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, 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 September 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
SEPTEMBER 30, 2005
(UNAUDITED)
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 1
Interim Consolidated Balance Sheets as of September 30, 2005
and December 31, 2004 2
Interim Consolidated Statements of Operations for the three months ended
September 30, 2005 and September 30,2004 3
Interim Consolidated Statements of Operations for the nine months ended
September 30, 2005 and September 30,2004 4
Interim Consolidated Statements of Cash Flows for the nine months ended
September 30, 2005 and September 30, 2004 5
Interim Consolidated Statements of Stockholders' Equity for the period
ended September 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 September 30, 2005 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,LLP
December 29, 2005
Chartered Accountants
1
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
2005 2004
$ $
ASSETS
CURRENT ASSETS
Cash 230,463 773,493
Accounts receivable 2,148,360 1,253,990
Inventory 3,248,130 3,343,675
Prepaid expenses and sundry assets 78,749 63,707
Income tax recoverable 10,508 10,151
Mortgages receivable - 119,367
--------- ---------
5,716,210 5,564,383
ADVANCES TO RELATED PARTY - 39,608
EQUIPMENT 1,809,503 2,271,983
--------- ---------
7,525,713 7,875,974
========= =========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 3,231,040 3,452,630
Accounts payable and accrued expenses 2,474,328 3,205,033
Current portion long term debt 49,522 -
--------- ---------
5,754,890 6,657,663
ADVANCES FROM DIRECTOR 158,950 -
ADVANCES FROM RELATED PARTY 90,696 -
LONG TERM DEBT 325,812 -
DEFERRED INCOME TAXES 11,182 10,801
--------- ---------
6,341,530 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 383,972 344,835
DEFICIT (4,371,385) (4,308,921)
--------- ---------
1,184,183 1,207,510
--------- ---------
7,525,713 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 SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Three-months Three-months
ended ended
September 30, September 30,
2005 2004
$ $
SALES 1,929,132 2,253,899
COST OF SALES 1,123,730 1,484,777
--------- ---------
GROSS PROFIT 805,402 769,122
--------- ---------
OPERATING EXPENSES
General and administrative 306,231 411,106
Selling 373,559 391,958
Design studio - 45,968
Consulting and refinancing 18,141 -
Amortization 180,962 160,245
Interest 60,998 58,167
Exchange (gain) loss on foreign exchange contracts 21,180 (324)
Loss on exchange 20,036 6,913
Moving - 4,817
--------- ---------
TOTAL OPERATING EXPENSES 981,107 1,078,850
--------- ---------
NET LOSS (175,705) (309,728)
========= =========
Basic and Diluted Net Loss Per Share (0.06) (0.11)
========= =========
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 NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Nine-months Nine-months
ended ended
September 30, September 30,
2005 2004
$ $
SALES 6,440,179 6,681,583
COST OF SALES 3,663,825 4,356,332
--------- ---------
GROSS PROFIT 2,776,354 2,325,251
--------- ---------
OPERATING EXPENSES
General and administrative 932,568 1,358,011
Selling 1,130,209 1,310,846
Design studio - 146,419
Consulting and refinancing 81,574 -
Amortization 533,770 473,310
Interest 169,420 143,536
Exchange gain on foreign exchange contracts (4,659) (41,214)
Gain on exchange (4,064) (44,639)
Moving - 4,817
--------- ---------
TOTAL OPERATING EXPENSES 2,838,818 3,351,086
--------- ---------
NET LOSS (62,464) (1,025,835)
========= =========
Basic and Diluted Net Loss Per Share (0.02) (0.37)
========= =========
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 NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
Nine-months Nine-months
ended ended
September 30, September 30,
2005 2004
$ $
Cash flows from operating activities:
Net Loss (62,464) (1,025,835)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of equipment 533,770 473,310
Exchange gain on foreign exchange contracts (4,659) (41,214)
Increase in accounts receivable (894,368) (516,013)
Decrease in inventory 95,545 74,156
(Increase) decrease in prepaid expenses and sundry assets (15,042) 145,411
Increase (decrease) in accounts payable and accrued expenses (726,046) 333,814
Decrease in income taxes recoverable - 12,830
--------- ---------
Total adjustments (1,010,800) 482,294
--------- ---------
Net cash used in operating activities (1,073,264) (543,541)
--------- ---------
Cash flows from investing activities:
Purchase of equipment (18,517) (352,777)
--------- ---------
Net cash used in investing activities (18,517) (352,777)
--------- ---------
Cash flows from financing activities:
Repayment of bank indebtedness (221,590) (515,895)
Advances from related party 130,304 20,856
Advances from director 158,950 -
Long term debt 375,334 -
Collection of mortgages receivable 119,367 266,897
--------- ---------
Net cash provided by (used in) financing activities 562,365 (228,412)
--------- ---------
Effect of foreign currency exchange rate changes (13,614) 8,211
--------- ---------
Net decrease in cash (543,030) (1,116,519)
Cash, beginning of year 773,493 1,312,534
--------- ---------
Cash, end of nine month period ended September 30 230,463 196,015
========= =========
Income taxes paid - 8,474
========= =========
Interest paid 169,420 126,718
========= =========
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 SEPTEMBER 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 - - - - 39,137 39,137
Net loss for the
Nine-month period to
September 30, 2005 - - - (62,664) (62,664) -
--------- --------- ------- --------- --------- -------
Balance as of September 30,
2005 2,755,214 5,029,282 142,314 (4,371,385) (23,527) 383,972
========= ========= ======= ========= ========= =======
See condensed notes to the consolidated financial statements
6
ROSEDALE DECORATIVE PRODUCTS LTD.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 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 $1,152,000. As of September 30, 2005, the
indebtedness of this company amounted to $795,000. 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 $220,000 to guarantee the
debt of a related party.
3. BANK INDEBTEDNESS
The Company had available an operating line of credit to a maximum of
$3,445,000 ($4,000,000 Canadian) of which $3,087,000 was utilized at
September 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
$1,077,000 ($1,250,000 Canadian) from the parent company supported by an
assignment of a $220,000 ($255,000 Canadian) cash deposit, guarantees from
related companies of up to a maximum of $2,886,000 ($3,350,000 Canadian),
an assignment of life insurance of $1,292,000 ($1,500,000 Canadian) on the
life of a key director, personal guarantee from a key director of up to
$862,000 ($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 September 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 September 30, 2005 as compared to three months ended
September 30, 2004.
Revenues for the three months ended September 30, 2005 were $1,929,132, a 14.4%
decrease over prior year revenues of $2,253,899. 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, 2005 was 41.7%, as compared to the same period one-year ago of 34.1%. The
increase in gross profit margins can be attributed to a change in the sales mix
with higher sales volume in room lot business versus stocking sales.
Selling expenses have decreased by 4.7% to $373,559 for the three-month period
ended September 30, 2005 as compared to $391,958 for the same period last year.
This small decrease relates to reductions in expenses to compensate for the
lower sales being achieved including a reduction in sales staff.
General and administrative expenses for the Company increased by 25.5%, to
$306,231 for the three months period ended September 30, 2005 from $411,106 for
the three months ended September 30, 2004. The planned reductions included
substantial remuneration roll-backs.
Design studio expenses for the Company were nil for the three months ended
September 30, 2005 versus $45,968 for the same period last year. This decrease
relates to the closing of our design studio in Canada and in England.
Interest expense for the Company for the three months ended September 30, 2005
increased to $60,998 from $58,167 for the three months ended September 30, 2004.
This increase in interest expense is attributable to reduced interest income
from mortgage receivables.
The net loss for the three months ended September 30, 2005 was $175,705 as
compared to $309,728 for the three months ended September 30, 2004. This loss
for the period is attributable to the reduction in sales, partly offset by
higher margins and expense reductions.
Basic and diluted loss per share for the three months ended September 30, 2005
were $0.06, as 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 September 30, 2005 of 2,755,214 and September 30, 2004 of 2,755,214 shares.
Nine months ended September 30, 2005 as compared to nine months ended September
30, 2004.
Revenues for the nine months ended September 30, 2005 were $6,440,179, a 3.6%
decrease over prior year revenues of $6,681,583. 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, 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,
2005 was 43.1%, as compared to the same period one-year ago of 34.8%. This
increase in gross profit margins can be attributed to lower sales volume to the
U.S., and higher margins achieved from room lot sales.
9
Selling expenses have decreased by 13.8% to $1,130,209 for the nine-month period
ended September 30, 2005 as compared to $1,310,846 for the same period last
year. This decrease relates to the slump in sales and a conscious effort to
reduce expenses including promotion expenses, sales staff cuts and remuneration
roll-backs.
General and administrative expenses for the Company decreased by 31.3%, to
$932,568 for the nine month period ended September 30, 2005 from $1,358,011 for
the nine months ended September 30, 2004. Once again, reductions in remuneration
packages, rent from new premises and cutting the benefits package accounted for
most of these savings.
Design studio expenses were nil for the nine months ended September 30, 2005
versus $146,419 for the same period last year. This decrease relates to the
closing of the Ontario and England studio.
Interest expense for the Company for the nine months ended September 30, 2005
increased to $169,420 from $143,536 for the nine months ended September 30,
2004. 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, 2005 was $62,464 as
compared to $1,025,835 for the nine months ended September 30, 2004. 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, 2005
were $0.02 compared to $0.37 for the same period last year. Earnings per share
were calculated based on the weighted average number of common shares of
2,755,214 for both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative net change in cash of $543,030 for the nine months
ended September 30, 2005. 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.
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