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, 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 June 30, 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
JUNE 30, 2005
(UNAUDITED)
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 1
Interim Consolidated Balance Sheets as of June 30, 2005
and December 31, 2004 2
Interim Consolidated Statements of Operations for the three months ended
June 30, 2005 and June 30,2004 3
Interim Consolidated Statements of Operations for the six months ended
June 30, 2005 and June 30,2004 4
Interim Consolidated Statements of Cash Flows for the six months ended
June 30, 2005 and June 30, 2004 5
Interim Consolidated Statements of Stockholders' Equity for the period
ended June 30, 2005 and December 31, 2004 6
Condensed Notes to Interim Consolidated Financial Statements 7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have reviewed the accompanying interim financial statements of Rosedale
Decorative Products Limited as of June 30, 2005 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, LLP
CHARTERED ACCOUNTANTS DECEMBER 29, 2005
1
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2005 AND DECEMBER 31, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
2005 2004
$ $
ASSETS
CURRENT ASSETS
Cash 240,041 773,493
Accounts receivable 1,928,368 1,253,990
Inventory 3,197,339 3,343,675
Prepaid expenses and sundry assets 76,267 63,707
Income taxes recoverable 9,955 10,151
Mortgages receivable - 119,367
--------- ---------
5,451,970 5,564,383
ADVANCES TO RELATED PARTY - 39,608
EQUIPMENT 1,888,789 2,271,983
--------- ---------
7,340,759 7,875,974
========= =========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 3,160,020 3,452,630
Accounts payable and accrued expenses 2,287,478 3,205,033
Current Portion Of Long Term Debt 46,916 -
--------- ---------
5,494,414 6,657,663
DUE TO DIRECTOR 150,586 -
ADVANCES FROM RELATED PARTY 78,170 -
LONG TERM DEBT 308,665 -
DEFERRED INCOME TAXES 10,593 10,801
--------- ---------
6,042,428 6,668,464
--------- ---------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,029,282 5,029,282
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCCUMULATED OTHER COMPREHENSIVE INCOME 322,416 344,835
DEFICIT (4,195,681) (4,308,921)
--------- ---------
1,298,331 1,207,510
--------- ---------
7,340,759 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 JUNE 30, 2005 AND JUNE 30, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Three-months Three-months
ended ended
June 30, June 30,
2005 2004
$ $
SALES 2,411,491 2,106,455
COST OF SALES 1,294,815 1,413,158
--------- ---------
GROSS PROFIT 1,116,676 693,297
--------- ---------
OPERATING EXPENSES
General and administrative 321,812 451,542
Selling 405,123 416,116
Design studio - 52,108
Amortization 175,307 154,050
Interest 58,525 39,783
Exchange gain on foreign exchange contracts (4,682) (16,053)
Gain on exchange (20,078) (8,468)
Consulting and refinancing 63,433 -
--------- ---------
TOTAL OPERATING EXPENSES 958,990 1,089,078
--------- ---------
NET INCOME (LOSS) 157,686 (395,781)
========= =========
Basic and Diluted Net Income (Loss) Per Share 0.06 (0.14)
========= =========
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 OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Six-months Six-months
ended ended
June 30, June 30,
2005 2004
$ $
SALES 4,511,047 4,427,684
COST OF SALES 2,540,095 2,871,555
--------- ---------
GROSS PROFIT 1,970,952 1,556,129
--------- ---------
OPERATING EXPENSES
General and administrative 626,337 946,905
Selling 756,650 918,888
Design studio - 100,451
Amortization 352,808 313,065
Interest 108,422 85,369
Exchange gain on foreign exchange contracts (25,839) (40,890)
Gain on exchange (24,100) (51,552)
Consulting and refinancing 63,434 -
--------- ---------
TOTAL OPERATING EXPENSES 1,857,712 2,272,236
--------- ---------
NET INCOME (LOSS) 113,240 (716,107)
========= =========
Basic and Diluted Income (Loss) Per Share 0.04 (0.26)
========= =========
Weighted average number of common shares
outstanding 2,755,214 2,755,214
========= =========
See condensed notes to the consolidated financial statements
4
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Six-months Six-months
ended ended
June 30, June 30,
2005 2004
$ $
Cash flows from operating activities:
Net Income (Loss) 113,240 (716,107)
--------- ---------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Amortization of equipment 352,808 313,065
Exchange gain on foreign exchange contracts (24,100) (40,891)
Increase in accounts receivable (674,377) (299,982)
Decrease in inventory 146,337 392,835
(Increase) decrease in prepaid expenses and sundry assets (12,560) 5,680
Increase (decrease) in accounts payable and accrued expenses (893,459) 427,597
Decrease in income taxes recoverable - (10,590)
--------- ---------
Total adjustments (1,105,353) 787,714
--------- ---------
Net cash provided by (used in) operating activities (992,111) 71,607
--------- ---------
Cash flows from investing activities:
Purchase of equipment (15,980) (246,900)
--------- ---------
Net cash used in investing activities (15,980) (246,900)
--------- ---------
Cash flows from financing activities:
Repayment of bank indebtedness (292,610) (997,939)
Advances from related party 117,778 14,308
Advances from director 150,586 -
Long Term Debt 355,581 -
Collection of mortgages receivable 119,367 118,687
--------- ---------
Net cash provided by (used in) financing activities 450,702 (864,944)
--------- ---------
Effect of foreign currency exchange rate changes 23,937 (74,115)
--------- ---------
Net decrease in cash (533,452) (1,114,352)
Cash beginning of year 773,493 1,312,534
--------- ---------
Cash, End of six month period ended June 30 240,041 198,182
========= =========
Income taxes paid - 8,474
========= =========
Interest paid 128,420 102,159
========= =========
See condensed notes to the consolidated financial statements
5
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 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 - - - - (22,419) (22,419)
Net income (loss) for the
Six-month period to
June 30, 2005 - - - 113,240 113,240 -
--------- --------- ------- --------- --------- -------
Balance as of June 30,
2005 2,755,214 5,029,282 142,314 (4,195,681) 90,821 322,416
========= ========= ======= ========= ========= =======
See condensed notes to the consolidated financial statements
6
ROSEDALE DECORATIVE PRODUCTS LTD.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 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 $1,092,000. As of June 30, 2005, the
indebtedness of this company amounted to $753,000. 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 $208,000 to guarantee the
debt of a related party.
3. BANK INDEBTEDNESS
The Company had available an operating line of credit to a maximum of
$3,264,000 ($4,000,000 Canadian) of which $2,924,000 was utilized at June
30, 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 $1,020,000
($1,250,000 Canadian) from the parent company supported by an assignment of
a $208,000 ($255,000 Canadian) cash deposit, guarantees from related
companies of up to a maximum of $2,733,000 ($3,350,000 Canadian), an
assignment of life insurance of $1,224,000 ($1,500,000 Canadian) on the
life of a key director, personal guarantee from a key director of up to
$816,000 ($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 June 30, 2005, the Company was not in compliance with
debt to tangible net worth ratio. The bank is aware that the Company is in
breach of this covenant.
7
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.
8
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
Three months ended June 30, 2005 as compared to three months ended June 30,
2004.
Revenues for the three months ended June 30, 2005 were $2,411,491, a 14.5%
increase over prior year revenues of $2,106,455. The second quarter showed
stable wallpaper sales with the majority of the increase coming from other
sectors such as ceiling panels, Mirroflex and store sales. To compensate for the
wallpaper market, 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,
2005 was 46.3%, as compared to the same period one-year ago of 32.9%. This
increase in gross profit margins can be attributed to a change in the sales mix
between room lot and case lot sales and increased retail sales.
Selling expenses have decreased by 2.6% to $405,123 for the three-month period
ended June 30, 2005 as compared to $416,116 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 28.7%, to
$321,812 for the three months period ended June 30, 2005 from $451,542 for the
three months ended June 30, 2004. Once again, planned reductions, including
substantial remuneration roll-backs have been implemented.
Design studio expenses for the Company decreased to $Nil for the three months
ended June 30, 2005 versus $52,108 for the same period last year. This decrease
relates to the closing of our design studio in Canada and England.
Interest expense for the Company for the three months ended June 30, 2005
increased to $58,525 from $39,783 for the three months ended June 30, 2004. This
increase in interest expense is attributable to the increase in our borrowing
rate.
The net income for the three months ended June 30, 2005 was $157,686 as compared
to a loss of $395,781 for the three months ended June 30, 2004. This income for
the period is attributable to the increased sales and margins and expense
reductions.
Basic and diluted income per share for the three months ended June 30, 2005 were
$0.06, the as compared to a loss of $0.14 last year. Earnings per share were
calculated based on the weighted average number of common shares as of June 30,
2005 of 2,755,214 and June 30, 2004 of 2,755,214 and shares.
Six months ended June 30, 2005 as compared to six months ended June 30, 2004.
Revenues for the six months ended June 30, 2005 were $4,511,047, a 1.9% increase
over prior year revenues of $4,427,684. The whole industry in North America has
seen a significant decline in wallpaper sales over the past few months. Revenues
have increased through retail and ancillary sales.
Gross profits as a percentage of revenue for the six months ended June 30, 2005
was 43.7%, as compared to the same period one-year ago of 35.1%. This Increase
in gross profit margins can be attributed to a change in sales mix between case
lot and room lot sales and increased retail sales as price increases were
instituted effective January 1, 2005.
Selling expenses have decreased by 17.7% to $756,650 for the six-month period
ended June 30, 2005 as compared to $918,888 for the same period last year. This
decrease relates to reduced expenses a conscious effort to reduce expenses to
reflect the drop in sales.
9
General and administrative expenses for the Company decreased by 33.8%, to
$626,337 for the six month period ended June 30, 2005 from $946,905 for the six
months ended June 30, 2004. Once again, reductions were achieved by substantial
cuts in remuneration packages and other expenses.
Design studio expenses for the Company decreased to $Nil for the six months
ended June 30, 2005 versus $100,451 for the same period last year. This decrease
relates to reduced expenses due to the closing of the Ontario studios.
Interest expense for the Company for the six months ended June 30, 2005
increased to $108,422 from $85,369 for the six months ended June 30, 2004. This
increase in interest expense is attributable to increased interest rates.
The net income for the six months ended June 30, 2005 was $113,241 as compared
to a loss of $716,107 for the six months ended June 30, 2004. The income for the
period is attributable to increased sales and margins and lower expenses.
Basic and diluted earnings per share for the six months ended June 30, 2005 were
$0.04 compared to a loss of $0.26 for the same period last year. Earnings per
share were calculated based on the weighted average number of common shares as
of June 30, 2005 of 2,755,214 and June 30, 2004 of 2,755,214.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative net change in cash of $533,452 for the six months
ended June 30, 2005. The majority of these funds were used to pay down bank debt
and accounts payable. Funds have been received from related companies to reduce
the mortgages outstanding, and an advance from a related party.
10
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
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.
11
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)
12
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
13