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, 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 September 30, 2001, 2,755,514 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, 2001
(Unaudited)
TABLE OF CONTENTS
Interim Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000 2 - 3
Interim Consolidated Statements of Operations for the three months ended
September 30, 2001 and September 30,2000 4
Interim Consolidated Statements of Operations for the nine months ended
September 30, 2001 and September 30,2000 5
Interim Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and September 30, 2000 6 - 7
Interim Consolidated Statements of Stockholders' Equity for the nine months
ended September 30, 2001 and December 31, 2000 8
Condensed Notes to Interim Consolidated Financial Statements 9 - 10
1
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of September 30, 2001 and December 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
2001 2000
$ $
ASSETS
CURRENT ASSETS
Cash 970,181 2,524,394
Accounts receivable 4,253,416 3,796,829
Inventory 6,353,207 6,375,981
Prepaid expenses and sundry assets 826,916 1,271,120
Income taxes recoverable 30,974 34,742
---------- ----------
12,434,694 14,003,066
LOANS RECEIVABLE FROM AFFILIATED COMPANIES 29,568 27,022
DEFERRED PRODUCT COSTS 522,056 589,786
MORTGAGES RECEIVABLE 312,625 329,096
PROPERTY, PLANT AND EQUIPMENT 3,107,668 3,126,084
---------- ----------
16,406,611 18,075,054
========== ==========
See condensed notes to the consolidated financial statements
2
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of September 30, 2001 and December 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
2001 2000
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 4,385,726 4,189,063
Accounts payable and accrued expenses 4,228,351 4,964,236
---------- ----------
8,614,077 9,153,299
LONG TERM DEBT 536,205 697,833
DUE TO STOCKHOLDERS & DIRECTORS 858,279 937,716
DEFERRED INCOME TAXES 283,687 298,633
---------- ----------
10,292,248 11,087,481
---------- ----------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,029,355 5,038,083
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCUMULATED OTHER COMPREHENSIVE LOSS (531,674) (195,670)
RETAINED EARNINGS 1,474,368 2,002,846
---------- ----------
6,114,363 6,987,573
---------- ----------
16,406,611 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 September 30
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
Ended ended
September 30, September 30,
2001 2000
$ $
SALES 4,371,365 5,475,603
COST OF SALES 2,766,296 3,228,719
---------- ----------
GROSS PROFIT 1,605,069 2,246,884
---------- ----------
OPERATING EXPENSES
General and administrative 670,177 696,257
Selling 763,883 913,810
Design studio 64,681 166,537
Book development costs (330) 40,903
Amortization 237,674 214,773
---------- ----------
TOTAL OPERATING EXPENSES 1,736,085 2,032,280
---------- ----------
OPERATING INCOME (LOSS) (131,016) 214,604
Interest expense (106,692) (140,701)
Exchange loss on Foreign Exchange Contracts (109,445) -
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (347,153) 73,903
Income taxes - 14,997
---------- ----------
NET INCOME (LOSS) (347,153) 58,906
========== ==========
Basic and diluted Net Income (Loss) Per Share (0.13) 0.02
========== ==========
Weighted average number of common shares
Outstanding 2,755,514 2,772,934
========== ==========
See condensed notes to the consolidated financial statements
4
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Operations
For the period ended September 30
(Amounts expressed in US dollars)
(Unaudited)
Nine-months Nine-months
Ended ended
September 30, September 30,
2001 2000
$ $
SALES 13,504,124 16,484,578
COST OF SALES 7,797,261 10,176,029
---------- ----------
GROSS PROFIT 5,706,863 6,308,549
---------- ----------
OPERATING EXPENSES
General and administrative 2,026,374 1,989,655
Selling 2,395,613 2,308,451
Design studio 404,318 521,789
Book development costs 50,504 122,708
Amortization 713,485 644,318
---------- ----------
TOTAL OPERATING EXPENSES 5,590,294 5,586,921
---------- ----------
OPERATING INCOME 116,569 721,628
Interest expense (352,857) (324,171)
Exchange loss on Foreign Exchange Contracts (292,190) -
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (528,478) 397,457
Income taxes - 95,439
---------- ----------
NET INCOME (LOSS) (528,478) 302,018
========== ==========
Basic and diluted Net Income (Loss) Per Share (0.19) 0.11
========== ==========
Weighted average number of common shares
Outstanding 2,758,831 2,781,423
========== ==========
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)
Nine-months ended Nine-months ended
September 30 September 30,
2001 2000
$ $
Cash flows from operating activities:
Net income (Loss) (528,478) 243,112
---------- ----------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Amortization of property, plant and equipment 637,537 429,545
Amortization of deferred product costs 325,422 -
Exchange loss on foreign exchange contracts 292,190 -
Increase in deferred product costs - 209,966
Increase in accounts receivable (663,463) (1,589,208)
Decrease (increase) in inventory (304,052) 328,601
(Increase) decrease in prepaid expenses and sundry assets 390,508 (27,104)
Decrease in accounts payable and accrued expenses (792,334) (158,461)
Increase in income taxes payable/recoverable 2,082 75,018
---------- ----------
Total adjustments (112,110) (731,643)
---------- ----------
Net cash used in operating activities (640,588) (488,531)
---------- ----------
Cash flows from investing activities:
Deferred product costs incurred (286,214) -
Purchases of property, plant and equipment (779,172) (548,875)
---------- ----------
Net cash used in investing activities (1,065,386) (548,875)
---------- ----------
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,
2001 2000
$ $
Cash flows from financing activities:
(Repayment of) Proceeds from bank indebtedness 416,906 (592,205)
Repayment of loans with affiliated companies (3,999) (151,633)
Purchase for Treasury Stock (8,728) (6,238)
(Repayment of) Proceeds from directors loans (33,354) 313,461
Repayment of Long Term Debt (130,005) -
---------- ----------
Net cash provided by (used in) financing activities 240,820 (436,615)
---------- ----------
Effect of foreign currency exchange rate changes (89,059) (83,891)
---------- ----------
Net decrease in cash and cash equivalents (1,554,213) (1,557,912)
Cash and cash equivalents, January 1 2,524,394 3,240,720
---------- ----------
End of nine month period ended September 30 970,181 1,682,808
========== ==========
Income taxes paid 22,681 NIL
========== ==========
Interest paid 316,464 242,512
========== ==========
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,
1999 2,786,714 5,061,956 142,314 1,710,358 66,849
Purchase for 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 for Treasury Stock (8,800) (8,728) - - -
Foreign currency translation - - - - (336,004)
Net loss for the nine-month
Period to September 30, 2001 - - - (528,478) -
------------- ------------- -------------- ------------- -------------
Balance as of September 30,
2001 2,755,514 5,029,355 142,314 1,474,368 (531,674)
============= ============= ============== ============= =============
See condensed notes to the consolidated financial statements
8
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of September 30,2001
(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 September 30, 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 $1,651,000 through general security
agreements ranking behind the National Bank of Canada. As at
September 30, 2001, the indebtedness of the affiliated companies
amounted to $469,000.
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 standby letters of credit in favour of
the Laurentian Bank of Canada in the amount of $376,000.
9
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of September 30,2001
(Amounts expressed in US dollars)
(Unaudited)
3) FOREIGN EXCHANGE CONTRACTS - Impact of new Accounting Standard
As at September 30, 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 to be reported in earnings.
As at September 30, 2001, the amount of the loss on the foreign
exchange contracts was $292,190.
10
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT
The information contained in this Report on Form 10-QSB and in other
public statements by the Company and Company officers include or may contain
certain forward-looking statements. When used in this Report or in such
statements, the words "estimate," "project," "intends," "expects," "believes"
and similar expressions are intended to identify forward-looking statements
regarding events and financial trends which may affect the Company's future
operating results and financial position. Such statements are not guarantees of
future performance and are subject to risks and uncertainties that could cause
the Company's actual results and financial position to differ materially from
those included within the forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date made. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements to reflect events or
circumstances after the date made or to reflect the occurrence of unanticipated
events.
Results of Operation
Three months ended September 30, 2001 as compared to three months ended
September 30, 2000.
Revenues for the three months ended September 30, 2001 were $4,371,365, a
20.2% decrease over prior year revenues of $5,475,603 reflecting a slowdown in
the U.S. economy and the impact of September 11th.
Gross profits as a percentage of revenue for the three months ended
September 30, 2001 was 36.7%, as compared to the same period one-year ago of
41.0%. This decrease in gross profit margins is primarily attributable to a
large number of closeouts and overstocks being sold to reduce inventory.
Selling expenses have decreased by 16.4% to $763,883 for the three-month
period ended September 30, 2001 as compared to $913,810 for the same period last
year. Layoffs have been implemented to offset the decrease in revenues as well
as commissions falling due to the revenue decrease from U.S. sales.
General and administrative expenses for the Company decreased by 3.7%, to
$670,177 for the three months period ended September 30, 2001 from $696,257 for
the three months ended September 30, 2000. Layoffs have been implemented to
offset the decrease in revenues from U.S. sales.
Book development cost for the three-month period ended September 30, 2001
was a profit of $330 compared to a cost of $40,903 for the same period last
year. This decrease can be attributed to profits made on collections this year.
We believe that it is imperative that we keep our books at display counters in
the marketplace, as these sample books are our silent salesperson.
Design studio expenses for the Company decreased by 61.2% to $64,681 for
the three months ended September 30, 2001 versus $166,537 for the same period
last year. Due to the slowdown in the economy, a decision was made to delay the
launch of two collections originally planned for this year resulting in a
deferral of the costs incurred to date.
The operating loss for the three months ended September 30, 2001 was
$131,016 compared to an income of $214,604 for the three months ended September
30, 2000. This decrease is primarily attributable to the decrease in sales and
gross profit.
Interest expense for the Company for the three months ended September 30,
2001 decreased to $106,692 from $140,701 for the three months ended September
30, 2000. This decrease in interest expense is primarily attributable to lower
interest rates.
The exchange loss on foreign exchange contracts for the three months ended
September 30, 2001 was $109,445. This occurred as the Canadian dollar weakened
dramatically during the quarter.
Net loss for the three months ended September 30, 2001 was $347,153 as
compared to income of $58,906 for the three months ended September 30, 2000.
This related to weak sales and the exchange loss for the quarter.
Basic and fully diluted loss per share for the three months ended September
30, 2001 were ($0.13) compared to earnings of $0.02 for the same period last
year.
Nine months ended September 30, 2001 as compared to Nine months ended September
30, 2000.
Revenues for the nine months ended September 30, 2001 were $13,504,124, a
18% decrease over prior year revenues of $16,484,578. This decrease resulted
mainly from a decrease in sales in the U.S. market, reflecting a slowdown in the
U.S. economy during the year and the impact of September 11th.
Gross profits as a percentage of revenue for the nine months ended
September 30, 2001 was 42.3%, as compared to the same period one-year ago of
38.3%. This 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. Price
increases have been implemented on newly introduced collections to offset the
increases received from suppliers.
Selling expenses have increased by 3.8% to $2,395,613 for the nine-month
period ended September 30, 2001 as compared to $2,308,451 for the same period
last year. Extra sales people and store personnel have been hired to increase
our presence in our local market to counter the impact of the decline in U.S.
sales. This expansion has shown positive results as the retail store as sales
have increased by 55% over last year.
General and administrative expenses for the Company increased by 1.8%, to
$2,026,374 for the nine months period ended September 30, 2001 from $1,989,655
for the nine months ended September 30, 2000. Wages for the administration of
the retail store accounts for 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 nine 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, 2001 was $50,504 compared to $122,708 for
the same period last year. This decrease can be attributed to lowering costs of
manufacturing the books.
Design studio expenses for the Company decreased by 22.5% to $404,318 for
the nine months ended September 30, 2001 versus $521,789 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. We have also cut back on
the number of collections being launched due the weak economy resulting in a
deferral of the costs incurred to date.
Operating income for the nine months ended September 30, 2001 decreased to
$116,569 from $ 721,628 for the nine months ended September 30, 2000. This
relates strictly to our weakening revenues as compared to the previous year.
Interest expense for the Company for the nine months ended September 30,
2001 increased to $352,857 from $324,171 for the nine months ended September 30,
2000. This increase in interest expense is attributable to increased borrowings
for the operating companies.
The exchange loss on foreign exchange contracts of $292,190 relates 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 has strengthened
dramatically in 2001, the contracts we engaged to protect our margins on U.S.
sales had a negative impact on net income. The majority of these contracts will
be retired this year, which will negate this charge.
The net loss for the nine months ended September 30, 2001 was $528,478 as
compared to net income of $302,018 for the nine months ended September 30, 2000.
Decreased revenue and the exchange loss on foreign exchange contracts accounted
for this change.
Basic and fully diluted loss per share for the nine months ended September
30, 2001 were $(0.19) compared to earnings of $0.11 for the same period last
year. Earnings (loss) per share were calculated based on the weighted average
number of shares outstanding as of September 30, 2001 of 2,758,831 and 2,781,423
shares outstanding as of September 30, 2000.
Liquidity and Capital Resources
The Company had a negative net change in cash of $1,554,213 for the nine
months ended September 30, 2001. Use of cash for the period was primarily
attributable to an increase in inventories, a reduction in accounts payable and
an increase in accounts receivable at the end of the period.
Cash flows used in investing activities for the nine months ending
September 30, 2001 were $1,065,386. 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, in addition to continuing 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
(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, 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: November 19, 2001 By: /s/Alan Fine
Alan Fine
Date: November 19, 2001 By: /s/Norman G. Maxwell
Norman G. Maxwell