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 June 30, 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)
184 Courtland Avenue
Concord, Ontario
Canada L4K 4L3
(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 June 30, 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
JUNE 30, 2004
(Unaudited)
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
(Unaudited)
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 2
Interim Consolidated Balance Sheets as of June 30, 2004
and December 31, 2003 3 - 4
Interim Consolidated Statements of Operations for the three months ended
June 30, 2004 and June 30,2003 5
Interim Consolidated Statements of Operations for the six months ended
June 30, 2004 and June 30,2003 6
Interim Consolidated Statements of Cash Flows for the six months ended
June 30, 2004 and June 30, 2003 7 - 8
Interim Consolidated Statements of Stockholders' Equity for the six months
ended June 30, 2004 and December 31, 2003 9
Condensed Notes to Interim Consolidated Financial Statements 10
1
Report of Independent Registered Public Accounting Firm
We have reviewed the accompanying interim financial statements of Rosedale
Decorative Products Limited as of June 30, 2004 and the three-month and
six-month periods then ended. This interim financial information is the
responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board. A review of interim financial information consists
principally of applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with the standards of the Public
Company Accounting Oversight Board, the objective of which is the expression of
an opinion regarding the financial statements as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial statements for them to be in
conformity with U.S. generally accepted accounting principles.
Toronto, Ontario SF Partnership
November 26, 2004 Chartered Accountants
2
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of June 30, 2004 and December 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
2004 2003
$ $ $
ASSETS
CURRENT ASSETS
Cash 198,182 1,312,534
Accounts receivable 1,699,712 1,399,731
Inventory 3,172,663 3,565,498
Prepaid expenses and sundry assets 234,470 240,150
Income taxes recoverable 8,474 -
Mortgages receivable 261,938 380,625
--------- ---------
5,575,439 6,898,538
LOAN RECEIVABLE FROM AFFILIATED COMPANY 6,846 21,154
PROPERTY, PLANT AND EQUIPMENT 2,324,692 2,390,858
--------- ---------
7,906,977 9,310,550
========= =========
See condensed notes to the consolidated financial statements
3
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of June 30, 2004 and December 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
2004 2003
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 2,679,021 3,676,960
Accounts payable and accrued expenses 2,689,113 2,302,407
Income tax payable - -
Due to stockholders and directors - -
--------- ---------
5,368,134 5,979,367
DEFERRED INCOME TAXES 185,257 187,373
--------- ---------
5,553,391 6,166,740
--------- ---------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,029,282 5,029,282
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCCUMULATED OTHER COMPREHENSIVE
INCOME 214,025 288,142
DEFICIT (3,032,035) (2,315,928)
--------- ---------
2,353,586 3,143,810
--------- ---------
7,906,977 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 June 30, 2004 and June 30, 2003
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
ended ended
June 30, June 30,
2004 2003
$ $
SALES 2,106,455 2,674,444
COST OF SALES 1,413,158 1,597,620
--------- ---------
GROSS PROFIT 693,297 1,076,824
--------- ---------
OPERATING EXPENSES
General and administrative 396,406 528,906
Selling 416,116 526,176
Design studio 52,108 129,487
Book development costs 55,136 53,482
Amortization 154,050 182,514
Interest Expense `39,783 46,038
Exchange gains on foreign exchange contracts (16,053) (18,240)
Gain on exchange (8,650) -
--------- ---------
TOTAL OPERATING EXPENSES 1,089,078 1,448,363
--------- ---------
NET LOSS (395,781) (371,539)
========= =========
Basic and Diluted Net Loss Per Share (0.14) (0.14)
========= =========
Weighted average number of common shares
outstanding 2,755,214 2,755,385
========= =========
See condensed notes to the consolidated financial statements
5
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Operations
For the period ended June 30, 2004 and June 30, 2003
(Amounts expressed in US dollars)
(Unaudited)
Six-months Six-months
ended ended
June 30, June 30,
2004 2003
$ $
SALES 4,427,684 5,642,503
COST OF SALES 2,871,555 3,348,403
--------- ---------
GROSS PROFIT 1,556,129 2,294,100
--------- ---------
OPERATING EXPENSES
General and administrative 834,856 925,978
Selling 918,888 1,020,568
Design studio 100,451 217,221
Book development costs 112,049 103,157
Amortization 313,065 337,722
Interest expense 85,369 81,193
Exchange gain on foreign exchange contracts (40,890) (75,595)
Gain on exchange (51,552) -
--------- ---------
TOTAL OPERATING EXPENSES 2,272,236 6,117,255
--------- ---------
LOSS BEFORE INCOME TAXES (716,107) (316,144)
Income taxes - -
--------- ---------
NET LOSS (716,107) (316,144)
========= =========
Basic and Diluted Loss Per Share (0.26) (0.11)
========= =========
Weighted average number of common shares
outstanding 2,755,214 2,755,449
========= =========
See condensed notes to the consolidated financial statements
6
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
For the period ended June 30, 2004 and June 30, 2003
(Amounts expressed in US dollars)
(Unaudited)
Six-months Six-months
ended ended
June 30, June 30,
2004 2003
$ $
Cash flows from operating activities:
Net Loss (716,107) (1,723,815)
--------- ---------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Loss on sale of subsidiary - 1,451,169
Amortization of property, plant and equipment 313,065 538,917
Exchange gain on foreign exchange contracts (40,891) (50,356)
Increase in accounts receivable (299,982) (272,673)
Decrease in inventory 392,835 774,472
(Increase) decrease in prepaid expenses and sundry assets 5,680 11,618
Increase (decrease) in accounts payable and accrued expenses 427,597 (1,051,233)
Decrease in income taxes payable (10,590) (14,224)
--------- ---------
Total adjustments 787,714 1,387,690
--------- ---------
Net cash provided by (used in) operating activities 71,607 (336,125)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of subsidiary - 360,188
Purchase of property, plant and equipment (246,900) (564,842)
--------- ---------
Net cash used in investing activities (246,900) (204,654)
--------- ---------
See condensed notes to the consolidated financial statements
7
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
For the period ended June 30, 2004 and June 30, 2003
(Amounts expressed in US dollars)
(Unaudited)
Six-months Six-months
ended ended
June 30, June 30,
2004 2003
$ $
Cash flows from financing activities:
(Repayment of) proceeds from bank indebtedness (997,939) 594,876
Loans to affiliated company 14,308 (21,529)
Purchase of Treasury Stock - (42)
Repayment of mortgages receivable 118,687 (372,345)
--------- ---------
Net cash provided by (used in) financing activities (864,944) 200,960
--------- ---------
Effect of foreign currency exchange rate changes (74,115) 175,738
--------- ---------
Net decrease in cash and cash equivalents (1,114,352) (164,081)
Cash and cash equivalents, beginning of year 1,312,534 1,186,436
--------- ---------
End of six month period ended June 30 198,182 1,022,355
========= =========
Income taxes paid 8,474 -
========= =========
Interest paid 102,159 105,103
========== =========
See condensed notes to the consolidated financial statements
8
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of changes in Stockholders' Equity
For the period ended June 30, 2004 and December 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
Common Accumulated
Stock Common Additional Other
Number of Stock Paid-in Retained Comprehensive Comprehensive
Shares Amount Capital Earnings(deficit) Income (loss) 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 - - - - (74,117) (74,117)
Net loss for the
six-month period to
June 30, 2004 - - - (716,107) (716,107) -
---------- ---------- --------- ---------- ---------- ---------
Balance as of June 30,
2004 2,755,214 5,029,282 142,314 (3,032,035) (790,224) 214,025
========== ========== ========= ========== ========== =========
See condensed notes to the consolidated financial statements
9
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of June 30, 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 to guarantee
the debt of a related party.
10
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.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation
Three months ended June 30, 2004 as compared to three months ended June 30,
2003.
Revenues for the three months ended June 30, 2004 were $2,106,455, a 21.2%
decrease over prior year revenues of $2,674,444. The second quarter showed a
significant decline in wallpaper sales throughout the whole industry in North
America. To compensate, we are making every effort to increase our market share
in a very competitive market.
Gross profits as a percentage of revenue for the three months ended June 30,
2004 was 32.9%, as compared to the same period one-year ago of 40.3%. This
decrease in gross profit margins can be attributed to a change in the sales mix
with lower sales volume to the U.S. along with the drop in the value of the U.S.
dollar vs the Canadian dollar.
Selling expenses have decreased by 20.9% to $416,116 for the three-month period
ended June 30, 2004 as compared to $526,176 for the same period last year. This
decrease relates to planned reductions in expenses to compensate for the lower
sales being achieved.
General and administrative expenses for the Company decreased by 25.1%, to
$396,406 for the three months period ended June 30, 2004 from $528,906 for the
three months ended June 30, 2003. Once again, planned reductions, including
substantial remuneration roll backs have been implemented.
Book development costs and subsidy for the three-month period ended June 30,
2004 was $55,136 compared to $53,482 for the same period last year. This
increase in expenses can be attributed to the additional subsidy required to
place our books in the marketplace. The market is very competitive and retailers
11
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 32.2% to $52,108 for the
three months ended June 30, 2004 versus $129,487 for the same period last year.
This decrease relates to the closing of our design studio in Canada. Our design
studio in England still remains.
Interest expense for the Company for the three months ended June 30, 2004
decreased to $39,783 from $46,038 for the three months ended June 30, 2003. This
decrease in interest expense is attributable to the reduction in our borrowing
base.
The net loss for the three months ended June 30, 2004 was $395,781 as compared
to $371,539 for the three months ended June 30, 2003. This loss for the period
is attributable to the reduction in sales and lower margins being partly offset
by expense reductions.
Basic and diluted loss per share for the three months ended June 30, 2004 were
$0.14, the same as last year. Earnings per share were calculated based on the
weighted average number of common shares as of June 30, 2004 of 2,755,214 and
June 30, 2003 of 2,755,385 and shares.
Six months ended June 30, 2004 as compared to six months ended June 30, 2003.
Revenues for the six months ended June 30, 2004 were $4,427,684, a 21.6%
decrease over prior year revenues of $5,642,503. The whole industry in North
America has seen a significant decline in wallpaper sales over the past few
months. We have made a conscious decision not to renew the contracts of our
design team in Canada, and although our sales will drop as we will only launch
one new collection this year compared to approximately six, our profitability
will be positively impacted as the sales per collection were dropping to the
point of not being viable.
Gross profits as a percentage of revenue for the six months ended June 30, 2004
was 35.1%, as compared to the same period one-year ago of 40.7%. This decrease
in gross profit margins can be attributed to lower sales volume to the U.S., a
drop in the U.S. dollar and lower margins achieved from re-acquired chain
business.
Selling expenses have decreased by 10% to $918,888 for the six-month period
ended June 30, 2004 as compared to $1,020,568 for the same period last year.
This decrease relates to reduced expenses a conscious effort to reduce expenses
to reflect the drop in sales.
General and administrative expenses for the Company decreased by 10%, to
$834,856 for the six month period ended June 30, 2004 from $925,978 for the six
months ended June 30, 2003. Once again, reductions were achieved by substantial
cuts in remuneration packages.
Book development costs for the six-month period ended June 30, 2004 was $112,049
compared to $103,157 for the same period last year. As the Ontario division is a
distributor as well as a converter of wallpaper, it is imperative that we keep
our books in the marketplace. The market is very competitive and retailers are
looking for more concessions, especially on the cost of books.
12
Design studio expenses for the Company decreased by 54% to $100,451 for the six
months ended June 30, 2004 versus $217,221 for the same period last year. This
decrease relates to reduced expenses due to the closing of the Ontario studio.
Interest expense for the Company for the six months ended June 30, 2004
increased to $85,368 from $81,193 for the six months ended June 30, 2003. This
small increase in interest expense is attributable to the marginal fluctuations
in borrowings and interest rates.
The net loss for the six months ended June 30, 2004 was $716,107 as compared to
$316,144 for the six months ended June 30, 2003. This loss for the period is
attributable to the reduction in sales and lower margins.
Basic and diluted loss per share for the six months ended June 30, 2004 were
$0.26 compared to $0.11 for the same period last year. Earnings per share were
calculated based on the weighted average number of common shares as of June 30,
2004 of 2,755,214 and June 30, 2003 of 2,755,449.
Liquidity and Capital Resources
The Company had a negative net change in cash of $1,114,352 for the six months
ended June 30, 2004. The majority of these funds were used to pay down bank
debt. Funds have been received from related companies to reduce the mortgages
outstanding.
Cash flows used in investing activities for the six months ending June 30, 2004
were $246,900. This reflected planned capital addition for cylinders, designs
and engravings for new collections as well as leasehold improvements at our
retail location.
13
Item 3. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Based on an evaluation as of the end of the period covered by this quarterly
report, the Company's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")) are effective for the purposes set forth in such definition.
Changes in Internal Control
There have not been any changes in the Company's internal control over financial
reporting identified in connection with the evaluation discussed above that
occurred during the Company's last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity 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 Principal Financial Officer
Exhibit 31.2 Certification of Principal Executive Officer
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
1) Changes in Registrants certifying accountant April 15, 2004
15
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: December 14, 2004 By: /s/ Sidney Ackerman
---------------
Sidney Ackerman
President
Date: December 14, 2004 By: /s/ Norman G. Maxwell
-----------------
Norman G. Maxwell
Chief Financial Officer