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, 2004
[ ] 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, 2004, 2,755,214 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, 2004
(Unaudited)
TABLE OF CONTENTS
Interim Consolidated Balance Sheets as of March 31, 2004
and December 31, 2003 3 - 4
Interim Consolidated Statements of Operations for the three months ended
March 31, 2004 and March 31,2003 5
Interim Consolidated Statements of Cash Flows for the three months ended
March 31, 2004 and March 31, 2003 6 - 7
Interim Consolidated Statements of Stockholders' Equity for the three months
ended March 31, 2004 and December 31, 2003 8
Condensed Notes to Interim Consolidated Financial Statements 9
2
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of March 31, 2004 and December 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
2004 2003
$ $
ASSETS
CURRENT ASSETS
Cash 756,218 1,312,534
Accounts receivable 2,033,141 1,399,731
Inventory 3,565,845 3,565,498
Prepaid expenses and sundry assets 227,521 240,150
Income taxes recoverable 376,328 -
------------ ------------
6,959,053 7,249,033
ADVANCES FROM RELATED PARTY 23.482 21,154
MORTGAGES RECEIVABLE 380,625
EQUIPMENT 2,348,862 2,390,858
------------ ------------
9,331,397 9,310,550
============ ============
See condensed notes to the consolidated financial statements
3
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of March 31, 2004 and December 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
2004 2003
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 3,553,725 3,676,960
Accounts payable and accrued expenses 2,833,661 2,302,407
------------ ------------
6,387,386 5,979,367
DEFERRED INCOME TAXES 181,270 187,373
------------ ------------
6,568,656 6,166,740
STOCKHOLDERS' EQUITY
COMMON STOCK 5,029,282 5,029,282
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCCUMULATED OTHER COMPREHENSIVE LOSS 227,400 288,142
DEFICIT (2,636,255) (2,315,928)
------------ ------------
2,762,741 3,143,810
------------ ------------
9,331,397 9,310,550
============ ============
See condensed notes to the consolidated financial statements
4
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Operations
For the period ended March 31, 2004 and March 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
ended ended
March 31, March 31,
2004 2003
$ $
SALES 2,321,229 3,042,423
COST OF SALES 1,458,397 1,798,848
------------ ------------
GROSS PROFIT 862,832 1,243,575
------------ ------------
OPERATING EXPENSES
General and administrative 438,450 406,484
Selling 502,772 498,043
Design studio 48,343 91,061
Book development costs (recovery) 56,913 49,675
Amortization 159,015 162,631
Interest expense
Exchange gain on foreign exchange contracts (24,928) (57,356)
Gain on exchange (42,992) -
------------ ------------
TOTAL OPERATING EXPENSES 1,183,158 1,186,576
------------ ------------
NET (LOSS) INCOME (320,326) 56,999
============ ============
Basic and Diluted Net Income (Loss) Per Share (0.12) 0.02
============ ============
Weighted average number of common shares
outstanding 2,755,214 2,755,514
============ ============
See condensed notes to the consolidated financial statements
5
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
For the period ended March 31, 2004 and March 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
ended ended
March 31, March 31,
2004 2003
$ $
Cash flows from operating activities:
Net loss (320,326) (1,298,739)
------------ ------------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Loss on sale of subsidiary
- 1,397,632
Amortization of property, plant and equipment 159,015 356,403
Exchange gain on foreign exchange contracts (24,928) (33,047)
(Increase) decrease in accounts receivable (646,011) (642,991)
(Increase) decrease in inventory (59,448) 641,733
(Increase) decrease in prepaid expenses and sundry assets (30,194) (7,001)
Increase (decrease) in accounts payable and accrued expenses 554,498 (844,510)
Increase (decrease) in income taxes payable (3,968) (3,464)
------------ ------------
Total adjustments (51,036) 864,755
------------ ------------
Net cash used in operating activities (371,362) (433,984)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of subsidiary
- 346,899
Purchase of property, plant and equipment (144,086) (406,582)
------------ ------------
Net cash used in investing activities (144,086) (59,683)
------------ ------------
See condensed notes to the consolidated financial statements
6
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
For the period ended March 31, 2004 and March 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
ended ended
March 31, March 31,
2004 2003
(restated)
$ $
Cash flows from financing activities:
(Repayment of) proceeds from bank indebtedness 55,395 357,669
Repayment of loans with affiliated companies (13,963) (10,581)
Repayment of loans to stockholders & directors - (358,608)
------------ ------------
Net cash used in financing activities 41,432 (11,520)
------------ ------------
Effect of foreign currency exchange rate changes 56,664 74,299
------------ ------------
Net increase (decrease) in cash and cash equivalents (417,352) (430,888)
Cash and cash equivalents, beginning of year 1,173,570 1,186,436
------------ ------------
End of three month period ended March 31 756,218 755,548
============ ============
Income taxes paid - -
============ ============
Interest paid 37,123 51,903
============ ============
See condensed notes to the consolidated financial statements
7
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of changes in Stockholders' Equity
For the period ended March 31, 2004 and December 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
Common Accumulated
Stock Common Additional Other
Number of Stock Paid-in Retained Comprehensive
Income (loss) Shares Amount Capital Earnings(deficit) Comprehensive Income (loss)
- --------------------------- ------------- -------------- ----------- ------------------ ------------- ------------
$ $ $ $ $
Balance as of December 31,
2002 2,755,514 5,029,355 142,314 678,250 - (459,997)
Repurchase for Treasury
Stock (300) (73) - - - -
Foreign currency translation - - - - 748,139 748,139
Net income for the year - - - (2,994,178) (2,994,178) -
------------- -------------- ----------- ------------------ ------------- ------------
Balance as of December 31,
2003 2,755,214 5,029,282 142,314 (2,315,928) (2,246,039) 288,142
Foreign currency translation - - - - (124,507) (124,507)
Net loss for the
three-month period to
March 31, 2004 - - - (320,326) (320,326) -
------------- -------------- ----------- ------------------ ------------- ------------
Balance as of March 31,
2004 2,755,214 5,029,282 142,314 (2,636,255) (444,833) 227,400
============= ============== ============ ================== ============= ============
See condensed notes to the consolidated financial statements
8
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of March 31, 2004
(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, 2004. 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
subsidiary, Ontario Paint and Wallpaper Limited ("Ontario").
All material inter-company accounts and transactions have been eliminated.
2. CONTINGENCIES
a) The company has issued a guarantee secured by a general security
agreement for the loan made by the Laurentian Bank of Canada to
1369597 Ontario Inc. As at year-end, the indebtedness of this company
amounted to $632,000. This loan was made to purchase life insurance, a
portion of which represents the keyman life insurance policy for which
the company is beneficiency.
b) The company has issued standby letters of credit in favour of the
Laurentian Bank of Canada in the amount of $194,000.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
9
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.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation
Three months ended March 31, 2004 as compared to three months ended March 31,
2003.
Revenues for the three months ended March 31, 2004 were $2,321,229, a 23.7%
decrease over prior year revenues of $3,042,423. This decrease resulted mainly
from the deterioration of the wallpaper market in North America. The whole
industry has shown a major slowdown in the first part of the year. It is
anticipated that a turnaround may occur in the latter part of 2004. We also have
not launched new collections into the market due to this slowdown.
Gross profits as a percentage of revenue for the three months ended March 31,
2004 was 37.2%, as compared to the same period one-year ago of 40.9%. This
decrease in gross profit margins can be attributed to a change in the sales mix
with lower sales volume to the U.S. Also, the U.S. dollar has dropped
significantly against the Canadian dollar which affects our margins.
Selling expenses have increased by 0.9% to $502,772 for the three-month period
ended March 31, 2004 as compared to $498,043 for the same period last year. This
minimal increase relates to general inflation costs especially in freight costs
due to fuel surcharges being applied by all carriers. Steps have been taken to
reduce sales expenses in the last half of 2004, as we have laid off sales reps,
cut promotional costs, travel and certain pay reductions have been instituted.
General and administrative expenses for the Company increased by 7.8%, to
$438,450 for the three months period ended March 31, 2004 from $498,043 for the
three months ended March 31, 2003. Reductions in salaries were offset by higher
insurance costs for both commercial coverage and directors and officers'
coverage. Further cuts have been put in place to reduce expenses as a whole.
These savings will show in the last half of the year.
10
The Company develops wallpaper 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 costs for the
three-month period ended March 31, 2004 was $56,913 compared to $49,675 for the
same period last year. This increase can be attributed the exchange difference
in the U.S. dollar as the Canadian value remained the same. The market is very
competitive and retailers are looking for more concessions, especially on books.
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 47.0% to $48,343 for the
three months ended March 31, 2004 versus $91,061 for the same period last year.
This decrease is attributable to the closing of Ontario's design studio in
January 2004.
Operating loss for the three months ended March 31, 2004 decreased to $342,661
from income of $35,681 for the three months ended March 31, 2003. This relates
to the decrease in sales.
Interest expense for the Company for the three months ended March 31, 2004
increased to $45,585 from $36,037 for the three months ended March 31, 2003.
This increase in interest expense is attributable to increased average
borrowings for the quarter.
The net loss for the three months ended March 31, 2004 was $320,326 as compared
to net income of $56,999 for the three months ended March 31, 2003. Again, this
is attributable to the decrease in sales. Management has taken steps to cut
approximately $1,375,000 from expenses on an annualized basis. Approximately 60%
will show in the later part of this year.
Basic and diluted loss per share for the three months ended March 31, 2004 were
$0.12 compared to income of $0.02 for the same period last year. Earnings per
share were calculated based on the weighted average number of common shares as
of March 31, 2004 of 2,755,514 and March 31, 2003 of 2,755,214 and shares.
Liquidity and Capital Resources
The Company had a negative net change in cash of $427,086 for the three months
ended March 31, 2004 with the net loss creating the majority of the movement.
Cash flows used in investing activities for the three months ending March 31,
2004 were $144,086. Planned capital addition for cylinders, designs and
engravings for new collections were purchased during the quarter plus additional
leaseholds to improve the retail operation.
11
Item 3. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures. An evaluation was performed
under the supervision and with the participation of our management, including
the chief executive officer and chief financial officer, of the effectiveness of
the design and operation of our disclosure procedures. Based on management's
evaluation as of as of the end of the period covered by this report, our
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") were sufficiently effective to ensure that the information required to be
disclosed by us in the reports that we file under the Exchange Act is gathered,
analyzed and disclosed with adequate timeliness, accuracy and completeness.
Changes in internal controls. There have been no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referred to above, nor were
there any significant deficiencies or material weaknesses in our internal
controls. Accordingly, no corrective actions were required or undertaken.
12
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 31.1 - Certification of CEO pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Exhibit 31.2 - Certification of CFO pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Exhibit 32.1 - Certification of CEO pursuant to 18 U.S.C. Section 1350
Exhibit 32.1 - Certification of CFO pursuant to 18 U.S.C. Section 1350
b) Reports on Form 8-K
1) Changes in Registrants certifying accountant April 15, 2004
13
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 30, 2004 By: /s/ Sidney Ackerman
-------------------
Sidney Ackerman
President
Date: August 30, 2004 By: /s/ Norman G. Maxwell
---------------------
Norman G. Maxwell
Chief Financial Officer
14