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 September 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 September 30, 2000, 2,765,314 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
SEPTEMBER 30, 2000
(Unaudited)
TABLE OF CONTENTS
Interim Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 2 - 3
Interim Consolidated Statements of Income for the three months ended
September 30, 2000 and September 30,1999 4
Interim Consolidated Statements of Income for the nine months ended
September 30, 2000 and September 30,1999 5
Interim Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and September 30, 1999 6 - 7
Interim Consolidated Statements of Stockholders' Equity for the nine months
ended September 30, 2000 8
Condensed Notes to Interim Consolidated Financial Statements 9
1
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of September 30, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash 2,188,595 3,240,720
Accounts receivable 3,884,654 3,341,592
Inventory 5,861,373 7,385,373
Prepaid expenses and sundry assets 1,177,930 626,074
Income taxes recoverable - 95,827
---------- ----------
13,112,552 14,689,586
LOAN RECEIVABLE FROM AFFILIATED COMPANY - 2,054
DEFERRED PRODUCT COSTS 1,261,091 861,366
MORTGAGES RECEIVABLE 328,220 341,910
PROPERTY, PLANT AND EQUIPMENT 3,062,180 2,901,705
---------- ----------
17,764,043 18,796,621
========== ==========
See condensed notes to the consolidated financial statements
2
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of September 30, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
2000 1999
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 4,137,349 4,744,567
Accounts payable and accrued expenses 4,771,339 5,289,746
Income Tax Payable 20,325 -
---------- ----------
8,929,013 10,034,313
DUE TO STOCKHOLDERS & DIRECTORS 952,541 1,560,918
DUE TO AFFILIATED COMPANIES 695,976 -
DEFERRED INCOME TAXES 211,107 219,913
---------- ----------
10,788,637 11,815,144
---------- ----------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,061,956 5,061,956
TREASURY STOCK (21,294) -
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (219,946) 66,849
RETAINED EARNINGS 2,012,376 1,710,358
---------- ----------
6,975,406 6,981,477
---------- ----------
17,764,043 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 September 30
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
September 30, September 30,
2000 1999
$ $
SALES 5,475,603 4,784,911
COST OF SALES 3,228,719 2,863,081
---------- ----------
GROSS PROFIT 2,246,884 1,921,830
---------- ----------
OPERATING EXPENSES
General and administrative 696,257 557,931
Selling 913,810 589,497
Design studio 166,537 198,958
Book development costs 40,903 12,371
Amortization 214,773 185,649
---------- ----------
TOTAL OPERATING EXPENSES 2,032,280 1,544,406
---------- ----------
OPERATING INCOME 214,604 377,424
Interest expense 140,701 56,835
---------- ----------
INCOME BEFORE INCOME TAXES 73,903 320,589
Income taxes 14,997 91,749
---------- ----------
NET INCOME 58,906 228,840
========== ==========
Basic and diluted Net Income Per Share 0.02 0.08
========== ==========
Weighted average number of common shares
Outstanding 2,772,934 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 September 30
(Amounts expressed in US dollars)
(Unaudited)
Nine-months Nine-months
September 30, September 30,
2000 1999
$ $
SALES 16,484,578 14,302,928
COST OF SALES 10,176,029 8,836,320
---------- ----------
GROSS PROFIT 6,308,549 5,466,608
---------- ----------
OPERATING EXPENSES
General and administrative 1,989,655 1,737,437
Selling 2,308,451 1,818,841
Design studio 521,789 570,692
Book development costs 122,708 104,820
Amortization 644,318 554,783
---------- ----------
TOTAL OPERATING EXPENSES 5,586,921 4,786,573
---------- ----------
OPERATING INCOME 721,628 680,035
Interest expense 324,171 147,124
---------- ----------
INCOME BEFORE INCOME TAXES 397,457 532,911
Income taxes 95,439 159,230
---------- ----------
NET INCOME 302,018 373,681
========== ==========
Basic and diluted Net Income Per Share 0.11 0.14
========== ==========
Weighted average number of common shares
Outstanding 2,781,423 2,765,000
========== ==========
5
See condensed notes to the consolidated financial statements
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
(Amounts expressed in US dollars)
(Unaudited)
Nine-months ended
Nine-months ended
September 30 September 30,
2000 1999
$ $
Cash flows from operating activities:
Net income 302,018 373,681
---------- ----------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization 644,318 554,783
Decrease (Increase) in deferred product costs (434,214) 17,229
Increase in accounts receivable (676,859) (1,836,967)
Decrease in inventory 1,228,290 909,056
Increase in prepaid expenses and sundry assets (576,924) (359,513)
Increase (Decrease) in accounts payable and accrued expenses (306,607) 98,997
Increase in income taxes payable/recoverable 112,315 12,833
---------- ----------
Total adjustments (9,681) (603,582)
---------- ----------
Net cash provided by (used in) operating activities 292,337 (229,901)
---------- ----------
Cash flows from investing activities:
Increase in deferred policy costs - 1
Purchases of property, plant and equipment (920,977) (1,026,377)
---------- ----------
Net cash used in investing activities (920,977) (1,026,376)
---------- ----------
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)
Nine-months ended Nine-months ended
September 30, September 30,
2000 1999
$ $
Cash flows from financing activities:
(Repayment of) Proceeds from bank indebtedness (417,246) 921,904
Repayment of loans with affiliated companies (845,301) (597)
(Repayment of) proceeds from Affiliated Companies 695,976 (79,664)
Repayment of stockholders' loans - (117,319)
Purchase of Treasury Stock (21,294) -
Proceeds from directors loans 301,394 -
---------- ----------
Net cash provided by (used in) financing activities (286,471) 724,324
---------- ----------
Effect of foreign currency exchange rate changes (137,014) 147,637
---------- ----------
Net decrease in cash and cash equivalents (1,052,125) (384,316)
Cash and cash equivalents, January 1, 2000 3,240,720 3,417,414
---------- ----------
End of nine month period ended September 30, 2000 2,188,595 3,033,098
========== ==========
Income taxes paid 51,778 318,210
========== ==========
Interest paid 284,121 255,375
========== ==========
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 (21,400) (21,294) - - -
Foreign currency translation - - - - (286,795)
Net income for the nine-month
Period to September 30, 2000 - - - 302,018 -
------------- ------------- -------------- ------------- -------------
Balance as of September 30,
2000 2,765,314 5,040,662 142,314 2,012,376 (219,946)
============= ============= ============== ============= =============
See condensed notes to the consolidated financial statements
8
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of September 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
$779,000. The company has objected to these re-assessments and
has no obligation to pay the portion relating to Revenue Canada
in the amount of $509,000 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 September 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 has disputed invoices from a supplier in the amount of
approximately $50,000 for which debit notes have been issued. As
at September 30, 2000, these debit notes were not cleared with
the supplier.
c) Rosedale and Ontario have issued guarantees secured by general
security agreements for certain bank loans to two affiliated
companies. As at September 30, 2000, the bank loans amounted to
$865,000.
9
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation
Three months ended September 30, 2000 as compared to three months ended
September 30, 1999.
Revenues for the three months ended September 30, 2000 were $5,475,603, a
14.4% increase over prior year revenues of $4,784,911. 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
September 30, 2000 was 41.0%, as compared to the same period one-year ago of
40.2%. This increase in gross profit margins can be attributed to a change in
the sales mix and price increases implemented.
Selling expenses have increased by 55.0% to $913,810 for the three-month
period ended September 30, 2000 as compared to $589,497 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.
Bin Expense has increased as we successfully gained exposure in many Sherwin
Williams stores in the U.S., and three salesmen have been added to increase our
exposure in the market.
General and administrative expenses for the Company increased by 24.8%, to
$696,257 for the three months period ended September 30, 2000 from $557,931 for
the three months ended September 30, 1999. Increased legal, consulting 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 September 30, 2000 was $40,903 compared to $12,371 for
the same period last year. This increase can be attributed to additional
collections being launched.
Design studio expenses for the Company decreased by 16.3% to $166,537 for
the three months ended September 30, 2000 versus $198,958 for the same period
last year. Cost savings were achieved by staff reduction and better use of the
CAD system.
Operating income for the three months ended September 30, 2000 were
$214,604 compared to $377,424 for the three months ended September 30, 1999.
This relates to the increase in expenses, offset by a increase in sales and
margins.
Interest expense for the Company for the three months ended September 30,
2000 increased to $140,701 from $56,835 for the three months ended September 30,
1999. This increase in interest expense is attributable to higher interest rates
and increased borrowings.
Net income for the three months ended September 30, 2000 was $58,906 as
compared to $228,840 for the three months ended September 30, 1999. This
shortfall is largely contributed by an increase in expenses incurred to grow the
business.
Basic and fully diluted earnings per share for the three months ended
September 30, 2000 were $0.02 compared to $0.08 for the same period last year.
Nine months ended September 30, 2000 as compared to Nine months ended September
30, 1999.
Revenues for the nine months ended September 30, 2000 were $16,484,578, a
15.3% increase over prior year revenues of $14,302,928. This increase resulted
mainly from an increase in sales in the U.S. market and the growth of retail
sales, 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 nine months ended
September 30, 2000 was 38.3%, as compared to the same period one-year ago of
38.2%. This slight increase 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 26.9% to $2,308,451 for the nine-month
period ended September 30, 2000 as compared to $1,818,841 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. We were also successful in obtaining a portion of the Sherwin
Williams stock business, which has created an expense for bins not incurred
previously.
General and administrative expenses for the Company increased by 14.5%, to
$1,989,655 for the nine months period ended September 30, 2000 from $1,737,437
for the nine months ended September 30, 1999. Such expenses remained constant as
a percentage of revenues 12.1% 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
nine-month period ended September 30, 2000 was $122,708 compared to $104,820 for
the same period last year.
Design studio expenses for the Company decreased by 8.6% to $521,789 for
the nine months ended September 30, 2000 versus $570,692 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 nine months ended September 30, 2000 increased
6.1% to $721,628 from $ 680,035 for the nine months ended September 30, 1999.
This relates to our strong growth in revenues as compared to the previous year.
Interest expense for the Company for the nine months ended September 30,
2000 increased to $324,171 from $147,124 for the nine months ended September 30,
1999. This increase in interest expense is attributable to higher interest rates
and increased borrowings.
Net income for the nine months ended September 30, 2000 was $302,018 as
compared to $373,681 for the nine months ended September 30, 1999. Increased
expenses is the main contributor to this shortfall.
Basic and fully diluted earnings per share for the nine months ended
September 30, 2000 were $0.11 compared to $0.14 for the same period last year.
Earnings per share were calculated based on the weighted average number of
shares outstanding as of September 30, 2000 of 2,781,423 and 2,765,000 shares
outstanding as of September 30, 1999.
Liquidity and Capital Resources
The Company had a negative net change in cash of $1,052,125 for the nine
months ended September 30, 2000. The principal sources of cash were Net Income
of $302,018 and a decrease in Inventories. These items were off set by cash used
to reduce Accounts Payable and increase Accounts Receivable, Deferred Product
Costs and Prepaid Expenses at the end of the period.
Cash flows used in investing activities for the nine months ending
September 30, 2000 were $920,977. 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
None
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 September 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: November 10, 2000 By: /s/Alan Fine
Alan Fine
Date: November 10, 2000 By: /s/Norman G. Maxwell
Norman G. Maxwell