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, 2005
[ ] 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[ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
As of March 31, 2005, 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, 2005
(UNAUDITED)
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 1
Interim Consolidated Balance Sheets as of March 31, 2005
and December 31, 2004 2
Interim Consolidated Statements of Operations for the three months ended
March 31, 2005 and March 31,2004 3
Interim Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and March 31, 2004 4
Interim Consolidated Statements of Stockholders' Equity for the period
ended March 31, 2005 and December 31, 2004 5
Condensed Notes to Interim Consolidated Financial Statements 6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have reviewed the accompanying interim financial statements of Rosedale
Decorative Products Limited as of March 31, 2005 and the three-month period 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,LLP
Chartered Accountants
December 29, 2005
1
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
2005 2004
$ $
ASSETS
CURRENT ASSETS
Cash 205,227 773,493
Accounts receivable 1,746,338 1,253,990
Inventory 3,149,477 3,343,675
Prepaid expenses and sundry assets 57,660 63,707
Income taxes recoverable 10,087 10,151
Mortgages receivable - 119,367
--------- ---------
5,168,789 5,564,383
ADVANCES TO RELATED PARTY - 39,608
EQUIPMENT 2,081,104 2,271,983
--------- ---------
7,249,893 7,875,974
========= =========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 3,088,246 3,452,630
Accounts payable and accrued expenses 2,874,841 3,205,033
--------- ---------
5,963,087 6,657,663
DUE TO DIRECTORS 49,238 -
ADVANCES FROM RELATED PARTY 72,005 -
DEFERRED INCOME TAXES 10,733 10,801
--------- ---------
6,095,063 6,668,464
--------- ---------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,029,282 5,029,282
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCCUMULATED OTHER COMPREHENSIVE LOSS 336,601 344,835
ACCUMULATED DEFICIT (4,353,367) (4,308,921)
----------- -----------
Total Stockholders' Equity 1,154,830 1,207,510
----------- -----------
Total Liabilities and Stockholders' Equity 7,249,893 7,875,974
=========== ===========
See condensed notes to the consolidated financial statements
2
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Three-months Three-months
ended ended
March 31, March 31,
2005 2004
$ $
SALES 2,099,556 2,321,229
COST OF SALES 1,245,280 1,458,397
--------- ---------
GROSS PROFIT 854,276 862,832
--------- ---------
OPERATING EXPENSES
General and administrative 304,525 495,363
Selling 351,527 502,772
Design studio - 48,343
Amortization 177,501 159,015
Interest expense 49,897 45,585
Consulting and refinancing 40,450 -
Exchange gain on foreign exchange contracts (21,157) (24,928)
Gain on exchange (4,021) (42,992)
--------- ---------
TOTAL OPERATING EXPENSES 898,722 1,183,158
--------- ---------
NET LOSS (44,446) (320,326)
========= =========
Basic and Diluted Net Loss Per Share (0.02) (0.12)
========= =========
Weighted average number of common shares
outstanding 2,755,214 2,755,214
========= =========
See condensed notes to the consolidated financial statements
3
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Three-months Three-months
ended ended
March 31, March 31,
2005 2004
$ $
Cash flows from operating activities:
Net loss (44,445) (320,326)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of equipment 177,501 159,015
Exchange gain on foreign exchange contracts (21,157) (24,928)
Increase in accounts receivable (492,349) (646,011)
(Increase) decrease in inventory 194,199 (59,448)
(Increase) decrease in prepaid expenses and sundry assets 6,048 (30,194)
Increase (decrease) in accounts payable and accrued expenses (309,038) 554,498
Decrease in income taxes recoverable - (3,968)
--------- ---------
Total adjustments (444,796) (51,036)
--------- ---------
Net cash used in operating activities (489,241) (371,362)
--------- ---------
Cash flows from investing activities:
Purchase of equipment (3,461) (144,086)
--------- ---------
Net cash used in investing activities (3,461) (144,086)
--------- ---------
Cash flows from financing activities:
(Repayment of) proceeds from bank indebtedness (364,385) 55,395
Proceeds from mortgage receivable 119,367 -
Advances from (to) related party 111,613 (13,963)
Due to directors 49,238 -
--------- ---------
Net cash provided by (used in) financing activities (84,167) 41,432
--------- ---------
Effect of foreign currency exchange rate changes 8,603 56,664
--------- ---------
Net decrease in cash (568,266) (417,352)
Cash beginning of year 773,493 1,173,570
--------- ---------
Cash, end of three month period ended March 31 205,227 756,218
========= =========
Income taxes paid - -
========= =========
Interest paid 60,162 37,123
========= =========
See condensed notes to the consolidated financial statements
4
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED MARCH 31, 2005 AND DECEMBER 31, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Common Accumulated
Stock Common Additional Retained Other
Comprehensive Number of Stock Paid-in Earnings Comprehensive Income
Income (loss) Shares Amount Capital (deficit) (loss)
- -------------------------- ---------- --------- ---------- ---------- ------------- -----------
$ $ $ $ $
Balance as of December 31,
2003 2,755,214 5,029,282 142,314 (2,315,928) - 288,142
Foreign currency translation - - - - 56,693 56,693
Net income for the year - - - (1,992,993) (1,992,993) -
--------- --------- ------- ----------- ----------- --------
Balance as of December 31,
2004 2,755,214 5,029,282 142,314 (4,308,921) (1,936,300) 344,835
========= ========= ======= =========== =========== ========
Foreign currency translation - - - - (8,234) (8,234)
Net loss for the
three-month period to
March 31, 2005 - - - (44,446) (44,446) -
--------- --------- ------- ----------- ----------- --------
Balance as of March 31,
2005 2,755,214 5,029,282 142,314 (4,353,367) (52,680) 336,601
========= ========= ======= =========== =========== ========
See condensed notes to the consolidated financial statements
5
ROSEDALE DECORATIVE PRODUCTS LTD.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(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, 2005. 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. up to $1,106,000. As at March 31,2005, the
indebtedness of this company amounted to $763,000. This loan was made
to purchase life insurance, a portion of which represents the keyman
life insurance policy for which the company is beneficiary.
b) The company has issued standby letters of credit in favour of the
Laurentian Bank of Canada in the amount of $211,000.
3. BANK INDEBTEDNESS
The Company had available an operating line of credit to a maximum of
$3,307,000 ($4,000,000 Canadian) of which $2,415,000 was utilized at March
31, 2005. The operating line bears interest at either the National Bank of
Canada's ("bank") Canadian prime rate or the bank's U.S. base rate plus
4.00%. The debt is secured by a general assignment of book debts, a pledge
of inventories under section 427 of the Bank Act, a general security
agreement providing a first floating charge over all assets of the Company,
a guarantee and postponement of claim of up to a maximum of $1,033,000
($1,250,000 Canadian) from the parent company supported by an assignment of
a $211,000 ($255,000 Canadian) cash deposit, guarantees from related
companies of up to a maximum of $2,770,000 ($3,350,000 Canadian), an
assignment of life insurance of $1,240,000 ($1,500,000 Canadian) on the
life of a key director, personal guarantee from a key director of up to
$827,000 ($1,000,000 Canadian), postponement of claim from this director
and an assignment of fire insurance.
The provisions under the banking agreement require the Company to
periodically meet certain restrictive financial covenants and margin
requirements. As at March 31, 2005, the Company was in compliance with
these financial covenants and margin requirements.
6
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.
7
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
Three months ended March 31, 2005 as compared to three months ended March
31, 2004.
Revenues for the three months ended March 31, 2005 were $2,099,556, a 9.5%
decrease over prior year revenues of $2,321,229. 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. 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, 2005 was 40.7%, as compared to the same period one-year ago of 37.2%.
This increase in gross profit margins can be attributed to a change in the
sales mix and price increases introduced at the beginning of the year.
Selling expenses have decreased by 30.1% to $351,527 for the three-month
period ended March 31, 2005 as compared to $502,772 for the same period
last year. This decrease relates to major cuts instituted with reductions
in personnel and the attendance at trade shows. Steps have been taken to
reduce sales expenses even further in the remainder of 2005, with further
cuts to promotional costs and travel.
General and administrative expenses for the Company decreased by 38.5%, to
$304,525 for the three months period ended March 31, 2005 from $495,363 for
the three months ended March 31, 2004. Reductions in salaries account for
the majority of the savings. Further cuts have been put in place to reduce
expenses as a whole.
Design studio expenses for the Company decreased 100% to Nil for the three
months ended March 31, 2005 versus $48,343 for the same period last year.
This decrease is attributable to the closing of Ontario's design studio in
January 2004.
Interest expense for the Company for the three months ended March 31, 2005
increased to $49,897 from $45,585 for the three months ended March 31,
2004. This increase in interest expense is attributable to increased
average borrowing rates for the quarter.
The net loss for the three months ended March 31, 2005 was $44,446 as
compared to $320,326 for the three months ended March 31, 2004. Better
margins and lower expenses led to the turnaround.
Basic and diluted loss per share for the three months ended March 31, 2005
were $0.02 compared $0.12 for the same period last year. Earnings per share
were calculated based on the weighted average number of common shares as of
2,755,214 for both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative net change in cash of $568,266 for the three
months ended March 31, 2005 with the repayment of bank debt and a decrease
in accounts payable creating the majority of the movement.
Proceeds from Mortgage Receivable and advances from a related party created
positive financing activities.
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, or
CEO, who is also the
8
acting chief financial officer, or CFO, of the effectiveness of the design
and operation of our disclosure procedures. Based on management's
evaluation as of the end of the period covered by this Report, our
principal executive officer and chief financial officer has 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 except as disclosed.
9
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
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14
and Rule 15d-14(a), promulgated under the Securities and Exchange Act of
1934, as amended
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14
and Rule 15d-14(a), promulgated under the Securities and Exchange Act of
1934, as amended
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)
10
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: January 25, 2006 By: /s/ Sidney Ackerman
-----------------------
Sidney Ackerman
President
Date: January 25, 2006 By: /s/Norman G. Maxwell
------------------------
Norman G. Maxwell
Chief Financial Officer
11