UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from _______________ TO _______________.
333-44747
(Commission File Numbers)
ROSEDALE DECORATIVE PRODUCTS LTD.
(Exact name of registrant as specified in its charter)
Ontario, Canada 5110
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
731 Millway Avenue
Concord, Ontario
Canada L4K 3S8
(Address of principal executive offices)
(619) 794-2602
(Registrants' telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [ X ] NO[ ]
As of June 30, 2000, 2,780,414 shares of Common Stock, no par value per
share, of Rosedale Decorative Products Ltd. were issued and outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
TABLE OF CONTENTS
Interim Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 2 - 3
Interim Consolidated Statements of Income for the three months ended
June 30, 2000 and June 30,1999 4
Interim Consolidated Statements of Income for the six months ended
June 30, 2000 and June 30,1999 5
Interim Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and June 30, 1999 6 - 7
Interim Consolidated Statements of Stockholders' Equity for the six
months ended June 30, 2000 and June 30, 1999 8
Condensed Notes to Interim Consolidated Financial Statements 9
1
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of June 30, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash 1,682,808 3,240,720
Accounts receivable 4,846,617 3,341,592
Inventory 6,870,716 7,385,373
Prepaid expenses and sundry assets 637,405 626,074
Income taxes recoverable 18,395 95,827
---------- ----------
14,055,941 14,689,586
LOAN RECEIVABLE FROM AFFILIATED COMPANY - 2,054
DEFERRED PRODUCT COSTS 629,699 861,366
MORTGAGES RECEIVABLE 333,297 341,910
PROPERTY, PLANT AND EQUIPMENT 2,947,934 2,901,705
---------- ----------
17,966,871 18,796,621
---------- ----------
See condensed notes to the consolidated financial statements
2
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of June 30, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
2000 1999
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 4,032,835 4,744,567
Accounts payable and accrued expenses 4,998,022 5,289,746
---------- ----------
9,030,857 10,034,313
DUE TO STOCKHOLDERS & DIRECTORS 974,679 1,560,918
DUE TO AFFILIATED COMPANIES 706,741 -
DEFERRED INCOME TAXES 214,373 219,913
---------- ----------
10,926,650 11,815,144
---------- ----------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,061,956 5,061,956
TREASURY STOCK (6,238) -
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (111,281) 66,849
RETAINED EARNINGS 1,953,470 1,710,358
---------- ----------
7,040,221 6,981,477
---------- ----------
17,966,871 18,796,621
========== ==========
See condensed notes to the consolidated financial statements
3
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statement of Income
For the period ended June 30
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
June 30, June 30,
2000 1999
$ $
SALES 5,085,579 4,470,560
COST OF SALES 3,163,518 3,048,796
---------- ----------
GROSS PROFIT 1,922,061 1,421,764
---------- ----------
OPERATING EXPENSES
General and administrative 651,560 582,918
Selling 688,610 667,828
Design studio 186,533 178,985
Book development costs (Recovery) 40,525 (30,803)
Amortization 212,792 181,592
---------- ----------
TOTAL OPERATING EXPENSES 1,780,020 1,580,520
OPERATING INCOME (LOSS) 142,041 (158,756)
Interest expense 92,385 62,702
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 49,656 (221,458)
Income taxes (Recovery) 11,643 (40,530)
---------- ----------
NET INCOME (LOSS) 38,013 (180,927)
========== ==========
Basic and diluted Net Income (Loss) Per Share 0.02 (0.07)
========== ==========
Weighted average number of common shares
Outstanding 2,785,555 2,765,000
========== ==========
See condensed notes to the consolidated financial statements
4
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statement of Income
For the period ended June 30
(Amounts expressed in US dollars)
(Unaudited)
Six-months Six-months
June 30, June 30,
2000 1999
$ $
SALES 11,008,975 9,518,017
COST OF SALES 6,947,310 5,973,239
---------- ----------
GROSS PROFIT 4,061,665 3,544,778
---------- ----------
OPERATING EXPENSES
General and administrative 1,293,398 1,179,506
Selling 1,394,641 1,229,344
Design studio 355,252 371,734
Book development costs 81,805 92,449
Amortization 429,545 369,134
---------- ----------
TOTAL OPERATING EXPENSES 3,554,641 3,242,167
---------- ----------
OPERATING INCOME 507,024 302,611
Interest expense 183,470 90,289
---------- ----------
INCOME BEFORE INCOME TAXES 323,554 212,322
Income taxes 80,442 67,481
---------- ----------
NET INCOME 243,112 144,841
========== ==========
Basic and diluted Net Income Per Share 0.09 0.05
========== ==========
Weighted average number of common shares
Outstanding 2,785,555 2,765,000
========== ==========
See condensed notes to the consolidated financial statements
5
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
(Amounts expressed in US dollars)
(Unaudited)
Six-months ended Six-months ended
June 30 June 30,
2000 1999
$ $
Cash flows from operating activities:
Net income 243,112 144,841
---------- ----------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization 429,545 369,134
Decrease in deferred product costs 209,966 204,614
Increase in accounts receivable (1,589,208) (783,160)
Decrease in inventory 328,601 687,801
Increase in prepaid expenses and sundry assets (27,104) (183,483)
Decrease in accounts payable and accrued expenses (158,461) (226,428)
Increase in income taxes payable/recoverable 75,018 2,049
---------- ----------
Total adjustments (731,643) 70,527
---------- ----------
Net cash provided by (used in) operating activities (488,531) 215,368
Cash flows from investing activities:
Increase in deferred policy costs - 1
Purchases of property, plant and equipment (548,875) (773,593)
---------- ----------
Net cash used in investing activities (548,875) (773,592)
---------- ----------
See condensed notes to the consolidated financial statements
6
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
(Amounts expressed in US dollars)
(Unaudited)
Three-months ended Three-months ended
June 30, June 30,
2000 1999
$ $
Cash flows from financing activities:
(Repayment of) Proceeds from bank indebtedness (592,205) 127,356
(Repayment of) proceeds from loans with affiliated companies (858,374) (455)
(Repayment of) proceeds from Affiliated Companies 706,741 (79,752)
Repayment of stockholders' loans - (58,602)
Purchase of Treasury Stock (6,238) -
Proceeds from directors loans 313,461 -
---------- ----------
Net cash used in financing activities (436,615) (11,453)
---------- ----------
Effect of foreign currency exchange rate changes (83,891) 156,854
---------- ----------
Net decrease in cash and cash equivalents (1,557,912) (412,823)
Cash and cash equivalents, January 1, 2000 3,240,720 3,417,414
---------- ----------
End of six month period ended June 30, 2000 1,682,808 3,004,591
========== ==========
Income taxes paid NIL 146,000
========== ==========
Interest paid 242,512 160,875
========== ==========
See condensed notes to the consolidated financial statements
7
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of changes in Stockholders' Equity
(Amounts expressed in US dollars)
(Unaudited)
Common
Stock Common Additional Other
Number of Stock Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income (loss)
------------- ------------- -------------- ------------- -------------
$ $ $ $
Balance as of December 31,
1998 2,765,000 5,013,883 142,314 3,238,608 (388,341)
Issuance of common stock 21,714 48,073 - - -
Foreign currency translation - - - - 455,190
Net loss for the year - - - (1,528,250) -
--------- --------- -------- ----------- -----------
Balance as of December 31,
1999 2,786,714 5,061,956 142,314 1,710,358 66,849
Purchase of Treasury Stock (6,300) (6,238) - - -
Foreign currency translation - - - - (178,130)
Net income for the six-month
Period to June 30, 2000 - - - 243,112 -
--------- --------- -------- ----------- -----------
Balance as of June 30,
2000 2,780,414 5,055,718 142,314 1,953,470 (111,281)
========= ========= ======== =========== ===========
See condensed notes to the consolidated financial statements
8
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of June 30,2000
(Amounts expressed in US dollars)
(Unaudited)
1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of all
recurring accruals) considered necessary for fair presentation have
been included. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the
year ended December 31, 2000. Interim financial statements should be
read in conjunction with the Company's annual audited consolidated
financial statements.
The unaudited consolidated financial statements include the accounts
of Rosedale Decorative Products Ltd. ("the company") and its wholly
owned subsidiaries, Rosedale Wallcoverings and Fabrics Inc.
("Rosedale") and Ontario Paint and Wallpaper Limited ("Ontario"),
respectively.
All material inter-company accounts and transactions have been
eliminated.
2. CONTINGENCIES
a) Rosedale has been re-assessed by Revenue Canada and the Province
of Ontario for fiscal years ended December 31, 1993 and December
31, 1994 for additional corporate income taxes estimated to be
$765,000. The company has objected to these re-assessments and
has no obligation to pay the portion relating to Revenue Canada
in the amount of $500,000 until the objections have been
processed. Since the company considers the re-assessments to be
incorrect, no liability has been set up in the accounts. Should
all or part of the re-assessments be upheld, the additional
income taxes would be taken into account in the year of
occurrence.
The company has retained a firm of tax specialists to represent
them in presenting their case to Revenue Canada and currently
the Notices of Objections are being considered by the Chief of
Appeals.
As at June 30, 2000, Rosedale made payments in respect to the
above income tax re-assessments amounting to $248,570 to the
Province of Ontario. This amount has been included in prepaid
expenses and sundry assets.
b) Rosedale and Ontario have guaranteed the indebtedness of
affiliated companies in the amount of $1,716,240 through general
security agreements ranking behind the National Bank of Canada.
As at June 30, 2000, the indebtedness of the affiliated
companies amounted to $Nil.
c) Rosedale has disputed invoices from a supplier in the amount of
approximately $50,000 for which debit notes have been issued. As
at June 30, 2000, these debit notes were not cleared with the
supplier.
d) Rosedale and Ontario have issued guarantees secured by general
security agreements for certain bank loans to two affiliated
companies.
9
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation
Three months ended June 30, 2000 as compared to three months ended June 30,
1999.
Revenues for the three months ended June 30, 2000 were $5,085,579, a 13.8%
increase over prior year revenues of $4,470,560. This increase resulted mainly
from an increase in sales in the U.S. market. This represents a significant
turn-around in revenues for the Company. We anticipate that this positive trend
will continue throughout the year.
Gross profits as a percentage of revenue for the three months ended June
30, 2000 was 37.8%, as compared to the same period one-year ago of 31.8%. This
increase in gross profit margins can be attributed to a change in the sales mix
and sales of discontinued inventory at low margins during the same period last
year.
Selling expenses have increased by 3.1% to $688,610 for the three-month
period ended June 30, 2000 as compared to $667,828 for the same period last
year. Warehousing expense has increased to accommodate additional fabric sales.
Promotion expenses increased as a result of our participation in a Canada-wide
wallpaper advertising campaign along with other manufacturers and distributors.
General and administrative expenses for the Company increased by 11.8%, to
$651,560 for the three months period ended June 30, 2000 from $582,918 for the
three months ended June 30, 1999. Increased legal and insurance expenses
accounted for the largest increases with general inflation accounting for the
remainder.
Rosedale develops wallpaper and fabric sample books, which are created for
each collection and sold through distributors. The majority of expenditures for
the creation of sample books are incurred in the quarter before the introduction
of a collection. Some expenditures are incurred as early as six to eight months
in advance. Revenues generated from the sales of sample books are netted from
the costs incurred in the same period and the net amount is shown on the income
statement. Because expenditures are made in the quarter before the launch of a
collection, there is not always a matching of revenues and expenses e.g. costs
for a January launch would be recorded in the following year. The Company
ensures that there are firm orders in place from customers before significant
expenditures are incurred to produce the sample books. Therefore, there is
little speculative risk in their production. Book development cost for the
three-month period ended June 30, 2000 was $40,525 compared to a profit of
$30,803 for the same period last year. This increase can be attributed to
profits made on collections last year. As these sample books are our silent
salesperson, it is imperative that we keep our books in the marketplace and on
top of the counters.
Design studio expenses for the Company increased by 4.2% to $186,533 for
the three months ended June 30, 2000 versus $178,985 for the same period last
year. Higher costs were incurred to develop new lines for the marketplace.
Operating income for the three months ended June 30, 2000 increased to
$142,041 from a loss of $158,756 for the three months ended June 30, 1999. This
relates to the increase in sales and gross margins, offset by a marginal
increase in expenses.
Interest expense for the Company for the three months ended June 30, 2000
increased to $92,385 from $62,702 for the three months ended June 30, 1999. This
increase in interest expense is attributable to higher interest rates and
increased borrowings.
Net income for the three months ended June 30, 2000 was $38,013 as compared
to a loss of $180,927 for the three months ended June 30, 1999. The improvement
in gross margins largely contributed to this increase.
Basic and fully diluted earnings per share for the three months ended June
30, 2000 were $0.02 compared to a loss of$0.07 for the same period last year.
Six months ended June 30, 2000 as compared to Six months ended June 30, 1999.
Revenues for the six months ended June 30, 2000 were $11,008,975, a 15.6%
increase over prior year revenues of $9,518,017. This increase resulted mainly
from an increase in sales in the U.S. market, with this positive trend of
increased revenues anticipated to continue throughout the remainder of the year.
Gross profits as a percentage of revenue for the six months ended June 30,
2000 was 36.9%, as compared to the same period one-year ago of 37.2%. This
slight decrease in gross profit margins can be attributed to a change in the
sales mix. As the majority of our purchases are made in Canadian dollars, a
stronger U.S. dollar will have a positive effect on our gross profits. The
company has also begun to manufacture product in Canada, which will reduce costs
as well as improve gross margins. Price increases have been implemented on newly
introduced collections to offset the price increases received from suppliers.
Selling expenses have increased by 13.4% to $1,394,641 for the six-month
period ended June 30, 2000 as compared to $1,229,344 for the same period last
year. Extra sales people have been hired to increase our presence in our local
market. The positive results from this expansion will begin to show results as
the year progresses. Promotion expenses increased as a result of successful
trade shows held in the U.S. and Canada and our participation in a Canada-wide
wallpaper advertising campaign along with other manufacturers and distributors.
General and administrative expenses for the Company increased by 9.7%, to
$1,293,398 for the six months period ended June 30, 2000 from $1,179,506 for the
six months ended June 30, 1999. Such expenses decreased as a percentage of
revenues from 12.4% to 11.8% during the respective period. Increased legal and
consulting expenses coupled with additional computer expenses required to
develop a P.O.S. system for the retail store generated the majority of this
increase.
Rosedale develops wallpaper and fabric sample books, which are created for
each collection and sold through distributors. The majority of expenditures for
the creation of sample books are incurred in the quarter before the introduction
of a collection. Some expenditures are incurred as early as six to eight months
in advance. Revenues generated from the sales of sample books are netted from
the costs incurred in the same period and the net amount is shown on the income
statement. Because expenditures are made in the quarter before the launch of a
collection, there is not always a matching of revenues and expenses e.g. costs
for a January launch would be recorded in the following year. The Company
ensures that there are firm orders in place from customers before significant
expenditures are incurred to produce the sample books. Therefore, there is
little speculative risk in their production. Book development cost for the
six-month period ended June 30, 2000 was $81,805 compared to $92,449 for the
same period last year. This decrease can be attributed to lowering costs of
manufacturing the books. We are constantly looking for ways to reduce costs.
Design studio expenses for the Company decreased by 4.4% to $355,252 for
the six months ended June 30, 2000 versus $371,734 for the same period last
year. Staff reductions and other related savings have been made as we continue
to utilize the CAD system more effectively.
Operating income for the six months ended June 30, 2000 increased 68% to
$507,024 from $ 302,611 for the six months ended June 30, 1999. This relates to
our strong growth in revenues as compared to the previous year.
Interest expense for the Company for the six months ended June 30, 2000
increased to $183,470 from $90,289 for the six months ended June 30, 1999. This
increase in interest expense is attributable to higher interest rates and
increased borrowings.
Net income for the six months ended June 30, 2000 was $243,112 as compared
to $144,841 for the six months ended June 30, 1999. Increased revenue is the
largest contributor to this improvement.
Basic and fully diluted earnings per share for the six months ended June 30,
2000 were $0.09 compared to $0.05 for the same period last year. Earnings per
share were calculated based on the weighted average number of shares outstanding
as of June 30, 2000 of 2,785,555 and 2,765,000 shares outstanding as of June 30,
1999.
Liquidity and Capital Resources
The Company had a negative net change in cash of $1,557,912 for the six
months ended June 30, 2000. The principal sources of cash were Net Income of
$243,112, a decrease in Inventories and Deferred Products Costs. These items
were off set by cash used to reduce Accounts Payable and an increase in Accounts
Receivable at the end of the period.
Cash flows used in investing activities for the six months ending June 30,
2000 were $548,875. This reflected planned capital addition for cylinders,
designs and engravings for new collections. It is the Company's intention to
continue to utilize a good portion of these funds to develop new product lines
of wallpaper and fabric plus continue the development of our floor coverings,
ceiling tiles, and area rug product categories.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On June 20, 2000, the Company held its Annual Meeting of stockholders.
The stockholders re-elected all five members to the Company's Board of Directors
for the coming year and ratified the appointment of Schwartz Levitsky Feldman,
Chartered Accountants, as the Company's independent certified public accountants
for the 200 fiscal year.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three month
period ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSEDALE DECORATIVE PRODUCTS LTD.
Date: August 11, 2000 By: /s/Alan Fine
Alan Fine
Date: August 11, 2000 By: /s/Norman G. Maxwell
Norman G. Maxwell