<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: JUNE 30, 1997 Commission File Number: 0-28720
ROSE INTERNATIONAL LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 73-1479833
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7633 E 63RD PLACE, SUITE 220, TULSA, OKLAHOMA 74133
(Address of principal executive office)
100 WEST 5TH STREET, SUITE 601, TULSA, OKLAHOMA 74103
(Former address of principal executive office)
(918) 461-1667
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes...X.... No.........
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the close of the period covered by this report.
COMMON STOCK $0.01 PAR VALUE 7,525,000
---------------------------- ---------
Class Outstanding at
June 30, 1997
Transitional Small Business Disclosure Format: Yes ; No X
<PAGE> 2
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
No.
----
PART I. Financial Information
<S> <C>
Item 1. Condensed Consolidated Balance Sheets - 3
June 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Operations - 4
Three and Six Months Ended June 30, 1997 and 1996
Condensed Consolidated Statement of Stockholders' Equity - 5
Six Months Ended June 30, 1997
Condensed Consolidated Statements of Cash Flows - 6-7
Six Months Ended June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements - 8-10
Six Months Ended June 30, 1997 and 1996
Item 2. Management's Discussion and Analysis of 11-13
Financial Condition and Results of Operations
PART II. Other information 14
</TABLE>
2
<PAGE> 3
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 155,015 $ 248,457
Marketable equity securities 9,000 23,775
Receivables, net 1,249,741 1,198,121
Inventories 2,036,948 1,717,621
Prepaid expenses and other assets 64,263 49,888
Deferred income taxes 22,000 15,000
------------ ------------
Total current assets 3,536,967 3,252,862
Property and equipment, net 6,217,394 6,251,935
Goodwill, net of amortization 2,121,968 2,190,052
Investment in joint ventures 305,516 326,780
Other 7,670 8,782
------------ ------------
$ 12,189,515 $ 12,030,411
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,051,212 $ 742,569
Accrued liabilities 111,128 138,298
Current maturities of long-term obligations 104,012 101,595
------------ ------------
1,266,352 982,462
Long-term obligations 64,431 117,830
Deferred income taxes 781,000 784,000
Minority interest in subsidiary 3,835 1,435
STOCKHOLDERS' EQUITY
Common stock 75,250 75,250
Paid-in capital 11,995,048 11,995,048
Stock subscription receivable (1,798,000) (1,798,000)
Retained earnings (deficit) (151,766) (81,112)
Foreign currency translation adjustment (46,635) (46,502)
------------ ------------
Total stockholders' equity 10,073,897 10,144,684
------------ ------------
$ 12,189,515 $ 12,030,411
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES AND REVENUES $ 1,782,388 $ 1,566,316 $ 3,446,640 $ 3,445,951
COST OF SALES 1,479,766 1,194,242 2,753,499 2,554,466
----------- ----------- ----------- -----------
GROSS PROFIT 302,622 372,074 693,141 891,485
OTHER EXPENSE (INCOME)
Selling, general and administrative expense 414,287 281,417 720,861 594,398
Interest expense 6,809 10,016 15,112 27,051
Equity in (income) loss of joint ventures 33,631 12,363 21,131 71,847
Gain from sale of marketable equity securities -- -- -- (167,123)
Unrealized loss on marketable equity securities 3,596 -- 14,775 --
Interest and other income (534) (4,552) (484) (5,060)
----------- ----------- ----------- -----------
457,789 299,244 771,395 521,113
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST (155,167) 72,830 (78,254) 370,372
INCOME TAX EXPENSE (46,000) 37,000 (10,000) 167,000
----------- ----------- ----------- -----------
EARNINGS BEFORE MINORITY INTEREST (109,167) 35,830 (68,254) 203,372
MINORITY INTEREST 1,100 -- 2,400 --
----------- ----------- ----------- -----------
NET EARNINGS $ (110,267) $ 35,830 $ (70,654) $ 203,372
=========== =========== =========== ===========
NET EARNINGS PER SHARE $ (0.01) $ 0.01 $ (0.01) $ 0.03
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 7,525,000 6,525,000 7,525,000 6,150,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Stock Foreign
Common Stock Paid-in Subscription Accumulated Currency
Shares Par Value Capital Receivable Deficit Adjustment Total
------ --------- ------- ---------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 7,525,000 $ 75,250 $ 11,995,048 $(1,798,000) $ (81,112) $(46,502) $10,144,684
Net earnings (loss) (70,654) (70,654)
Foreign currency translation (133) (133)
adjustment
---------- -------- ------------ ----------- --------- -------- -----------
7,525,000 $ 75,250 $ 11,995,048 $(1,798,000) $(151,766) $(46,635) $10,073,897
========== ======== ============ =========== ========= ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (70,654) $ 203,372
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 203,017 190,352
Deferred income taxes (10,000) 167,000
Foreign operations, net 21,131 100,847
Unrealized loss on marketable equity securities 14,775 --
Interest accrued -- 6,473
Minority interest 2,400 --
Changes in assets and liabilities:
Marketable equity securities -- 213,348
Receivables (33,880) (212,531)
Inventories (319,327) (409,983)
Prepaid and other assets (14,375) (214)
Accounts payable and accrued liabilities 281,471 309,475
--------- ---------
Net cash provided by (used in) operating activities 74,558 568,139
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (99,278) (179,348)
Subsidiary investment -- (75,000)
--------- ---------
Net cash provided by (used in) investing activities (99,278) (254,348)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Collection of stock subscription receivable -- 202,000
Repayment of parent loan -- (221,859)
Advances to officers and employees (17,740) --
Loan principal repayments (50,982) (177,186)
--------- ---------
Net cash provided by (used in) financing activities (68,722) (197,045)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (93,442) 116,746
248,457 178,669
--------- ---------
$ 155,015 $ 295,415
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $15,112 $27,051
======= =======
Income taxes paid $ - $ -
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Rose International Ltd.
include the accounts of Rose International Ltd. ("Rose Ltd."), its
wholly-owned subsidiaries, Rose Color, Inc. ("Rose Color") and SPS
Alfachem, Inc. ("SPS") and the 80% owned subsidiary of Rose Color, JBW
International, Inc. ("JBW"). Rose Ltd. is a majority-owned subsidiary
of M&M Group, Inc. ("M&M"). (Rose Ltd. and its subsidiaries are
collectively referred to as the "Company").
The financial statements included in this report have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation. These
financial statements have not been audited. The consolidated balance
sheet at December 31, 1996 included in this report has been derived
from the audited consolidated balance sheet.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. The Company believes that
the disclosures contained herein are adequate to make the information
presented not misleading. However, these financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report for the year ended December 31,
1996, which is included in the Company's Form 10-KSB which was filed in
April 1997. The financial data for the interim periods presented may
not necessarily reflect the results to be anticipated for the complete
year. Certain reclassifications of the amounts presented for the
comparative period have been made to conform to the current
presentation.
B. MARKETABLE SECURITIES
As of June 30, 1997, the Company has an investment in marketable equity
securities which are classified as trading securities. As of June 30,
1997 the cost of $32,724 exceed the fair value of the securities by
$23,724. A loss in the amount of $14,775 is recognized during the
current period, while the remainder was recognized during 1996.
C. LONG-TERM OBLIGATIONS
During the six months ended June 30, 1997, the Company reduced
long-term obligations by $50,982. The Company did not add any
additional long-term obligations during the period.
D. COMMON STOCK AND COMMON STOCK OPTIONS
On August 7, 1995 the Board of Directors of the Company authorized an
Incentive Stock Option Plan (the "Plan") which for a term of ten years
provides that one million shares of
8
<PAGE> 9
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the Company's common stock be reserved for issuance to selected key
employees and consultants. The Plan is to be administered by a
compensation committee composed of two directors of the Company, and
this committee may grant no more than three hundred thousand shares of
common stock to any one individual at a price based on the fair market
value of the shares at the date of grant. The grant may be exercised
over a ten year period, in not less than one thousand share lots and
when exercised, the stock must be held for six months prior to sale.
The options may be exercised only by the person to whom the option is
granted and the Plan may be modified by the Board of Directors at any
time. At June 30, 1997 the Company had granted options outstanding
totaling 450,000 shares for ten years at an exercise price of $1.00 per
share in accordance with the Plan, none of which had been exercised.
On August 10, 1995 the Board of Directors adopted a 1995-1996
Nonstatutory Stock Option Plan for its officers, directors, key
employees and consultants reserving 500,000 common shares for this
option plan, which expired December 31, 1996. The options may be
granted at prices determined by the compensation committee, which
administers this plan, and may be exercised upon grant and paid for at
the discretion of the Compensation Committee, with any unpaid amounts
for shares received being evidenced by promissory notes. At June 30,
1997 the Company had outstanding grants which totaled 355,000 shares at
an average exercise price of $2.11 per share, none of which had been
exercised.
Common stock options do not have an impact on primary earnings per
share or fully-diluted earnings per share as the average trading price
and the ending trading price has approximated or been less than the
lowest exercise price of the common stock options.
E. INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. SFAS No. 109 requires that a valuation allowance be
established to reduce deferred tax assets to the amount that is more
likely than not to be realized.
9
<PAGE> 10
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Deferred income taxes result primarily from temporary differences in
recognizing depreciation expense and foreign operations for tax and
financial reporting purposes.
The following reconciles the Company's expected income tax expense
utilizing statutory tax rates to the actual tax expense for the six
month periods ended June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Tax expense at federal statutory rate $(27,000) $126,000
Non-deductible goodwill amortization 22,000 22,000
State income tax, net of federal benefit (5,000) 19,000
-------- --------
Total income tax expense $(10,000) $167,000
-------- --------
</TABLE>
10
<PAGE> 11
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL
The Company had working capital of $2,270,615 at June 30, 1997 as
compared to $2,270,400 at December 31, 1996. Working capital has
remained constant during the current period with inventory increases
being offset by accounts payable increases, which is consistent with
the continuing expansion of the product range offered by the Company.
During the six months ended June 30, 1997, cash flow from operating
activities was $74,558 and cash flow used in investing activities was
$99,278 while financing activities used $68,722, resulting in a
decrease in cash of $93,442. During the same 1996 period, cash flow
from operating activities was $568,139 and cash used in investing
activities was $254,348, while financing activities used cash in the
amount of $197,045, which resulted in an increase in cash of $116,746.
The higher cash flow from operations in the 1996 period was primarily
from the proceeds received from the sale of marketable securities and
the difference in net earnings.
During the six months ended June 30, 1997, the Company incurred $99,278
for capital expenditures. The Company has a capital expenditure plan
which calls for a total investment of approximately $1,200,000 during
1997 and 1998, as the funds become available. Some of the planned
investment may be delayed, depending upon the availability of funds.
The major items included in the capital expenditure budget include
construction of a semi-automatic waste treatment facility, the
replacement of older reactors and added storage, the purchase of
additional equipment to be utilized in expanding powder dye production,
the construction of a pilot plant and laboratory and office equipment.
B. RESULTS OF OPERATIONS
The operations of the Company are all within one segment, the
manufacture and marketing of chemicals.
SALES AND COSTS OF SALES
Total revenues were the same during the six month period ended June 30,
1997, as compared to the same period in 1996. The gross profit margin
during the six months ended June 30, 1997 was 20% as compared to 26%
during the same period in 1996. Total revenues increased 14% during the
three month period ended June 30, 1997, as compared to the same period
in 1996. The gross profit margin during the three months ended June 30,
1997 was 17% as compared to 24% during the same period in 1996.
The manufacture and sale of a wider variety of dyes is not without its
cost. The efficiencies gained when producing the same product on a
fairly continuous basis are lost when the manufacturing effort
emphasizes a larger variety of dyes.
The Passaic Valley Sewerage Commissioners (PVSC) on June 9, 1997
obtained a Temporary Restraining Order on Rose Color, for alleged
transgressions of the sewer
11
<PAGE> 12
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
permit. Rose Color has fully cooperated with PVSC in investigating the
complaints and taking agreed remedial action. A draft consent order has
been forwarded to PVSC for their approval. Production during the period
from June 9, 1997 to present was severely reduced while the
investigation was underway and this resulted in a loss of overhead
recovery, loss of sales opportunities, additional capital expenditure
and the spoiling of three batches of product due to delays in the
production cycles. Rose Color has a defined plan to restore production
levels and ensure compliance with PVSC requirements.
OTHER EXPENSE (INCOME)
Selling, general and administrative expense increased $126,463 (21%)
during the six months ended June 30, 1997 as compared to the same 1996
period and increased $132,870 (47%) during the three months ended June
30, 1997 as compared to the same 1996 period. The $126,000 increase
during the six months ended June 30, 1997 includes an increase of
$78,000 in Rose Ltd. and $59,000 in SPS which was partially offset by a
decrease at Rose Color in the amount of $11,000. The Rose Ltd. increase
includes $40,000 in audit costs, $28,000 in payroll costs and $10,000
in other general office costs. These costs were all borne by Struthers
Industries, Inc. during the 1996 period. The decline in Rose Color's
selling, general and administrative costs is primarily the result of
reduced legal expenses of $50,000, which was partially offset by
increased administrative costs associated with Rose Color's new pigment
dye division. The $59,000 increase in SPS administrative and selling
costs is primarily due to being active during the full 1997 period
while SPS was only active approximately 6 weeks during the 1996 period.
Interest expense during the six month period ended June 30, 1997 is
approximately one-half the amount incurred during the same 1996 period.
The reduction in interest expense is primarily due to the reduction of
debt during the period.
The Company realized a gain of $167,123 from the sale of marketable
equity securities during the first quarter of 1996. The Company did not
have any sale transactions during the comparable 1997 periods.
12
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Passaic Valley Sewerage Commissioners (PVSC) on June 9, 1997
obtained a Temporary Restraining Order on Rose Color, for alleged
transgressions of the sewer permit. Rose Color has fully cooperated
with PVSC in investigating the complaints and taking agreed remedial
actions. A draft consent order has been forwarded to PVSC for their
approval.
Items 2 through 5 of Part II have been omitted as not required, not
significant, or because the information has been previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - Not applicable
SIGNATURE
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.
ROSE INTERNATIONAL LTD.
Date: August 11, 1997 By: /s/ G. David Gordon
------------------------- ---------------------------
G. David Gordon
President and Principal
Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (a)
FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND FOR THE SIX MONTH PERIOD THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (b) FORM 10-QSB FOR THE
QUARTER ENDED JUME 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 155,015
<SECURITIES> 9,000
<RECEIVABLES> 1,279,741
<ALLOWANCES> 30,000
<INVENTORY> 2,036,948
<CURRENT-ASSETS> 3,536,967
<PP&E> 7,087,586
<DEPRECIATION> 870,192
<TOTAL-ASSETS> 12,189,515
<CURRENT-LIABILITIES> 1,266,352
<BONDS> 0
0
0
<COMMON> 75,250
<OTHER-SE> 10,150,413
<TOTAL-LIABILITY-AND-EQUITY> 12,189,515
<SALES> 3,446,640
<TOTAL-REVENUES> 3,446,640
<CGS> 2,753,499
<TOTAL-COSTS> 2,753,499
<OTHER-EXPENSES> 756,767
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,112
<INCOME-PRETAX> (80,654)
<INCOME-TAX> (10,000)
<INCOME-CONTINUING> (70,654)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,654)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
