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, 2002
[ ] 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, 2002, 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
MARCH 31, 2002
(Unaudited)
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(Unaudited)
TABLE OF CONTENTS
Interim Consolidated Balance Sheets as of March 31, 2002
and December 31, 2001 2 - 3
Interim Consolidated Statements of Operations for the three months ended
March 31, 2002 and March 31,2001 4
Interim Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and March 31, 2001 5 - 6
Interim Consolidated Statements of Stockholders' Equity for the three months
ended March 31, 2002 and December 31, 2001 7
Condensed Notes to Interim Consolidated Financial Statements 8
1
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of March 31, 2002 and December 31, 2001
(Amounts expressed in US dollars)
(Unaudited)
2002 2001
$ $
ASSETS
CURRENT ASSETS
Cash 1,041,953 1,897,453
Accounts receivable 4,645,048 4,018,712
Inventory 5,074,364 5,462,180
Prepaid expenses and sundry assets 959,270 883,580
Income taxes recoverable - 41,858
---------- ----------
11,720,635 12,303,783
DEFERRED PRODUCT COSTS 535,539 559,329
MORTGAGES RECEIVABLE 309,546 309,820
PROPERTY, PLANT AND EQUIPMENT 3,269,880 3,392,450
---------- ----------
15,835,600 16,565,382
========== ==========
See condensed notes to the consolidated financial statements
2
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of March 31, 2002 and December 31, 2001
(Amounts expressed in US dollars)
(Unaudited)
2002 2001
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 4,379,313 4,886,846
Accounts payable and accrued expenses 4,033,970 4,226,715
Income tax payable 18,833 -
---------- ----------
8,432,116 9,113,561
DUE TO STOCKHOLDERS & DIRECTORS 1,070,511 1,150,573
DEFERRED INCOME TAXES 280,893 281,140
---------- ----------
9,783,520 10,545,274
---------- ----------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,029,355 5,029,355
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCCUMULATED OTHER COMPREHENSIVE LOSS (594,323) (589,034)
RETAINED EARNINGS 1,474,734 1,437,473
---------- ----------
6,052,080 6,020,108
---------- ----------
15,835,600 16,565,382
========== ==========
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,
2002 2001
$ $
SALES 5,238,400 4,693,445
COST OF SALES 3,274,191 2,735,645
---------- ----------
GROSS PROFIT 1,964,209 1,957,800
---------- ----------
OPERATING EXPENSES
General and administrative 675,883 624,768
Selling 741,392 773,511
Design studio 187,666 138,957
Book development costs (9,410) 25,527
Amortization 286,979 238,480
TOTAL OPERATING EXPENSES 1,882,510 1,801,243
---------- ----------
OPERATING INCOME 81,699 156,557
Interest expense (50,449) (111,943)
Exchange gain (loss) on Foreign Exchange Contracts 31,104 (495,917)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 62,354 (451,303)
Income taxes 25,093 13,091
---------- ----------
NET INCOME (LOSS) 37,261 (464,394)
========== ==========
Basic and diluted Net Income (Loss) Per Share 0.01 (0.17)
========== ==========
Weighted average number of common shares
Outstanding 2,755,514 2,764,092
========== ==========
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,
2002 2001
$ $
Cash flows from operating activities:
Net income (Loss) 37,261 (464,394)
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of capital assets 269,394 214,687
Amortization of deferred product costs 64,627 108,228
Exchange (gain) loss on foreign exchange contracts (31,104) 495,917
Increase in accounts receivable (629,903) (1,328,818)
(Increase) decrease in inventory 383,043 (860,104)
(Increase) decrease in prepaid expenses and sundry assets (76,471) 288,720
Increase (decrease) in accounts payable and accrued expenses (157,941) 158,112
Increase in income taxes payable 60,658 13,091
---------- ----------
Total adjustments (117,697) (910,167)
---------- ----------
Net cash used in operating activities (80,436) (1,374,561)
---------- ----------
Cash flows from investing activities:
Deferred product costs incurred (41,327) (84,626)
Purchases of property, plant and equipment (149,795) (234,554)
---------- ----------
Net cash used in investing activities (191,122) (319,180)
========== ==========
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,
2002 2001
$ $
Cash flows from financing activities:
(Repayment of) proceeds from bank indebtedness (503,273) 507,265
Repayment of loans with affiliated companies - (4,027)
Purchase of treasury stock - (1,875)
Repayment of directors loans (79,057) (10,456)
---------- ----------
Net cash provided by (used in) financing activities (582,330) 490,907
---------- ----------
Effect of foreign currency exchange rate changes (1,612) (86,043)
---------- ----------
Net decrease in cash and cash equivalents (855,500) (1,288,877)
Cash and cash equivalents, beginning of year 1,897,453 2,524,394
---------- ----------
End of three month period ended March 31 1,041,953 1,235,517
========== ==========
Income taxes paid - -
========== ==========
Interest paid 52,431 109,538
========== ==========
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 Accumulated
Stock Common Additional Other
Number of Stock Paid-in Retained Comprehensive Comprehensive
Shares Amount Capital Earnings Income (loss) Income (loss)
------------ ------------ ------------ ------------ ----------------- ---------------
$ $ $ $ $
Balance as of December 31,
2000 2,764,314 5,038,083 142,314 2,002,846 - (195,670)
Purchase of treasury stock (8,800) (8,728) - - - -
Foreign currency translation - - - - (393,364) (393,364)
Net loss for the year - - - (565,373) (565,373) -
------------ ------------ ------------ ------------ ----------------- ---------------
Balance as of December 31,
2001 2,755,514 5,029,355 142,314 1,437,473 (958,737) (589,034)
============ ============ ============ ============ ================= ===============
Foreign currency translation - - - - (5,289) (5,289)
Net profit for the
three-month period to
March 31, 2002 - - - 37,261 37,261 -
------------ ------------ ------------ ------------ ----------------- ---------------
Balance as of March 31,
2002 2,755,514 5,029,355 142,314 1,474,734 31,972 (594,323)
============ ============ ============ ============ ================= ===============
See condensed notes to the consolidated financial statements
7
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of March 31,2002
(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, 2002. 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 $830,000. The company has
objected to these re-assessments and has no obligation to pay
the portion relating to CCRA in the amount of $570,000 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, 2002, Rosedale made payments in respect to the
above income tax re-assessments amounting to approximately
$225,000 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 $633,000 through general security
agreements ranking behind the National Bank of Canada. As at
March 31, 2002, the indebtedness of the affiliated companies
amounted to approximately $415,000.
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 in the amount of approximately
$1,300,000.
d) The company has issued standby letters of credit in favour of
the Laurentian Bank of Canada in the amount of $358,000.
8
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements as
defined by the Private Securities Legislation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, government regulation, and
other risks defined in this document and in statements filed from time to time
with the Securities and Exchange Commission. All such forward looking statements
are expressly qualified by these cautionary statements and any other cautionary
statements that may accompany the forward-looking statements. In addition,
Rosedale Decorative Products Limited disclaims any obligation to update any
forward-looking statements to reflect events or circumstances after the date
thereof.
Results of Operation
Three months ended March 31, 2002 as compared to three months ended March
31, 2001.
Revenues for the three months ended March 31, 2002 were $5,238,400, a 11.6%
increase over prior year revenues of $4,693,445. This increase resulted mainly
from an increase of sales in the U.S. market. The outlook for 2002 is very
promising.
Gross profits as a percentage of revenue for the three months ended March
31, 2002 was 37.5%, as compared to the same period one-year ago of 41.7%. This
decrease in gross profit margins can be attributed to a change in the sales mix
as well as the sale of slow moving and discontinued product.
Selling expenses have decreased by 4.2% to $741,392 for the three-month
period ended March 31, 2002 as compared to $773,511 for the same period last
year. This decrease relates to bin expense incurred for the Sherwin Williams
stocking deal which has been fully accounted for in 2001.
General and administrative expenses for the Company increased by 8.2%, to
$675,883 for the three months period ended March 31, 2002 from $624,768 for the
three months ended March 31, 2001. Insurance costs have increased dramatically
since September 11 and general inflation created this increase along with an
additional provision for bad debts.
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 revenue for the
three-month period ended March 31, 2002 was $9,410 compared to a cost of $25,527
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 increased by 35.0% to $187,666 for
the three months ended March 31, 2002 versus $138,957 for the same period last
year. The Ontario division hired two internationally renowned designers in 2001,
which has increased our exposure to the U.S. and overseas markets.
Operating income for the three months ended March 31, 2002 decreased to
$81,699 from $ 156,557 for the three months ended March 31, 2001. This relates
to the decrease in gross profit and a marginal increase in expenses.
Interest expense for the Company for the three months ended March 31, 2002
decreased to $50,449 from $111,943 for the three months ended March 31, 2001.
This decrease in interest expense is attributable to lower interest rates and
payment of long term debt.
The net income for the three months ended March 31, 2002 was $37,261 as
compared to a net loss of $464,394 for the three months ended March 31, 2001.
This loss in 2001 was 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.
Basic and fully diluted earnings per share for the three months ended March
31, 2002 were a $0.01 compared to a loss of $(0.17) for the same period last
year. Earnings per share were calculated based on the weighted average number of
common shares as of March 31, 2002 of 2,755,514 and 2,764,092 shares as of March
31, 2001.
The Company anticipates a profitable year in 2002, improving on the
performance in 2001.
Liquidity and Capital Resources
The Company had a negative net change in cash of $855,500 for the three
months ended March 31, 2002, which represented mainly the use of available cash
to reduce the Company's bank indebtedness. Cash generated from reduction in
inventories in the amount of $383,043 was used to finance other operating
activities.
Cash flows used in investing activities for the three months ending March
31, 2002 were $191,122. 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, 2002.
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, 2002 By: /s/Alan Fine
Alan Fine
Chief Executive Officer
Date: May 15, 2002 By: /s/Norman G. Maxwell
Norman G. Maxwell
Chief Financial Officer