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 March 31, 2001
[ ] 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)
(905) 669-8909
(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 March 31, 2001, 2,762,314 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
MARCH 31, 2001
(Unaudited)
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
TABLE OF CONTENTS
Interim Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 2 - 3
Interim Consolidated Statements of Operations for the three months ended
March 31, 2001 and March 31,2000 4
Interim Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and March 31, 2000 5 - 6
Interim Consolidated Statements of Stockholders' Equity for the three months
ended March 31, 2001 and March 31, 2000 7
Condensed Notes to Interim Consolidated Financial Statements 8 - 9
1
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of March 31, 2001 and December 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
2001 2000
$ $
ASSETS
CURRENT ASSETS
Cash 1,235,517 2,524,394
Accounts receivable 4,899,774 3,796,829
Inventory 6,898,973 6,375,981
Prepaid expenses and sundry assets 929,353 1,271,120
Income taxes recoverable 20,360 34,742
---------- ----------
13,983,977 14,003,066
LOANS RECEIVABLE FROM AFFILIATED COMPANIES 29,608 27,022
DEFERRED PRODUCT COSTS 538,176 589,786
MORTGAGES RECEIVABLE 313,062 329,096
PROPERTY, PLANT AND EQUIPMENT 2,993,031 3,126,084
---------- ----------
17,857,854 18,075,054
========== ==========
See condensed notes to the consolidated financial statements
2
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of March 31, 2001 and December 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
2001 2000
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 4,476,622 4,189,063
Accounts payable and accrued expenses 5,356,276 4,964,236
---------- ----------
9,832,898 9,153,299
LONG TERM DEBT 663,833 697,833
DUE TO STOCKHOLDERS & DIRECTORS 881,895 937,716
DEFERRED INCOME TAXES 284,083 298,633
---------- ----------
11,662,709 11,087,481
---------- ----------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,036,208 5,038,083
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCCUMULATED OTHER COMPREHENSIVE LOSS (521,829) (195,670)
RETAINED EARNINGS 1,538,452 2,002,846
---------- ----------
6,195,145 6,987,573
---------- ----------
17,857,854 18,075,054
========== ==========
See condensed notes to the consolidated financial statements
3
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Operations
For the period ended March 31
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
ended ended
March 31, March 31,
2001 2000
$ $
SALES 4,693,445 5,923,396
COST OF SALES 2,735,645 3,783,792
---------- ----------
GROSS PROFIT 1,957,800 2,139,604
---------- ----------
OPERATING EXPENSES
General and administrative 624,768 641,838
Selling 773,511 706,031
Design studio 138,957 168,719
Book development costs 25,527 41,280
Amortization 238,480 216,753
---------- ----------
TOTAL OPERATING EXPENSES 1,801,243 1,774,621
---------- ----------
OPERATING INCOME 156,557 364,983
Interest expense 111,943 91,085
Exchange loss on Foreign Exchange Contracts 495,917 -
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (451,303) 273,898
Income taxes 13,091 68,799
---------- ----------
NET INCOME (LOSS) (464,394) 205,099
========== ==========
Basic and diluted Net Income (Loss) Per Share (0.17) 0.07
========== ==========
Weighted average number of common shares
Outstanding 2,764,092 2,786,714
========== ==========
See condensed notes to the consolidated financial statements
4
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
(Amounts expressed in US dollars)
(Unaudited)
Three-months ended Three-months ended
March 31 March 31,
2001 2000
$ $
Cash flows from operating activities:
Net income (Loss) (464,394) 205,099
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of capital assets 214,687 216,753
Amortization of deferred product costs 108,228 -
Exchange loss on foreign exchange contracts 495,917 -
Decrease in deferred product costs - 119,046
Increase in accounts receivable (1,328,818) (1,687,004)
(Increase) decrease in inventory (860,104) 637,997
(Increase) decrease in prepaid expenses and sundry assets 288,720 (12,543)
Increase (decrease) in accounts payable and accrued expenses 158,112 (372,031)
Increase in income taxes payable 13,091 64,033
---------- ----------
Total adjustments (910,167) (1,033,749)
---------- ----------
Net cash used in operating activities (1,374,561) (828,650)
---------- ----------
Cash flows from investing activities:
Deferred product costs incurred (84,626) -
Purchases of property, plant and equipment (234,554) (274,509)
---------- ----------
Net cash used in investing activities (319,180) (274,509)
========== ==========
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)
Three-months ended Three-months ended
March 31, March 31,
2001 2000
$ $
Cash flows from financing activities:
(Repayment of) proceeds from bank indebtedness 507,265 (483,015)
(Repayment of) proceeds from loans with affiliated companies (4,027) 110,056
Purchase of treasury stock (1,875) -
Proceeds from (repayment of) directors loans (10,456) 7,636
---------- ----------
Net cash provided by (used in) financing activities 490,907 (365,323)
---------- ----------
Effect of foreign currency exchange rate changes (86,043) (17,794)
---------- ----------
Net decrease in cash and cash equivalents (1,288,877) (1,486,276)
Cash and cash equivalents, January 1, 2001 2,524,394 3,240,720
---------- ----------
End of three month period ended March 31, 2001 1,235,517 1,754,444
========== ==========
Income taxes paid - 40,785
========== ==========
Interest paid 109,538 93,237
========== ==========
See condensed notes to the consolidated financial statements
6
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,
1999 2,786,714 5,061,956 142,314 1,710,358 66,849
Purchase of treasury stock ... (22,400) (23,873) -- -- --
Foreign currency translation - -- -- -- (262,519)
Net income for the year ... -- -- -- 292,488 --
------------- ------------- ----------- ----------- -------------
Balance as of December 31,
2000 2,764,314 5,038,083 142,314 2,002,846 (195,670)
Purchase of treasury stock ... (2,000) (1,875) -- -- --
Foreign currency translation - -- -- -- (326,159)
Net loss for the three-month
Period to March 31, 2001 ..... -- -- -- (464,394) --
------------- ------------- ----------- ----------- -------------
Balance as of March 31,
2001 2,762,314 5,036,208 142,314 1,538,452 (521,829)
============= ============= =========== =========== =============
See condensed notes to the consolidated financial statements
7
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of March 31,2001
(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, 2001. Interim financial statements should be
read in conjunction with the Company's annual audited 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 Canada Customs and Revenue
Agency ("CCRA") and the Province of Ontario for fiscal years
ended December 31, 1993 and December 31, 1994 for additional
corporate income taxes estimated to be $860,000. The company has
objected to these re-assessments and has no obligation to pay
the portion relating to CCRA in the amount of $560,000 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 CCRA and currently the Notices
of Objections are being considered by the Chief of Appeals.
As at March 31, 2001, Rosedale made payments in respect to the
above income tax re-assessments amounting to $228,000 to the
Province of Ontario. This amount has been included in prepaid
expenses and sundry assets.
b) The company has guaranteed the indebtedness of affiliated
companies in the amount of $1,633,000 through general security
agreements ranking behind the National Bank of Canada. As at
March 31, 2001, the indebtedness of the affiliated companies
amounted to $524,000.
c) The company has issued guarantees secured by general security
agreements for the loans made by the Laurentian Bank of Canada
to two affiliated companies.
d) The company has issued a standby letter of credit in the amount
of $338,000 to a supplier.
e) The company has issued standby letters of credit in favour of
the Laurentian Bank of Canada in the amount of $360,000.
8
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of March 31,2001
(Amounts expressed in US dollars)
(Unaudited)
3) FOREIGN EXCHANGE CONTRACTS - Impact of new Accounting Standard
As at March 31, 2001, the Company had outstanding foreign exchange
contracts to sell U.S. dollars to the National Bank of Canada to hedge
against fluctuations in foreign currency. The purpose of the Company's
foreign exchange hedging activities is to protect the Company against
the risk that the eventual dollar net cash inflows resulting from the
sale and purchase of products in foreign currencies will not be
adversely affected by changes in exchange rates. It is the Company's
policy to use derivative financial instruments to reduce foreign
exchange risks and to be able to offset fluctuations in the value of
these hedging instruments against fluctuations in the value of the
underlying exposures being hedged.
FAS# 133 and the corresponding amendments under FAS# 138 with respect
to Accounting for Derivative Instruments and Hedging Activities
requires that the ineffective portion of gains or losses attributable
to these contracts be reported in earnings. As at March 31, 2001, the
amount of the loss on the foreign exchange contracts was $495,917.
9
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation
Three months ended March 31, 2001 as compared to three months ended March
31, 2000.
Revenues for the three months ended March 31, 2001 were $4,693,445, a 20.8%
decrease over prior year revenues of $5,923,396. This decrease resulted mainly
from a decrease of sales attributed by recessionary pressures in the U.S.
market. Sales were also affected by one collection not being launched in the
first quarter as compared to last year. Although we are off to a slow start, the
outlook for the year is still promising.
Gross profits as a percentage of revenue for the three months ended March
31, 2001 was 41.7%, as compared to the same period one-year ago of 36.1%. This
increase in gross profit margins can be attributed to a change in the sales mix
as well as price increases instituted in January.
Selling expenses have increased by 9.6% to $773,511 for the three-month
period ended March 31, 2001 as compared to $706,031 for the same period last
year. This increase relates to bin expense incurred for the Sherwin Williams
stocking deal negotiated last year.
General and administrative expenses for the Company decreased by 2.7%, to
$624,768 for the three months period ended March 31, 2001 from $641,838 for the
three months ended March 31, 2000. This savings relates to reductions in
Consulting Fees and Communication expenses.
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 previous 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 March 31, 2001 was $25,527 compared to $41,280 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. 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 decreased by 17.6% to $138,957 for
the three months ended March 31, 2001 versus $168,719 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 three months ended March 31, 2001 decreased to
$156,557 from $ 364,983 for the three months ended March 31, 2000. This relates
to the decrease in revenues and a marginal increase in expenses. The weighted
average earnings per share on operating income is $0.06.
Interest expense for the Company for the three months ended March 31, 2001
increased to $111,943 from $91,085 for the three months ended March 31, 2000.
This increase in interest expense is attributable to higher interest rates and
increased borrowings.
The net loss for the three months ended March 31, 2001 was $464,394 as
compared to a net income of $205,099 for the three months ended March 31, 2000.
This loss is attributable to the new FASB requirement that the ineffective
portion of gain or losses attributable to cash flow hedges be reported in
earnings. As the U.S. dollar strengthened dramatically in the first quarter of
2001, the contracts we engaged to protect our margins on U.S. sales had a
negative impact on net income. A good portion of these contracts will be retired
this year, which will negate this charge.
Basic and fully diluted losses per share for the three months ended March
31, 2001 were a $0.17 compared to earnings of $0.07 for the same period last
year. Earnings per share were calculated based on the weighted average number of
common shares as of March 31, 2001 of 2,764,092 and 2,786,714 shares as of March
31, 2000.
The Company anticipates a profitable year in 2001, improving slightly on
the performance in 2000.
Liquidity and Capital Resources
The Company had a negative net change in cash of $1,288,877 for the three
months ended March 31, 2001. The principal sources of cash were an increase of
$507,265 in bank indebtedness and an increase in accounts payable of $158,112.
These items were off set by cash used to increase Inventory and Accounts
Receivable and the Net Loss at the end of the period.
Cash flows used in investing activities for the three months ending March
31, 2001 were $319,180. 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in legal proceedings with Canada Customs and
Revenue Agency ("CCRA"). The CCRA proceeding involves the Company's challenge to
a CCRA decision to disallow a business loss deduction taken by Rosedale for
losses it incurred when attempting to create a startup company in California.
Rosedale started the California company in 1992 to make window blinds as an
adjunct to its wallcovering and fabric business. The California company's growth
did not meet the Company's expectations and subsequently was sold in 1994.
Rosedale claimed losses incurred during the operation of the California business
as a business loss deduction on its 1994 tax return. CCRA allowed the deduction
as a capital loss only. Rosedale has filed a formal notice of objection to
CCRA's classification of the deduction. In the event that CCRA's decision is
upheld, Rosedale would be required to pay the taxes plus interest to satisfy its
tax obligation. The Company believes that it has a meritorious defense and is
working to try to settle the matter. The Company is not aware of any other
material legal proceedings pending or threatened against the Company.
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
None.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three month
period ended March 31, 2001.
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: May 15, 2001 By: /s/Alan Fine
Alan Fine
Chief Executive Officer
Date: May 15, 2001 By: /s/Norman G. Maxwell
Norman G. Maxwell
Chief Financial Officer