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, 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 September 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
September 30, 2004
(Unaudited)
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 2
Interim Consolidated Balance Sheets as of September 30, 2004
and December 31, 2003 3 - 4
Interim Consolidated Statements of Operations for the three months ended
September 30, 2004 and September 30,2003 5
Interim Consolidated Statements of Operations for the nine months ended
September 30, 2004 and September 30,2003 6
Interim Consolidated Statements of Cash Flows for the nine months ended
September 30, 2004 and September 30, 2003 7 - 8
Interim Consolidated Statements of Stockholders' Equity for the nine months
ended September 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 September 30, 2004 and the three-month and
nine-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 September 30, 2004 and December 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
2004 2003
$ $
ASSETS
CURRENT ASSETS
Cash 196,015 1,312,534
Accounts receivable 1,915,744 1,399,731
Inventory 3,491,342 3,565,498
Prepaid expenses and sundry assets 94,738 240,150
Mortgages receivable 113,728 380,625
---------------- -------------
5,811,567 6,898,538
LOAN RECEIVABLE FROM AFFILIATED COMPANY 568 21,154
PROPERTY, PLANT AND EQUIPMENT 2,270,325 2,390,858
---------------- -------------
8,082,460 9,310,550
================ =============
See condensed notes to the consolidated financial statements
3
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of September 30, 2004 and December 31, 2003
(Amounts expressed in US dollars)
(Unaudited)
2004 2003
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 3,161,065 3,676,960
Accounts payable and accrued expenses 2,595,008 2,302,407
Income tax payable 7,647 -
Due to stockholders and directors - -
---------------- -------------
5,763,720 5,979,367
DEFERRED INCOME TAXES 192,555 187,373
---------------- -------------
5,956,275 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 296,352 288,142
DEFICIT (3,341,763) (2,315,928)
---------------- -------------
2,126,185 3,143,810
---------------- -------------
8,082,460 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 September 30, 2004 and September 30, 2003
(Amounts expressed in US dollars)
(Unaudited)
Three-months Three-months
ended ended
September 30, September 30,
2004 2003
$ $
SALES 2,253,899 2,506,181
COST OF SALES 1,484,777 1,356,053
-------------- -------------
GROSS PROFIT 769,122 1,150,128
-------------- -------------
OPERATING EXPENSES
General and administrative 353,753 285,622
Selling 391,958 402,025
Design studio 45,968 97,332
Book development costs 57,353 54,252
Amortization 160,245 181,091
Interest Expense `58,167 38,325
Exchange gains on foreign exchange contracts (324) (5,896)
Loss on exchange 6,913 -
Moving Expense 4,817 -
-------------- -------------
TOTAL OPERATING EXPENSES 1,078,850 1,448,363
-------------- -------------
NET (LOSS) EARNINGS (309,728) 97,377
============== =============
Basic and Diluted Net (Loss)Earnings Per Share (0.11) 0.04
============== =============
Weighted average number of common shares
outstanding 2,755,214 2,755,214
============== =============
See condensed notes to the consolidated financial statements
5
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Operations
For the period ended September 30, 2004 and September 30, 2003
(Amounts expressed in US dollars)
(Unaudited)
Nine-months Nine-months
ended ended
September 30, September 30,
2004 2003
$ $
SALES 6,681,583 8,113,853
COST OF SALES 4,356,332 4,681,943
-------------- --------------
GROSS PROFIT 2,325,251 3,431,910
-------------- --------------
OPERATING EXPENSES
General and administrative 1,188,609 1,207,192
Selling 1,310,846 1,420,883
Design studio 146,419 312,995
Book development costs 169,402 157,409
Amortization 473,310 515,337
Interest expense 143,536 119,105
Exchange gain on foreign exchange contracts (41,214) (81,491)
Gain on exchange (44,639) -
Moving Expense 4,817 -
-------------- --------------
TOTAL OPERATING EXPENSES 3,351,086 3,651,430
-------------- --------------
LOSS BEFORE INCOME TAXES (1,025,835) (219,520)
Income taxes - -
-------------- --------------
NET LOSS (1,025,835) (219,520)
============== ==============
Basic and Diluted Loss Per Share (0.37) (0.08)
============== ==============
Weighted average number of common shares
outstanding 2,755,214 2,755,370
============== ==============
See condensed notes to the consolidated financial statements
6
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
For the period ended September 30, 2004 and September 30, 2003
(Amounts expressed in US dollars)
(Unaudited)
Nine-months Nine-months
ended ended
September 30, September 30,
2004 2003
$ $
Cash flows from operating activities:
Net Loss (1,025,835) (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 473,310 538,917
Exchange gain on foreign exchange contracts (41,214) (50,356)
Increase in accounts receivable (516,013) (272,673)
Decrease in inventory 74,156 774,472
(Increase) decrease in prepaid expenses and sundry assets 145,411 11,618
Increase (decrease) in accounts payable and accrued expenses 333,814 (1,051,233)
Decrease in income taxes payable 12,830 (14,224)
-------------- ---------------
Total adjustments 482,294 1,387,690
-------------- ---------------
Net cash provided by (used in) operating activities (543,541) (336,125)
-------------- ---------------
Cash flows from investing activities:
Proceeds from sale of subsidiary - 360,188
Purchase of property, plant and equipment (352,777) (564,842)
-------------- ---------------
Net cash used in investing activities (352,777) (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 September 30, 2004 and September 30, 2003
(Amounts expressed in US dollars)
(Unaudited)
Nine-months Nine-months
ended ended
September 30, September 30,
2004 2003
$ $
Cash flows from financing activities:
(Repayment of) proceeds from bank indebtedness (515,895) 594,876
Loans to affiliated company 20,856 (21,529)
Purchase of Treasury Stock - (42)
Repayment of mortgages receivable 266,897 (372,345)
--------------- ---------------
Net cash provided by (used in) financing activities (228,412) 200,960
--------------- ---------------
Effect of foreign currency exchange rate changes 8,211 175,738
--------------- ---------------
Net decrease in cash and cash equivalents (1,116,519) (164,081)
Cash and cash equivalents, beginning of year 1,312,534 1,186,436
--------------- ---------------
End of nine month period ended September 30 196,015 1,022,355
=============== ===============
Income taxes paid 8,474 -
=============== ===============
Interest paid 126,718 105,103
=============== ===============
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 September 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
Income (loss) Shares Amount Capital Earnings(deficit) 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 - - - - 8,210 8,210
Net loss for the
nine-month period to
September 30, 2004 - - - (1,025,835) (1,025,835) -
----------- ---------- ---------- ---------- --------- ---------
Balance as of September 30,
2004 2,755,214 5,029,282 142,314 (3,341,763) (1,017,625) 296,352
============ ========== ========== ========== ========== =========
See condensed notes to the consolidated financial statements
9
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of September 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 September 30, 2004 as compared to three months ended
September 30, 2003.
Revenues for the three months ended September 30, 2004 were $2,253,899, a 10%
decrease over prior year revenues of $2,506,181. The third quarter continued to
show 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 and are also looking into different avenues with the idea of diversifying
in a very competitive market.
Gross profits as a percentage of revenue for the three months ended September
30, 2004 was 34.1%, as compared to the same period one-year ago of 45.9%. This
decrease in gross profit margins can be attributed to a change in the sales mix
with lower sales volume to the U.S. along with the drop in the value of the U.S.
dollar vs the Canadian dollar and increased sales to chains which generate lower
margins.
Selling expenses have decreased by 2.5% to $391,958 for the three-month period
ended September 30, 2004 as compared to $402,025 for the same period last year.
This small decrease relates to reductions in expenses to compensate for the
lower sales being achieved.
General and administrative expenses for the Company increased by 23.4%, to
$353,753 for the three months period ended September 30, 2004 from $285,622 for
the three months ended September 30, 2003. The planned reductions, including
substantial remuneration roll backs, were offset by increased insurance costs.
2003 3rd quarter results included positive adjustments for rent and printing
supplies, which distorted the expenses for that period.
11
Book development costs and subsidy for the three-month period ended September
30, 2004 was $57,353 compared to $54,252 for the same period last year. This
increase in expenses can be attributed to the exchange value for conversion.
Design studio expenses for the Company decreased by 52.8% to $47,968 for the
three months ended September 30, 2004 versus $97,332 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 September 30, 2004
increased to $58,167 from $38,325 for the three months ended September 30, 2003.
This increase in interest expense is attributable to an increase in our
borrowings and reduced interest income from mortgage receivables.
The net loss for the three months ended September 30, 2004 was $309,728 as
compared to an income of $97,377 for the three months ended September 30, 2003.
This loss for the period is attributable to the reduction in sales and much
lower margins being partly offset by expense reductions.
Basic and diluted loss per share for the three months ended September 30, 2004
were $0.11, as compared to income per share of $0.04 for the same period last
year. Earnings per share were calculated based on the weighted average number of
common shares as of September 30, 2004 of 2,755,214 and September 30, 2003 of
2,755,214 and shares.
Nine months ended September 30, 2004 as compared to nine months ended September
30, 2003.
Revenues for the nine months ended September 30, 2004 were $6,681,583, a 17.7%
decrease over prior year revenues of $8,113,853. The whole industry in North
America continues to record a significant decline in wallpaper sales over the
past few months. By not renewing the contracts of our design team in Canada, our
sales have declined as we will only launch one collection this year compared to
approximately six, but our profitability will be positively impacted as the
sales per collection were to low to maintain profitability.
Gross profits as a percentage of revenue for the nine months ended September 30,
2004 was 34.8%, as compared to the same period one-year ago of 42.3%. 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 chain business,
which we obtained this year.
Selling expenses have decreased by 7.7% to $1,310,846 for the nine-month period
ended September 30, 2004 as compared to $1,420,883 for the same period last
year. This decrease relates to the slump in sales and a conscious effort to
reduce expenses.
General and administrative expenses for the Company decreased by 1.5%, to
$1,188,609 for the nine month period ended September 30, 2004 from $1,207,192
for the nine months ended September 30, 2003. Once again, reductions in
remuneration packages were offset by higher insurance rates.
12
Book development costs for the nine-month period ended September 30, 2004 was
$169,402 compared to $157,409 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.
Design studio expenses for the Company decreased by 53% to $146,419 for the nine
months ended September 30, 2004 versus $312,995 for the same period last year.
This decrease relates to the closing of the Ontario studio.
Interest expense for the Company for the nine months ended September 30, 2004
increased to $143,536 from $119,105 for the nine months ended September 30,
2003. This increase in interest expense is attributable to the increase in
average borrowings and the reduction in interest expense as the mortgage
receivables are being repaid.
The net loss for the nine months ended September 30, 2004 was $1,025,835 as
compared to $219,520 for the nine months ended September 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 nine months ended September 30, 2004
were $0.37 compared to $0.08 for the same period last year. Earnings per share
were calculated based on the weighted average number of common shares as of
September 30, 2004 of 2,755,214 and September 30, 2003 of 2,755,370.
Liquidity and Capital Resources
The Company had a negative net change in cash of $1,116,5195 for the nine months
ended September 30, 2004. The majority of these funds were used to pay down bank
debt and funding working capital. Funds have been received from related
companies to reduce the mortgages outstanding.
Cash flows used in investing activities for the nine months ending September 30,
2004 were $352,777. 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. 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 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
None.
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
16