As filed with the Securities and Exchange Commission on July 6, 2000
Registration No. 333-92299
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. TWO
to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ROEX, INC.
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(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)
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2801 BUSINESS CENTER DRIVE, SUITE 185
IRVINE, CA 92612 (949) 476-8675
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(Address and telephone number of Registrant's principal executive offices
and principal place of business)
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Rodney H. Burreson, President Roex, Inc.
2081 Business Center Drive, Suite 185
Irvine, CA 92612
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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 410
Sherman Oaks, CA 91403
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 statement
for the same offering. / /
<PAGE>ii
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration 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. / /
<TABLE>
<S> <C> <C> <C> <C>
CALCULATION OF REGISTRATION FEE
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 $6.00 $6,000,000 $1,584#
Total 1,000,000 $6,000,000 $1,584
------------------------- ----------------------- ----------------------- ----------------------- -----------------------
-----------------------------------------------------------------------
# Estimated solely for purposes of calculating the registration fee.
</TABLE>
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 JULY , 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. We are offering a
minimum of 500,000 shares and a maximum of 1,000,000 shares of our common stock
at $6.00 per share.
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 American Stock Exchange under the symbol "ROEX".
The shares being offered 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.
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company
---------- -------------- -----------
Per Share $ 6.00 $ .60 $ 5.40
Total - Minimum $3,000,000 $300,000 $ 2,700,000
Total - Maximum $6,000,000 $600,000 $ 5,400,000
This is a best-efforts, minimum-maximum offering. Our selected placement agents
must sell the minimum offering of 500,000 shares if any are sold. The selected
placement agents are not required to sell any specific number of dollar amount
of securities in excess of the 500,000 share minimum offering, but will use
their best efforts to sell all of the 1,000,000 shares offered. Funds received
from subscribers will be held in escrow by Santa Barbara Bank and Trust. Unless
the minimum offering is fully sold within 90 days from the date of this
prospectus, which period can be extended for an additional 60 days by the
placement agent, all purchase payments will be returned in full to subscribers,
without interest or deduction. If the minimum offering is sold within the
foregoing period, the offering may continue until 1,000,000 shares are sold or
December 31, 2000, whichever occurs first. However, we may terminate the
offering at any earlier time if we choose to do so.
RH INVESTMENT CORPORATION
The date of this Prospectus is JULY , 2000
<PAGE>2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary 3
The Offering 3
Financial Data 4
Risk Factors 4
Risks Associated with Our Company 4
Our Business Has Only Recently Shown A Profit 4
Any Effect Of Unfavorable Publicity Is Particularly Harmful To Our Industry 5
We Are Dependent On New Radio Markets For Future Growth 5
Our Business Is Subject To Compliance With Various Government Regulations 5
If We Lose Our Key Personnel, Especially Our Founder And Spokesperson, Rodney Burreson, Our Business May
Suffer 5
Failure Of Our Outside Suppliers To Provide Our Products In Sufficient Quantities And In A Timely Fashion
May Cause Our Business To Suffer 6
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 6
Risks Associated With This Offering 6
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 6
This Is Our Initial Public Offering Of Shares And There Is No Public Market For Our Common Stock 6
There Will Be No Public Market For Resale Of Our Shares Until Our Shares Are Listed On An Exchange
Or Quoted Through NASDAQ 6
Factors That May Adversely Affect Our Common Stock 7
Our Stock Price May Be Extremely Volatile And You May Not Be Able To Resell Your Shares At Or Above The
Initial Offering Price 7
Shares Eligible For Future Sale 7
Additional Information Is Available 7
Forward-Looking Statements 8
Dilution 8
Use Of Proceeds 9
Dividend Policy 10
Capitalization 10
Management's Discussion And Analysis Of Financial Conditions And Results Of Operations 11
Business 14
Management 25
Principal Shareholders 29
Shares Eligible For Future Sale 30
Description Of Capital Stock 31
Transfer Agent And Registrar 31
Underwriting 32
Legal Matters 34
Experts 34
Index to Financial Statements F-1
</TABLE>
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 an addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<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
mitigate, or prevent any disease. Since introducing our first product, PC-95, in
1995, we have added thirteen more dietary supplement products to our product
line and we are committed to providing only the highest quality products to meet
our 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, our founder and president, appears live on local talk radio shows in
New York, Los Angeles, Las Vegas, Tampa, Spokane and Philadelphia. The format is
one-half and one-hour radio infomercials, with interactive customer call-ins. In
December 1999, Internet e-commerce was added 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.
This is a best-efforts, minimum-maximum offering. Unless at least 50,000 shares
of our common stock are sold within 90 days following the date of this
prospectus, which period can be extended for additional 60 days, the offering
will terminate and no shares will be sold. If the 50,000 share minimum offering
is sold within the foregoing period, the offering may continue until 1,000,000
shares are sold or December 31, 2000, whichever occurs first. Our selected
placement agents are not obligated to (1) sell any number or dollar amount of
our common stock in excess of the 50,000 share minimum offering or (2) purchase
any shares at any time. While these agents have agreed to use their best efforts
to sell on our behalf all of the common stock offered, we cannot guarantee how
much stock in excess of the required minimum, if any, will actually be sold in
the offering.
<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.
<TABLE>
<S> <C> <C> <C> <C>
(Unaudited) Year
Three Months Ended Ended
March 31 December 31
------------------------------- --------------------------------
2000 1999 1999 1998
------------ ------------- ------------- -------------
Operating Data
Net Sales $1,610,982 $1,250,721 $5,736,832 $3,934,910
Net Income (Loss) $ 229,204 $ 136,455 $ 534,132 $ (463,264)
Net Income (Loss)
Per Share:
Basic $ 0.04 $ 0.03 $ 0.10 $ (0.10)
Diluted $ 0.04 $ 0.02 $ 0.09 $ (0.10)
Weighted Average
Common Equivalent
Shares Outstanding:
Basic 5,288,584 5,288,296 5,288,296 4,826,870
Diluted 6,087,049 6,086,761 6,086,761 4,826,870
March 31 March 31 December 31 December 31
2000 1999 1999 1998
------------- ------------- -------------- ---------------
Balance Sheet Data
Working Capital (Deficit) $ (25,494) $ 732 $ (175,910) $(267,223)
Total Assets 977,931 473,637 810,763 383,182
Net Stockholders' Equity
(Deficit) (165,955) (816,136) (395,159) (940,541)
</TABLE>
RISK FACTORS
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.
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 March 31, 2000, of $798,642
and a stockholders' deficit of $165,955. We lost money for the years 1997 and
1998. Although we operated profitably for the year ended December 31, 1999, and
the quarter ended March 31, 2000, we still had a net working capital deficit of
$25,494. 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
<PAGE>5
attention regarding the consumption of dietary supplements. Future scientific
research of 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, Las Vegas, Spokane, Philadelphia and Tampa.
Our business plan is to expand our radio health show to between four and eight
additional cities in the next twelve months. The success of these radio shows
depends 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 remove 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 and the
Federal Trade Commission regulates advertising. 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
<PAGE>6
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
on our business, profitability and growth prospects. We have no contracts with
our suppliers and there is no assurance of continued supply or stable prices.
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
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. The managing
placement agent, RH Investment Corporation, and the other selected placement
agents are not obligated (1) to sell on our behalf any number or dollar amount
of our common stock in excess of the 500,000 share minimum offering or (2) to
purchase any number or dollar amount of shares at any time. These agents have
agreed to use their best efforts to sell on our behalf all of the common stock
offered by this prospectus. However, we cannot guarantee how much stock in
excess of the required minimum, if any, will actually be sold in this offering.
We have set a minimum of $3,000,000 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 $3,000,000 is not
subscribed in the offering period.
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 $6.00 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 $3,000,000. 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.
<PAGE>7
Factors That May Adversely Affect Our Common Stock.
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
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 5,788,584 shares 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 March 31, 2000, 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>8
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.
DILUTION
At March 31, 2000, we had a negative net tangible book value of $165,955, or
approximately $(.03) 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 $6.00 per share of common stock (after
deducting offering expenses payable by us), the net tangible book value of Roex
at March 31, 2000, would have been approximately $2,334,045 and $5,034,045, or
$.40 and $.80 per share of common stock, respectively. This would represent an
immediate increase in the net tangible book value per share of common stock of
$.43 (if 500,000 shares are sold) and $.83 (if 1,000,000 shares are sold) to
existing shareholders and an immediate dilution of $5.60, or $5.20,
respectively, per share to new investors purchasing shares of common stock in
this offering. "Dilution" is determined by subtracting our 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 $6.00 $6.00
Net tangible book value per share of common stock before the offering $(.03) $(.03)
Increase attributable to new investors $0.43 $0.83
Proforma net tangible book value after offering $0.40 $0.80
Dilution to new investors $5.60 $5.20
Percentage of dilution to new investors 93% 87%
</TABLE>
The following table summarizes the number of shares of common stock purchased
(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 Roex at March 31, 2000, and (ii) new investors purchasing shares
<PAGE>9
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 91% $ 632,687 17% $0.12
New Investors 500,000 9% $3,000,000 83% $6.00
--------------- ---------------- ---------------- ---------------- ------------
Total 5,788,584 100% $3,632,687 100%
</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 March 31, 2000, and new investors purchasing shares 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 10% $0.12
New Investors 1,000,000 16% $6,000,000 90% $6.00
--------------- ---------------- ---------------- ---------------- ------------
Total 6,288,584 100% $6,632,687 100%
</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 $6.00 per share,
after deducting offering expenses payable by us, estimated to total
approximately $200,000, plus 10%, are $2,500,000 and $5,200,000, respectively.
Offering expenses are primarily legal, accounting, printing, and travel.
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.
<TABLE>
<S> <C> <C> <C>
Minimum If Maximum
500,000 750,000 1,000,000
Shares Sold Shares Sold Shares Sold
--------------- ------------- --------------
Sources of Funds:
Offering Proceeds $3,000,000 $4,500,000 $6,000,000
Offering Expenses $ 500,000 $ 650,000 $ 800,000
--------------- ------------- --------------
Net Proceeds $2,500,000 $3,850,000 $5,200,000
--------------- ------------- --------------
Use of Net Proceeds:
Expand Radio Markets $ 700,000 $ 950,000 $1,100,000
Marketing and Advertising 350,000 700,000 1,000,000
Debt Reductions 850,000 850,000 850,000
New Product Development 250,000 500,000
Inventory 150,000 200,000 250,000
Video Production 200,000 250,000 450,000
Developing Internet e-commerce 200,000 450,000 700,000
Working Capital 50,000 200,000 350,000
----------------- ----------------- ------------
Total Uses $2,500,000 $3,850,000 $5,200,000
================= ================= ============
</TABLE>
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
<PAGE>10
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
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 March 31, 2000, 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 $6.00 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 and conversion of debt ($195,000) into 170,000 shares of common
stock.
<TABLE>
<S> <C> <C> <C>
Actual As Adjusted
Adjusted
------------------- ------------------- ------------------
Long-Term Debt $ 354,574 $ -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 $3,177,687 $5,877,687
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 $(798,642) (798,642) (798,642)
Stock Receivable (80,000) (80,000) (80,000)
------------------- ------------------- ------------------
Total stockholders' equity (deficit) (165,955) 2,334,045 5,034,045
------------------- ------------------- ------------------
Total capitalization (deficit) $ 188,619 $2,334,045 $ 5,034,045
=================== =================== ==================
</TABLE>
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 three months ended March 31, 2000 and 1999 and for the years ended
December 31, 1999 and 1998 should be read in conjunction with our financial
<PAGE>11
statements and related notes thereto, and other financial data included
elsewhere in this prospectus.
Results of Operations
Three-month period ended March 31, 2000 and 1999
Components of revenue and expenses as a percentage of revenue are given in the
following table.
March 31 December 31
2000 1999 1999 1998
----- ----- ----- ----
Revenues 100% 100% 100% 100%
Cost of Sales 23% 26% 22% 27%
Gross Profit 77% 74% 78% 73%
Operating Expenses
Payroll 29% 25% 27% 32%
Sales & Marketing 18% 20% 19% 24%
General & Administration 13% 16% 20% 20%
Other 3% 2% 3% 9%
Net Income (Loss) 14% 11% 9% -12%
Three Months Ended March 31, 2000
Sales are recognized when products are shipped. For the three months ended March
31, 2000, net sales increased to $1,610,882, which is 29% greater than for the
same period in 1999. 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, a
continuation of the trend in 1999.
During the first quarter, our operating margin increased to 77% from 74% for the
same period in the prior year because of greater buying economies. Our operating
expenses remained at 63% of sales due to a continuation of internal efficiencies
achieved last year. Net income for the quarter rose 68% to $229,204 compared to
$136,455 in the March quarter of 1999 because of a combination of increased
sales, improved profit margins and greater operating efficiencies. Net income in
the March 2000 quarter increased to 14% of revenue compared to 11% the prior
year. This resulted in a profit of $.04 per share compared to $.02 for the same
period in the prior year on a fully diluted basis.
Payroll and related expenses increased by $142,995 for the first three months of
2000 compared to 1999, which was only 3% of revenue greater because of a
continuation of greater operating efficiencies achieved last year. Sales and
marketing expenses increased by $55,939 in 2000 compared to 1999, which was 19%,
compared to 20% of revenue in 1999. This was due to a continuation of sales
efficiency and increased frequency of reorders from existing customers. General
and administrative expenses for the first three months of 2000 increased $14,875
from the comparable period in 1999. This represented a reduction to 13% of
revenue compared to 16% because of an increased use of computers and software
and automated procedures. Interest expense decreased by $1,091 because of debt
pay down.
Monthly sales for the first quarter of 2000 and 1999 are as follows:
2000 1999
------------- --------------
January $552,000 $380,000
February $481,000 $354,000
March $578,000 $517,000
In summary, our sales and profits have been increasing each period. The
percentage of revenue by geographic market continues to be about the same as
last year.
<PAGE>12
Years Ended December 31, 1999 and 1998
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 (including a
non-recurring debt restructuring and loan fee of $229,775 or 6%) were reduced to
69% of sales from 85%, because of greater internal efficiencies and increased
sales with certain fixed costs remaining constant. 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 basic earnings per share of $0.10 and diluted earnings per share of
$0.09 compared to a basic and diluted net loss per share of $.10 for the prior
year.
Payroll and related expenses increased by $194,063 in 1999 compared to 1998, but
dropped as a percentage of revenue to 27% from 32% because of greater operating
efficiency and increased sales. 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 efficiencies 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 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
--------------------- -----------------
January $ 380,000 $ 332,000
February 354,000 311,000
March 517,000 347,000
April 459,000 328,000
May 472,000 300,000
June 480,000 418,000
July 458,000 300,000
August 485,000 330,000
September 510,000 340,000
October 536,000 305,000
November 508,000 309,000
December 578,000 315,000
--------------------- -----------------
$5,737,000 $3,935,000
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%
--------
Total 100%
<PAGE>13
Liquidity and Capital Resources
Quarter Ended March 31, 2000
As of March 31, 2000, our current liabilities exceeded our current assets by
$25,494, which was an 86% improvement over December 31, 1999. This improvement
was primarily due to cash generated from current operations. The long-term
portion of notes and loans payable, less current maturities, remained about the
same at $540,000.00.
As of March 31, 2000, the total stockholders' deficit was reduced by 58% to
$165,955 compared to December 31, 1999. This reduction was due to net income of
$229,204 for the quarter ended March 31, 2000.
Our cash as of March 31, 2000 was $391,917, a 28% increase from December 31,
1999. This was primarily due to a $229,204 profit for the quarter. Cash in the
amount of $182,925 was provided from operations, including depreciation and
changes in receivables, inventory and payables, with a pay down of $13,348 of
trade payables. $88,368 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 March 2000 quarter,
$229,204 and $182,925, respectively. This is an improvement from a profit of
$136,445 for the March quarter of 1999 and $534,132 for all of 1999 and heavy
losses in prior years, $463,264 in 1998 and $511,847 in 1997. We expect
profitability to continue and to increase in the next 12 months.
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
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 460% increase from December 31,
1998. This was due to a $534,132 profit for the year; $383,561 cash was provided
from 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.
<PAGE>14
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, mitigate 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
thirteen more dietary supplement products to its product line and is committed
to providing 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. The Company currently
markets its products primarily through radio programming. Mr. Burreson appears
live on local talk radio shows in New York, Los Angeles Las Vegas, Spokane,
Philadelphia 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.
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 constituents 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 broadly defined descriptions of "drugs", the benefits of dietary
supplementation in health care has frequently been overlooked in U.S. scientific
research. The European community has long recognized nutritional therapy in
<PAGE>15
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
given out during the radio program. Roex currently presents 35 radio shows per
week broadcasting on 7 radio stations in New York City, Los Angeles, Tampa,
Philadelphia, Las Vegas, and Spokane. 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 potential customers, but will potentially 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 intend to selectively add cites and develop customer bases that
are as loyal as many of our present customers. To further increase revenues, we
intend to 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
<PAGE>16
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 sales by having telemarketing
personnel increase their outbound calling. We recently added a web site ordering
capability, and we promote our web site on our radio shows. Also, we currently
have limited direct sales through third party distributors who resell 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 radio marketing
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, La Vegas, Spokane, Philadelphia 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. Roex currently presents 35 radio shows per week, broadcasting on
7 radio stations in New York, Los Angeles, Tampa, Philadelphia, Las Vegas and
Spokane. 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 to 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 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. From January through May 31, 2000, we had an average of 170,000
hits per month, in which we sold an average of $12,500 (of which $7,500 is a
shift from telephone orders) of product and experienced Internet orders which on
the average were larger than those from 800 number call-ins.
Telemarketing. Our database of customers is currently about 30,000 and growing
at the rate of 1,000 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
newsletters, promotional flyers, gift certificates and new product information.
<PAGE>17
ACT Software is used to keep track of each telemarketer's calls to and from new
and existing customers. We estimate that approximately 70% of our orders come
from reorders from existing customers.
Direct Sales. To supplement our radio and telemarketing sales, we 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 may create 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 our customers
featuring special promotions to educate and to stimulate phone-in orders. We
also feature 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 new
program, referred to as the 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. 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 will be held in September,
October and November, 2000 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 seven United States cities (New York, Los
Angeles, Miami, Tampa, Cleveland, Las Vegas and Spokane) and represent only a
small portion of all dietary supplement sales in these cities.
We believe that we may have an advantage in competing with this pool of
manufacturers due to our brand identification with a loyal customer base.
Although similar products are available from our competitors, we believe many of
our 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. Thus, our competitive advantage is mainly
in brand identity and service.
Our Products
Roex currently has fourteen "dietary supplements" 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
<PAGE>18
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 maintaining optimal health.
Our Current Products:
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 than vitamins C and E, yet these same phytochemicals
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. 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.
The Ultimate Calcium & Mineral Formula(R). The Ultimate Calcium & Mineral
Formula is one of the most comprehensive calcium products 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
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.
Mother's Gift(R) Colostrum,. 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. Lactoferrin also found in Colostrum has been shown to reduce the
damaging effects of free radicals. 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(R) Colostrum comes from New Zealand
pasture fed cows certified to be free of antibiotics and hormones
Ester-C(R). Ester-C(R) 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 which results in a product having the same
pH as distilled water. 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 bone fragility. Known for its
<PAGE>19
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(R) is a registered trademark of Inter-Cal Corporation,
U.S. Patent No. -4,833,816.
Immortale(R) for Men & Immortale(R) For Women. Immortale(R) is a specially
designed formulation of herb and plant extracts and phytochernicals designed to
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(TM) (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 HCL (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, currently imported
from 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 Sulfur. Roex MSM is a dietary
supplement which contains sulfur, 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 and is often
overlooked in nutritional regimens. 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. The most recent published material on Olive Leaf Extract is a
book by Dr. Morton Walker called "Natures Antibiotic Olive Leaf Extract. 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 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.
The Advanced Weight Loss Formulas
CitriGenics(R) I. With the recent negative media attention to prescription drug
weight loss products, 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.
CitriGenics(R) I is designed to function 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) (from the Garcina
Cambogia fruit), L-Camitine and ChromeMateTm, with a total of 24 different
<PAGE>20
nutrients that may hinder fat absorption and stimulate fat burning into the body
in some individuals. CitriGenics(R) I also includes vitamins 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 immune system. Thermogenic herbs function at a cellular level to aid the
body in utilizing body fat reserves. (CitimaxTm and ChromeMateTm are the
registered trademarks of InterHealth Company.)
CitriGenics(R) II (93% Deacetylated Chitosan). Roex CitriGenics(R) II provides
dietary fiber, which may assist in inhibiting lipid (fat) absorption. Chitosan,
a powdered 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). CitriGenics(R) II 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(R) II - Chitosan provides a nutritional adjunct to weight loss
programs, when combined with a healthy diet and physical exercise.
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 supplied Roex with 25,000 single sheet
product descriptions at no charge to Roex which were inserted into its January
Newsletter which was 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. Through our
marketing channels, we sell the entire West Bend Water Systems product line of
water distillers and related products. Distillation of water is thought by many
experts to be far superior to any filtration system available on the market
today. Distillation is a natural process and certain health advocates prefer
distilled water over filtered 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. In addition there is a line of three automatic distillers
available in three different sizes, three-gallon, seven-gallon and
twelve-gallon.
Daily Solutions(TM) 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 multivitamin, a book and a
video. A description of each of these new products follows:
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 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.
<PAGE>21
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 fourth
quarter, year 2000. Much of the content of the book to be titled "Yesterday,
Today and Tomorrow" is already assembled. 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 After 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
will be 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. We intend to release the video during
the first quarter of year 2001.
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
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 laboratories 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. Although we have no contracts with our sources of supply, we
believe they have ample capacity to handle Roex's expanding needs, and 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 or "DSHEA". To assist us in maintaining
our competitiveness in the marketplace as well as to stay current with new
<PAGE>22
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 contract laboratories' biochemists and our staff. We currently use
several 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. The total cost of research and development for the past two years is
estimated at under $100,000.00.
Government Regulation
In 1994, the Dietary Supplement Health Education Act (DSHEA) became law. This
act concerns, 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.
<PAGE>23
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
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 15, 1994 is not a new dietary ingredient. In order to market a
<PAGE>24
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, Citrigenics and Immortale, Digestive Balance, WOW and Livanol
are registered trademarks of ours. In addition, the names "PC-95", "Hurricane",
"Colon Essentials", and "Staying Alive After 55", 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.
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, although the annual
rent may be higher.
Legal Proceedings
We are not a party to any legal proceedings.
MANAGEMENT
Executive Officers and Directors
Our officers and directors and their ages are as follows:
<TABLE>
<S> <C> <C> <C>
First Year
Position Elected Age
Name With Company Director
-------------------------------------------- ----------------------------------------------- ------------------ -------
Rodney H. Burreson Chairman of the Board, President and Chief 1994 66
Executive Officer
Derek Burreson Director, Chief Operating Officer and 1999 31
Secretary
Peter Weber Chief Financial Officer N/A 52
William B. Barnett Director 1998 58
<PAGE>25
First Year
Position Elected Age
Name With Company Director
-------------------------------------------- ----------------------------------------------- ------------------ -------
Robert Stuckelman Director 1998 68
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 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, from
January 1995 to January 1996, Mr. Burreson was a registered CTA (commodities
trading advisor) and broker whose responsibilities included publishing a monthly
newsletter (trend watch), customer account executive, head of market analysis
and daily market recommendations. Mr. Burreson graduated in 1992 from Cal State
San Bernardino University with a degree in marketing and finance. Mr. Burreson
is Rodney H. Burreson's nephew.
Peter Weber has been the Chief Financial Officer of Roex since May 1999. He
joined Roex as Manager of Accounting in September 1998. From April 1996 to
August 1998, Mr. Weber was a full-charge bookkeeper with National Associated
Publisher/United Publishers Corp. in Las Vegas, Nevada. Between November 1994
and July 1996, Mr. Weber was employed by Charles Gellay, Inc., and Davenport
International as an assistant controller.
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
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
<PAGE>26
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
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 our 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, we maintain Directors and Officers liability insurance and 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.
<PAGE>27
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
$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
$1.65.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <S>
Summary Compensation Table
Annual Compensation Long-Term Compensation Awards
---------------------------------------- -------------------------------------- ------------------------------ -------------
Name and Year Salary($) Bonus($) Other($) Securities Compensation All Other
Other Principal Underlying ($) Awards
Position Options
-------------------------------- ------- ------------- ----------- ------------ ------------- ---------------- -------------
Rodney H. Burreson, 1999 $322,998 -0- -0- 150,000 -0- -0-
President & CEO 1998 $218,168 -0- -0- -0- -0- -0-
1997 $207,554 -0- -0- -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 plan, regular salaried employees, including directors who
are full time employees, may be granted options to purchase our common stock
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.
<PAGE>28
Under the 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 plan. All options are exercisable at a price equal to 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 $1.50 per share
is used.
<TABLE>
<S> <C> <C> <C> <C>
Value of
Number of Unexercised
Unexercised in-the-money
Options/SARs Options/SARs
Shares at FY-End(#) at FY-End($)
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>
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of our common stock as
of March 31, 2000 and as adjusted to reflect the sale of the shares of common
stock offered hereby by:
<PAGE>30
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 Securities
Exchange Act of 1934. 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
Name and Address Beneficially Prior to After Offering
of Beneficial Owner Owned Offering
--------------------------------------- ------------------- ------------- -----------------------------
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- * * *
William B. Barnett 151,666 2.9 2.6 2.4
15233 Ventura Blvd.
Suite 410
Sherman Oaks, CA 91403
Robert Stuckelman 151,666 2.9 2.6 2.4
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 3,358,332 63.5 58.0 53.4
as a group (6 in number)
</TABLE>
* Represents less than 1% of issued and outstanding shares.
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
<PAGE>30
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 our outstanding convertible notes and 496,350 for
issuance upon exercise of the outstanding 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 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 this
offering.
Prior to this offering, there has not been any public market for our 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 March 31, 2000, 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. As of March 31, 2000, there are
no preferred shares outstanding. 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
<PAGE>31
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.
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.
UNDERWRITING
We have entered into a managing placement agent agreement with RH Investment
Corporation, in connection with this offering. The principal office of the
managing placement agent is located at 15760 Ventura Boulevard, Suite 1732,
Encino, California 91436, and its telephone number is (818) 386-6415. RH
Investment Corporation, as managing placement agent, may engage other
broker-dealer members of the National Association of Security Dealers to
participate as selected placement agents in the offering of our common stock.
This is a best-efforts, minimum-maximum offering. Our selected placement agents,
including the managing placement agent, are not obligated (1) to sell on our
behalf any number or dollar amount of our common stock in excess of the 500,000
share minimum offering or (2) to purchase any number or dollar amount of shares
at any time. These agents have agreed to use their best efforts to sell on our
behalf all of the common stock offered by this prospectus. However, we cannot
guarantee how much stock in excess of the required minimum, if any, will
actually be sold in this offering.
All funds received from subscribers for our common stock will be held in escrow
by Santa Barbara Bank and Trust, Santa Barbara, California, as escrow agent,
pursuant to an agreement among us, the managing placement agent and the escrow
agent until the minimum amount is sold. Pending disbursement, subscription
proceeds will be deposited in a segregated account and invested in short-term
United States government securities, securities guaranteed by the United States
government, certificates of deposit or time or demand deposits in commercial
banks located in the United States.
In the event that at least 500,000 shares of common stock have not been sold
within 90 days from the date of this prospectus, which period can be extended
for an additional 60 days by the placement agent, the offering will terminate
and all funds received from subscribers will be promptly returned in full by the
escrow agent directly to subscribers, without interest or deduction, as provided
in the escrow agreement. Provided that at least 500,000 shares of common stock
are sold within the foregoing period, we may continue to offer our common stock
for sale until (1) 1,000,000 shares are sold or (2) December 31, 2000, whichever
<PAGE>32
occurs first. However, we may terminate the offering at any earlier time if we
choose to do so.
We propose to offer our common stock to the public at the public offering price
set forth on cover page of this prospectus, and will pay to RH Investment
Corporation, the managing placement agent, commissions in an amount equal to 10%
of the aggregate purchase price of the common stock sold. The managing placement
agent may reallow all or any part of such commissions to any other selected
placement agent, up to an amount equal to 10% of the aggregate purchase price of
the common stock sold in this offering by that selected placement agent. We have
also agreed to pay to the managing placement agent a non-accountable expense
allowance equal to 3% of the aggregate purchase price of the common stock sold
in this offering. The managing placement agent may reallow all or any part of
such expense allowance to any other selected placement agent, up to an amount
equal to 3% of the aggregate purchase price of the common stock sold in this
offering by that selected placement agent.
RH Investment Corporation has informed us that the selected placement agents,
including the managing placement agent, will not confirm sales of common stock
offered by this prospectus to accounts over which they exercise discretionary
authority.
To purchase common stock in this offering, a prospective investor must (1)
complete and sign a subscription agreement, in the form attached to this
prospectus as Exhibit A, and any other documents that we or the managing
placement agent may require and (2) deliver such documents, together with
payment in an amount equal to the full purchase price the shares of common stock
being purchased, to the selling selected placement agent. Checks should be made
payable to "Santa Barbara Bank and Trust, Escrow Agent." Each subscription
payment must be transmitted to the escrow agent by 12:00 noon on the business
day next following its receipt by a selected placement agent.
We will determine, in our sole discretion, to accept or reject subscriptions
within five days following their receipt. Funds of an investor whose
subscription is rejected will be promptly returned directly to such person by
the escrow agent, without interest or deduction, pursuant to the terms of the
escrow agreement. No subscription may be withdrawn, revoked or terminated by the
purchaser. We reserve the right to refuse to sell our common stock to any person
at any time.
We, our officers, directors and respective affiliates have agreed, subject to
limited exceptions, not to sell, transfer or otherwise dispose of, directly or
indirectly, any shares of common stock or any securities convertible or
exchangeable for shares of common stock for a period of 180 days after the date
of this prospectus without the prior written consent of RH Investment
Corporation, the managing placement agent. RH Investment Corporation, however,
may in its sole discretion, at any time without notice, release all or any
portion of the shares of common stock subject to lock-up agreements.
In connection with this offering, we have agreed to sell to the managing
placement agent or its designee, which designee must be another selected
placement agent or a bona fide officer or partner of a selected placement agent,
at a purchase price of $.01 each, warrants to purchase from us shares of common
stock in an amount equal to 10% of the number of shares of common stock sold in
this offering. These underwriter's warrants are exercisable for a period of four
years, commencing one year after the date of this prospectus, at an exercise
price equal to 135% of the price per share set forth on the cover page of this
prospectus. The underwriter's warrants will not be transferable, except to
officers of RH Investment Corporation. The underwriter's warrants contain
provisions for adjustment of the exercise price upon the occurrence of certain
events, including stock dividends, stock splits, recapitalizations and the
issuance of our common stock for consideration less than the exercise price. The
holders of underwriter's warrants have no voting, dividend or other rights as
stockholders of Roex with respect to shares underlying their warrants, unless
and until the underwriter's warrants have been exercised.
A new registration statement or post-effective amendment to the registration
statement of which this prospectus is a part will be required to be filed and
declared effective before distribution to the public of shares of our common
stock issuable upon exercise of the underwriter's warrants. We have agreed, on
<PAGE>33
one occasion when requested, to make necessary filings, at our expense, in order
to permit a public offering of the shares underlying the underwriter's warrants
during the period beginning one year and ending five years after the date of
this prospectus, and to use our best efforts to cause that registration
statement or post-effective amendment to become effective and remain effective
for a period of at least one year. In addition, we have agreed that, during the
same four-year period, we will give advance notice to holders of underwriter's
warrants and shares issued upon the exercise of underwriter's warrants, if any,
of our intention to file a registration statement. In any such case, the
warrantholders so notified shall have the right to require us to include any
shares of common stock issued upon the exercise of their underwriter's warrants
in that registration statement, at our expense, and to maintain the
effectiveness of such registration statement for a period of at least one year.
For the period during which the underwriter's warrants are exercisable, the
managing placement agent and any transferee will have the opportunity to profit
from a rise in the market price of our common stock, with a resulting dilution
in the interest of our other stockholders. In addition, the terms on which we
will be able to obtain additional capital during the exercise period may be
adversely affected in that the managing placement agent or its transferee is
likely to exercise the underwriter's warrants at a time when we would, in all
likelihood, be able to obtain capital by a new offering of securities on terms
more favorable than those provided by the terms of the underwriter's warrants.
We and the selected placement agents have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price has been determined by negotiations between us
and the managing placement agent and is not necessarily related to our asset
value, net worth, results of operations or other established criteria of value.
The factors considered in determining the initial offering price include the
history of and the prospects for Roex and the industry in which we operate, our
past and present operating results and the trends of such results, our financial
condition, the experience of our management, the market price of publicly traded
stock of comparable companies in recent periods and the general condition of the
securities markets at the time of this offering.
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 410, Sherman Oaks,
California 91403. Mr. Barnett is a Director of the Company and owns 15,000
shares of our Company's common stock. He also owns $25,000 of debentures
convertible into 36,666 shares and options exercisable into 100,000 shares.
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.
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
<PAGE>34
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
------------
RH INVESTMENT CORPORATION
_______________, 2000
<PAGE>35
ROEX, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
CONTENTS
Page
----
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 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.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Newport Beach, California
January 19, 2000
<PAGE>F-2
ROEX, INC.
BALANCE SHEETS
<TABLE>
<S> <C> <C>
ASSETS
March 31, December 31,
2000 1999
--------------- ---------------
(unaudited)
Current assets:
Cash $ 391,917 $ 306,552
Accounts receivable 412 2,600
Loans to officer-stockholder 33,152 33,152
Inventory 299,842 254,221
Prepaid expenses 38,495 30,802
--------------- --------------
Total current assets 763,818 627,327
--------------- --------------
Property and equipment, net of
accumulated depreciation and amortization 83,533 80,648
--------------- --------------
Other assets:
Deposits 7,659 10,853
Deferred offering costs 122,921 91,935
--------------- --------------
Total other assets 130,580 102,788
--------------- --------------
$ 977,931 $ 810,763
=============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 229,312 $ 242,659
Current maturities of obligations under capitalized leases 20,000 21,397
Current maturities of notes and loans payable 540,000 539,181
--------------- --------------
Total current liabilities 789,312 803,237
--------------- --------------
Obligations under capitalized leases,
less current maturities 32,217 38,551
--------------- --------------
Notes and loan payable, less current maturities 322,357 364,134
--------------- --------------
Stockholders' deficit:
Common stock; no par value, 15,000,000 shares
authorized, 5,288,584 shares issued and outstanding 677,687 677,687
Additional paid-in capital 35,000 35,000
Stock subscriptions receivable (80,000) (80,000)
Accumulated deficit (798,642) (1,027,846)
--------------- --------------
Total stockholders' deficit (165,955) (395,159)
--------------- --------------
$ 977,931 $ 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> <C> <C>
Three months ended Three months ended Year ended Year ended
March 31, 2000 March 31, 1999 December 31, 1999 December 31, 1998
------------------ ------------------- ------------------ ------------------
(unaudited) (unaudited)
Net sales $ 1,610,982 $ 1,250,721 $ 5,736,832 $ 3,934,910
Cost of sales 374,372 319,578 1,263,082 1,070,590
------------------ ------------------- ------------------ -------------------
Gross profit 1,236,610 931,143 4,473,750 2,864,320
------------------ ------------------- ------------------ -------------------
Operating expenses:
Payroll and related expenses 458,886 315,891 1,567,779 1,273,716
Sales and marketing 307,968 252,029 1,086,092 936,764
General and administrative 212,470 197,595 1,165,721 772,901
Debt restructuring and loan fees - - - 229,775
Interest 27,282 28,373 119,226 113,628
------------------ ------------------- ------------------ -------------------
1,006,606 793,888 3,938,818 3,326,784
------------------ ------------------- ------------------ -------------------
Net income (loss) before provision for
income taxes 230,004 137,255 534,932 (462,464)
Provision for income taxes 800 800 800 800
------------------ ------------------- ------------------ -------------------
Net income (loss) $ 229,204 $ 136,455 $ 534,132 $ (463,264)
================== =================== ================== ===================
Net income (loss) per share:
Basic $ 0.04 $ 0.03 $ 0.10 $ (0.10)
================== =================== ================== ===================
Diluted $ 0.04 $ 0.02 $ 0.09 $ (0.10)
================== =================== ================== ===================
Weighted average common equivalent
shares outstanding:
Basic 5,288,584 5,288,296 5,288,296 4,826,870
================== =================== ================== ===================
Diluted 6,087,049 6,086,761 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)
Net income for the three months
ended March 31, 2000 (unaudited) 229,204 229,204
----------- ------------- ----------- -------------- ------------- --------------
Balance at March 31, 2000 (unaudited) 5,288,584 $ 677,687 $ 35,000 $ (80,000) $ (798,642) $ (165,955)
=========== ============= =========== ============== ============= ==============
</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> <C> <C>
Three months ended Three months ended Year ended Year ended
March 31, 2000 March 31, 1999 December 31, 1999 December 31, 1998
------------------ ------------------ ----------------- -----------------
(unaudited) (unaudited)
Cash flows provided by (used for) operating
activities:
Net income (loss) $ 229,204 $ 136,455 $ 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 15,000 12,000 66,689 62,187
Loan fees related to debt restructuring - - - 218,525
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 2,188 (8,743) (1,643) (3,548)
Inventory (45,621) (1,853) (53,645) 11,206
Prepaid expenses (7,692) (10,531) (27,688) 6,770
Other assets 3,194 877 498 (10,473)
Increase (decrease) in liabilities -
accounts payable and accrued expenses (13,348) (38,444) (137,562) 66,213
------------------ ------------------ ----------------- -----------------
Total adjustments (46,279) (46,694) (150,571) 355,830
------------------ ------------------ ----------------- -----------------
Net cash provided by (used for)
operating activities 182,925 89,761 383,561 (107,434)
------------------ ------------------ ----------------- -----------------
Cash flows used for investing activities -
payments to acquire property and equipment (9,192) (4,408) (13,804) (5,352)
------------------ ------------------ ----------------- -----------------
(Continued)
</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> <C> <C>
Three months ended Three months ended Year ended Year ended
March 31, 2000 March 31, 1999 December 31, 1999 December 31, 1998
------------------- ------------------- ------------------ -----------------
(unaudited) (unaudited)
Cash flows provided by (used for) financing
activities:
Advances to officer-stockholder - - (4,000) (1,892)
Payments on notes and loan payable, other (40,958) - (171,196) (114,580)
Proceeds from notes and loan payable, other - - 165,000 100,000
Deferred offering costs (30,986) (35,158) (91,935) -
Payments on obligations under capitalized leases (16,424) (7,748) (26,631) (15,192)
Proceeds from private placement, net of offering
costs - 11,250 11,250 59,162
------------------- ------------------- ------------------ -----------------
Net cash provided by (used for) financing
activities (88,368) (31,656) (117,512) 27,498
------------------- ------------------- ------------------ -----------------
Net increase (decrease) in cash 85,365 53,697 252,245 (85,288)
Cash and cash equivalents, beginning of year 306,552 54,307 54,307 139,595
------------------- ------------------- ------------------ -----------------
Cash and cash equivalents, end of year $ 391,917 $ 108,004 306,552 $ 54,307
=================== =================== ================== =================
Supplemental disclosure of cash flow information:
Interest paid $ 27,282 $ 28,373 119,226 $ 113,628
=================== =================== ================== =================
Income taxes paid $ 800 $ 800 800 $ 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 $ 8,693 $ 28,408 $ 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.
Interim Financial Statements (Unaudited):
The accompanying unaudited condensed financial statements for the
interim periods ended March 31, 2000 and 1999 have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Regulation S-B.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three
months ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
(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
(3) Inventory:
Inventory is comprised of the following:
March 31, December 31,
2000 1999
-------------- --------------
(unaudited)
Finished goods $ 276,247 $ 227,537
Labels and packaging 23,595 26,684
-------------- --------------
$ 299,842 $ 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
==============
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>
(6) Notes and Loan Payable:
Notes and loan 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
--------------------------------- ----------------------------
Historica 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>
1,000,000 SHARES
ROEX, INC.
COMMON STOCK
------------------------------------------
SUBSCRIPTION AGREEMENT
Roex, Inc.
2801 Business Center Drive
Suite 185
Irvine, CA 92612
Gentlemen:
The undersigned irrevocably subscribe(s) for and agree(s) to purchase shares of
common stock, no par value per share ("Common Stock"), of Roex, Inc.
("Company"), to be registered in the name(s) of the undersigned at the address
appearing below. Delivered concurrently herewith is payment in full for the
Common Stock subscribed for, at the price of $_________ per share (checks made
payable to "Santa Barbara Bank and Trust, Escrow Agent"). The undersigned
agree(s) that the Company has the right to reject this subscription for any
reason and that, in the event of rejection, all funds delivered herewith will be
promptly returned, without interest or deduction.
WITHHOLDING CERTIFICATION
Each of the undersigned certifies under penalty of perjury that:
(1) The Social Security Number or other Federal Tax I.D. Number entered
below is correct.
(2) The undersigned is not subject to backup withholding because:
(a) The IRS has not informed the undersigned that he/she/it is
subject to backup withholding.
(b) The IRS has notified the undersigned that he/she/it is no longer
subject to backup withholding.
NOTE: If this statement is not true and you are subject to backup withholding,
strike out section (2).
<PAGE>
REGISTRATION OF SECURITIES
Common Stock is to be registered as indicated below. (Please type or print.)
<TABLE>
<S> <C>
---------------------------------------------------------- -------------------------------------------------------
Name(s) Social Security or Federal Tax ID Number(s)
---------------------------------------------------------- -------------------------------------------------------
Street Address Telephone Number
----------------------------------------------------------
City, State, Zip Code
</TABLE>
OWNERSHIP:
[ ] Individual [ ] Marital Property [ ] Joint Tenants with Right of
Survivorship [ ] Tenants in Common [ ] Corporation [ ] Partnership [ ]
Trust [ ] IRA/Qualified Plan [ ] Other
If Common Stock is to be registered jointly, all owners must sign. For
IRAs/Qualified Plans, the trustee must sign. Any registration in the names of
two or more co-owners will, unless otherwise specified, be as joint tenants with
rights of survivorship and not as tenants in common. Each subscriber certifies
that he/she/it has full capacity to enter into this Agreement. This subscription
is subject to acceptance by the Company and will not be accepted unless
accompanied by payment in full.
SUBSCRIBER SIGNATURES
INDIVIDUALS (All proposed record holders must sign.)
Dated: _________________________, 2000
<TABLE>
<S> <C>
---------------------------------------------------------- --------------------------------------------------------
(Signature) (Signature)
---------------------------------------------------------- --------------------------------------------------------
(Print or Type Name) (Print or Type Name)
</TABLE>
CORPORATIONS, PARTNERSHIPS, TRUSTS AND IRAS/QUALIFIED PLANS (Certificate of
Signatory must be completed.)
Dated: _________________________, 2000
----------------------------------------------------
(Print or Type Name of Entity)
By:
----------------------------------------------------
(Signature of Authorized Representative)
<PAGE>
CERTIFICATE OF SIGNATORY
I, , am the
----------------------------------------------------------
(Print or Type Name of Authorized Representative)
of
---------------------------------- ----------------------------- ("Entity").
(Print or Type Title or Position) (Print or Type Name of Subscribing Entity)
I certify that I am fully authorized and empowered by the Entity to execute this
Subscription Agreement and to purchase Common Stock, and that this Subscription
Agreement has been duly executed by me on behalf of the Entity and constitutes a
valid and binding obligation of the Entity in accordance with its terms.
------------------------------------------------------------
(Signature of Authorized Representative)
SALES AGENT
Name of Selected Placement Agent:
------------------------------------------
Name of Registered Representative:
-----------------------------------------
ACCEPTANCE
Subscription [ ] accepted [ ] rejected as of , 2000.
---------------------
ROEX, INC.
By:
------------------------------------------
(Signature of Authorized Officer)
<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, directors 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
maximum coverage afforded to Directors, officers, key employees, agents or
<PAGE>II-2
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 $ 1,584
Printing Expenses 30,000
Accounting Fees and Expenses 50,000
Legal Fees and Expenses 105,000
Blue Sky Fees and Expenses 7,500
Registrar and Transfer Agent Fees 2,500
Miscellaneous 3,416
---------
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. This investor is an LLC in the business of
lending monies to businesses. It is a sophisticated lender and had access to the
kind of information normally provided in a prospectus. An exemption from
registration is claimed by the registrant under Section 4(2).
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
Common Stock at any time prior to October 4, 2000. In connection with this loan,
<PAGE>II-3
Roex issued 30,000 shares valued at $0.30 per share to the two directors. Both
of the directors are sophisticated individuals and had access to information
normally provided in a prospectus. An exemption from registration is claimed by
the registrant under Section 4(2).
Between December 1998 and January 1999, we sold 51,834 shares of our Common
Stock at $1.50 per share (orproceeds of $70,412 net of offering cost of $7,339)
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. No general solicitation or general advertising was used in connection
with these sales. Not more than 35 unaccredited investors were involved in
purchasing this private placement. Each investor was given access to information
normally provided in a prospectus. An exemption from registration is claimed by
the registrant under Regulation D.
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. The Notes were
purchased by only 12 investors, including Roex's three outside directors. All of
the investors are sophisticated individuals and had access to information
normally provided in a prospectus. Furthermore, each investor is either a
director or had a prior personal and/or business relationship with a director or
officer of Roex. An exemption from registration is claimed by the registrant
under Section 4(2).
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
27) 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
--------------- ----------------------------------------------------------------
1 Form of Managing Placement Agent (Underwriter) Agreement
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
<PAGE>II-4
EXHIBIT
NUMBER DESCRIPTION
--------------- ----------------------------------------------------------------
4.3 Subscription Agreement for this Offering
4.4* Form of Underwriter's Warrant
5* Opinion of Law Offices of William B. Barnett
10 Material Contracts
10.1 Form of 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.
10.6 Employment Agreement 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 small business issuer will provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer 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 small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer 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.
The undersigned small business issuer will:
<PAGE>II-5
(1) For determining any liability under the Act, treat the information omitted
from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act as
part of this registration statement as of the time the Commission declared
it effective.
(2) For determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement, and the
offering of the securities at that time as the initial bona fide offering
of those securities.
(3) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(4) For determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and
the offering of the securities at that time to be the initial bona fide
offering.
(5) File a post-effective amendment to remove from registration any of the
securities which remain unsold at the end of the offering.
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
July 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.
<PAGE>II-6
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.
NAME TITLE
DATE
/s/ RODNEY H. BURRESON Chairman of the Board and
------------------ Chief Executive Officer
Rodney H. Burreson
July 6, 2000
/s/ DEREK BURRESON Chief Operating Officer,
-------------- Secretary and Director
Derek Burreson
July 6, 2000
/s/ PETER WEBER Chief Financial Officer
----------- (Principal Financial and
Peter Weber Accounting Officer)
July 6, 2000
/s/ ROBERT STUCKELMAN Director
-----------------
Robert Stuckelman
July 6, 2000
/s/ WILLIAM B. BARNETT Director
------------------
William B. Barnett
July 6, 2000
/S/ Shri K. Mishra Director
---------------------------
Shri K. Mishra, M.D., M.S.
July 6, 2000
