace. Consequently, you must rely solely on your
own due diligence and review of such matters and judge the likelihood of our
success in our marketplace and opportunity for profitable operation.
This is a "minimum/maximum' offering and there can be no assurance that we will
be able to sell all of the shares covered by the offering. We're making this
offering on a minimum/maximum basis. This means that we must sell a minimum
amount of stock but we may not sell all of the stock that is being offered. If
we sell only the minimum number of shares, we may not generate sufficient
capital to execute our plan of business at a level that will generate increased
growth and profits.
We have set a minimum of $2,500,000 of stock to be sold in this offering. Until
acceptable subscriptions for such minimum amount have been received, all
subscriptions will be held in an escrow account. Once deposited, these funds
will only be returned to the investor if the minimum amount of $2,500,000 is not
subscribed in the offering period.
Our Offering Price has been arbitrarily determined by management. The initial
public offering price of the Common Stock has been arbitrarily determined by us
and may not be indicative of the price at which shares of Common Stock will sell
after this offering. In determining the offering price, our Board of Directors
considered, among other things, our earnings, its view of our prospects, the
earnings of comparable publicly traded nutritional supplement companies and the
trading price of the stock of those companies. We make no representations as to
any objectively reasonable value of the Common Stock. Since we have not retained
an underwriter for purposes of this offering, the offering price has not been
subject to evaluation by any third party as would be the case in an underwritten
offering. Prices for the shares of our Common Stock after this offering will be
determined in the available market and may be influenced by many factors,
including the depth and liquidity of the market for our Common Stock, the
<PAGE>8
perception of Roex by other investors, the nutritional supplement industry as a
whole, and general economic and market conditions.
You will incur immediate and substantial dilution in the net book value per
share as a result of our prior issuance of shares of common stock at a price
lower than the offering price for the shares covered by this offering. The
offering price of the common stock is substantially higher than the tangible
book value per share of the outstanding Common stock. If you purchase shares in
this offering you will incur immediate and substantial dilution, and our
existing stockholders will receive a material increase in the tangible book
value per share of their shares of Common stock. If we sell the maximum number
of shares in this offering, the immediate dilution to new investors will be
$4.30 per share or 86% of the offering price of the shares.
This is our initial public offering of shares and there is no public market for
our Common stock. To this point, there has not been a market for our shares. We
cannot give any assurances that a market will develop, or, if such a market
should develop, that it will be sustained with sufficient liquidity to permit
you to sell your shares at any time. We also cannot give any assurance to you
that your shares could ever be sold at or near the offering price, or at all,
even in an emergency.
There will be no public market for resale of our shares until our shares are
listed on an exchange or quoted through NASDAQ. Because we are directly selling
our stock, we have provided that our offering may remain open for up to 90 days
after our offering becomes effective. It is doubtful that you could sell your
shares for more than the initial offering price of $5.00 per share while our
offering is still open.
We do not anticipate applying to list our common stock on any exchange or
through the Nasdaq quotation system until we have received acceptable
subscriptions for at least the minimum amount of $2,500,000. We further
anticipate that we may not receive such minimum amount until the end of the
offering period and that, if we are able to list our Common stock on an exchange
or Nasdaq, such listing may not be effective until 30 days after we file the
application. Therefore, it is possible that even if we are able to list our
Common stock on an exchange or Nasdaq such listing would not be effective until
four (4) months after the effective date of this registration statement.
Factors that May Adversely Affect Our Common Stock.
We do not anticipate paying any cash dividends on shares of Common stock in the
foreseeable future. The future of payment of dividends is directly dependent
upon our future earnings, our financial requirements and other factors to be
determined from time to time by our management. For the foreseeable future, we
anticipate that any earnings which may be generated from our operations will be
used to finance the growth of Roex even if our operations are profitable. Our
issuance in the future of any shares of preferred stock may also affect our
ability to pay dividends on the Common stock. (See "Dividends" and "Description
of Securities.")
Our stock price may be extremely volatile and you may not be able to resell your
shares at or above the initial-offering price. Following this offering, the
price at which our Common stock will trade may be extremely volatile and may
fluctuate significantly. The public market may not agree with or accept this
<PAGE>9
valuation. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the securities of technology companies, particularly software and Internet
companies. After this offering, therefore, you might not be able to resell your
shares at or above the initial public offering price.
Shares Eligible For Future Sale. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely affect
the market price for the Common Stock. Upon completion of this offering, there
is expected to be a minimum of 5,788,584shares and a maximum of 6,288,584 shares
of Common Stock outstanding. All of the shares offered hereby will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, unless purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act described below. The remaining
5,288,584 shares of Common Stock outstanding upon completion of this offering
are "restricted securities," as that term is defined in Rule 144 (the
"Restricted Shares"). All of the Restricted Shares will be eligible for sale in
the open market after the effective date of the Registration Statement, all
under and subject to the restrictions contained in Rule 144 and Rule 701.
Prior to the completion of this offering, the Company intends to enter into
lock-up agreements (the "Lock-up Agreements") with each of the Company's
officers, directors and shareholders owning 5% or more of the Company's Common
Stock. Pursuant to the Lock-up Agreements, each such shareholder will agree,
subject to certain exceptions, not to sell or otherwise dispose of any of its
shares of Common Stock until 180 days after the completion of this offering (the
"Lock-up Expiration Date").
As of December 31, 1999, options to purchase 903,850 shares of Common Stock were
outstanding, of which 496,350 are currently exercisable. The Company intends to
register on Form S-8 under the Securities Act the offering and sale of Common
Stock issuable under the outstanding options as soon as practicable after the
date of this Prospectus.
ADDITIONAL INFORMATION IS AVAILABLE
This prospectus is part of a Registration Statement on Form SB-2 filed under the
Securities Act of 1933. This prospectus does not contain all of the information
in the Registration Statement and its exhibits. Statements in this prospectus
about any contract or other document are just summaries. You may be able to read
the complete document as an exhibit to the Registration Statement.
We will have to file reports under the Securities Exchange Act of 1934. You may
read and copy the Registration Statement and our report at the Securities and
Exchange Commission's public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549, Seven World Trade Center, 13th Floor, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
You may telephone the Commission's Public Reference Branch at 800-SEC-0330. Our
Registration Statement and reports are also available on the Commission's
Internet site at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing financial
statements audited by an independent public accounting firm after the end of
each fiscal year.
<PAGE>10
FORWARD-LOOKING STATEMENTS
In General
This prospectus contains statements that plan for or anticipate the future.
Forward-looking statements include statements about the future of the vitamin
supplement industry, statements about our future business plans and strategies,
and most other statements that are not historical in nature. In this prospectus,
forward-looking statements are generally identified by the words "anticipate,"
"plan," "believe," "expect," "estimate," and the like. Because forward-looking
statements involve future risks and uncertainties, there are factors that could
cause actual results to differ materially from those expressed or implied. For
example, a few of the uncertainties that could affect the accuracy of
forward-looking statements include:
(A) changes in general economic and business conditions affecting the vitamin
supplement industry;
(B) our ability to design, order and stock merchandise that appeals to our
customers;
(C) technical developments that make our products or services obsolete;
(D) our costs in the pricing of our products;
(E) the level of demand for our products; and
(F) changes in our business strategies.
HOW TO PURCHASE SHARES
Included as the final page of this prospectus is a subscription
agreement which must be completed by the potential investors in order to
purchase the Common Stock offered hereby. The page containing the subscription
agreement is perforated to enable it to be detached. In order to subscribe to
purchase the Common Stock, please detach, complete and execute the subscription
agreement, include a check made payable to "Roex Subscription Account" and
return the executed subscription agreement and payment to the Roex Subscription
Account, 2081 Business Center Drive, Suite 185, Irvine, CA 92612 as soon as
possible. The minimum amount that may be subscribed for is 100 shares. There is
no maximum. Subscriptions will be given priority based upon their date of
receipt. In the event that the minimum number of 500,000 shares is not
subscribed, all amounts received will be returned without interest or deduction.
In the event that the Company terminates this offering after the Initial
Closing, all amounts received shall be returned without interest or deduction.
<PAGE>11
DILUTION
At December 31, 1999, we had a negative net tangible book valueof $395,159, or
approximately $(.07) per share of outstanding Common Stock. "Net tangible book
value" per share represents the amount of our total tangible assets less our
total liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the receipt of the estimated net proceeds from our sale
of the 500,000 shares and 1,000,000 shares of Common Stock offered hereby, at an
assumed initial public offering price of $5.00 per share of Common Stock (after
deducting Offering expenses payable by us), the net tangible book value of Roex
at December 31, 1999, would have been approximately $1,904,841 and $4,404,841,
or $.33 and $.70 per share of Common Stock, respectively. This would represent
an immediate increase in the net tangible book value per share of Common Stock
of $.40 (if 500,000 shares are sold) and $.77 (if 1,000,000 shares are sold) to
existing shareholders and an immediate dilution of $4.67, or $4.30,
respectively, per share to new investors purchasing shares of Common Stock in
the Offering. "Dilution" is determined by subtracting net tangible book value
per share after the Offering from the offering price to investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
If 500,000 If 1,000,000
Shares are Shares are
Sold Sold
---------- ------------
Initial offering price per share of Common Stock $ 5.00 $ 5.00
Net tangible book value per share of Common Stock
Before the Offering $ (.07) $ (.07)
Increase attributable to new investors $ 0.40 $ 0.77
Proforma net tangible book value after Offering $ .33 $ .70
Dilution to new investors $ 4.67 $ 4.30
Percentage of dilution to new investors 94% 86%
</TABLE>
The following table summarizes the number of shares of Common Stock purchased
from the Company (assuming the sale of the minimum offering of 500,000 shares),
the total consideration paid and the average price per share paid by (i)
existing shareholders of the Company at December 31, 1999, and (ii) new
investors purchasing shares of Common Stock in this Offering, before deducting
the underwriting discounts and estimated offering expenses payable by us.
<TABLE>
<S> <C> <C> <C> <C> <C>
Average
Shares Purchased Consideration Paid Price Per
Number Percentage Amount Percentage Share
---------- ---------- ---------- ---------- -----------
Existing Shareholders 5,288,584 92% $ 632,687 20% $ .12
New Investors 500,000 8% $2,500,000 80% $5.00
---------- ---------- ---------- ---------- -----------
Total 5,788,584 100% $3,132,687 100%
</TABLE>
The following table summarizes the number of shares of Common Stock purchased
from Roex (assuming the sale of the maximum offering of 1,000,000 shares), the
total consideration paid and the average price per share paid by existing
shareholders of Roex at December 31, 1999, and new investors purchasing shares
<PAGE>12
of Common Stock in this Offering, before deducting commissions and estimated
offering expenses payable by us.
<TABLE>
<S> <C> <C> <C> <C> <C>
Average
Shares Purchased Consideration Paid Price Per
Number Percentage Amount Percentage Share
---------- ----------- ---------- ---------- ---------
Existing Shareholders 5,288,584 84% $ 632,687 11% $ .12
New Investors 1,000,000 16% $5,000,000 89% $5.00
---------- ----------- ---------- ---------- ---------
Total 6,288,584 100% $5,632,687 100%
</TABLE>
USE OF PROCEEDS
The net proceeds to Roex from the sale of the 500,000 shares and 1,000,000
shares of Common Stock offered hereby at an offering price of $5.00 per share,
after deducting offering expenses payable by us, estimated to total
approximately $200,000, are $2,300,000 and $4,800,000, respectively.
The following table sets forth our anticipated use of the net offering proceeds,
assuming the sale, respectively, of the minimum of 500,000 shares and the
maximum of 1,000,000 shares of Common Stock offered hereby.
Minimum Maximum
500,000 1,000,000
Shares Sold Shares Sold
----------- ------------
Sources of Funds:
Offering Proceeds $ 2,500,000 $ 5,000,000
Offering Expenses 200,000 200,000
----------- ----------
Net Proceeds $ 2,300,000 $ 4,800,000
=========== ===========
Use of Net Proceeds:
Expand Radio Markets $ 600,000 $ 900,000
Marketing and Advertising 200,000 900,000
Debt Reduction 900,000 900,000
New Product Development 500,000
Inventory 150,000 250,000
Video Production 200,000 300,000
Developing Internet e-commerce 200,000 700,000
Working Capital 50,000 $ 350,000
----------- ----------
Total Uses $ 2,300,000 $ 4,800,000
============ ============
The foregoing represents our best estimate of the allocation of the net proceeds
of the Offering, based upon our current status of operations and anticipated
business plans. It is possible that the application of funds may vary depending
on numerous factors including, but not limited to, changes in the economic
climate or unanticipated complications, delay and expenses.
The uses of funds for the minimum and maximum of the offering are as indicated
in the table. Proceeds from the minimum will be used to retire our debt. The
interest rates for the long and short term debts range from 12% to 16% and the
maturity dates are from September 30, 2000 to June 30, 2002. The priority for
use of funds beyond the minimum is for large proportional increases in radio
marketing, advertising and developing Internet e-commerce with smaller
<PAGE>13
proportional increases for the other categories shown in the table. Proceeds for
working capital will be used for overhead and administrative purposes. Pending
use of the proceeds of this Offering, we may make temporary investments in bank
certificates of deposit, interest bearing savings accounts, prime commercial
paper, U.S. Government obligations and money market funds. Any income derived
from these short term investments will be used for working capital. Because this
is a self underwritten offering, the numbers above do not include any deductions
for selling commissions.
DIVIDEND POLICY
We have never paid dividends and do not anticipate paying dividends in the
foreseeable future.
CAPITALIZATION
The following table sets forth, as of December 31, 1999, the capitalization of
Roex, actual and as adjusted for the issuance and sale of 500,000 and 1,000,000
shares of Common Stock offered hereby at $5.00 per share, after deducting
estimated Offering expenses and underwriting discounts and the initial
application of the proceeds therefrom. The table also excludes the issuance of
up to 903,850 shares of Common Stock reserved for issuance under outstanding
stock options.
<TABLE>
<S> <C> <C> <C>
As As
Actual Adjusted(2) Adjusted(3)
------------ ------------- ------------
Long-term Debt . . . . . . . . . . . . . $ 402,685 $ -0- $ -0-
Stockholders' equity
Common Stock(no par value)
15,000,000 shares authorized;
5,288,584 shares issued and
outstanding (actual); 5,788,584
as adjusted (minimum) and
6,288,584 as adjusted
(maximum) . . . . . . . . . . . . . $ 677,687 $ 2,977,687 $ 5,477,687
Preferred Stock, $.01 par value;
5,000,000 Shares authorized; no
shares issued and outstanding
(actual) as adjusted . . . . . . . .
Additional paid-in capital. . . . . . . $ 35,000 $ 35,000 $ 35,000
Accumulated Deficit . . . . . . . . . (1,027,846) (1,027,846) (1,027,846)
Stock Receivable. . . . . . . . . . . . (80,000) (80,000) (80,000)
------------ ------------- ------------
Total stockholders' equity (deficit). . ( 395,159) 1,904,841 4,404,841
------------ ------------- ------------
Total capitalization (deficit). . . . . $ 7,526 $ 1,904,841 $ 4,404,841
============ ============= ============
</TABLE>
<PAGE>14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
for the years ended December 31, 1999 and 1998 should be read in conjunction
with our financial statements and related notes thereto, and other financial
data included elsewhere in this prospectus.
Results of Operations
Years ended December 31, 1999 and 1998.
Components of revenue and expenses as a percentage of revenue are given in the
following table.
Fiscal Year Ended
December 31
1999 1998
------- ------
Revenues 100% 100%
Cost of Sales 22% 27%
Gross Profit 78% 73%
Operating Expenses
Payroll 27% 32%
Sales & Marketing 19% 24%
General & Admin. 20% 20%
Other 3% 9%
Net Income (Loss) 9% -12%
Sales are recognized when products are shipped. For the year ended December 31,
1999, net sales increased to $5,736,832 which is 46% greater than for 1998. The
increase was due to an improved marketing effort to better establish our brand
name, the introduction of new products and an increase in our loyal steady
reordering from our existing customer base. Reorders from existing customers
represent about 70% of monthly sales.
During the same period our operating margin increased to 78% from 73% because of
greater buying economies, and our operating expenses were reduced to 69% of
sales from 85%, because of greater internal efficiencies. Net income before
taxes rose to $534,132 (9%) from a loss of $462,264 (12%) because of a
combination of increased sales, improved profit margins and operating
efficiencies. This resulted in a profit of $.10 per share ($.09 diluted)
compared to a loss of $.10 for the prior year.
Payroll and related expenses increased by $294,063 in 1999 compared to 1998, but
dropped as a percentage of revenue to 27% from 32% because of greater operating
efficiency. Sales and marketing expenses increased by $149,382 in 1999 compared
to 1998, but dropped to 19% of revenue from 24% in 1998, because of increases in
sales efficiency and because of heavy reorders from existing customers.
Reordering from existing customers accounted for about 70% of monthly orders and
grew in dollar value in direct proportion to monthly sales increases. General
and administrative expenses in 1999 increased by $392,820 compared to 1998,
although it represented about 20% of revenue in each year. The dollar increase
<PAGE>15
was due to an expanded infrastructure to handle the increased volume of sales
and increased use of computers and software to automate procedures for increased
sales. Other expenses decreased by $224,177 for 1999 compared to 1998, which
represented 2% and 9% of revenue for the respective years. Other expenses were
interest and debt restructuring. The debt restructuring cost was $229,775 in
1998 to permit Roex to keep operating, while there were no debt restructuring
costs in 1999.
Monthly sales for 1999 and 1998 are as follows.
1999 1998
------- -------
(In Thousands)
January $ 380 $ 332
February 354 311
March 516 347
April 459 322
May 472 300
June 480 418
July 458 300
August 485 330
September 510 340
October 536 305
November 508 309
December 578 315
------- -------
$5,737 $3,935
In summary, our sales and profits have been increasing each period and we have
transitioned from losses to profits.
Current Revenue by Market is as shown below. Total revenues are expected to
increase if the radio shows in Los Angeles and Florida increase in popularity
and as additional cities are added.
New York 70%
Los Angeles 20%
Florida 8%
Other 2%
----
100%
Liquidity and Capital Resources
Year ended December 31, 1999
As of December 31, 1999 our current liabilities exceeded our current assets by
$175,910, which was a 34% improvement over December 31, 1998. This improvement
occurred even with an increase of current maturities of notes and loans payable
of $380,543 due to a shift into expiration of the notes in less than 12 months.
The long term portion of notes and loans payable, less current maturities, was
reduced by $392,758, even though $165,000 was borrowed in 1999 to help fund this
public stock offering. As of December 31, 1999 the total stockholders' deficit
was reduced by 58% to $395,159 compared to December 31, 1998. This reduction was
due to net income of $534,132 for 1999.
Our cash as of December 31, 1999 was $306,552, a 103% increase from December 31,
1998. This was due to a $534,132 profit for the year. $383,561 cash was provided
<PAGE>16
for operations, including depreciation and changes in receivables, inventory and
payables, with the largest single factor being a pay down of $137,562 of trade
payables. $117,512 was used for financing activities, with the major
contributors being payments on loans and capital leases and deferred offering
costs.
We expect to have adequate working capital for the next 12 months, without
proceeds from this offering or additional financing, mainly from cash flow from
operations. We have no material capital commitments at this time. Proceeds from
this offering will provide funds for growth and to pay down existing loans.
Profits and cash flow from operations were substantial in 1999, $534,132 and
$383,561 respectively. This is an improvement from heavy losses in prior years,
$463,264 in 1998 and $511,847 in 1997. We expect profitability to continue and
to increase in 2000.
Year 2000 Compliance
Roex was fully compliant by the end of the year. We are currently in Y2K
compliance with our merchant card processing center.
BUSINESS
Introduction
Our company, Roex, Inc., was incorporated in California on October 5, 1994 to
develop and market its own line of dietary supplement products using
scientifically based branded ingredients. These products are not intended to
diagnose, treat, cure or prevent any disease. Our founder and President, Rodney
H. Burreson, has been an athlete and body builder for a number of years and has
experienced a myriad of ailments and injuries resulting from these activities.
He became committed to finding and developing non-pharmaceutical solutions to
improve his own quality of life. Not content with the then current products and
formulas on the market, Mr. Burreson, through education and research, began to
develop his own formulas that combined the highest quality and best ingredients
to form more comprehensive products that would meet his own specific health
needs. The Company's first product was the super antioxidant, called Procyanidin
or PC-95, a grape seed extract, which was first sold in April 1995. Since
introducing PC-95, the Company has added fifteen more dietary supplement
products to its product line and is committed to providing only the highest
quality products to meet its customers' specific health needs. The Company, has
grown from under a million dollars of annual sales to approximately $4 million
in 1998 and $5.7 million in 1999. Roex remains committed to providing the
highest quality products that will continue to meet its customers' specific
health needs, now and into the next millennium. The Company currently markets
its products primarily through radio programming. Mr. Burreson appears live on
local talk radio shows in New York, Los Angeles and Southern Florida. The format
is half hour and one-hour radio infomercials, with interactive customer
call-ins. We recently added Internet e-commerce as a vehicle for marketing Roex
products. Our radio programs promote our web site and the web site promotes the
radio programs; we expect this synergy to accelerate sales.
<PAGE>17
Our Industry
The Dietary Supplement Industry has formally been in existence for approximately
80 years. In the 1920's, supplement pioneers began encapsulating whole foods,
specifically vegetables, for the purpose of concentrating their nutrients as
adjuncts to the daily diet. Research had just been completed showing that
vitamins, metabolic components of foods, were key constituents of the healthy
body. Many developing nations used herbs and herbal formulations as standard
recognized "medicines" for treating disease. With the advent of antibiotic
therapy in the 1930's, many of the herbs were removed from the U.S.
Pharmacopoeia and fell into disuse in this country. Vitamin research continued
at a very slow pace due to lack of funding by pharmaceutical companies to
underwrite research as synthesized chemical constituents dominated U.S.
scientific research at that time.
Over time, select health care practitioners began to notice severe problems with
the prescription medications of pharmaceutical manufacturers. Chief among these
problems were (and still are today), toxic levels and methods by which most
synthesized drugs work within the body. Further, astute clinicians began to
notice that while pharmaceuticals were "treating" a disease state, they were
doing nothing to prevent these diseases. Whole food therapy began to be
practiced, based upon many epidemiological studies that illustrated the direct
connection between diet, nutrients and health. Dietary supplement manufacturers
began to concentrate the active ingredients in the whole foods, and thus the
dietary supplement industry was born.
Today, the industry is thriving as never before in its history. The industry
product is comprised of food supplements which may be broken down into a variety
of categories based on botanical and/or chemical classification of ingredients
or raw materials, such as vitamins, herbs, amino acids, botanicals, metabolites,
etc. Dietary supplements may be found in tablet, capsules, liquid or powdered
form.
Because the original purpose of this industry was to focus on prevention of
disease as opposed to therapeutic "cure", and due to the U.S. government
creation of narrowly defined descriptions of "drugs", the benefits of dietary
supplementation in health care has frequently been overlooked in U.S. scientific
research. Only recently has any research been documented in the United States in
contrast to the European community which has long recognized nutritional
therapy, in disease prevention and cure; in fact, today the majority of clinical
research demonstrating the efficacy of nutritional and herbal therapy has come
from Europe, with Germany being the leader in herbal efficacy and scientific
documentation.
Hundreds of companies, big and small, cater to the nutritional supplement
market. Most of them manufacture and distribute using conventional distribution
channels of retail nutritional stores, drug stores or discount stores. Some sell
on the Internet. Some sell via TV or radio infomercials. Some sell through
multilevel marketing. To the best of our knowledge, Roex is the only company
that sells through talk radio with interactive listener phone calls. This method
is very effective in educating our customers and building customer confidence in
Roex products. This develops loyal customers who are repeat buyers. About 70% of
Roex sales are from repeat buyers.
Our Company
Roex products are promoted on radio shows in which health related questions of
the listening audience are answered. Roex maintains a full time telemarketing
department to expedite direct radio induced orders via a toll free "800" number
<PAGE>18
given out during the radio program. At present, Roex does 29 radio shows per
week broadcasting on 4 radio stations in New York City, Los Angeles, California,
Miami and Tampa, Florida. Roex recently entered retail markets utilizing third
party sales and marketing organizations to sell Roex products to their
established customer bases. To date, these markets include independent
pharmacies, chiropractors and retail food chains. We have recently added the
Internet as a supplemental means of marketing our products.
Our Market
As a result of the Company's advertising methodology, the Company's existing
target market has become the senior citizen group, those individuals from the
age of approximately 55+ years old. Demographics testify to the strength of this
customer base, as at least half of all shoppers over the age of 50 "strongly
agree" that it is important to take a vitamin or mineral supplement every day.
According to Nielsen surveys, seniors spend more on multi-vitamins than any
other demographic group. Demographic data and forecasts anticipate an increasing
number of senior citizens in the immediate future. Roex products address health
concerns for seniors such as osteoporosis, free-radical damage, hypertension,
sleeplessness and suppressed immune function resulting in slowed or impaired
immune response throughout the body. Roex products, while not intended to
diagnose, treat, cure or prevent any disease, are used by our customers to
provide optimal bodily functions, providing incentive for use today and
tomorrow.
The Company's future market will focus on the largest purchasing population of
individuals the United States has ever known: "Baby Boomers". This is a large
new market for Roex to pursue as it has by its very nature, built-in motivators
for enhancing and maintaining health and longevity. The baby boomers not only
add to the number of customers, but will add "quality customers" who are capable
and willing to pay for high quality products.
Our Marketing Strategy
Our marketing strategy is built upon creating brand identity with customer
loyalty. Our customers listen to us on the radio and ask questions, hear the
questions of others and the answers of our CEO, Rod Burreson, or one of the
other two experts on our radio shows. We believe customers will continue to buy
our products because of confidence in the product, its effectiveness and its
quality. These loyal customers will accept no substitutes, because of fear of
compromise in these qualities. We now have talk radio shows in four cities and,
as we expand, we will selectively add cites and develop customer bases that are
as loyal as our present customers. To further increase revenues, we will
selectively add products for our existing customers as a result of research and
development. Our radio stations and time slots are carefully chosen because they
appeal to our demographic base, currently affluent senior citizens. When we
expand to the baby boomers we will choose appropriate radio stations and time
slots for their appeal to this group. Expansion of Internet sales will be based
upon continuing to build brand identity and providing quality information on our
web site, as well as quality products.
Roex products are currently available for purchase by consumers directly from
Roex via a toll free "800" line. Calls are handled by Roex's in-house
telemarketing department with computer access to prior ordering patterns. The
telemarketers are assigned specific customers for continuity. They are primarily
compensated by commission. We intend to build further sales by having
telemarketing personnel do outbound calling. We reently added a web site
<PAGE>19
ordering capability, and we promote our web site on our radio shows. Also, we
currently have limited direct sales through third party distributors resale to
their established customer bases of retail stores. Future plans call for
television "infomercials" and sales to specialty grocery and similar stores for
resale. The Company has not yet conducted any formal or scientific marketing
studies in the development of these strategies, but will do so before committing
any substantial investment. The marketing strategies presented here are based
upon consumer demand, past success of existing marketing programs and common
industry wide practices, all specialized by the unique Roex marketing and design
approach.
Radio. Roex has a unique way of marketing in that the majority of its sales are
generated by direct sales through radio programming. The Company currently
markets its products almost exclusively through radio programming. The Company's
president and founder, Rodney H. Burreson, appears live on local talk radio
shows in New York, Los Angeles, Miami and Tampa in half-hour and one-hour
infomercial formats. The shows promote Roex's products and listening audiences'
health related questions are answered. We have recently added a second radio
host to help with the heavy load of live programming, and plan to recruit
additional live radio hosts, such as nutritionists or influential health
specialists. All shows are broadcast from the Company's facilities in Irvine,
California live through ISDN telephone lines to the stations. The Company
maintains a full-time telemarketing department to expedite direct radio induced
orders via a toll free "800" number given out during the radio program. At
present, Roex presents 29 radio shows per week, broadcasting on 4 radio stations
in New York, Los Angeles, Miami and Tampa. We plan to add up to 8 selected new
cities and radio stations with proceeds of this offering, which should
substantially increase revenue. Later we plan syndicate the program so as to
reach up to 200 stations via satellite. We are also currently testing 30 and
60-second radio spots in the New York market.
Internet Marketing. We have an extensive web site that provides product
information to prospective customers and is being augmented with a library of
pertinent articles about nutritional supplements. It also provides archives of
Roex's radio broadcasts so that customers may listen to broadcasts that they may
have missed. This site also features articles authored by experts within or
associated with the Company. Roex has significant linking arrangements with
other web sites. Roex authors articles for this web site and in return receives
cross link traffic. In December 1999, Roex started e-commerce and its web site
is now taking orders and reorders directly for customers. It is expected that
the wealth of nutritional supplement information available at the site will be a
confidence builder to attract some customers who become loyal to the Roex
products in a similar manner to how their loyalty is built through Roex's radio
shows. Plans are also being made to use Extractor-Pro to obtain lists of people
sending e-mails to other nutritional supplement sites and send them Roex
invitational e-mails. We use our radio shows to promote our web site,
www.roex.com. Early results of this synergistic combination of radio and
Internet show promising sales growth. Our first full month of e-commerce was
January 2000 in which we had 97,000 hits, sold $13,000 of product and
experienced Internet orders which on the average were three times as large as
those from 800 number call-ins.
Telemarketing. Our database of customers is currently about 40,000 and growing
at the rate of 1,500 per month. Each telemarketer is responsible for his or her
customer list within the database. Telemarketers are frequently able to promote
the Company's other products when a customer places an order. Our telemarketers
also routinely make outbound calls during non-peak hours and send out
<PAGE>20
newsletters, promotional flyers, gift certificates and new product information.
ACT Software is used to keep track of each telemarketer's calls to and from new
and existing customers. We estimate that approximately 60% of our orders come
from reorders from existing customers.
Direct Sales. To supplement its radio and telemarketing sales, the Company
recently started using established distributors to sell Roex products to their
established customer bases of retail stores. This approach requires a much
smaller direct sales organization and serves to create for greater market
exposure in targeted areas.
Television. We believe that a direct response television campaign could be a
cost/effective means of increasing sales. With cable TV we can target well
defined markets whose demographics correspond to our established customer base.
With proceeds from this offering we will engage an experienced TV production
company specializing in direct response television to design and coordinate the
campaign. Promotions and newsletters. Roex sends periodic newsletters to its
customers featuring special promotions to educate and to stimulate phone-in
orders. It also features special promotions from time to time, such as awards
for free trips for large orders.
Customer referral program. Customers participate in a referral program where
they earn credits toward their own future nutritional supplement orders based
upon how much product is ordered by new customers who they refer.
This Level 1 program is completely computerized.
Seminars. Part of the Roex marketing strategy is to hold seminars in each city
covered by our radio broadcasts. One of these seminars was held in May 1999 in
New York City. A crowd of over 800 people attended to hear Roex's President, Rod
Burreson, speak about nutritional supplements and answer questions from the
audience. Roex's products are also sold at the seminars. The seminar was
publicized on Roex's local New York radio show. Additional seminars are have
been or will be held in September, October and November, 1999 in Los Angeles,
Miami, Tampa and New York.
Competition
Competitors abound in this industry due to its perceived unregulated status by
the Food and Drug Administration, making it possible for someone to
"manufacture" supplements in their home and market them for sale to the public
through whatever means they may find. While the playing field may be large, the
market is dominated by companies who are self-regulating and adhere to FDA good
manufacturing practices. Mainstream Roex competitors are Metagenics, Anabolic
Laboratories, Twin Labs, Standard Process, Enzymatic Therapy, Nature's Plus,
Bodyonics, Ltd., Country Life, Nature's Way, PharmaNutrients, Irwin Naturals,
Natrol, Now Foods, Nature's Herbs, Solaray, Solgar, Douglas Laboratories, Da
Vinci Laboratories and Weider Laboratories. These major competitors sell in
excess of $40 billion of food supplements annually and carry products similar to
Roex products in form, function and manufacturing efficacy. All of these
companies are much larger than Roex and have greater financial strength. Roex
Sales are concentrated in only four United States cities (New York, Los Angeles,
Miami, Tampa) and represent only a small portion of all dietary supplement sales
in these cities.
We believe that we have an advantage in competing with this pool of
manufacturers due to our brand identification with a loyal customer base. These
<PAGE>21
customers continue to buy our products because of confidence in the product, its
effectiveness and its quality. These loyal customers will accept no substitutes,
because of fear of compromise in these qualities. About 70% of all Roex sales
are to existing customers.
Our Products
Roex currently has fourteen products, which are classified as "dietary
supplements" by the U.S. Food and Drug Administration, and two other products.
Dietary supplements are defined as "a product intended to supplement the diet
that contains one or more of the following ingredients: a vitamin; a mineral; an
herb or other botanical; an amino acid; a dietary substance for use to
supplement the diet by increasing the total dietary intake; or a concentrate,
metabolite, constituent, extract or combination of any of the previously
mentioned ingredients ... the term dietary supplement means a product that is
labeled as a dietary supplement'. Vitamins and minerals are essential nutrients
that, in general, our bodies cannot manufacture. They are needed for good health
and many vital functions. More than 40 different nutrients are required for
normal growth and maintenance of body tissues. In addition, scientific research
is showing that generous intakes of vitamins, minerals and other nutrients may
play an important role in reducing the risk of various common, chronic disease
conditions such as osteoporosis, cataracts, cancer and heart disease.
Our Current Products:
Procyanidin 958 * PC-95 (Grape Seed Extract). PC-95 grape seed extract is a rich
source of one of the most beneficial groups of plant phytochemicals
(fi-to-chemicals), and procyanidins (pro-cy-an-i-dins), which exert many health
promoting effects. Studies show the procyanidins found in PC-95 are more potent
in their antioxidant abilities of vitamins C and E, yet these same
phytochernicals provide antioxidant protection for both these vitamins in the
body. Procyanidins were first isolated by Jacques Masquelier, a Ph.D. candidate
at the University of Bordeaux in France in 1950. Research indicates that on a
cellular level, procyanidins are incorporated within the cell membrane,
protecting against both water and fat-soluble free radicals. Free radicals have
been implicated in as many as 60 degenerative diseases. PC- 95, imported
directly from France, can assist in maintaining optimum health without adverse
side effects. Roex Procyanidin 95 pharmaceutical grade, grape seed extract is
patented under US Patent #4,698,360 by Dr. Masquelier.
B-Complex. According to the 15th annual consumer survey published in August of
1997, sponsored by Whole Foods, Inc. (an industry manufacturer) and conducted
through Energy Times Magazine (the largest health food store supported magazine
in the industry), over 88% of respondents purchased a B-complex formula in 1996.
The inclusion of a high-quality vitamin B complex greatly enhances Roex's
product line, as B vitamins are vital to almost every metabolic function within
the body. Management believes this product is essential for Roex to include in
its product line to maintain a competitive edge in the marketplace.
Calcium & Mineral Formula, The Ultimate. The Ultimate Calcium & Mineral Formula
is one of the most comprehensive calcium product on the market today containing
five different forms of absorbable calcium, including high collagen
microcrystalline hydroxyapatite calcium, chelated and transporter-bound minerals
to encourage maximum absorption, trace minerals, silica and vitamin D3 for
<PAGE>22
absorption and utilization. Clinical studies have shown calcium to be helpful in
building and maintaining healthy bones, hair, skin and nails as well as
assisting with regulation of heartbeat. Regular use of this product may be
helpful in reducing the risk of bone loss in women from puberty to middle age,
in elderly men and women and in those with a family history of bone loss.
Colostrum, Mother's Gift Colostrum contains all four of the key Immunoglobulins:
IgM, IgG, IgA and secretary IgA These Immunoglobulins all neutralize bacteria,
viruses, and yeasts. Colostrum contains natural growth factors that are very
important to promote wound healing and tissue repair, increase the breakdown of
fat, and to balance the blood sugar. Studies show bovine Colostrum contains up
to 100 times the mitogenic potency of human Colostrum. Lactoferron also found in
Colostrum has been shown to reduce the damaging effects of free radicals, which
are known to be cancer risk factors. Colostrum may also have certain healing
properties. Capsules can be opened and applied directly to cuts, abrasions, or
irritable skin conditions; and/or applied directly to gums in cases of sensitive
teeth and mouth sores. Roex Mother's Gift comes from New Zealand pasture fed
cows certified to be free of antibiotics and hormones
Ester-C. Ester-C is a superior quality vitamin C, made as the only patented
non-acidic vitamin C available today. This unique product is manufactured under
a natural process that neutralizes the PH making it the same as distilled water
and non-acidic, producing a gentle effect in the system. Clinical studies show
this non-acidic Vitamin C is absorbed into the bloodstream faster, in larger
amounts, and penetrates the white blood cells more efficiently than other types
of vitamin C. Low blood levels of vitamin C have been linked to immune
suppression and bone fragility. Known for its antioxidant and immune stimulating
properties, vitamin C has also been shown to be beneficial in promoting collagen
formation, an essential component of skin and connective tissue as well as
assisting in maintaining the integrity of capillary walls. Ester-C is a
registered trademark of Inter-Cal Corporation, U.S. Patent No. -4,833,816.
Immortale for Men & Immortale For Women. Immortale is a specially designed
formulation of herb and plant extracts, phytochernicals that promote hormonal
balance, lean muscle mass, and enhance sexuality and vitality. The main
ingredient Tribulus terristris, has been used by athletes in Eastern European
countries for its positive effect on the immune system and for assistance in
improving stamina and muscle strength without harmful side effects.
Advanced Men's Formula (Prostate Formula). The Roex Prostate Formula for Men
ingredients are chosen due to there documented nutritional support for a healthy
prostate. Key to this formula is the herb Saw Palmetto, which has been shown to
provide nutritional support for a healthy prostate. To this formula Roex adds
additional supportive ingredients such as Zinc chelate, Pumpkin seed, Pygeum
Africanum extract, Cranberry extract, Stinging Nettle, Echinacea Purpurea,
Lysine HCI (hydrochloride), and Glutamic Acid, as well as Vitamins B6, D and E.
Roex Advanced Prostate Formula for Men is based on the latest scientific
research for optimal prostate health.
Melatonin. Melatonin is a synthetically produced, pharmaceutical grade dietary
supplement formulated to compliment the naturally occurring master Melatonin
hormone secreted from the pineal gland (located in the center of the brain),
which has been shown to assist the body's natural circadian rhythms, or
sleep/wake cycles. Current research indicates that natural melatonin levels peak
in puberty and continue to drop as we age. Roex Melatonin, imported from
<PAGE>23
Switzerland, supplements the body's natural melatonin and is enhanced with
vitamin B6 to encourage the body's natural production of melatonin. People whose
schedules require re-setting their internal time clocks and those on shift work
may find this product a helpful adjunct to regulating their natural circadian
rhythms in addition to many other health benefits.
MSM (Methylsoulfonylmethane; Natural Dietary Sulphur). Roex MSM, is a dietary
supplement and the fourth most prominent mineral in the body. Studies show that
sulfur is an integral part of many proteins (constituting hair, nails and skin),
hormones and other substances critical to healthy body metabolism. Sulfur is a
vital nutrient in human nutrition, is often overlooked in nutritional therapy.
Sulfur can be found in many fresh fruits, vegetables, grains and dairy products.
Modern food processing and cooking destroy the viability of the sulfur naturally
occurring in foods due to its organically unstable nature.
Oleuropein (Olive Leaf Extract). Oleuropein is a natural plant extract, obtained
from specially selected olive tree leaves, imported from the western
Mediterranean. Clinical studies have shown Oleuropein may enhance the body's
immune system and assist the body in enhancing immunity. The most recent
published material on Olive Leaf Extract is a book by Dr. Morton Walker called
"Natures Antibiotic Olive Leaf Extract. With the dawn of exotic new viruses, and
microbes resistant to drugs that have been developed over the past 50 years,
there has been more of a need for alternative therapy. Antibiotics are failing.
With this in mind the excitement of Olive Leaf Extract, (the active ingredient
Oleuropein) is becoming one of the most talked about alternative therapies of
our time.
"WOW"TM is designed to cleanse, purify, strengthen, and tone the entire
gastrointestinal tract. It serves as a natural laxative and bowel toning agent.
The inclusion of Barberry root, Dandelion root and Red Clover has been shown to
be very supportive in cleansing the blood as well as detoxifying and supporting
the function of the liver. Good health begins in the colon. Many times the real
cause of sickness and disease is the retention and reabsorbtion of years of
toxic fecal matter build up.
The Advanced Weight Loss Formulas
CitriGenics l With the recent negative media attention to prescription weight
loss, particularly the negative findings and side affects of the Pharmaceutical
drug combination Phen-Fen, pharmacists, healthcare providers and individuals all
are looking for safe and effective alternatives for weight loss. Roex,
CitriGenics I is an answer. CitriGenics I works as a fat inhibitor and energy
promoter by working at the biochemical level to promote a feeling of satiety
more rapidly. It is formulated with CitriMaxTm (hydroxycitric acid (HCA) from
the Garcina Cambogia fruit), L-Camitine and ChromeMateTm, with a total of 24
different nutrients that hinder fat absorption and stimulate fat burning into
the body. CitriGenics I includes vitaniins A, B, C and E, chromium and mineral
cofactors and enzymes, which work as catalysts assisting with chemical changes
in the body to promote and maintain optimum health and a healthy inunune system.
Thermogenic herbs function at a cellular level to aid the body in utilizing body
fat reserves. Only the highest potency materials are used in the CitriGenicsTm
Formulas. (CitimaxTm and ChromeMateTm are the registered trademarks of
InterHealth Company.)
CitriGenics ll (93% Deacetylated Chitosan). Roex CitriGenics 2 provides dietary
fiber, which assists in inhibiting lipid (fat) absorption. Chitosan, a powdered
<PAGE>24
granulation of the exoskeleton of marine shellfish (such as crab) has been found
to attract fat molecules prior to digestion and to dispose of them through the
body's waste removal process. Studies indicate 1 mg of Chitosan is able to
absorb 5mg of dietary lipids (fat). CitriGenicsTm 2 is a unique fiber since it
absorbs both fat and water and is completely safe and non-toxic. Fiber is a
necessary dietary ingredient; its most documented metabolic function is to
assist with elimination of waste from the body. Current research has indicated
that most Americans do not consume adequate quantities in their daily diets.
Roex CitriGenics 2 - Chitosan provides a nutritional adjunct to weight loss
programs, when combined with a healthy diet and physical exercise. Only the
highest potency materials are used in the CitriGenices Formulas.
Other Products
VitaMinder. Roex recently became a distributor for The VitaMinder Company
whereby Roex will sell VitaMinder's entire product line. VitaMinder is a
manufacturer of a complete line of tablet cases, stackers, splatters, cutters
and airlock tablet dispensers. VitaMinder has agreed to supply Roex with 25,000
single sheet product descriptions at no charge to Roex to insert into its
January Newsletter to be sent to its entire database list of tablet using
customers. We also plan to promote the sale of these products along with its
supplement products in our radio programming. VitaMinder has agreed to supply us
with an inventory of their entire product line on consignment. Roex will supply
VitaMinder with an inventory count every thirty days and will pay for only
actual product shipped at wholesale prices.
Water Distiller. Roex is also a distributor for West Bend Water Systems, an
affiliate of The West Bend Company of West Bend, Wisconsin, to sell through our
marketing channels the entire West Bend Water Systems product line of water
distillers and related products. Distillation of water has proven to be far
superior to any filtration system available on the market today. Distillation is
a natural process. Health advocates prefer distilled water because it is free of
minerals, bacteria and virtually all contaminants. It has also proven to be far
more economical than any filtration system currently available. West Bend's
product line consists of a counter top distiller that will produce one gallon of
pure distilled water every four hours. This unit is designed for family use. In
addition there is a line of three automatic distillers available in three
different sizes, three- gallon, seven-gallon and twelve-gallon.
Daily Solutions Video. A 30-minute video featuring our President, rod Burreson,
speaking about some of the Roex products and how they address structure,
function and benefits to the human body.
Future Products
Roex currently plans to add several new products into its line during the next
calendar year. These new products will include a memory enhancement formula, a
digestive enzyme, and a multivitamin. A description of each of these new
products follows:
Memory Mind Formula Roex intends on shortly launching "For Your Mind Only", a
mind/memory enhancement formula providing Ginkgo Biloba for improved vascular
circulation in the brain along with Phosphatidyal Serine, an amino acid
necessary for neuron firing in processing and recognition tasks performed by the
brain. This product directly impacts Roex existing customer base of senior
citizens as both a therapeutic adjunct as well as a preventative supplement, and
assists all other market groups in enhancing mental performance and processing
<PAGE>25
systems. Current clinical studies have shown the efficacy of treating
memory-loss patients with Ginkgo Biloba and the positive outcomes of said
clinical trials. According to the previously referenced Whole Foods survey, 85%
of respondents purchased Ginkgo Biloba in 1996.
Multivitamin. The final scheduled new product to be introduced to the Roex
product line is the Roex Multivitamin. According to the 1994 Health Focus Trend
Report, 50% of senior shoppers surveyed believe the American diet alone is
inadequate to provide necessary nutrition to prevent degenerative disease and
therefore strongly agree that taking a daily multi-vitamin and mineral
supplement is important. The report further states that according to Nielsen
surveys, " seniors spend more on ... multivitamins than any other demographic
group." By developing a multivitamin, Roex keeps its competitive edge by
continuing to expand the product line with popular industry standard products,
pre-programmed for success by market demand via all sales avenues, and therefore
guaranteed to stimulate sales. Most importantly, this product is purchased by
senior citizens at least 50% of the time they make vitamin purchases, generating
guaranteed launch success for Roex, as the majority of the Company's existing
customer base at this time are what would be considered senior citizens.
Book. The new product arena will include a book on Health, Life Style and
Exercise, authored by our CEO, Rod Burreson. Timing for the book is the second
quarter, year 2000. Much of the content of the Book is already assembled. The
title is "Yesterday, Today and Tomorrow." The theme of the book suggests that
what a person did yesterday in terms of decisions, health, abuse and thought
plays a very significant role in how one feels and looks today. The decisions,
attitude and effort one puts forth today influences how one feels, looks and
functions tomorrow. It will also include a step by step exercise program and
nutritional instruction for people of all capabilities.
Exercise Video. The exercise video, "Staying Alive at 55," will be an action
video with our CEO, Rod Burreson, illustrating the different exercises that he
does to maintain his health, physique and peace of mind. The exercise program is
used in conjunction with a nutrition program to help people understand their
body as well as listen to it. The video will indicate that no matter where you
start in terms of health, peace of mind and dexterity, you must start and
continue; then the benefits will be yours. The video will precede the Book and
is scheduled for release during the first quarter of year 2000. Much of the
video has already been completed.
Our Operations
Most orders are received when customers call our "800" number during or after a
radio show. The Telemarketing agent receiving the call has computer access to
our data base by the customer's name, so that he can view the customer's
previous buying pattern. For new customers, the salesperson takes all of their
identification, shipping and billing information, to add the new customer to the
data base. Established customers are assigned to specific sales people for
continuity.
Orders entered into the computer are then checked to verify payment with either
credit charge approval or check clearance. As payments are verified the order is
sent to fulfillment and shipping, electronically. There they are filled by a
product picker and boxed for shipment. The shipping label is automatically
prepared and shipping charge is calculated. This shipping charge is then
<PAGE>26
verified by scale. When shipping is verified, in whole or in part, appropriate
credit card charges are put through.
The single entry computer system keeps a running inventory and generates
suggested purchase orders at inventory break points. Actual inventory levels
vary with product based upon rate of consumption, order lead times for
ingredients and quantity price break points for new orders. The computer
generated purchase orders are reviewed before the orders are placed. Roex orders
the ingredients and has them delivered to the Food and Drug Administration Good
Manufacturing Process approved fulfillment houses to make the pills or capsules,
bottle them and affix the Roex labels. Finished product is then shipped to Roex
for storage and filling customer orders.
Various laboratories supply Roex's product, mixing the pills to our
specifications. They buy most of the raw materials. In some cases, we buy the
ingredients directly to assure quality and we supply these ingredients to the
mixing laboratories. All ingredients are available from multiple sources. We buy
60% of our product from three laboratories, Paragon Labs, Primary Services and
Extracts Plus. They have ample capacity to handle Roex's expanding needs, but
many alternate laboratories are available in case they should be needed. These
laboratories are competitive and alternate sources could be expected to supply
equal quality product for similar prices.
We have a full refund policy, but have experienced less than 1% returns.
Returned items are examined for seal integrity and expiration date before being
returned to inventory.
Our Research and Product Development
We believe that a well-developed and dynamic research and development structure
is an essential component of a company in the nutritional supplement area. Of
vital necessity is the maintenance of a well-developed research library, which
is the backbone of the research and development effort and is required by the
Dietary Supplement Health Education Act ("DSHEA"). To maintain our
competitiveness in the marketplace as well as to stay current with new
scientific research on nutrient therapies and phytomedicine advances, we have
developed and maintain a research library consisting of published research
works, biochemical and botanical research, marketing and competitive analyses,
clinical and scientific research, pharmacopoeias, and regulatory treatises. The
research library also serves as a reference source for the purpose of
formulations, drug and ingredient interaction and perhaps most importantly, as
validation of the efficacy and function of all existing and future Roex
formulations and raw materials. In order to successfully market and sell our
products, it is essential to continually develop and update the research and
product development library.
We do not conduct primary research for the development of new ingredients.
Instead, our research efforts are focused on developing new products in response
to market trends and consumer demands. Our staff also continually reformulates
existing Roex products based upon scientific evidence to improve the product.
Each product that is formulated is researched intensively. In the beginning
stages, research begins with how the raw materials) work biochemically and where
the very best source in the world is for this product, how the product(s) are
marketed and a competitive analysis is done (if possible). Some of our products
are new to the nutritional supplement marketplace, and no competitive analysis
is available. The next stage is to formulate the product. This step is done by
one of our laboratories' biochemists and our staff. We currently use several
<PAGE>27
pharmaceutical laboratories all of which are high quality laboratories with
excellent reputations in the dietary supplement industry. At the laboratory, the
tablet's exact formulation, size, shape, color, coating, compression, etc. is
decided. Comparative analysis is then done regarding the industry standards (if
any), or possible changes to the industry standards for formulation, size,
shape, color, coating, compression, etc. Lastly, the product formulation is
finalized and the manufacturing phase begins. In the final stage of the
manufacturing process, the tablets are bottled by the laboratory and labeled.
Samples of each product are archived for every batch that is run for quality
control purposes. Throughout the manufacturing process, the product is inspected
to pharmaceutical standards to ensure quality control.
We do not have a separate research and development budget as the defined
research and development activities are part of the operational responsibilities
of management and/or are done by our suppliers under our supervision and the
supplier costs for this research and development are included in supplier
pricing.
Government Regulation
On January 4, 1994, President Clinton signed into law on behalf of the U.S. Food
& Drug Administration, the "Dietary Supplement Health Education Act' ("DSHEA"),
concerning among other things, the nutritional labeling of dietary supplements.
One of the things that this law has done is to determine exactly what a dietary
supplement is, which is defined as: "A product intended to supplement the diet
by providing a dietary ingredient intended for ingestion in a supplement form
not represented as a sole item of a meal or the diet which is labeled as a
dietary supplement and if it is an approved new drug, it was marketed as a
dietary supplement prior to such approval. If it is an approved new drug or a
drug authorized for investigation for which substantial clinical investigations
have been instituted and the existence of which has been made public, and it was
not marketed as a dietary supplement prior to the approval, it does not qualify
for the definition of nutritional supplement. Also included in the definition of
dietary supplements are vitamins, minerals, herbs, botanicals, amino acids,
dietary substances used by man to supplement the diet by increasing total
dietary intake and concentrates, metabolites, constituents, extracts, or
combination of any of these substances."
DSHEA requires that all claims made by a manufacturer in the marketing of these
products conform to language composed in "structure/function" phraseology. This
structure is somewhat limited due to the requirement that no verbiage, claim or
act may suggest the product(s)/ingredient(s) act in any way as to: diagnose,
treat, cure or prevent any disease. All materials including but not limited to
labeling, product literature, oral and verbal sales materials and presentations
etc., are required to conform to these restrictions.
According to DSHEA a "statement of dietary support" may be made about a product
and/or ingredients if:
o the statement claims a benefit related to a classical nutrient deficiency
disease and discloses the prevalence of such disease in the United States,
and/or
o describes the role of the nutrient or dietary ingredient intended to affect
the structure or function in humans
o documents the mechanism by which the nutrient or dietary ingredient acts to
maintain such structure or function, and/or
<PAGE>28
o describes general well-being from consumption of a nutrient or dietary
ingredient
o the manufacturer of the supplement has substantiation that such statement
is truthful and not misleading
o the statement contains prominently displayed and in boldface the following:
"This statement has not been evaluated by the Food and Drug Administration.
This product is not intended to diagnose, treat, cure or prevent any
disease."
DSHEA requires that manufacturers notify the FDA of a nutritional support
statement within 30 days after the first marketing of a supplement with the
dietary support statement. This reporting provision does not permit FDA Premark
approval or require FDA Premark review of the claim(s). At present time, there
is no working definition of substantiation for a statement. Once the FDA is
notified that the statement is being made, it can request the substantiation,
and if it disagrees, take legal action where the adequacy of the substantiation
would be determined in court. The industry and FDA interpretation of this rating
is that making such statements without FDA notification is a violation of this
portion of the law.
Further, DSHEA establishes mandatory labeling requirements for dietary
supplements. A supplement will be deemed misbranded:
o if the label or labeling fails to list the name of each ingredient of the
supplement that qualifies as a dietary supplement and the quantity of each
such ingredient; if the product is a proprietary blend it is misbranded if
the total quantity of all ingredients in the blend is not listed;
o the product does not bear a product identity as a "dietary supplement';
o it contains an herb or other botanical as a supplement and fails to
disclose the part of the plant from which the ingredient is derived; and
o if a supplement is covered by compendium (e.g. United States Pharmacopoeia)
specifications and is represented to conform to such specifications, but
fails to do so or; the supplement is not in a compendium and fails to have
the identity and strength it is represented to possess or fails to meet
specifications based on valid assays or other appropriate methods that it
is represented to meet.
Dietary supplement labels must also conform to the requirements that nutrition
information shall:
o first list those dietary ingredients present in the product in a
significant amount and for which an RDI (Recommended Daily Intake) has been
established, followed by other dietary ingredients for which no RDI has
been established and a listing of the quantity per serving of the dietary
supplement (with a statement of source being optional).
The nutrition information must immediately precede ingredient-listing
information, but no ingredient need be listed twice. The law also provides that
a statement of the level of a dietary ingredient in a product for which there is
not an RDI does not result in the product being misbranded.
o Finally, DSHEA addresses new dietary ingredients, i.e. a dietary ingredient
that was not marketed in the United States prior to October 15, 1994. The
law specifically states that a dietary ingredient marketed prior to October
<PAGE>29
15, 1994 is not a new dietary ingredient. In order to market a new dietary
ingredient without the product being adulterated, the product must:
o contain only dietary ingredients that have been present in the food supply
as an article used for food in a form in which the food has not been
chemically altered (i.e. an ingredient in a "food" that has not previously
been sold as a dietary supplement) or
o there is a history of use or other evidence of safety for the ingredient
when used as recommended and the manufacturer or distributor provides all
relevant information to the FDA 75 days before introducing the product into
interstate commerce. The information is to be kept confidential by the FDA
for a period of 90 days after its receipt, after which time, the
information will be made available to the public. This law also provides a
mechanism for petitioning.
Trademarks. Roex is a registered trademark of the Company. In addition, the
names "PC-95", "WOW", "Incite", and "Advanced Men's Formula" are all pending,
with applications having been filed in the U.S. Patent and Trademark Office.
These registrations are being monitored by our regulatory and trademark
attorney.
Licensing Agreements. Roex maintains licensing agreements with a number of raw
material suppliers which allows inclusion of that supplier's trademarked logos
on all marketing materials containing these ingredients. These agreements allow
use of camera ready logos to be displayed on packaging, labels, and collateral
materials, providing instant national recognition to the consumer of high-
quality ingredients within Roex formulations. As an added benefit to Roex,
several of these licensing agreements also provide a financial discount off the
bulk purchase price of raw materials from these suppliers. These agreements are
effective at the time of contract signing and remain in effect throughout the
life of each product.
Our Employees
We currently employ 32 full time employees of whom seven are in management and
administration, 22 sales and marketing and three in warehousing and
distribution. Our employees are not unionized, and we believe our relationship
with our employees is good.
Our Facilities
Our principal offices are located at 2081 Business Center Drive, Suite 185,
Irvine, California 92612, telephone number (714) 476-8675. We lease
approximately 7,400 square feet of space under an operating lease, which
encompasses most operations: administration telemarketing, shipping/receiving,
and inventory control. The annual rent is $115,000 and the lease expires
February 28, 2001. Shipping and receiving operate in a separate 2,000 square
foot facility with lease expiring on the same date as the main facility with an
annual rent of $24,000. Although currently our facilities are quite suitable and
adequate, we anticipate that we will require additional office space of
approximately 5,000 square feet within the next six months. Office space of this
size is readily available in the proximity of our location.
Legal Proceedings
We are not a party to any legal proceedings.
<PAGE>30
MANAGEMENT
Executive Officers and Directors
Our officers and directors and their ages are as follows:
<TABLE>
<S> <C> <C> <C>
First Year
Position Elected
Nominees with Company Director Age
- ----------------------------- ---------------------------- ----------- -----
Rodney H. Burreson Chairman of the Board, 1994 66
President and Chief
Executive Officer
Derek Burreson Director, Chief Operating 1999 31
Officer and Secretary
William B. Barnett Director 1998 58
Robert Stuckelman Director 1998 67
Shri K. Mishra, M.D., M.S. Director 1999 57
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS
Rodney H. Burreson is the Founder, Chairman of the Board of Directors, Chief
Executive Officer and President of the Company and has served in those
capacities since its inception in July 1994. Since earning his degree in
business in 1960 from the University of Minnesota, Mr. Burreson has spent his
entire career in sales and marketing in a myriad of industries, including, but
not limited to, insurance, real estate, and financial services. Always
interested in the nutrition/fitness industry, Mr. Burreson, through his radio
talk shows and seminars, has become a recognized name in nutrition and dietary
supplement industries.
Derek Burreson is the Chief Operating Officer and Secretary of Roex since
January 1996 and was elected a director in July 1999. His primary
responsibilities include telemarketing,management information systems, shipping
and customer services. Other responsibilities include media manager (radio and
TV) as well as hosting daily live radio programs. Prior to joining the Company
in January 1996, Mr. Burreson was a registered cta (commodities trading advisor)
and broker with Great Pacific Trading Co. (Grant's Pass, Oregon) where his
responsibilities included publishing a monthly newsletter (trend watch),
customer account executive, head of market analysis and daily market
recommendations. From 1993 to December 1994, Mr. Burreson worked for MT
Construction in Ojai, California. Mr. Burreson graduated in 1992 from Cal State
San Bernardino University with a degree in marketing and finance.
William B. Barnett has served as a Director of the Company since September 1998.
Mr. Barnett has been an attorney for over 25 years, specializing in corporate
and securities law and is in private practice in Sherman Oaks, California. Mr.
Barnett formerly taught corporate and securities law in the paralegal program at
California State University at Los Angeles. Mr. Barnett received his L.L.B. from
De Paul University Law School in Chicago, Illinois.
Robert Stuckelman has served as a director of the Company since September 1998.
He founded and served as President of CompuMed, Inc. (a manufacturer and
distributor of medical products), from 1973 to 1982 and from 1989 to 1994. He
has been a director of CompuMed since its inception to the present. From 1982 to
<PAGE>31
1989 and from 1994 until the present he has been a business consultant to small
companies and large corporations. He has been on the Board of Directors of the
Board of Medical Resources Management, Inc. since 1996 to the present. He holds
a Master's degree in Electrical Engineering from USC and a Bachelor's degree in
Electrical Engineering from Cornell University.
Shri K. Mishra, M.D., M.S. (Administrative Medicine), was appointed a director
in 1999. He has been a practicing neurologist, a teaching professor and a
researcher and administrator as Associate Dean at the USC School of Medicine
since 1987. He is also the coordinator of the Integrative (alternative and
conventional) Medicine program at USC and is a staff neurologist at the
Sepulveda VA Hospital. He has been Medical Director of the VA out patient clinic
in Los Angeles. He is involved at USC on the World Bank AIDS prevention program
in India. He previously served as the Chief of Neurology at the University of
Mississippi Medical Center. He lectures extensively at medical conferences in
the United States, India, and other foreign countries. He received his initial
medical degree from BHU Varanasi, India, in 1964. He subsequently received M.D.
medical degree from the University of Toronto in 1971. He was board certified in
Neurology in 1976, and received his M.S. in Administrative Medicine from the
University of Wisconsin, in Madison, in 1990. He also has a Doctor of Ayurvedic
Medicine from BHU Varanasi, India. He is Chair of Study Section of National
Center for Complementary Alternative Medicine of the National Institute of
Health. He has been involved as a health care consultant for profit and
non-profit organizations.
Election of Directors
Each Director of Roex is elected at the annual meeting of shareholders and holds
office until the next annual meeting of shareholders, or until his or her
successor is elected and qualified. The Bylaws permit the Board of Directors to
fill any vacancy and such director may serve until the next annual meeting of
shareholders or until his or her successor is elected or qualified.
Directors' Compensation
Directors who are not employees of Roex are paid $500 per meeting and are
reimbursed for reasonable out-of-pocket expenses incurred in attending meetings.
Directors are also eligible to participate in Roex's 1999 Stock Incentive Plan.
Committees of the Board of Directors
The Board of Directors has appointed a Compensation Committee consisting of
Messrs. Mishra, Barnett and Stuckelman. The Compensation Committee reviews and
evaluates the compensation and benefits of all of Roex's officers, reviews
general policy matters relating to compensation and benefits of Roex's employees
and makes recommendations concerning these matters to the Board of Directors.
The Compensation Committee also administers Roex's stock option plan.
The Board of Directors has also appointed an Audit Committee consisting of
Messrs. R. Burreson, Barnett and Stuckelman. The Audit Committee reviews, with
Roex's independent auditors, the scope and timing of the auditors' services, the
auditors' report on Roex's financial statements following completion of the
auditors' audit, and Roex's internal accounting and financial control policies
and procedures. In addition, the Audit Committee will make annual
<PAGE>32
recommendations to the Board of Directors for the appointment of independent
auditors for the ensuing year.
Limitation of Liability and Indemnification
Our Articles of Incorporation limit the liability of our Company's directors for
monetary damages to the maximum extent permitted by California law. California
law provides that every person who was or is a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or a
person of whom he is the legal representative is or was a director or officer of
our Company or is or was serving at the request of our Company or for its
benefit as a director or officer of another corporation, or as oru Company's
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the California law from time to time against all expenses, liability and loss
(including attorneys' fees, judgments, fines and amounts paid or to be paid in
settlement) reasonably incurred or suffered by him in connection therewith.
In addition, our Bylaws provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by our Company as they are incurred and in advance of the final disposition
of the action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director or officer to repay the amount if it is ultimately determined by
a court of competent jurisdiction that he is not entitled to be indemnified by
our Company. Such right of indemnification is a contract right that is not
exclusive of any other right such directors, officers or representatives may
have, including rights under any bylaw, agreement, vote of shareholders,
provision o law and any other rights.
We have also entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for certain expenses, including attorneys fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of Roex, arising out of such
person's services as a director or executive officer of Roex, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of Roex pursuant to
the provisions of our charter documents, California law or the agreements
described above, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
Executive Compensation
The following table sets forth the compensation earned by Rodney H. Burreson,
our founder and Chief Executive Officer, during the fiscal years ended December
31, 1997, 1998 and 1999. Mr. Burreson is the only officer whose salary exceeded
<PAGE>33
$100,000 for such fiscal year. No bonuses have ever been paid to Mr. Burreson.
In accordance with a written employment agreement commencing November 1, 1998
and ending October 31, 2003, Mr. Burreson receives as a salary 6% of the net
sales, plus $1,000/month car allowance. In addition, in July 1999, Mr. Burreson
received 150,000 stock options exercisable at prices ranging between $1.50 and
$1.65.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
Long-Term Compensation
Awards
Name and All Other
Principal Annual Compensation Securities Underlying Compen-
Position Year Salary($) Bonus($) Other($) Options ation($)
- ----------- ------ ---------- --------- -------- ---------------------- -----------
Rodney H.
Burreson, 1999 $322,998 -0- * -0-* -0-
Pres. & CEO 1998 218,168 -0- * -0- -0-
1997 207,554 -0- * -0- -0-
</TABLE>
1999 Stock Incentive Plan
On May 12, 1999, our Board of Directors approved a 1999 Stock Incentive Plan.
The purpose of the 1999 Plan is to enable us to recruit and retain selected
officers and other employees by providing equity participation in Roex to such
individuals. Under the 1999 Plan, regular salaried employees, including
directors who are full time employees, may be granted options exercisable at not
less than 100% of the fair value of the share at the date of grant. The exercise
price of any option granted to an optionee who owns stock possessing more than
10% of the voting power of all classes of stock of the Company must be 110% of
the fair market value of the Common Stock on the date of grant and the duration
may not exceed five years. Since there is no public market for our shares, the
fair market value has been determined from time to time by the Board of
Directors. Options generally become exercisable at a rate of 33% of the shares
subject to option one year after grant. The remaining shares generally become
exercisable ratably over an additional 24 months. The duration of options may
not exceed ten years. Options under the Plan are nonassignable, except in the
case of death and may be exercised only while the optionee is employed by Roex
or, in certain cases, within three months after termination of employment or
within twelve months of death. The purchase price and number of shares that may
be purchased upon exercise of options are subject to adjustment in certain
cases, including stock splits, recapitalizations and reorganizations.
The amount of options granted and to whom, are determined by the Compensation
Committee of the Board of Directors at their discretion. There are no specific
criteria, performance formulas or measures.
Under the 1999 Plan, there are 1,000,000 common shares available for grant.
The following table sets forth certain information with respect to all qualified
and non-qualified stock options held as of December 31, 1999 by our executive
officers under the 1999 Plan. All options are exercisable at a price equal to
<PAGE>34
fair market value on date of grant and terminate ten years from date of grant,
or such shorter period as is determined by the Board of Directors.
<TABLE>
<S> <C> <C> <C> <C> <C>
Option Grants in the Last Fiscal Year
Number of
Shares
Date of Amount of Exercise Expiration Currently
Name Grant Shares Price Date Exercisable
- --------------------- ------- ----------- ----------- ------------ --------------
Rodney H. Burreson 7/14/99 60,000 $1.65 7/13/04 -0-
7/14/99 90,000(1) 1.50 7/13/09 90,000
Derek Burreson 7/14/99 60,000 1.50 7/13/09 -0-
7/14/99 65,000(1) 1.50 7/13/09 65,000
Peter Weber 7/14/99 50,000 1.50 7/13/09 -0-
Dennis M. Watson 7/14/99 50,000 1.50 7/13/09 -0-
William B. Barnett 7/14/99 75,000(1) 1.50 7/13/09 75,000
8/19/98 25,000(1) .50 8/18/08 25,000
Robert Stuckelman 7/14/99 75,000(1) 1.50 7/13/09 75,000
8/19/98 25,000(1) .50 8/18/08 25,000
Shri K. Mishra 7/14/99 50,000(1) 1.50 7/13/09 50,000
</TABLE>
(1) Non-qualified stock options.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
For valuation purposes, the last sale of a private placement at $1.50 per share
is used.
<TABLE>
<S> <C> <C> <C> <C>
Value of
Number of Unexercised in-
Unexercised the-money
Options/SARs Options/SARs
Shares at FY-End(#) at FY-End($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized Unexercisable Unexercisable
- ----------------------- ---------------- ----------- -------------- ----------------
Rodney H. Burreson -0- -0- 90,000/60,000 -0-/-0-
Derek Burreson -0- -0- 65,000/65,000 -0-/-0-
Peter Weber -0- -0- -0-/50,000 -0-/-0-
Dennis M. Watson -0- -0- -0-/50,000 -0-/-0-
William B. Barnett -0- -0- 100,000/-0- $25,000/-0-
Robert Stuckelman -0- -0- 100,000/-0- $25,000/-0-
Shri K. Mishra -0- -0- 50,000/-0- -0-/-0-
</TABLE>
<PAGE>35
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of our common stock as
of January 31, 2000 and as adjusted to reflect the sale of the shares of common
stock offered hereby by:
o each person or entity who is known by us to beneficially own more than 5%
of our outstanding common stock;
o the CEO, each of the named executive officers and each of our directors;
and
o all executive officers and directors as a group.
Unless otherwise indicated, the address for each of the named individuals is c/o
Roex, Inc., 2081 Business Center Drive, Suite 185, Irvine, California 92612.
Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of common stock held by them.
The information contained in this table with respect to beneficial ownership
reflects "beneficial ownership" as defined in Rule 13d-3 under the Exchange Act.
All information with respect to the beneficial ownership of any shareholder has
been furnished by such shareholder and, except as otherwise indicated or
pursuant to community property laws, each shareholder has sole voting and
investment power with respect to shares listed as beneficially owned by such
shareholder. Pursuant to the rules of the Commission, in calculating percentage
ownership, each person is deemed to beneficially own shares subject to options
or warrants exercisable within 60 days of the date of this Prospectus, but
shares subject to options or warrants owned by others (even if exercisable
within 60 days) are deemed not to be outstanding.
<TABLE>
<S> <C> <C> <C> <C>
Percentage of Outstanding
Common Stock
Shares After Offering
Name and Address Beneficially Prior to Offering --------------------------
of Beneficial Owner Owned Minimum Maximum
- ------------------------ ---------------- ------------------- ---------- -------------
Rodney H. Burreson 2,890,000 54.7 46.8 42.6
Derek Burreson 115,000 2.2 2.0 1.8
Peter Weber -0- * * *
<PAGE>36
Percentage of Outstanding
Common Stock
Shares After Offering
Name and Address Beneficially Prior to Offering --------------------------
of Beneficial Owner Owned Minimum Maximum
- ------------------------ ---------------- ------------------- ---------- -------------
William B. Barnett 115,000 2.2 2.0 1.8
15233 Ventura Boulevard
Suite 1110
Sherman Oaks, CA 91403
Robert Stuckelman 115,000 2.2 2.0 2.0
2081 Business Center Drive
Suite 185
Irvine, CA 92612
Shri M. Mishra, M.D., M.S 50,000 * * *
Bison Group 698,100 13.2 11.3 10.3
315 Arden Drive
Glendale, CA 91206
All Officers and Directors
as a group (6 in number) 3,285,000 61.7 52.7 48.1
</TABLE>
* Represents less than 1% of issued and outstanding shares.
METHOD OF DISTRIBUTION
We are offering to sell up to 1,000,000 shares of our Common Stock. The Common
Stock will be offered by our officers and directors on a "mini-max" basis. If we
are unable to sell at least 500,000 shares of the Common Stock offered hereby
within 90 days from the date of this Prospectus, which period can be extended by
us for an additional 90 days, we will cancel this offering and return all monies
collected from subscribers and held in escrow without interest or deduction. If
500,000 shares are sold, the offering will continue without an escrow provision
until (1) all of the remaining 500,000 shares are sold, (2) 90 days (up to 180
days if so extended) from the date of this Prospectus, or (3) the prior
termination of the offering by Roex, whichever occurs first.
We may retain a Placement Agent and/or use the services of NASD member
broker/dealers to assist us in the sale of the shares. There are currently no
placement agents or brokier/dealers involved in this offering. We may pay
broker/dealers or placement agents fees of up to 13% of the gross offering
proceeds.
The Common Stock will be sold at the price of $5.00 per share. The minimum
number of shares a subscriber is required to purchase in order to subscribe to
the offering hereby will be 100 shares. We reserve the right to withdraw, cancel
or modify the offering hereby and to reject subscriptions, in whole or in part,
for any reason.
DETERMINATION OF OFFERING PRICE
Prior to the offering hereby, there has been no public market for the Common
Stock. The offering price has been arbitrarily determined by the Company and may
not be indicative of the market price for the Common Stock after this offering.
In determining the offering price, the Company considered, among other things,
the earnings of comparable publicly traded nutritional supplement companies and
<PAGE>37
the trading price of the stock of those companies. The Company makes no
representations as to any objectively determinable value of the Common Stock.
SUBSCRIPTION PROCEDURES
After the registration statement has been declared effective, the Company will
provide to each prospective investor a copy of the final Prospectus relating to
this offering which includes an agreement to purchase shares of the Common Stock
(the "Subscription Agreement"). Completed Subscription Agreements, together with
the appropriate payment for the Common Stock, must be mailed to the Escrow
Agent. See "Summary - How to Purchase Shares." The Company's acceptance of a
subscription shall be evidenced solely by the delivery to the Subscriber of a
written confirmation of sale. Receipt of a Subscription Agreement and/or deposit
with the Escrow Agent for the subscribed shares as described herein shall not
constitute acceptance of a subscription. All subscription payments and executed
Subscription Agreements will be delivered to[BANK], the Escrow Agent. Until the
Initial Closing, the subscription payments will be deposited into an escrow
account established with the Escrow Agent, subject to the Initial Closing on
such escrowed funds once the Company has accepted subscriptions for at least
500,000 shares. After the Initial Closing, subscription proceeds shall be
deposited by the Escrow Agent in a segregated account, subject to subsequent
closings on additional subscriptions received from time to time as determined by
Roex. Roex will process and consider for acceptance all qualified subscriptions
in the order received. Stock certificates will not be issued to subscribers
until such time as good funds related to the purchase of Common Stock by such
subscribers are released from the escrow account to Roex by the Escrow Agent
with respect to the initial closing, or from the segregated subscription account
to Roex, with respect to subsequent closings. Until such time as stock
certificates are issued to the subscribers, the subscribers will not be
considered shareholders of Roex.
Subscribers will have the right to a return of their subscription payment held
in the escrow account or the segregated subscription account until Roex decides
to accept such payment; all interest earned on such funds will belong to Roex.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding a total of 6,288,584
shares of Common Stock, assuming the sale of all of the shares covered by this
offering. Of these shares, the 1,000,000 shares offered hereby will be freely
tradable without restriction or further registration under the Securities Act of
1933, unless held by affiliates of Roex, as that term is defined in Rule 144.
The remaining 5,288,584 shares of Common Stock outstanding upon completion of
the offering are "restricted securities" as that term is defined in Rule 144.
All of these shares will be eligible for sale in the public market after the
date of this Prospectus, all under and subject to the restrictions contained in
Rule 144.
In addition, we have reserved a total of 170,000 shares of Common Stock for
issuance upon conversion of the outstanding Convertible Notes and 496,350 for
issuance upon exercise of the outstanding Warrants and options. The shares of
Common Stock issuable upon such conversion and exercise will be restricted
securities and may be resold upon compliance with the holding period, volume
limitations, manner of sale and other provisions of Rule 144. Generally, the
holding period for the shares issuable on such conversion of Notes will begin
<PAGE>38
upon purchase of the Notes and the holding period for shares relating to the
Warrants will not begin until the effective date of such exercise.
In general, under Rule 144 as currently in effect, a person who has beneficially
owned the stock for at least one year, including the holding period of any prior
owner except an affiliate from whom such stock was purchased, is entitled to
sell in broker's transactions or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares of
stock that does not exceed the greater of (a) one percent of the number of
shares of Common Stock then outstanding, or (b) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to the availability of current public information about Roex.
Persons other than affiliates who have beneficially owned such stock for at
least two years are not subject to the notice, manner of sale, volume or public
information requirements and may sell such shares immediately following the
Offering.
Prior to the Offering, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair our ability to
raise capital through the sale of equity securities.
DESCRIPTION OF CAPITAL STOCK
The Amended Articles of Incorporation authorize capital stock consisting of
50,000,000 shares of common stock, no par value, and 5,000,000 shares of
preferred stock, $.01 par value.
Common Stock
As of December 31, 1999, there were 5,288,584 shares of common stock outstanding
that were held of record by approximately 40 shareholders.
Each outstanding share of common stock is entitled to one vote on all matters to
be submitted to a vote of shareholders, except that, upon giving the notice
required by law, shareholders may cumulate their votes in the election of
directors. Holders do not have preemptive rights, so we may issue additional
shares that may reduce each holder's voting and financial interest in our
company. The right of holders of our common stock to receive dividends may be
restricted by the terms of any shares of our preferred stock issued in the
future. If we were to liquidate, dissolve, or wind up our affairs, holders of
common stock would share proportionately in our assets that remain after payment
of all of our debts and obligations and after any liquidation payments with
respect to preferred stock.
Preferred Stock
Our board has authority, without further action by the shareholders, to issue up
to 5,000,000 of preferred stock, par value $.01. We can issue shares of
preferred stock in series with such preferences and designations as our board of
directors may determine. Our board can, without shareholder approval, issue
preferred stock with voting, dividend, liquidation, and conversion rights. This
could dilute the voting strength of the holders of common stock and may help our
management impede a takeover or attempted change in control.
<PAGE>39
Convertible Notes
We have issued in two private placements Convertible Promissory Notes in the
aggregate principal amount of $195,000. All of the Notes have an interest rate
of 12% per annum. $30,000 of the Notes are due and payable on October 14, 2000,
and $165,000 are due and payable on June 30, 2002. Each of the Notes was issued
in exchange for cash.
The Notes issued under both placements may be converted into shares of common
stock at any time prior to maturity. For the Notes issued under the placement
commenced September 1998, the holder may convert the Note into that number of
shares of common stock determined by dividing the face amount of the Note by
$.50. For the Notes issued under the placement commenced June 1999, the holder
may convert the Note into that number of shares of common stock determined by
dividing the face amount of the Note by $1.50. We have reserved for issuance on
conversion of the Notes a total of 170,000 shares of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, 2nd Floor, Glendale, CA 91204; telephone:
(818) 502-1404.
LEGAL MATTERS
The legality of our securities offered will be passed on for Roex by the Law
Offices of William B. Barnett, 15233 Ventura Boulevard, Suite 1110, Sherman
Oaks, California 91403. Mr. Barnett is a Director of the Company and owns 15,000
shares of our Company's common stock. He is also owns $25,000 of debentures
convertible into 36,333 shares of our common stock.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere in
the Registration Statement have been audited by Stonefield, Josephson, Inc.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance given upon their authority of said
firm as experts in accounting and auditing.
<PAGE>40
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-------------------
A MINIMUM OF
500,000 SHARES
AND
A MAXIMUM OF
1,000,000 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
_____________, 2000
<PAGE>41
ROEX, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
CONTENTS
Page
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Statements of Income (Operations) 3
Statements of Stockholders' Deficit 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-15
<PAGE>F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors
Roex, Inc.
Irvine, California
We have audited the accompanying balance sheet of Roex, Inc. as of December 31,
1999, and the related statements of income (operations), stockholders' deficit
and cash flows for the years ended December 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Roex, Inc. as of December 31,
1999, and the results of its operations and its cash flows for the years ended
December 31, 1999 and 1998, in conformity with generally accepted accounting
principles.
CERTIFIED PUBLIC ACCOUNTANTS
Newport Beach, California
January 19, 2000
<PAGE>F-2
ROEX, INC.
BALANCE SHEET - DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 306,552
Accounts receivable 2,600
Loans to officer-stockholder 33,152
Inventory 254,221
Prepaid expenses 30,802
---------------
Total current assets $ 627,327
Property and equipment, net of
accumulated depreciation and amortization 80,648
Other assets:
Deposits 10,853
Deferred offering costs 91,935
--------------
Total other assets 102,788
--------------
$ 810,763
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 242,659
Current maturities of obligations under capitalized leases 21,397
Current maturities of notes and loans payable 539,181
---------------
Total current liabilities $ 803,237
Obligations under capitalized leases,
less current maturities 38,551
Notes and loan payable, less current maturities 364,134
Stockholders' deficit:
Common stock; no par value, 50,000,000 shares
authorized, 5,288,584 shares issued and outstanding 677,687
Additional paid-in capital 35,000
Stock subscriptions receivable (80,000)
Accumulated deficit (1,027,846)
---------------
Total stockholders' deficit (395,159)
---------------
$ 810,763
===============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>F-3
ROEX, INC.
STATEMENTS OF INCOME (OPERATIONS)
<TABLE>
<S> <C> <C>
Year ended Year ended
December 31, 1999 December 31, 1998
----------------- -----------------
Net sales $ 5,736,832 $ 3,934,910
Cost of sales 1,263,082 1,070,590
----------------- ---------------
Gross profit 4,473,750 2,864,320
----------------- ---------------
Operating expenses:
Payroll and related expenses 1,567,779 1,273,716
Sales and marketing 1,086,092 936,764
General and administrative 1,165,721 772,901
Debt restructuring and loan fees - 229,775
Interest 119,226 113,628
----------------- ---------------
3,938,818 3,326,784
----------------- ---------------
Net income (loss) before provision for
income taxes 534,932 (462,464)
Provision for income taxes 800 800
----------------- ---------------
Net income (loss) $ 534,132 $ (463,264)
================= ===============
Net income (loss) per share:
Basic $ 0.10 $ (0.10)
================= ===============
Diluted $ 0.09 $ (0.10)
================= ===============
Weighted average common equivalent
shares outstanding:
Basic 5,288,296 4,826,870
================= ===============
Diluted 6,086,761 4,826,870
================= ===============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>F-4
ROEX, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Additional Stock Total
Common stock paid-in subscriptions Accumulated stockholders'
Shares Amount capital receivable deficit deficit
---------- ----------- ------------- --------------- ------------ --------------
Balance at January 1, 1998 4,675,000 $ 433,750 $ $ (90,000) $(1,098,714) $ (754,964)
Common stock surrendered (50,000) (10,000) 10,000
Issuance of common stock from
private placement offering 44,334 59,162 59,162
Issuance of common stock related to
debt restructuring and loan fees 611,750 183,525 183,525
Issuance of common stock options related
to debt restructuring and loan fees 35,000 35,000
Net loss for the year ended
December 31, 1998 (463,264) (463,264)
---------- ----------- ------------- --------------- ------------ --------------
Balance at December 31, 1998 5,281,084 666,437 35,000 (80,000) (1,561,978) (940,541)
Issuance of common stock from
private placement offering 7,500 11,250 11,250
Net income for the year ended
December 31, 1999 534,132 534,132
---------- ----------- ------------- --------------- ------------ --------------
Balance at December 31, 1999 5,288,584 $ 677,687 $ 35,000 $ (80,000) $(1,027,846) $ (395,159)
========== =========== ============= =============== ============ ==============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>F-5
ROEX, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C>
Year ended Year ended
December 31, 1999 December 31, 1998
------------------ -----------------
Cash flows provided by (used for) operating activities:
Net income (loss) $ 534,132 $ (463,264)
------------------ -----------------
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Bad debts 2,780 4,950
Depreciation and amortization 66,689 62,187
Loan fees related to debt restructuring - 218,525
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (1,643) (3,548)
Inventory (53,645) 11,206
Prepaid expenses (27,688) 6,770
Other assets 498 (10,473)
Increase (decrease) in liabilities -
accounts payable and accrued expenses (137,562) 66,213
------------------ -----------------
Total adjustments (150,571) 355,830
------------------ -----------------
Net cash provided by (used for) operating activities 383,561 (107,434)
------------------ -----------------
Cash flows used for investing activities -
payments to acquire property and equipment (13,804) (5,352)
------------------ -----------------
Cash flows provided by (used for) financing activities:
Advances to officer-stockholder (4,000) (1,892)
Payments on notes and loan payable, other (171,196) (114,580)
Proceeds from notes and loan payable, other 165,000 100,000
Deferred offering costs (91,935) -
Payments on obligations under capitalized leases (26,631) (15,192)
Proceeds from private placement, net of offering costs 11,250 59,162
------------------ -----------------
Net cash provided by (used for) financing activities (117,512) 27,498
------------------ -----------------
Net increase (decrease) in cash 252,245 (85,288)
Cash and cash equivalents, beginning of year 54,307 139,595
------------------ -----------------
Cash and cash equivalents, end of year $ 306,552 $ 54,307
================== =================
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>F-6
ROEX, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C>
Year ended Year ended
December 31, 1999 December 31, 1998
----------------- -----------------
Supplemental disclosure of cash flow information:
Interest paid $ 119,226 $ 113,628
============== ==============
Income taxes paid $ 800 $ 800
============== ==============
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock related to
debt restructuring and loan fees $ - $ 183,525
============== ==============
Issuance of common stock options
related to debt restructuring and loan fees $ - $ 35,000
============== ==============
Cancellation of stocks in exchange for
elimination of receivable $ - $ 10,000
============== ==============
Property and equipment acquired under
capitalized lease $ 52,588 $ -
============== ==============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>F-7
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(1) Summary of Significant Accounting Policies:
General:
Roex, Inc. ("the Company") was incorporated in the State of
California on October 5, 1994 as a C corporation.
Business Activity:
The Company retails nutritional supplements to the general
public through radio advertising, telemarketing and over the
internet.
Use of Estimates:
The preparation of 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 financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Revenue Recognition:
The Company recognizes revenue at the time merchandise is
shipped to its customers.
Cash:
Equivalents
For purposes of the statement of cash flows, cash equivalents
include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations.
Concentration
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
Inventory:
Inventory is valued at the lower of cost (first-in, first-out)
or market.
See accompanying independent auditors' report.
<PAGE>F-8
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(1) Summary of Significant Accounting Policies, Continued:
Income Taxes:
The Company uses the asset and liability approach to measure
temporary differences in accounting for income taxes.
Temporary differences arise from differences in the time of
revenue and expense recognition for financial reporting and
income tax return purposes and are measured using the
currently enacted tax rates and laws. The principal
temporary difference is the federal net operating loss
carryforward of approximately $750,000 and $1,300,000 at
December 31, 1999 and 1998, respectively, which if not
utilized, will start to expire in year 2018. California
State net operating loss carryforward of approximately
$285,000 and $850,000 at December 31, 1999 and 1998,
respectively, if not utilized, will start to expire in year
2003. A deferred asset has been provided and completely
offset by a valuation allowance, because its utilization
does not appear to be reasonably assured.
Net Income (Loss) Per Share:
Net income per share has been computed using the weighted
average number of common and common equivalent shares
outstanding during 1999. Common equivalent shares consist of
the common shares issuable upon conversion of the debt
(using the if-converted method) and shares issuable upon the
exercise of stock options (using the treasury stock method).
For the year ended December 31, 1998 net loss per share has
been computed using the weighted average number of common
shares outstanding and common stock equivalents have not
been included since they reduce loss per share.
New Accounting Pronouncements:
The Company has adopted Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" and No.
133, "Accounting for Derivative Instruments and Hedging
Activities." The Company also adopted Statement of Position
No. 98-5 "Reporting on the Costs of Start-up Activities."
Adoption of these pronouncements did not materially affect
the financial statements.
(2) Loans to Officer-Stockholder:
Loans to officer-stockholder are due on demand, non-interest bearing
and unsecured.
See accompanying independent auditors' report.
<PAGE>F-9
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C>
(3) Inventory:
Inventory is comprised of the following:
Finished goods $ 227,537
Labels and packaging 26,684
--------------
$ 254,221
==============
(4) Property and Equipment:
Property and equipment is comprised of the following:
Computer equipment and software $ 172,091
Office furniture and equipment 81,207
Vehicle 24,778
Leasehold improvements 4,003
--------------
282,079
Less accumulated depreciation and amortization 201,431
--------------
$ 80,648
==============
</TABLE>
Total depreciation and amortization expense for the years ended
December 31, 1999 and 1998 amounted to $66,689 and $62,187,
respectively.
(5) Major Vendor:
Purchases from four vendors amounted to approximately $960,000 for the
year ended December 31, 1999 representing approximately 76% of total
purchases. Included in accounts payable and accrued expenses at
December 31, 1999 is approximately $28,000 due to these vendors.
Purchases from three vendors amounted to approximately $648,000
for the year ended December 31, 1998 representing approximately 60% of
total purchases.
See accompanying independent auditors' report.
<PAGE>F-10
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C>
(6) Notes and Loans Payable:
Notes and loans payable is comprised of the following:
Note payable to stockholder, secured by all assets of the Company and
the personal guarantee of the principal- stockholder, with monthly
payments of $16,697 including principal and interest at 13.25% per
annum through November 1, 2001 (see Note 6-A). $ 337,461
Notes payable, unsecured, principal originally due at various
times starting December 1, 1999 through January 27, 2000,
bearing interest at 12.0% per annum and payable monthly. The
due dates were extended to September 30, 2000. 200,000
Notes payable, others (Bridge Financing), unsecured, principal due on
June 30, 2002, interest payable quarterly at 12% per annum and is
convertible into 74,000 restricted shares of
common stock anytime prior to June 30, 2002. 111,000
Notes payable, unsecured, payable on demand with interest ranging
from 12.0% to 16.0% per annum and payable monthly. 87,500
Promissory notes payable, related parties (Bridge Financing),
unsecured, principal due on June 30, 2002, interest payable quarterly
at 12% per annum and is convertible into 36,000 restricted shares of
common stock at anytime prior to June 30, 2002. 54,000
Note payable, bank, secured by all assets of the Company, with annual
principal payments of $20,000 through August 5, 2001,
interest due monthly at prime rate plus 2.0% per annum. 40,000
Notes payable to stockholders/directors, unsecured, due on October 14,
2000 with interest at 12.0% per annum, convertible
into 60,000 shares of common stock (see Note 6-B). 30,000
Note payable, related party, unsecured, payable on demand with
interest at 12.0% (see Note 6-C). 30,000
Loan payable, other, secured by related vehicle, bearing interest at
9.0% per annum, payable in monthly installments of $635, including
interest, due November 27, 2001. 13,354
--------------
903,315
Less current maturities 539,181
--------------
$ 364,134
==============
</TABLE>
See accompanying independent auditors' report.
<PAGE>F-11
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(6) Notes and Loans Payable, Continued:
A. In September 1998, the Company restructured its debt obligation to
Bison Development Fund, L.P. Pursuant to this debt restructuring
agreement, an additional $100,000 was loaned to the Company for
working capital. The payment terms were extended through November 1,
2001 and the interest rate was increased from 12.5% to 13.25%. In
addition, the Company issued 581,750 shares of its common stock valued
at $0.30 per share, paid a $11,250 loan fee and granted 116,350 common
stock options with an exercise price of $0.50 per share (see Note 9).
These options may be exercised at anytime during the period which
expires on the fourth anniversary from the date the Company becomes a
publicly traded company. The Company has recorded $229,775 in debt
restructuring and loan fees in the accompanying statement of income
(operations) for the year ended December 31, 1998.
B. In October 1998, two directors loaned the Company $30,000 ($15,000
each) for working capital. These notes bear interest at 12.0% per
annum and are due on October 14, 2000. As part of this transaction,
the Company issued these directors a total of 30,000 shares valued at
$0.30 per share, which is recorded as debt restructuring and loan fees
in the accompanying statement of income (operations).
C. The note payable, related party in the amount of $30,000 requires the
Company to pay $0.50 per bottle of a certain product sold or $300 per
month (interest at 12%), whichever is greater through December 2000.
The following table summarizes the aggregate maturities of the notes
and loan payable as of December 31, 1999:
Year ending December 31,
2000 $ 539,181
2001 199,134
2002 165,000
--------------
$ 903,315
==============
Total interest expense for the years ended December 31, 1999 and 1998,
including interest on obligations under capital leases, amounted to
$119,226 and $113,628, respectively.
Bridge Financing
Starting in July 1999, the Company issued 12% subordinated convertible
notes in the amount of $165,000, which are included in notes and loans
payable as non-current. These notes are due on June 30, 2002, are
unsecured, and interest is payable in cash at the end of each quarter.
These notes may be converted at any time prior to the due date into
common stock shares of the Company at the conversion rate of $1.50 of
debt for one share of common stock.
See accompanying independent auditors' report.
<PAGE>F-12
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(7) Obligations Under Capitalized Leases:
The Company leases office and computer equipment under capital leases
which are secured by related assets with a net book value of
approximately $63,000. The following is a schedule, by year, of future
minimum lease payments required under capital leases together with the
present value of the net minimum lease payments as of December 31,
1999:
Year ending December 31,
2000 $ 23,230
2001 22,064
2002 17,034
2003 7,392
--------------
Total minimum lease payments 69,720
Less amounts representing interest 9,772
--------------
Present value of net minimum lease payments 59,948
Less current maturities 21,397
--------------
$ 38,551
==============
(8) Commitments, Contingencies and Other:
Operating Leases
The Company leases its warehouse and office space under two
non-renewable operating leases, which expire on February 28, 2001.
Pursuant to these lease agreements, the Company is also responsible for
maintaining certain minimum insurance requirements and for its
proportionate share (approximately 15%) of common area expenses.
The following is a schedule by years of future minimum rental payments
required under operating leases that have noncancellable lease terms in
excess of one year as of December 31, 1999:
<TABLE>
<S> <C> <C> <C>
Warehouse and
office space Equipment Total
--------------- -------------- ---------------
Year ending December 31,
2000 $ 120,833 $ 23,980 $ 144,813
2001 20,139 11,990 32,129
--------------- ------------- ---------------
$ 140,972 $ 35,970 $ 176,942
=============== ============= ===============
</TABLE>
Total rent expense amounted to $121,435 and $127,841 for the years
ended December 31, 1999 and 1998, respectively.
See accompanying independent auditors' report.
<PAGE>F-13
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(8) Commitments, Contingencies and Other, Continued:
Royalty Agreement, Related Party
The Company is party to a royalty agreement with a minority
stockholder, which requires the payment of a minimum royalty of $0.50
per bottle of a particular product sold. The agreement expires in
November 2003. Total royalty expense for the years ended December 31,
1999 and 1998 amounted to $19,416 and $19,027, respectively.
Advertising
Advertising costs, consisting primarily of radio advertising, are
expensed when incurred and amounted to approximately $991,000 and
$794,000 for the years ended December 31, 1999 and 1998, respectively.
Principal Stockholder-Officer Compensation
Effective November 1998, the Board of Directors of the Company approved
the compensation of the principal stockholder-officer at 6% of net
sales, payable monthly.
(9) Common Stock:
Private Placement
On November 18, 1998, the Company initiated a private placement
offering (the "Private Placement") of 666,667 shares of the Company's
common stock at an offering price of $1.50 per share. The Private
Placement was exempt from the registration provisions of the Securities
and Exchange Commission Act of 1933 and Rule 504 of Regulation D.
During 1998, net proceeds amounted to $59,162, which is net of related
offering costs of $7,339, from the issuance of 44,334 shares of its
common stock. During 1999, net proceeds amounted to $11,250 from the
issuance of 7,500 shares of its common stock.
Initial Public Offering
During December 1999, the Company filed a Registration Statement on
Form SB-2 with the Securities and Exchange Commission pursuant to
regulation S-B under the Securities Act of 1933, to sell up to a total
of 1,000,000 shares of its common stock at $5.00 per share. During
1999, the Company incurred $91,935 of offering costs (primarily related
to legal, accounting and filing fees), which is presented on the
accompanying balance sheet as deferred offering costs. Upon the
successful completion of the proposed offering, deferred offering costs
will be netted against the gross proceeds.
See accompanying independent auditors' report.
<PAGE>F-14
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(9) Common Stock, Continued:
Non-Qualified Stock Options
In 1998, pursuant to a debt and debt-restructuring agreement with a
current stockholder (see Note 6), the Company granted 116,350
non-qualified common stock options with an average exercise price of
$0.50 per option as an incentive to renegotiate.
The Company also granted 50,000 non-qualified common stock options to
two of its directors at an exercise price of $0.50 per share.
Incentive Stock Option Plan
In 1999, the Company adopted an Incentive Stock Option Plan (the
"Plan") that provides for granting of options to acquire common stock
of the Company ("Options"). Options under the Plan may be issued to
directors, executives, key employees and consultants providing valuable
services to the Company. A maximum of 1,000,000 shares of the Company's
common stock maybe issued under the Plan. The Board of Directors
administer the Plan, selects recipients to whom options are granted and
determines the number of shares to be granted. Options granted under
the Plan are exercisable at a price determined by the Board of
Directors at the time of grant, but in no event less than fair market
value. During 1999, 737,500 options have been granted under this plan.
The number and weighted average exercise prices of options granted for
the years ended December 31, 1999 and 1998 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
1999 1998
------------------------------- ---------------------------
Average Average
Exercise Exercise
Number Price Number Price
--------- ---------- ----------- ----------
Outstanding at beginning of the year 166,350 $ 0.50 581,750
$0.50
Granted during the year 737,500 1.53 166,350 0.50
Outstanding at end of the year 903,850 1.34 166,350 0.50
Exercisable at end of the year 496,350 1.19 166,350 0.50
Exercised during the year - - - -
Cancelled during the year - - 581,750 0.50
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation," ("FASB 123")
requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equal or exceed the fair
market value of the underlying stock on the date of grant, no
compensation expense is recognized.
See accompanying independent auditors' report.
<PAGE>F-15
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(9) Common Stock, Continued:
Proforma information regarding net income (loss) and earnings (loss)
per share, pursuant to the requirements of FASB 123, for the years
ended December 31, 1999 and 1998, are as follows:
<TABLE>
<S> <C> <C> <C> <C>
1999 1998
--------------------------------- ----------------------------
Historical Proforma Historical Proforma
--------------- ------------ -------------- -------------
Net income (loss) $ 534,132 $ 109,460 $ (463,264) $ (513,169)
Net income (loss) per share - basic $ 0.10 $ 0.02 $ (0.10)
(0.11)
Net income (loss) per share - diluted $ 0.09 $ 0.02* $ (0.10)
(0.11)
</TABLE>
* In computing the proforma diluted net income, an adjustment of
approximately $24,000 arising from interest savings from conversion of
debts to equity has been made in the Proforma net income for the year ended
December 31, 1999.
See accompanying independent auditors' report.
<PAGE>II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 204(a)(10) of the California General Corporation Law (the "GCL") permits
corporations to eliminate the liability of a Director to the corporation or its
stockholders for monetary damages for breach of the Director's fiduciary duty of
care. Our Articles of Incorporation include such a provision eliminating the
liability of Directors to the fullest extent permissible under California law.
Under the GCL irectors will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except liability for (a) any
breach of their duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemptions or (d) any transaction from which the director
derived an improper personal benefit. Such imitation of liability does not apply
to liabilities arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Our Articles of Incorporation and Bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our Bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether or not California law would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for certain expenses, including attorneys fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of Roex, arising out of such
person's services as an director or executive officer of Roex, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
We are not obligated to indemnify the indemnitee with respect to (a) acts,
omissions or transactions from which the indemnitee may not be relieved of
liability under applicable law, (b) claims initiated or brought voluntarily by
the indemnitee and not by way of defense, except in certain situations, (c)
proceedings instituted by the indemnitee to enforce the Indemnification
Agreements which are not made in good faith or are frivolous, or (d) violations
of Section 16(b) of the Securities Exchange Act of 1934 or any similar statute.
While not requiring the maintenance of directors' and officers' liability
insurance, if there is such insurance, the indemnitee must be provided with the
<PAGE>II-2
maximum coverage afforded to Directors, officers, key employees, agents or
fiduciaries if indemnitee is a Director, officer, key employee, agent or
fiduciary, respectively. Any award of indemnification to an agent would come
directly from our assets, thereby affecting a stockholder's investment.
These indemnification provisions and the Indemnification Agreements may be broad
enough to permit indemnification of our officers and Directors for liabilities
(including reimbursement of expenses) arising under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by the
Registrant, are as follows:
SEC Filing Fee $ 1,475
Printing Expenses 30,000
Accounting Fees and Expenses 50,000
Legal Fees and Expenses 85,000
Blue Sky Fees and Expenses 7,500
Registrar and Transfer Agent Fees 2,500
Miscellaneous 23,525
--------
Total 200,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
NOTES AND LOANS PAYABLE. On December 31, 1996, Roex issued promissory notes
("Notes") in the amount of $100,000 each to two non-related parties. The Notes
were due December 31, 1999 and carried interest of 12% per annum. On August 31,
1999, the two holders of the Notes agreed to extend the due date of the Notes to
September 30, 2000.
In January 1998, Roex borrowed $30,000 from Prostate, Ltd., a limited
partnership comprised of three non-affiliated limited partners. The borrowing is
evidenced by a demand promissory note with interest at 12% per annum.
In September 1998, we restructured our debt obligation to a current stockholder.
Pursuant to this debt restructuring agreement, an additional $100,000 was loaned
to us for working capital. The payment terms were extended through November 1,
2001, and the interest rate was increased from 12.5% to 13.25%. In addition, we
issued 581,750 shares of our Common Stock, valued at $0.30 per share, paid an
$11,250 loan fee and granted 116,350 Common Stock options with an exercise price
of $0.50 per share to the lender. These options may be exercised at any time
during the period which expires on the fourth anniversary from the date we
become a publicly traded company.
In October 1998, two of our directors, Messrs. Barnett and Stuckelman, loaned us
an aggregate of $30,000, evidenced by convertible subordinated promissory notes
with interest at 12% per annum (the "Notes"). The Notes are due on October 4,
2000. The holders of the Notes may convert the Notes into 60,000 shares of Roex
<PAGE>II-3
Common Stock at any time prior to October 4, 2000. In connection with this loan,
Roex issued 30,000 shares valued at $0.30 per share to the two directors.
Between December 1998 and January 1999, we sold 51,834 shares of our Common
Stock at $1.50 per share (or an aggregate of $86,751) to 27 persons. The sales
were made pursuant to a private placement and were sold by the officers and
directors of Roex. No commissions were paid for sales of stock.
Between July and September 1999, pursuant to a private placement, we issued
Convertible Promissory Notes (the "Notes") in the aggregate amount of $165,000.
The notes have interest rates of 12% per annum and are convertible into shares
of Common Stock at $1.50 per share at any time prior to the due date of June 30,
2002. No commissions were paid for the sale of the Notes.
Roex's issuance of all of the foregoing securities were effected in transactions
exempt from registration under section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder. All of the investors (total of
26) in all of the private placements, except the December 1998 to January 1999
offering, were sophisticated and accredited persons. At least one of the
officers and directors had a prior relationship with the investors. The December
1998 to January 1999 offering was pursuant to a private placement memorandum.
Each investor executed a subscription agreement representing that he/she was
purchasing securities not with a view to distribute. Less than 35 persons
purchased in this offering.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
3 Charter Documents
3.1 Articles of Incorporation
3.2 Bylaws
4 Instruments defining rights of holders
4.1 Form of Convertible Promissory Note issued October 1998
4.2 Form of Convertible Promissory Note issued between July and
October, 1999
4.3 Subscription Agreement for this Offering 5 Opinion of Law
Offices of William B. Barnett*
10 Material Contracts
10.1 Escrow Agreement with Santa Barbara Bank and Trust applicable to
this Offering
10.2 1999 Stock Incentive Plan
10.3 Form of Officer and Director Indemnification Agreement
10.4 Loan Restructure Agreement with Bison Development Fund, L.P.
10.5 Stock Option granted to Bison Development Fund, L.P.
<PAGE>II-4
10.6 Employment Agrement dated November 1, 1998 between Roex and
Rodney H. Burreson
10.7 Royalty Agreement dated July 23, 1996 between Roex and
Dennis F. Gibson
23 Consents of Experts and Counsel
23.1 Consent of Law Offices of William B. Barnett (filed as part of
Exhibit 5 hereto)*
23.2 Consent of Stonefield, Josephson, Inc.
* To be filed by amendment
ITEM 28. UNDERTAKINGS.
The undersigned registrant undertakes:
(1) To provide at the initial closing and each subsequent interim
closing of this offering stock certificates in such denominations and registered
in such names so as to permit our prompt delivery of the certificates to the
investors participating in such closing.
(2) For determining any liability under the Securities Act, to treat
the information omitted from the form of prospectus filed is part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the Small Business Issuer under Rule 424(b)(1)(4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(3) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectusany facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the information
statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
<PAGE>II-5
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant 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 Act and will be governed by the final adjudication of
such issue.
<PAGE>ii-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on March 6, 2000.
ROEX, INC.
By:/s/ RODNEY H. BURRESON
-------------------------------------------
Rodney H. Burreson, Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rodney H. Burreson, Derek Burreson and each of
them, such person's true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments, exhibits thereto, and other documents in
connection therewith to this Registration Statement and any subsequent
registration statement filed by the Registrant pursuant to Rule 462(b) of the
Securities Act, which relates to this Registration Statement) and to file the
same with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or any of them,
or their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
<PAGE>ii-7
NAME
DATE TITLE
- -------------------- --------------------------------------------------
/s/ RODNEY H. BURRESON Chairman of the Board and Chief Executive
--------------------- Officer
Rodney H. Burreson
March 6, 2000
/s/ DEREK BURRESON Chief Operating Officer, Secretary and
--------------------- Director
Derek Burreson
March 6, 2000
/s/ PETER WEBER Chief Financial Officer (Principal Financial
---------------------- and Accounting Officer)
Peter Weber
March 6, 2000
/s/ ROBERT STUCKELMAN Director
----------------------------
Robert Stuckelman
March 6, 2000
/s/ WILLIAM B. BARNETT Director
----------------------------
William B. Barnett
March 6, 2000
/s/ SHRI K. MISHRA Director
--------------------------
Shri K. Mishra, M.D., M.S.
March 6, 2000
ROEX, INC.
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION. The undersigned hereby subscribes to purchase
___________ shares of the common stock, no par value (the "Common Stock"), of
Roex, Inc. (the "Company") for a purchase price equal to $5.00 per share or
$______________ total. A check payable to "Roex, Inc. Subscription Account" in
the full amount of the purchase price is enclosed with this Subscription
Agreement.
2. SUBSCRIPTION FUNDS. The undersigned understands that the subscription
funds will be held in an escrow account at the Santa Barbara Bank & Trust
("Escrow Agent") or in a segregated account established for such purpose by the
Company, if such funds are received after the initial closing on the Common
Stock has taken place. In the event this Subscription Agreement is rejected in
whole by the Company, or if subscriptions for a minimum of 500,000 shares have
not been received and accepted by the Escrow Agent, the funds will be promptly
returned to the undersigned without interest or deduction, and this Subscription
Agreement will be null and void. In the event this Subscription Agreement is
accepted, in whole or in part, the funds deposited in the escrow account or the
segregated subscription account will be paid over to the Company at a closing
and applied as described in the Prospectus (and any amounts which the
undersigned has tendered in excess of the cash subscription for the Shares
allocated to the undersigned will be returned).
3. ACKNOWLEDGEMENT. The undersigned acknowledges that, prior to signing
this Subscription Agreement, he or she has received the Prospectus describing
the offering of shares of Common Stock by the Company and has carefully reviewed
the risks of, and other considerations relevant to, a purchase of the Common
Stock, including those described under the caption "Risk Factors" in the
Prospectus. It is specifically agreed to by the Company and the undersigned
understands that by signing this subscription Agreement the undersigned does not
waive any right of action he/she may have under applicable federal securities
laws.
4. TERM OF SUBSCRIPTION. The undersigned understands that he/she may
rescind this subscription at any time prior to the time that the Company accepts
this Subscription Agreement. If the undersigned exercises this right of
rescission, all funds will be returned to the undersigned, without interest.
5. REJECTION BY COMPANY. The Company may, in its sole discretion,
reject this subscription in whole or in part. No cancellation fee will be
charged if the Company rejects this subscription.
The undersigned hereby executes this Subscription Agreement as of the day of
---
, 2000, at ,
- ----------------- ---------------- ---------------.
(city) (state)
<PAGE>
SUBSTITUTE FORM W-9
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBERS
Under the penalties of perjury, I certify that: (1) the Social Security Number
or Taxpayer Identification Number given below is correct; and (2) I am not
subject to backup withholding. INSTRUCTION: YOU MUST CROSS OUT NUMBER 2 ABOVE IF
YOU HAVE BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX
RETURN.
MAIL TO:
Signature:
------------------------
Print Name:
------------------------
Federal Employer Identification Number:
------------------------
Social Security Number:
------------------------
Street Address:
------------------------
City, State and Zip Code:
------------------------
Telephone Number:
------------------------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into as of February ___, 2000,
by and between ROEX, INC., a California corporation (the "Company") and SANTA
BARBARA BANK & TRUST, as escrow agent (the "Escrow Agent"), with reference to
the following facts.
A. The Company is proposing to issue to the public up to 1,000,000 shares
of its Common Stock (the "Offering") pursuant to a Registration Statement on
Form SB-2 (the "Registration Statement") filed with the Securities and Exchange
Commission. Pursuant to the Offering, the Company would realize proceeds of up
to $5,000,000.
B. As part of the Offering, the Company has agreed to deposit into escrow
(the "Escrow") the proceeds received from subscriptions for shares until it has
received acceptable subscriptions for shares with an aggregate subscription
price of not less than $2,500,000. The Company proposes that it will terminate
the Offering and return to the investors all funds previously deposited into the
Escrow if it has not received acceptable subscriptions for a total of $2,500,000
within 90 days after the date on which the Registration Statement is declared
effective (which period may be extended for an additional 90 days by the
Company).
C. The parties desire to enter into this Agreement for purposes of
establishing the Escrow to hold the subscription proceeds until the Company has
received at least $2,500,000 in proceeds received from subscriptions for shares.
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Escrow Agent agree as follows:
1. ESCROW FUNDS.
1.1 DEPOSIT. During the term of this Agreement, the Company shall deposit
with Escrow Agent the funds (the "Escrow Funds") received from investors in
connection with the Offering. The Company shall use its best efforts to deposit
all Escrow Funds with Escrow Agent by 12:00 noon on the first business day
following the date on which the Company receives the Escrow Funds from the
investors. Escrow Agent shall have no obligation to verify whether or not the
Company has timely delivered any or all of the Escrow Funds and shall be
authorized to accept all Escrow Funds from the Company regardless of the date on
which the Escrow Funds are delivered to the Escrow Agent or the date on which
they were received by the Company from the investors.
<PAGE>
1.2 RECEIPT OF ESCROW FUNDS. Escrow Agent shall have no obligation to
accept the Company's delivery of any Escrow Funds unless and until the Company
has delivered to Escrow Agent written notice under Section 5.1 that the
Registration Statement has been declared effective. If any check or wire
transfer for any Escrow Funds does not clear normal banking channels in due
course, Escrow Agent will promptly notify the Company and return such check to
the Company or cancel such wire transfer.
1.3 HOLDING AND INVESTMENT. Escrow Agent shall hold the Escrow Funds
pursuant to the terms hereof and shall invest the Escrow Funds only in (a)
interest-bearing savings accounts and bank money-market accounts, (b) short-term
certificates of deposit issued by a bank, (c) short-term securities issued or
guaranteed by the U.S. Government or (d) any combination of the foregoing.
Escrow Agent shall retain all interest upon invested Escrow Funds and shall
distribute such accumulated interest to the Company upon distribution of the
Escrow Funds. Escrow Agent shall not be required to set up individual escrow
accounts for each investor's funds, but shall deposit all of the Escrow Funds in
one general escrow account in the name of the Company.
1.4 GENERAL INSTRUCTIONS. Escrow Agent shall establish and maintain the
Escrow in accordance with and subject to Escrow Agent's general rules and
regulations applicable to this type of escrow account.
1.5 STOP ORDER. During the period from and after the date on which the
Company delivers to Escrow Agent written notice under Section 4.2 hereof that a
stop order has been entered with respect to the Registration Statement or the
effectiveness of the Registration Statement otherwise has been suspended and
through the date on which the Company delivers to Escrow Agent written notice
that the stop order or other suspension has been terminated (the "Suspension
Period"), Escrow Agent shall continue to hold any Escrow Funds previously
delivered by the Company, but shall have no obligation to accept the Company's
delivery of any additional Escrow Funds. During the Suspension Period, Escrow
Agent shall hold all Escrow Funds previously delivered to it in accordance with
the terms of this Agreement; provided that Escrow Agent shall not disburse any
of such Escrow Funds except in accordance with the provisions of Section 2.3
hereof.
1.6 ADDITIONAL ESCROW FUNDS. The parties intend that the Escrow will be
used for purposes of holding the Escrow Funds only until the Company has
received Escrow Funds in the amount of $2,500,000 which are sufficient to
satisfy the minimum offering requirements under the Registration Statement. Even
so, Escrow Agent agrees that Escrow Funds in excess of $2,500,000 may be
deposited into the Escrow and that the Escrow shall continue until terminated in
accordance with the provisions of Section 2 hereof.
<PAGE>
2. PAYMENT OF ESCROW FUNDS.
2.1 CLOSING OF OFFERING.
2.1.1INITIAL CLOSING. Subject to the provisions of Section 1.5
and hereof, so long as:
A. the amount of the Escrow Funds, exclusive of any
interest or other amount accrued on the Escrow Funds, is then not less than Two
Million Five Hundred Thousand Dollars ($2,500,000); and
B. the written instructions described below are delivered
by the Company to Escrow Agent no later than 90 days after the effective date of
the Registration Statement ( no later than 180 days after the effective date of
the Registration Statement if extended thereto by the Company); Escrow Agent
shall disburse to the Company all of the Escrow Funds and all interest and other
amounts accrued thereon within five (5) days after its receipt of written
instructions from the President of the Company or issued by a court of competent
jurisdiction confirming that (i) the Company has accepted the subscriptions for
the Escrow Funds then held by Escrow Agent, (ii) the Registration Statement is
then effective and no stop order or other suspension is then effective with
respect to the Registration Statement or the offering, and (iii) the other terms
and conditions of the Offering relating to such Escrow Funds have been fully
satisfied. Escrow Agent may condition its disbursement of the Escrow Funds on
its receipt of such acknowledgments, receipts and other documents as it
reasonably may request for purposes of confirming compliance with the terms of
this Agreement.
2.2 ABANDONMENT OF OFFERING. In the event that the Company abandons or
otherwise fails to close the Offering, whether because the Company has not
timely raised the minimum investment or otherwise, the Company promptly shall
provide written notice thereof to Escrow Agent authorizing Escrow Agent to
disburse the Escrow Funds then held by Escrow Agent directly to the investors
without interest. The Company shall promptly provide Escrow Agent with a list of
names, addresses and amounts of the investment confirmed by the Company's
President to be true, correct and complete. Promptly after its disbursal of the
Escrow Funds to the investors, Escrow Agent shall deliver to the Company a
written statement showing the amount disbursed to each investor.
2.3 NOTICE DATE. Promptly after the Registration Statement has been
declared effective, the Company shall advise Escrow Agent of the date 90 days
(or if extended 180 days)after such effective date (the "Notice Date") by which
the Company is obligated to have received acceptable subscriptions for at least
$2,500,000. If, on the Notice Date, Escrow Agent has not previously disbursed
any of the Escrow Funds to the Company under Section 2.1.1 above and does not
<PAGE>
then hold Escrow Funds, exclusive of interest and other amounts accrued thereon,
in the amount of at least $2,500,000, Escrow Agent may, on five (5) days prior
written notice to the Company, terminate the Escrow and disburse the Escrow
Funds to the Company for the specific purposes of the Company's refund of the
Escrow Funds to the investors. If Escrow Agent delivers the Escrow Funds to the
Company for refund to the investors, the Company shall, within ten (10) business
days after the Escrow Agent's delivery of the Escrow Funds, (x) effect the
refund of the Escrow Funds to the investors and (y) deliver to Escrow Agent
written confirmation that the Company has refunded the Escrow Funds to the
investors; provided that Escrow Agent shall have no obligation to confirm that
the Escrow Funds have been delivered to the investors or to compel the Company
to provide the written confirmation to Escrow Agent.
3. ESCROW AGENT.
3.1 COMPENSATION. The Company shall pay Escrow Agent such compensation and
shall reimburse the Escrow Agent for costs and expenses in accordance with
Escrow Agent's current fee schedule.
3.2 DUTIES OF ESCROW AGENT. Escrow Agent shall have no duties or
responsibilities under this Agreement other than those specifically set forth in
this Agreement, and will act only in accordance with the provisions of this
Agreement. Escrow Agent shall be protected in acting upon any document
reasonably believed by it to be genuine and containing what purports to be the
signature of the President of the Company or a certified copy of a final
nonappealable order issued by a court of competent jurisdiction.
3.3 INDEMNITY. The Company shall indemnify, defend and hold Escrow Agent,
and each of its officers, directors, employees and agents harmless from and
against any and all claims, costs, demands, judgments, losses, damages,
liabilities and expenses (including, without limitation, reasonable attorneys'
fees and disbursements) arising out of or in connection with any act or failure
to act (other than by reason of such person's willful misconduct or gross
negligence) on the part of such person in connection with any of the duties
required to be performed by Escrow Agent hereunder.
3.4 INTERPLEADER. In the event of any controversy arising hereunder,
Escrow Agent may (but shall not be required to) interplead the Escrow Funds with
a court of competent jurisdiction and, defer the distribution of any of the
Escrow Funds until its receipt of instructions from the court. The costs of such
interpleader shall be borne by the Company.
3.5 COMPLIANCE WITH INSTRUCTIONS. Escrow Agent does not have and shall not
be deemed to have any responsibility in respect of any instruction, certificate
or notice delivered to it other than faithfully to carry out the obligations
undertaken in this Agreement and to follow the directions in such instruction or
notice provided in accordance with the terms hereof.
<PAGE>
3.6 LIMITATION. Escrow Agent is not and shall not be deemed to be liable
for any action taken or omitted by it in good faith and may relay upon, and act
in accordance with, the advice of its counsel without liability on its part for
any action taken or omitted in accordance with such advice. In any event, its
liability hereunder shall be limited to liability for gross negligence, willful
misconduct or bad faith on its part.
3.7 RELIANCE. Escrow Agent may conclusively rely upon and act in
accordance with any certificate, instruction, notice, letter, facsimile, or
other written instrument believed by it to be genuine and to have been signed by
the proper party or parties.
3.8 LEGAL ACTION. Escrow Agent shall not be required to defend any legal
proceeding which may be instituted against it in respect of the subject matter
of this Agreement unless requested to do so by the Company and indemnified by
the Company to Escrow Agent's satisfaction against the cost and expense of such
defense by the party requesting such defense. If any such legal proceeding is
instituted against it, Escrow Agent shall promptly give notice thereof to the
Company. Escrow Agent shall not be required to institute legal proceedings of
any kind.
3.9 NO WAIVER. Escrow Agent shall not, by act, delay, omission or
otherwise, be deemed to have waived any right or remedy it may have either under
this Agreement or generally, unless such waiver be in writing, and no waiver
shall be valid unless it is in writing, signed by Escrow Agent, and only to the
extent expressly therein set forth. A waiver by Escrow Agent under any term of
this Agreement shall not be construed as a bar to, or waiver of, the same or any
other such right or remedy which it would otherwise have on any other occasion.
3.10 RESIGNATION. Escrow Agent may resign as such hereunder by giving
thirty (30) days written notice thereof to the Company. Within twenty (20) days
after receipt of such notice, the Company shall furnish to Escrow Agent written
instructions for the release of the Escrow Funds to a substitute Escrow Agent
which (whether designated by written instructions from the Company or, in the
absence thereof, by instructions to Escrow Agent from a court of competent
jurisdiction) shall be a bank or trust company organized and doing business
under the laws of the United States or any state thereof. Such substitute Escrow
Agent shall thereafter hold any Escrow Funds received by it pursuant to the
terms of this Agreement and otherwise act hereunder as if it were Escrow Agent
originally named herein. Escrow Agent's duties and responsibilities hereunder
shall terminate upon the release of all of the Escrow Funds then held in escrow
according to such written instruction or upon such delivery as herein provided.
<PAGE>
This Agreement shall not otherwise be assignable by Escrow Agent without the
prior written consent of the Company.
4. MISCELLANEOUS PROVISIONS.
4.1 REGISTRATION STATEMENT. The Company shall promptly notify Escrow Agent
in writing of the date on which the Registration Statement has been declared
effective. The Company acknowledges that Escrow Agent has not participated in
the preparation of the Registration Statement. The Company shall promptly notify
Escrow Agent of the entry of any stop order or any other notion which suspends
the effectiveness of the Registration Statement. Escrow Agent may conclusively
rely on any such notice from the Company and shall have no obligation to
independently confirm the effectiveness of the Registration Statement or the
entry of any stop order or suspension.
4.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when actually received or on the
second business day after being mailed by certified or registered United States
mail, return receipted, addressed to the party to be notified at the address set
forth on the signature page of this Agreement or such other address as the party
may provide for such purpose.
4.3 PARTIAL INVALIDITY. Each term and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law. If any term or
provision of this Agreement or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable, then the
remainder of this Agreement or the application of such term or provision to
persons or circumstances other than those to which it is held invalid or
unenforceable, shall not be affected thereby.
4.4 ARBITRATION. Unless the relief sought requires the exercise of the
equity powers of a court of competent jurisdiction, any dispute arising in
connection with the interpretation or enforcement of the provisions of this
Agreement, or the application or validity thereof, shall be submitted to
arbitration. Such arbitration proceedings shall be held in Santa Barbara,
California, in accordance with the rules then obtaining of the American
Arbitration Association. This agreement to arbitrate shall be specifically
enforceable. Any award rendered in any such arbitration proceedings shall be
final and binding on each of the parties hereto, and judgment may be entered
thereon in any court of competent jurisdiction.
4.5 GOVERNING LAW. All questions with respect to the construction of this
Agreement and the rights and liabilities of the parties with respect thereto
shall be governed by the laws of the State of California applicable to contracts
made and to be fully performed in the State of California.
<PAGE>
4.6 ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties relating to the subject matter of this Agreement, and
supersedes any prior written or oral agreements between them respecting the
subject matter contained herein. There are no representations, agreements,
arrangements, or understandings, either oral or written, between or among any of
the Owners relating to the subject matter of this Agreement which are not fully
expressed herein.
4.7 BINDING NATURE. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns, provided that Escrow Agent
may not assign its obligations hereunder without the written consent of Company.
4.8 REPORTS. Escrow Agent shall, on a monthly basis or otherwise as
reasonable requested by the Company, provide the Company with a report as to the
balance of the Escrow Funds and the interest earned thereon.
5. FEES AND EXPENSES. Upon execution of this Agreement and initial deposit of
the Company Stockholders' Escrow Shares with the Escrow Agent, Escrow Agent will
be entitled to fees in accordance with the Escrow Agent's fee schedules in
effect at that time. The Escrow Agent will also be entitled to reimbursement on
demand for extraordinary expenses incurred in performance of its duties
hereunder including, without limitation, payment of any reasonable legal fees
and expenses incurred by the Escrow Agent in connection with the resolution of
any claim by any party hereunder in accordance with the Escrow Agent's fee
schedule in effect from time to time. Parent shall pay the reasonable fees and
extraordinary expenses of the Escrow Agent for the services to be rendered by
the Escrow Agent hereunder including reasonable legal fees incurred in
connection with the preparation of this Agreement
6. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) Neither Escrow Agent nor any of its directors, officers or employees shall
incur any liability with respect to any action taken or suffered by it in
reliance upon any notice, direction, instruction consent, statement or other
documents believed by it to be genuine and duly authorized, nor for other action
or inaction except its own willful misconduct or gross negligence. The Escrow
Agent shall have no duty to inquire into or investigate the validity accuracy or
content of any document delivered to it nor shall the Escrow Agent be
responsible for the validity or sufficiency of this Agreement. In all questions
arising under this Agreement the Escrow Agent may rely on thc advice of counsel,
including in-house counsel, and for any-thing done, omitted or suffered in good
faith by the Escrow Agent based on such advice the Escrow Agent shall not be
liable to anyone. The Escrow Agent shall not be required to take any action
hereunder involving any expense unless the payment of such expense is made or
provided for in a manner reasonably satisfactory to it. The Escrow Agent shall
not be responsible for any of the agreements referred to herein, including the
Registration Statement, but shall be obligated only for the performance of such
duties as are specifically set forth in this Agreement.
<PAGE>
(b) In the event conflicting demands are made or conflicting notices are served
upon the Escrow Agent, the Escrow Agent will have the absolute right, at the
Escrow Agent's election, to do either or both of thc following: (i) resign so a
successor can be appointed hereof, or (ii) file a suit in interpleader and
obtain an order from a court of competent jurisdiction requiring the parties to
interplead and litigate in such court their several claims and rights among
themselves. In the event such interpleader suit is brought, the Escrow Agent
will thereby be fully released and discharged from all further obligations
imposed upon it under this Agreement. and Company will pay the Escrow Agent all
costs, expenses and reasonable attorneys' fees expended or incurred by the
Escrow Agent pursuant to the exercise of the Escrow Agent `s rights under this
Section 6(b) (such costs, fees and expenses will be treated as extraordinary
fees and expenses for the purposes of Section 3 hereof).
(c) The Company hereby agrees to indemnify the Escrow Agent for, and hold it
harmless against, any loss, damage liability on expense incurred without gross
negligence or willful misconduct on the part of Escrow Agent, arising out of or
in connection with its carrying out of its duties hereunder including, but not
limited to reasonable legal fees and other costs and expenses of defending or
preparing to defend against any claim or liability in the premises. In the event
of any such claim of indemnity by the Escrow Agent, the Company shall advance
immediately available funds in an amount sufficient to cover such costs or
expenses, up to an aggregate amount of $5O,OOO for all such claims. In no event
shall the Escrow Agent be liable for indirect, punitive, special or
consequential damages.
(d) The Company agrees to assume any and all obligations imposed now or
hereafter by any applicable tax law with respect to the release of any Escrow
Funds under this Agreement, and to indemnify and hold the Escrow Agent harmless
from and against any taxes, additions for late payment, interest, penalties and
other expenses, that may be assessed against the Escrow Agent in any such
release or other activities under this Agreement. The Company undertakes to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. The Company agrees to
indemnify and hold the Escrow Agent harmless from any liability on account of
taxes, assessments or other governmental charges, including without limitation
the withholding or deduction or the failure to withhold or deduct the same, and
any liability for failure to obtain proper certifications or to properly report
to governmental authorities, to which the Escrow Agent may be or become subject
in connection with or which arises out of this Agreement, including costs and
expenses (including reasonable legal fees and expenses), interest and penalties.
<PAGE>
7. NOTICES. All notices, instruction and other communications given hereunder or
in connection herewith shall be in writing. Any such notice, instruction or
communication shall be sent either (i) by registered or certified mail, return
receipt requested, postage prepaid, or (ii) via a reputable nationwide overnight
courier service, or (iii) via facsimile, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered three business days after it is sent prepaid, or one (1) business
day after it is sent via a reputable nationwide overnight courier service, or
upon confirmed receipt if sent by facsimile.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the day and year first above-written.
SANTA BARBARA BANK & TRUST ROEX, INC.
By: By:
------------------------- -----------------------------
Rodney H. Burreson, President
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into this 1st day of
November, 1998 by and between ROEX, INC., a California corporation ("Employer"),
and RODNEY H. BURRESON ("Employee") with reference to the following facts:
A. Employer desires to employ Employee to serve as the Chief Executive Officer
of Employer.
B. Employer and Employee desire to enter into this Agreement to assure
Employer of the services of Employee and to set forth the rights, duties
and obligations of the parties under this Agreement.
C. Now, therefore, based upon mutual promises and covenants herein contained,
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
1. Employment. Employer hereby employs the Employee, and Employee hereby
accepts and agrees to employment as a full-time employee on the terms
and conditions set forth herein. Employee shall serve in the capacity
of Chief Executive Officer of the Employer and shall include:
(a) Supervising the running of all aspects of the Employer;
(b) Continuing and increasing the Employer's profitability;
(c) Seeking new clients;
(d) Taking other actions to expand the operations of the
Employer;
(e) Performing such other services and duties as may from time
to time be decided by Employer.
Employee further agrees that, except during vacation periods or
in accordance with Employer's personnel policies, if any,
covering leaves or reasonable periods of illness or other
incapacitation, Employee shall devote his full time services to
the business and interest of Employer. Employee shall perform
said duties and those assigned to him by Employer with fidelity,
to the best of his ability, and in the best interests of
Employer.
2. Compensation. During the term of this Agreement, Employee shall
be entitled to receive as total compensation for services
hereunder, including services as a Director of Employer, an
annual salary, payable semi-monthly, on the 15th and 31st day of
each month, in the amount of Six Percent (6%) of net sales (net
sales representing sales net of returns, credits and refunds. Net
sales shall not include any shipping or sales taxes.)
3. Employer Benefit Plans. Employee shall be entitled to participate
in all employee benefit plans maintained by the Employer for its
employees, including, by way of example, medical, dental or such
other plans which the Employer has in effect or hereafter places
into effect. Employer shall cover Employee with Directors' and
Officers' Liability Insurance or equivalent corporate
indemnification.
4. Car Allowance. Employer shall provide Employee a car allowance of
One Thousand Dollars ($1,000.00) per month as reimbursement for
all ordinary and necessary expenses of Employee as a result of
Employee's lease and use of his automobile for the performance of
his duties.
5. Bonus. The Board of Directors of Employer may, at its sole
discretion, award Employee bonuses from time to time as they deem
appropriate based on Employer's performance.
6. Trade Secrets. Employee specifically agrees that he will not, at
any time, whether during or subsequent to the term of Employee's
employment by Employer, in any fashion, form or manner, unless
specifically consented to in writing by Employer, either directly
or indirectly use or divulge, disclose or communicate to any
person, firm or corporation, in any manner whatsoever, any
confidential information of any kind, nature or description
concerning any matter affecting or relating to the business of
the Employer, including without limiting the generality of the
foregoing, the names, buying habits, rates being charged or
practices of any of its clients, its marketing methods and
related data, the names of any of its vendors or suppliers, costs
of materials, the prices it obtains or has obtained and which it
sells or has sold its services, sales costs, lists or other
written records used in Employer's business, compensation paid to
employees and other terms of employment, or any other
confidential information of, about or concerning the business of
Employer, its manner of operation or other confidential data of
any kind, nature or description, the parties hereto stipulating
that as between them, the same are important, material and
confidential trade secrets and affect the successful conduct of
the Employer's business and its goodwill, and that any breach of
any term of this paragraph is a material breach of this
Agreement. All equipment, notebooks, documents, memoranda,
reports, files, samples, books, correspondence, lists, other
written and graphic records, and the like affecting or relating
to the business of Employer, which Employee shall prepare, use,
construct, observe, possess or control shall be and remain the
Employer's sole property.
7. Continuing Obligations. Employee's obligations shall continue in
effect beyond his employment period and the obligations shall be
binding on Employee's assigns, heirs, executors, administrators,
and other legal representatives.
8. Term and Termination. This Agreement shall commence on the 1st
day of November, 1998 and shall continue for five years ending on
October 30, 2003.
9. Employee's Duties on Termination. In the event of termination of
employment with Employer, Employee agrees to deliver promptly to
Employer all equipment, notebooks, documents, memoranda, reports,
files, samples, books, correspondence, lists, or other written or
graphic records, and the like, relating to Employer's business,
which are or have been in his possession or under his control.
10. Severable Provision. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to
be judicially unenforceable, in whole or in part, the remaining
provisions shall nevertheless be binding and enforceable.
11. Arbitration.
(a) Any controversy or claim arising out of this Agreement
(except the obligations set forth in Paragraphs 6 and 9), or
the breach thereof, shall be settled by arbitration in
accordance with the California Arbitration Act, ?? 1280
through 1294.2 of the California Code of Civil Procedure,
including ?1283.05 thereof relating to discovery. Any demand
for arbitration shall be in writing and be made within a
reasonable time after the matter in question has arisen.
Unless the parties have otherwise agreed, the arbitration
shall be conducted in Los Angeles, California, in accordance
with the commercial arbitration rules of the American
Arbitration Association then in effect. Within thirty (30)
days after arbitration is demanded, each party will choose
one arbitrator. If the two (2) arbitrators have not agreed
on a third, neutral arbitrator within thirty (30) days after
their designation, the third will be chosen by the American
Arbitration Association. The award of a majority of the
arbitrators shall be final, and judgment upon the award may
be entered in any court having jurisdiction. In no event
shall any demand for arbitration be made after the date when
a lawsuit based on the same claim would be barred by the
applicable statute of limitations. The arbitration may award
reasonable attorneys' fees and costs to the prevailing
party.
(b) With reference to the enforcement of the provisions of
Paragraphs 6 and 9, the prevailing party shall be entitled
to recover all costs, attorneys' fees and expenses incurred
in any action and appeal related thereto.
12. Notices. Any notice to be given to Employer under the terms of
this Agreement shall be addressed to Employer at the address of
its principal place of business, and any notice to be given to
Employee shall be addressed to him at the home address last shown
on the records of Employer, or at such other address as either
party may hereafter designate in writing to the other. Any such
notice shall be deemed to have been duly given if personally
delivered or when enclosed in a properly sealed and addressed
envelope, registered or certified, return receipt requested, and
deposited (postage prepaid) in a post office or branch post
office maintained by the United States Government.
13. Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as
a waiver of any such provision or provisions, or prevent that
party thereafter from enforcing each and every other provision of
this Agreement.
14. Enforcement. Employer and Employee recognize and acknowledge that
Employee is hereunder employed in a position where Employee will
be rendering personal services of a special, unique, unusual and
extraordinary character. Employee agrees that the breach by him
of this Agreement, including its covenants, could not reasonably
or adequately be compensated in damages in an action at law and
that Employer shall be entitled to injunctive relief, which may
include, but shall not be limited to, restraining Employee from
rendering any service that would breach this Agreement. However,
no remedy conferred by any of the specific provisions of this
Agreement (including this Paragraph 14) is intended to be
exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by
statute or otherwise. The election of any one or more remedies by
Employer shall not constitute a waiver of the right to pursue
other available remedies.
15. Titles and Headings. Titles and headings to paragraphs in this
Agreement are for the purpose of reference only and shall in no
way limit, define or otherwise affect the provisions of it.
16. Governing Law. The parties hereto agree that it is their
intention and covenant that this Agreement and performance under
it, and all suits and special proceedings that may ensue from its
breach, be construed in accordance with and under the laws of the
State of California, and that in any action, special proceeding
or other proceeding that may be brought arising out of, in
connection with, or by reason of this Agreement, the laws of the
State of California shall be applicable and shall govern to the
exclusion of the law of any other forum, without regard to the
jurisdiction in which any action or special proceeding may be
instituted.
17. Employee's Representations. Employee represents and warrants that
he is free to enter into this Agreement and to perform each of
the terms and covenants of it. Employee represents and warrants
that he is not restricted or prohibited, contractually or
otherwise, form entering into and performing this Agreement and
that his execution and performance of this Agreement is not a
violation or a breach of any other agreement between Employee and
any other person or entity.
18. Ratification by Employer's Board of Directors. This Agreement is
subject to, and shall become operative upon, the adoption of a
resolution approving the Agreement by the Board of Director of
the Employer.
IN WITNESS WHEREOF the parties hereto have executed this Agreement the day and
year first-above written.
EMPLOYER:
ROEX, INC.
By:______________________________
DEREK BURRESON
Secretary
EMPLOYEE:
RODNEY H. BURRESON
By:_____________________________
To: Dennis F. Gibson
13340 Hunnington Drive
Apple Valley, MN 55124
From: Rodney H. Burreson, President/CEO Roex, Inc.
Subject: Loan Agreement
As an inducement for you to guarantee the performance of a loan agreement
to be entered into between Farmers State Bank, Madelia, MN and Roex, Inc., Roex
Inc. agrees to pay Dennis F. Gibson and /or assignee $1.00 per bottle on the
sale of Roex Olive Leaf Extract "Oleuropein" beginning from the date of first
sale and ending five years there after. This agreement shall stay in effect
even though the loan may be paid off sooner. The payment shall be on the 10th
of the month for the previous sales.
Sincerely,
/s/ RODNEY H. BURRESON
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Rodney H. Burreson
12/1/97
This agreement is changed as follows:
Roex, Inc. agrees to pay Dennis F. Gibson and/or assignee $0.50 (fifty
cents) per bottle on the sale of Roex Olive Leaf - etc.
This change shall be effective as of 1 Nov. 97 as agreed upon.
/s/ DENNIS F. GIBSON
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Dennis F. Gibson
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 19, 2000 in the Registration Statement (Form
SB-2) and related Prospectus of Roex, Inc. for the registration of 1,000,000
shares of its common stock.
/s/ STONEFIELD JOSPHSON, INC.
Santa Monica, California
March 7, 2000
