<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1996. Commission File No. 0-28720.
ROSE INTERNATIONAL LTD.
(Exact name of small business issuer in its charter)
DELAWARE 73-1479833
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7633 EAST 63RD PLACE, SUITE 220, TULSA, OKLAHOMA 74133
(Address of principal executive office)(Zip Code)
Issuer's telephone number - (918) 461-1667
Securities registered under Section 12 (b) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of each class)
NONE
(Name of each exchange on which registered)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X ; No ___ .
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $6,698,612
As of March 31, 1997, the registrant had outstanding 7,522,243 shares of its
Common Stock, par value of $0.01, its only class of voting securities. The
aggregate market value of the shares of common stock of the registrant held by
non-affiliates on March 31, 1997 was approximately $1,988,000 bases upon the
average over the counter sales price on such date (See Item 5).
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Report except those
Exhibits so incorporated as set forth in the Exhibit Index.
Transitional Small Business Disclosure Format (Check one): Yes ___ ; No X .
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Rose International Ltd. ("Rose" or "the Company") is a Delaware
corporation organized on August 9, 1995. Rose, following its formation, merged
with Rose International Inc. a/k/a Global Ecosystems, Inc. a Utah corporation
organized on July 27, 1993 pursuant to an Agreement of Merger. Rose then
acquired 100% of the issued and outstanding shares of Rose Color, Inc. ("RCI").
Rose acts primarily as a non-operating holding company which oversees the
operations of its subsidiaries and joint ventures.
Rose has two wholly-owned subsidiaries. RCI, a New Jersey corporation,
organized on December 2, 1987, and SPS Alfachem, Inc. ("SPS"), a New Jersey
corporation, organized on May 22, 1995 and acquired May 14, 1996. Effective July
1, 1994, RCI acquired 80% of the outstanding stock of JBW International, Inc.
ACQUISITIONS
ROSE COLOR, INC. - Effective August 9, 1995, the Company acquired all
of the issued and outstanding common stock of RCI, a New Jersey corporation
located in Newark, New Jersey. RCI is engaged in the manufacturing and marketing
of a wide range of specialty organic chemical dyes and certain chemical
intermediates associated with its production of dye products to the petroleum
and plastics industries.
The acquisition of RCI was accounted for by the purchase method of
accounting with the assets and liabilities acquired being recorded at their fair
value as of the effective date of the acquisition. Rose issued 4,500,000 shares
of common stock to acquire 100% of the outstanding stock of RCI.
MARKETING AND COMPETITION
RCI is primarily engaged in the manufacturing and marketing of
specialty organic chemical dyes used principally in the petroleum and plastics
industries, although the inks, coating and other industries using specialty dyes
are also served. In addition, RCI markets certain chemical intermediates
associated with its dye production and pigments. Sales are made primarily for
negotiated prices to both domestic and foreign companies.
RCI sells its products into the petroleum market primarily through two
unrelated Great Lakes Corporation companies. The Associated Octel Company
Limited (England), for sales outside North America and its subsidiary, Octel
America (acquired in 1994 from DuPont and formerly its Petroleum Additives
Division), for sales in North America. With their long association with the
petroleum market, these two companies offer considerable market coverage of this
industry.
RCI markets its products to the plastics market both directly and
through co-manufacturers and various distributors who sell under their own trade
names. RCI currently retains one sales professional who is primarily in the
non-petroleum sector. The executive officers of the Company also are active in
fulfilling sales duties.
During the fiscal year ended December 31, 1996, three customers
accounted for 36%, 16% and 13% of revenues, respectively, while during the year
ended December 31, 1995, two customers accounted for 44% and 17% of total
revenues, respectively. A loss of one of the major customers of RCI would have
an adverse impact on operations.
Mafatlal Rose Color Industries Limited ("MRCI") is a joint venture in
which RCI is a 49% partner with Indian Dyestuff Industries Limited ("IDI"),
India's largest manufacturer of dyes and related intermediates. MRCI was formed
to erect a plant in Baroda, India to manufacture specialty dyes. The first phase
of a possible three phase complex became operational in the fourth quarter of
1995 and is capable of supplying approximately 500 metric tons (1.1 million
pounds) of dyes that both enhance and complement the ranges of dyes made by RCI.
MRCI is responsible
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for marketing petroleum dyes in India and will also work with Associated Octel
in markets outside of North America. RCI expanded its production capacity with
plant and equipment that allows for improved manufacturing flexibility and cost
reduction. This expansion became operational during the second quarter of 1995.
Although estimates of the demand for colorants in the United States
vary, based upon the United States International Trade Commission reports and
various other reports, the total market in terms of total annual revenue is
estimated at approximately $2 billion, with dyes comprising $1.2 billion and
pigments $800 million. Solvent dyes represent a market of approximately $70
million annually, of which $40 million is produced domestically.
During the first half of 1994, off-road, untaxed diesel fuel was
colored blue. The blue dye required high concentrate levels to meet colorization
requirements. Based upon using the blue dye, the market for petroleum dyes which
was approximately $50 million in 1993 was expected to reach at least $150
million in 1994. However, in June 1994, the Federal Aviation Authority objected
to the use of blue coloration because it is also the same color used for low
lead high octane aviation fuel. The Environmental Protection Agency upheld the
FAA objection on safety grounds and mandated that by October 1, 1994 all
non-taxable off-road diesel be colored with Solvent Red 164 (RCI product Red
614). In early 1994, RCI began successful production of the red petroleum dye,
which is a lower-priced dye than the blue dye and for which colorization
standards require lower concentrate levels. Intense pricing competition between
RCI's two principal competitors developed over the last six months of 1994 and
continued through 1995 and 1996, which has impacted RCI's pricing. The net
result is a reduction in the annual market sales value for petroleum dyes to
around $20 to $25 million. The world market for petroleum dyes is estimated to
be just over $100 million annually. RCI also sells into the Italian market
through a distributor and estimates that it currently has a 12-15% market share
in Italy. RCI estimates its market share of the domestic market for petroleum
dyes to be approximately 10% and approximately 6% for all solvent dyes.
RCI has implemented a development program to both improve the economics
of manufacturing existing products and to introduce a number of new plastic, ink
and petroleum dyes which will increase the ability of RCI to compete in its
present market and develop products for new markets.
There are limited numbers of manufacturers of petroleum dyes: RCI,
together with MRCI and IDI, have positioned themselves to be a reliable and cost
competitive supply source worldwide. RCI benefits in the supply of some key raw
materials through its relationship with IDI and also maintains regular contact
with other principal suppliers to ensure the availability of such raw materials
at an optimum cost.
Research and development expenditures increased starting in 1995 so
that management could achieve its objectives of developing a broader range of
products for sale, continue the development of existing products and offer
effective technical support to the major industries served. RCI estimates that
product development and quality control costs have been approximately $250,000
during 1996 and $150,000 during 1995.
RCI is affected by the actions of federal, state and local government
agencies. These agencies can directly or indirectly impact the prices at which
RCI purchases goods and services, such as tariffs on imported goods, water and
electricity. RCI cannot predict what effect new regulations or changes to
existing regulations may have on the future costs of such items. The products
produced by RCI, the raw materials used to produce these products and the
manufacturing processes employed by RCI are subject to control under various
federal health, safety and environmental laws and regulations. These laws and
regulations include, but are not limited to, the Toxic Substances Control Act,
the Clean Air Act, the Resource Conservation and Recovery Act, the Federal Water
Pollution Control Act (Clean Water Act), the Comprehensive Environmental
Response Act, the Compensation and Liability Act, the Superfund Amendments and
Reauthorization Act and the Occupational Safety and Health Act. In addition, RCI
is regulated by the New Jersey Department of Environmental Protection and
Energy, the Passaic Valley Sewerage Commission, the Suburban Regional Health
Commission and the City of Newark. RCI holds various operating permits required
by these laws and regulations and is currently unaware of any violations that
may exist.
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RCI may have to make changes to its processes or equipment to comply
with future changes in these regulations. Additionally, regulatory changes could
also impact suppliers of raw materials. RCI cannot predict how future changes
may impact its current or planned operations, or those of its suppliers, but
does expect to continue emphasizing environmental controls over manufacturing
processes.
As of December 31, 1996, Rose had 3 employees, RCI had 26 full time
employees including one sales consultant and SPS had one employee. The
production facility operates 24 hours per day utilizing three shifts. The
laboratory currently operates two shifts and is available on a 24 hour basis as
needed.
ITEM 2. DESCRIPTION OF PROPERTIES
EXECUTIVE OFFICES AND OTHER PROPERTIES
The Company's corporate headquarters are presently located at 7633 East
63rd Place, Suite 220, Tulsa, Oklahoma, 74133. Commencing February 1, 1997, the
Company subleased its offices on a month to month basis at a rate of $1,350 per
month for approximately 1,100 square feet, from G. David Gordon & Associates,
P.C., the firm for which the Company' s President, G. David Gordon, is the
owner.
RCI's manufacturing facility is located at 170 Blanchard Street,
Newark, New Jersey and consists of three buildings with approximately 80,000
square feet of office, laboratory, production and storage areas. The buildings
are in sound condition and the complex is totally surfaced and enclosed with a
perimeter fence. The existing electrical power, gas and water are sufficient for
the current use, and all wiring and electrical fixtures are explosion proof. The
facility has received Environmental Cleanup Responsibility Act approval from the
State of New Jersey and is located with convenient access to major roadways and
to ocean shipping, being less than one mile from exit 15E of the New Jersey
Turnpike and close to the Port of Newark dock facilities. The property is
adequately insured and there are no mortgages or other encumbrances on this
property.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings
other than ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) MARKET INFORMATION - The Company's common stock began trading on August 11,
1995 and is presently traded on the NASDAQ Bulletin Board under the symbol,
"DYES". The following table sets forth the high and low bid prices for the
Company's Common Stock for the six quarters ended December 31, 1996.
<TABLE>
<CAPTION>
1995
High Low
---- ---
<S> <C> <C>
Quarter ended March 31, 1995 N/A N/A
Quarter ended June 30, 1995 N/A N/A
Quarter ended September 30, 1995 3 1/16 3 1/16
Quarter ended December 31, 1995 4 1/32 4 1/32
1996
Quarter ended March 31, 1996 4 3/4 2 1/2
Quarter ended June 30, 1996 3 3/4 3/4
Quarter ended September 30, 1996 1 3/4 3/4
Quarter ended December 31, 1996 1 3/8 5/8
</TABLE>
(b) HOLDERS - As of December 31, 1996, there were approximately 274 holders of
record of the Company's common stock, an undetermined number of which represent
more than one individual participant in securities positions with the Company.
(c) DIVIDENDS - The Company has not previously paid cash dividends on its common
stock, and intends to utilize current resources to expand; thus, it is not
anticipated that cash dividends will be paid on the Company's common stock in
the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
During the year ended December 31, 1996, the Company's primary business
from the manufacture and marketing of organic chemical dyes accounted for
approximately 98% of total revenues while SPS, the organization through which
the Company will produce and supply fine chemicals, pharmaceutical intermediates
and agrochemicals, as well as, offer custom and toll product development and
manufacturing capabilities accounted for the remaining 2%.
RESULTS OF OPERATIONS
Revenues increased 19% during 1996 as compared to 1995. Approximately
16% of this increase was from dye manufacturing and marketing while the
remaining 3% of the increase was from the initial fine chemical sales from SPS.
The Company realized gross profit in the amount of 21% during 1996 as compared
to 20% during 1995.
The principal area of growth in dye manufacturing and marketing
revenues has been in powder dyes, which accounted for 95% of the revenue
increase. During 1996 powder dye revenues represented 43% of total revenues
while during 1995 it represented 36%.
The diversification of product mix has been one of the principal goals
of the Company, primarily to reduce the dependence upon Red 164 dye sales.
During 1996, Red 164 dye sales represented 29% of total dye sales as
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compared to 34% during 1995. Total red dye sales remained relatively constant
during 1996 as compared to 1995.
Selling, general and administrative expenses increased $349,000 (41%)
during 1996 as compared to 1995. Of this amount, $114,000 represents increases
in Rose, which relates principally to the legal and professional fees associated
with being a public company. SPS was acquired during 1996 and the initial
compensation and travel costs associated with this start-up operation accounted
for $74,000 of the increase. The remaining $161,000 increase represents costs
associated with the dye manufacturing and marketing business of RCI and JBW. The
principal components of this increase include legal and professional costs of
$33,000, travel costs of $47,000 and sales commissions of $42,000, while the
remaining $39,000 is primarily costs associated with the higher business volume,
i.e., salaries, communications and office expenses. During 1997, the Company
intends for the SPS operation to continue to expand, accordingly, it is
anticipated that its administrative and selling costs will continue to increase
during 1997. The administrative and selling costs of Rose and RCI are expected
to remain relatively constant during 1997, although RCI's sales commissions will
be a function of sales.
Interest expense declined $71,000 (62%) during 1996 as compared to
1995. This decline is the result of the continuing decline in notes payable,
long-term debt and obligations under capital leases. During 1995 the Company
borrowed $500,000 and repaid $783,275, a net reduction of $283,275. During 1996
the Company reduced total debt by an additional $442,016.
The Company realized a gain in the amount of $164,018 from the sale of
marketable securities during 1996 and also recognized an unrealized loss from
marketable securities in the amount of $8,949. The Company did not have any
marketable security transactions during 1995 which resulted in recognition of
any gain or loss.
The Company recognized a loss in the amount of $34,956 during 1996 as
compared to $66,476 during 1995 from its 49% ownership in the MRCI joint
venture. The joint venture operated at a break-even during the third quarter of
1996 and during the fourth quarter of 1996 the Company recognized earnings in
the amount of $37,422. It is expected that the joint venture will remain
profitable during 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, Rose had working capital of $2,270,400 as
compared to $1,717,001 at December 31, 1995. The working capital increase
consists of an increase in current assets in the amount of $676,704 which is
partly offset by an increase in current liabilities in the amount of $123,305.
The majority of the net increase of $553,399 is represented by the inventory
increase in the amount of $432,187.
During 1996, operating activities provided cash in the total amount of
$630,284 as compared to 1995 operating activities which used cash in the amount
of $143,885. The increase in the amount of cash from operations of over $770,000
is primarily due to the use, during 1995, of funds contributed by Struthers to
reduce accounts payable in the amount of $605,564.
Rose incurred capital expenditures which totaled $245,000 during the
year ended December 31, 1996, which is attributable primarily to the expansion
and upgrade at Rose Color's facilities. Rose Color is planning on incurring
approximately $1,500,000 in additional capital expenditures during the next
three years, which will be scheduled as funding becomes available. These
expenditures include approximately $900,000 which will be for the 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 and a pilot plant. The remaining $600,000 is for
SPS and includes approximately $350,000 for a laboratory and laboratory
equipment and $250,000 for investment in India. The majority of the funding for
these capital improvements is scheduled to come from collection of stock
subscriptions, loan proceeds and working capital.
The Company is currently planning on establishing bank lines of credit
to utilize for financing a planned inventory expansion, both for RCI and for
SPS.
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TRENDS
RCI continues to experience strong competition for its Red 164 dye and
has been able to maintain approximately the same volume of sales, although at
lower average prices. RCI is continuing to expand the number of dyes that it
produces and sells to help offset the negative impact of the Red 164 dye
competition.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements of Rose International Ltd. and
Subsidiaries, together with the reports thereon of Guest & Company, P.C. dated
February 25, 1997(for the year ended December 31, 1996) and of BDO Seidman, LLP
dated March 24, 1995 (for the year ended December 31, 1995) are set forth on
pages F-1 through F-20 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As reported on Form 8-K, which the Company filed with the SEC on December 11,
1996, on December 5, 1996, the Board of Directors of the Company approved the
appointment of Guest & Company, P.C. as the independent auditors of the Company
for the year ended December 31, 1996 and also approved the dismissal of BDO
Seidman, LLP ("BDO") as the Company's independent auditors. During the year
ended December 31, 1995 and for the subsequent interim period preceding the
dismissal of BDO, there were no disagreements between the Company and BDO on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which disagreements, if not resolved to the
satisfaction of BDO, would have caused it to make reference in its report to the
subject matter of the disagreement.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth the names, ages and current positions with the
Company held by the Directors, Executive Officers and Significant Employees,
together with the year such positions were assumed. There is no immediate family
relationship between or among any of the Directors, Executive Officers or
Significant Employees, and the Company is not aware of any arrangement or
understanding between any Director or Executive Officer and any other person
pursuant to which he was elected to his current position.
<TABLE>
<CAPTION>
POSITION OR OFFICE DATE FIRST
NAME AGE WITH THE COMPANY ELECTED
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
G. David Gordon 35 President 1995
W. Leo Morris 75 Director 1995
John D. Wilson 51 Director/ 1995
President of Rose Color
Secretary
</TABLE>
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Business experience for the last five years and other information relating to
each Director, Executive Officer and Significant Employee is as follows:
G. DAVID GORDON was elected a Director of the Company in 1995; has
served as general counsel to the Company since August 1, 1995; has been engaged
in the private practice of law since 1988 and is the owner of the law firm of G.
David Gordon & Associates, P.C., in Tulsa, Oklahoma; a member of the bar in
Oklahoma and was a licensed CPA in the state of Texas specializing in corporate
acquisitions and taxation matters; received his Bachelor of Business
Administration (Accounting) from Baylor University and his Juris Doctor Degree
from the University of Tulsa; Director of Reconversion Technologies, Inc.
W. LEO MORRIS was elected a Director of the Company in 1991; Senior Vice
President of Boatmen's National Bank of Oklahoma (formerly Western National
Bank) since July 1987; prior to joining Western National Bank, had 30 years
previous experience with banks in Oklahoma City and Tulsa; from 1948 until 1956,
a petroleum engineer and production supervisor with Magnolia Petroleum Company.
JOHN D. WILSON is President of Rose Color, Inc., a wholly owned
subsidiary of the Company; joined RCI as a marketing consultant in August 1993
and was appointed President effective June 1, 1994; Mr. Wilson's previous
experience includes over 25 years experience in the color and specialty chemical
manufacturing environment.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation of the Company's
chief executive officer and each officer whose total cash compensation exceeded
$100,000, for the three fiscal years ended December 31, 1996. The Company has no
current long term compensation plans.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL POSITION YEAR SALARY BONUS OTHER
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G. David Gordon 1996 - - $27,286
President & Director 1995 - - $ 7,803
1994 N/A N/A N/A
John D. Wilson 1996 $138,000 $11,200 -
Director & 1995 $124,500 $ 3,300 -
President of RCI 1994 $ 73,150 $ 2,800 -
(6/94 to present)
</TABLE>
Other includes fees paid G. David Gordon & Associates, P.C., the firm for which
G. David Gordon is owner.
The Company makes available certain non-monetary benefits to its
executive officers with a view to acquiring and retaining qualified personnel
and facilitating job performance. The Company considers such benefits to be
ordinary and incidental business costs and expenses. The value of such benefits
did not exceed, in the case of any named individual, 10% of the cash
compensation of such individual or, in the case of the group, 10% of the cash
compensation for the group.
INCENTIVE STOCK OPTION PLAN. On August 7, 1995, the directors of the
Company adopted the Incentive Stock Option Plan (the "Plan") under which options
to purchase shares of the Company's common stock are granted to key employees by
the Compensation Committee which was established by the directors to administer
the Plan. The option prices, determined by the Compensation Committee, shall not
be less than the fair market value of the common stock
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at the date of grant. The purpose of the Plan is to provide key employees of the
Company with an opportunity to acquire or increase their proprietary interest in
the Company and to encourage them to remain in the employ of the Company. The
number of shares of common stock which may be granted under the Plan shall not
exceed 1,000,000 and no option shall be granted under the Plan after August 7,
2005. During August 1995, options to acquire 525,000 shares were granted at an
exercise price of $1.00 per share. One option to acquire 75,000 shares was
cancelled during 1996. No options have been exercised under this plan as of
December 31, 1996.
NONSTATUTORY STOCK OPTION PLAN. On August 10, 1995, the Company adopted
a nonstatutory stock option plan which reserved 500,000 common shares for
issuance under this Plan. During 1995, options to acquire 300,000 shares were
granted at an exercise price of $2.50 per share, and no options were exercised.
During 1996, an option to acquire 30,000 shares at an exercise price of $2.25
per share and an option to acquire 25,000 shares at $1.00 per share were granted
and no options were exercised. After December 31, 1996, no additional options
can be granted under this plan.
INDIVIDUAL OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Options/ Options
SAR's SARs Granted Exercise Market Price Expira-
Granted to Employees Price on Date of tion
Name (number) In Fiscal Year ($/Sh) Grant ($/Sh) Date
- ---- -------- -------------- ------ ------------ ----
<S> <C> <C> <C> <C> <C>
G. David Gordon None None N/A N/A N/A
John D. Wilson None None N/A N/A N/A
</TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Shares Number of Number of
Acquired Unexercised Unexercised
on Value Options/SARs Options/SARs
Name Exercise Realized at FY-End at FY-End
- ---- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
G. David Gordon None - 100,000 0
John D. Wilson None - 100,000 0
</TABLE>
Directors are also compensated $200 for each Directors Meeting attended.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table indicates all persons who, as of March 31, 1997, the most
recent practicable date, are known by the Company to own beneficially more than
5% of any class of the Company's voting securities and all directors of the
Company and all officers not directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NAME & ADDRESS OF NATURE OF % OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER CLASS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock M&M Group, Inc. 5,250,000 69.8%
Par value $.01 824 Moraga Drive
Bel-Air, CA 90049
G. David Gordon(1) 100,000 1.3%
7633 E. 63rd Place, #210
Tulsa, OK 74133
W. Leo Morris(1) 100,000 1.3%
5875 S. Joplin
Tulsa, OK 74119
John D. Wilson(1) 100,000 1.3%
35 Upton Pine
Lebanon, NJ 08833
All officers and (1) 375,000 5.0%
directors as a group
(4 persons)
</TABLE>
(1) Represents option to acquire shares.
CHANGES IN CONTROL
On August 29, 1996, M&M Group, a Nevada corporation ("M&M"), acquired
from Struthers Industries, Inc. ("Struthers"), a total of Five Million Two
Hundred Fifty Thousand (5,250,000) shares of common stock of Rose International
Ltd. Representing all shares of Rose common stock owned by Struthers. M&M
purchased these shares pursuant to that certain Stock Purchase Agreement between
M&M and Struthers Industries, Inc. dated August 29, 1996. In exchange therefor,
M&M delivered a promissory note to Struthers in the amount of $4 million which
is secured by the 5,250,000 shares of Rose common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS
During 1996 and 1995, G. David Gordon & Associates, P.C., for whom G.
David Gordon, President and Director, is owner, billed the Company $27,286 and
$7,803, respectively, for services rendered.
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During 1996 and 1995, JBW International, Inc. paid rentals to its
president under a month to month rental agreement in the amount of $750 per
month ($9,000 per year).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS See Exhibit Index at page 13.
(b) REPORTS ON FORM 8-K The Company filed a report on Form 8-K
dated December 5, 1996, regarding its change in auditors, as
discussed more fully at Item 8 hereof. There were no financial
schedules included.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSE INTERNATIONAL LTD.
Date: April 10, 1995 By: /s/G. David Gordon
-------------- ------------------
G. David Gordon,
President and Principal
Financial and Accounting Officer
Date: April 10, 1995 By: /s/ John D. Wilson
-------------- ------------------
John D. Wilson,
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: April 10, 1995 By: /s/ G. David Gordon
-------------- ------------------------
G. David Gordon, Director
Date: April 10, 1995 By: /s/ W. Leo Morris
-------------- ----------------------
W. Leo Morris, Director
Date: April 10, 1995 By: /s/ John D. Wilson
-------------- ----------------------
John D. Wilson, Director
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EXHIBITS HAVE BEEN OMITTED FROM THIS COPY. COPIES OF EXHIBITS MAY BE OBTAINED
FROM ROSE INTERNATIONAL, LTD. ("THE COMPANY") UPON REQUEST AND PAYMENT OF THE
COMPANY'S COSTS IN FURNISHING SUCH COPIES. COPIES MAY ALSO BE OBTAINED FROM THE
SECURITIES AND EXCHANGE COMMISSION FOR A SLIGHT CHARGE. (The foregoing is not
applicable to the original(s) hereof.)
EXHIBIT INDEX
<TABLE>
<CAPTION>
SECURITIES
AND EXCHANGE
COMMISSION PAGE
EXHIBIT NO. TYPE OF EXHIBIT NUMBER
- ----------- --------------- ------
<C> <S> <C>
2 Plan of Purchase, Sale, Reorganization, Liquidation or Succession N/A
3.1 Articles of Incorporation of the Company and amendments thereto and incorporated
herein by reference thereto. N/A
3.2 By-Laws of the Company and incorporated herein by reference thereto N/A
4 Instruments defining the rights of security holders, including indentures N/A
9 Voting Trust Agreement N/A
10 Material Contracts N/A
11 Statement regarding Computation of Per Share Earnings N/A
16 Letter on Change in Certifying Accountants N/A
18 Letter regarding Change in Accounting Principles N/A
21 Subsidiaries of the Registrant-Included in Item I(a) N/A
22 Published Report Regarding Matters Submitted to Vote of Security Holders N/A
23 Consents of Experts and Counsel N/A
24 Power of Attorney N/A
27 Financial Data Schedule N/A
28 Information from reports furnished to state insurance regulatory authorities N/A
99 Additional Exhibits N/A
</TABLE>
12
<PAGE> 13
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Rose International Ltd. and Subsidiaries
Tulsa, Oklahoma
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Rose International Ltd. and Subsidiary
for the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rose International Ltd. and
Subsidiary, and the results of their operations and their cash flows for the
year ended December 31, 1995 in conformity with generally accepted accounting
principles.
February 26, 1996 BDO SEIDMAN, LLP
Los Angeles, California
F-1
<PAGE> 14
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Rose International Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Rose
International Ltd. and subsidiaries as of December 31, 1996 and the consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rose
International Ltd. and subsidiaries at December 31, 1996 and the consolidated
results of their operations and their cash flows for the year ended December 31,
1996 in conformity with generally accepted accounting principles.
/s/ Guest & Company, P.C.
February 25, 1997
Tulsa, Oklahoma
F-2
<PAGE> 15
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1996
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents $ 248,457
Marketable equity securities, less allowance for unrealized
losses of $8,949 (notes 2 and 12) 23,775
Accounts receivable, less allowance for doubtful receivables
of $30,000 1,191,571
Due from employees 6,550
Inventories:
Raw materials 544,497
Work in process 192,921
Finished goods 980,203
----------
Total inventories 1,717,621
Prepaid expenses 49,888
Deferred income tax asset (note 5) 15,000
------------
Total current assets 3,252,862
------------
Property, plant and equipment (note 3):
Land 500,000
Buildings 1,425,726
Machinery and equipment 4,946,326
Office furniture and equipment 86,257
Automobiles 30,000
------------
6,988,309
Less accumulated depreciation and amortization 736,374
------------
Net property, plant and equipment 6,251,935
Investment in joint venture (note 6) 326,780
Goodwill, net of accumulated amortization of $473,898 2,190,052
Organization costs, net of accumulated amortization of $2,471 8,782
------------
$ 12,030,411
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 16
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Consolidated Balance Sheet, Continued
December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
Current installments of long-term debt (note 4) $ 2,405
Current installments of capital lease obligations (note 3) 99,190
Accounts payable 742,569
Accrued expenses 138,298
------------
Total current liabilities 982,462
------------
Capital lease obligations, excluding current installments (note 3) 117,830
Deferred income tax liability (note 5) 784,000
------------
Total liabilities 1,884,292
------------
Minority interest in subsidiary 1,435
Stockholders' equity (notes 6 and 9):
Common stock, $.01 par value. Authorized 25,000,000
shares; issued and outstanding 7,525,000 shares 75,250
Additional paid-in capital 11,995,048
Accumulated deficit (81,112)
Foreign currency translation adjustment (46,502)
------------
11,942,684
Less subscriptions receivable (1,798,000)
------------
Total stockholders' equity 10,144,684
Commitments (note 10)
------------
$ 12,030,411
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 17
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Net sales $ 6,698,612 5,624,917
Cost of sales 5,284,134 4,489,272
----------- ----------
Gross profit 1,414,478 1,135,645
Selling, general and administrative expenses 1,202,791 853,279
----------- ----------
Operating income 211,687 282,366
----------- ----------
Other income (deductions):
Interest expense (43,091) (114,239)
Interest income 6,299 3,268
Realized gain on sale of marketable equity securities 164,018 --
Unrealized loss on marketable equity securities
(note 2) (8,949) --
Equity in loss of joint venture (note 6) (34,956) (66,476)
Other 3,931 483
----------- ----------
87,252 (176,964)
----------- ----------
Earnings before income taxes and minority interests 298,939 105,402
Income taxes (note 5) 174,000 85,333
----------- ----------
Earnings before minority interest 124,939 20,069
Minority interest in net earnings of subsidiary 3,565 --
----------- ----------
Net earnings $ 128,504 20,069
=========== ==========
Primary earnings per common share $ .017 .003
=========== ==========
Weighted average common shares 7,411,495 5,933,333
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 18
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
--------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 4,775,000 $ 47,750 $ 3,912,968 $(229,685)
Conversion of parent company debt
to equity - - 5,893,580 -
Common stock issued on subscription 1,000,000 10,000 990,000 -
Foreign currency translation
adjustment - - - -
Net earnings for the year - - - 20,069
--------- ---------- ------------ ----------
Balances at December 31, 1995 5,775,000 57,750 10,796,548 (209,616)
Subscriptions receivable collected - - - -
Common stock issued on subscription 1,000,000 10,000 990,000 -
Conversion of former parent company
debt to equity 750,000 7,500 208,500 -
Foreign currency translation
adjustment - - - -
Net earnings for the year - - - 128,504
--------- ---------- ------------ ----------
Balances at December 31, 1996 7,525,000 $ 75,250 $ 11,995,048 $ (81,112)
========= ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
STOCK-
FOREIGN HOLDERS'
CURRENCY STOCK EQUITY
TRANSLATION SUBSCRIPTION (NOTES 6
ADJUSTMENT RECEIVABLE AND 9)
---------- ----------- ------------
<S> <C> <C> <C>
Balances at December 31, 1994 $ - $ - $ 3,731,033
Conversion of parent company debt
to equity - - 5,893,580
Common stock issued on subscription - (1,000,000) -
Foreign currency translation
adjustment (39,726) - (39,726)
Net earnings for the year - - 20,069
---------- ----------- ------------
Balances at December 31, 1995 (39,726) (1,000,000) 9,604,956
Subscriptions receivable collected - 202,000 202,000
Common stock issued on subscription - (1,000,000) -
Conversion of former parent company
debt to equity - - 216,000
Foreign currency translation
adjustment (6,776) - (6,776)
Net earnings for the year - - 128,504
---------- ----------- ------------
Balances at December 31, 1996 $ (46,502) $(1,798,000) $ 10,144,684
======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 19
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 128,504 20,069
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 392,015 341,755
Deferred income taxes 174,000 85,333
Unrealized loss on marketable equity securities 8,949 --
Foreign operations, net 63,956 114,254
Changes in assets and liabilities:
Increase in accounts receivable (335,745) (160,845)
(Increase) decrease in inventories (432,187) 9,697
Decrease in marketable equity securities 180,624 --
(Increase) decrease in prepaids (13,558) 51,416
Increase (decrease) in accounts payable and
accrued expenses 463,726 (605,564)
--------- ----------
Net cash provided (used) by operating activities 630,284 (143,885)
--------- ----------
Cash flows from investing activities:
Capital expenditures (245,480) (398,508)
Investment in subsidiary (75,000) --
Investment in joint venture -- (597,329)
Other -- (9,968)
--------- ----------
Net cash used by investing activities (320,480) (1,005,805)
--------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 20
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1996 and 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS,
CONTINUED
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from financing activities:
Capital contributions $ -- 1,353,591
Collection of stock subscriptions 202,000 --
Proceeds from notes payable -- 500,000
Repayments of notes payable (340,386) (685,534)
Repayments of obligations under capital leases (88,702) (78,530)
Repayments of long-term debt (12,928) (19,211)
----------- ----------
Net cash provided by (used in) financing
activities (240,016) 1,070,316
----------- ----------
Net increase (decrease) in cash and cash equivalents 69,788 (79,374)
Cash and cash equivalents, beginning of year 178,669 258,043
----------- ----------
Cash and cash equivalents, end of year $ 248,457 178,669
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
Interest $ 44,814 110,478
Income taxes -- --
Noncash investing and financing activities are as follows:
Conversion of amount due parent into equity $ 216,000 5,893,580
Common stock issued on subscription 1,000,000 1,000,000
Third-party note receivable from parent -- 213,348
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 21
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Rose
International Ltd., its wholly-owned subsidiaries, Rose Color,
Inc. and SPS Alfachem, Inc. and Rose Color, Inc.'s 80% owned
subsidiary, JBW International, Inc., (collectively referred to as
the "Company"). All material intercompany accounts and
transactions have been eliminated.
(B) ORGANIZATION
On August 1, 1995, Struthers Industries, Inc. (Struthers), a
publicly-traded company, sold 100% of the issued and outstanding
shares of Rose Color, Inc. (Color) to Global Ecosystems, Inc.
(Global) in exchange for approximately 94% of the issued and
outstanding shares of Global. Global subsequently changed its name
to Rose International, Inc. and merged into and with Rose
International Ltd. (Rose), a publicly-traded company, in a
transaction accounted for as a reverse acquisition. Therefore, any
historical financial statements presented represent the operations
of Global which primarily reflect the operations of Color since
Global's primary asset was shares of Color. As a result of the
above transactions, Color was a wholly-owned subsidiary of Rose,
with Struthers being the majority owner of Rose. During August
1996, Struthers sold 100% of its interest in Rose to the M&M
Group.
(C) NATURE OF BUSINESS
The Company is primarily engaged in the manufacture and marketing
of speciality organic chemical dyes used principally in the
petroleum and plastics industries, although the inks, coatings and
other industries using specialty dyes are also served. In
addition, the Company markets certain chemical intermediates
associated with its dye production and pigments. Sales are made
primarily for negotiated prices to both domestic and foreign
companies.
(D) CASH EQUIVALENTS
The Company considers all liquid investments with original
maturities of three months or less to be cash equivalents. At
December 31, 1996, cash equivalents consist of money market
accounts and certificates of deposit.
F-9
<PAGE> 22
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(E) MARKETABLE EQUITY SECURITIES
Marketable equity securities are comprised of trading securities
held for short-term investment purposes and are stated at fair
value, with the change in fair value during the period included in
earnings. Realized gains or losses on marketable securities are
calculated based on the first-in, first-out method of accounting.
(F) INVENTORIES
Raw materials, work in process and finished goods inventories are
stated at the lower of weighted average cost or market.
(G) PROPERTY, PLANT AND EQUIPMENT
Owned property, plant and equipment are stated at cost and
depreciated using the straight-line method over the estimated
useful lives of the respective assets. Equipment under capital
leases is stated at the lower of the present value of minimum
lease payments at the beginning of the lease term or fair value at
the inception of the lease and is amortized over the estimated
useful life of the related asset.
(H) GOODWILL
Goodwill is recorded when the purchase price of net assets
acquired exceeds the fair market value of those net assets
acquired and is amortized using the straight-line basis over
15-year to 20-year periods. The Company's management evaluates the
carrying value of goodwill on a periodic basis.
(I) INCOME TAXES
Deferred income taxes are recognized for income and expense items
that are reported for financial reporting purposes in different
years than for income tax purposes.
(J) REVENUE AND COST RECOGNITION
Sales revenues are recognized when the product is shipped. Cost of
sales, which is recognized simultaneously with the recognition of
sales, is comprised of the cost of raw materials and indirect
costs incurred during the manufacturing process, such as labor,
supplies, utilities, repairs and depreciation.
F-10
<PAGE> 23
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(K) USE OF ESTIMATES
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Such estimates primarily
relate to unsettled transactions and events as of the date of the
financial statements. Accordingly, upon settlement, actual results
may differ from estimated amounts.
(L) FAIR VALUE DETERMINATION
Financial instruments consist of cash, accounts receivable,
accounts payable, accrued liabilities, short-term debt and capital
lease obligations. The carrying amount of these financial
instruments approximates fair value due to their short-term nature
or the current rates which the Company could borrow funds with
similar remaining maturities.
(M) NET EARNINGS PER SHARE
Net earnings per share amounts are computed using the weighted
average number of shares outstanding during the period. Fully
diluted earnings per share is presented if the assumed conversion
of common stock equivalents results in material dilution.
(N) CONTINGENT CONSIDERATION
Contingent commissions to be paid in accordance with and as a part
of the purchase of SPS Alfachem, Inc. are treated as additional
investment in that subsidiary.
(2) MARKETABLE EQUITY SECURITIES
An allowance for unrealized losses is established for the amount that
the aggregate cost of marketable equity securities exceeds their
aggregate market value. At the balance sheet date, the allowance for
unrealized losses is $8,949. Results of operations for the years ending
December 31, 1996 and 1995 include net unrealized losses of $8,949 and
zero, respectively.
F-11
<PAGE> 24
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) LEASES
The Company leases equipment under capital leases that expire over the
next four years.
Included in property, plant and equipment are the following amounts
applicable to capital leases:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment $ 655,047
Office equipment 6,133
Less accumulated amortization (73,540)
--------
$ 587,640
=========
</TABLE>
The present value of future minimum capital lease payments as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES
-------
Year ended December 31,
<S> <C>
1997 $ 120,022
1998 110,153
1999 14,508
2000 2,827
Later years -
--------
Total minimum lease payments 247,510
Less amount representing interest (at rates varying from
9.0% to 15.6%) 30,490
--------
Present value of net minimum capital lease payments 217,020
Less current installments of capital lease obligations 99,190
--------
Long-term capital leases obligations $ 117,830
=======
</TABLE>
F-12
<PAGE> 25
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) LONG-TERM DEBT
Long-term debt consists of a note payable to a corporation with interest
at 10.75%, payable in monthly installments of $673, with the final
payment due April 21, 1997; secured by an automobile. The December 31,
1996 principal balance is reflected as current portion of long-term debt
on the consolidated financial statements.
(5) INCOME TAXES
For the year ended December 31, 1995, Rose International Ltd. (Rose) was
a majority-owned subsidiary of Struthers Industries, Inc. (Struthers)
and filed a consolidated return with that Company. For the year ended
December 31, 1996, Rose will be included in the consolidated income tax
return of Struthers through August 1996 (the date Struthers sold Rose)
and will file a consolidated short-year income tax return with its
subsidiaries for the period subsequent to the date of sale through
December 31, 1996.
Income tax expense consists of the following:
<TABLE>
<CAPTION>
TAX BENEFIT
OF OPERATING
LOSS CARRY-
FORWARDS AND
CURRENT DEFERRED TAX CREDITS TOTAL
------- -------- ------------ -----
1996:
<S> <C> <C> <C> <C>
Federal $ 236,000 (51,400) - 184,600
State - (10,600) - (10,600)
------- -------- -------- --------
$ 236,000 (62,000) - 174,000
======= ======== ======== =======
1995:
Federal $ 140,444 80,505 (140,444) 80,505
State 25,291 4,828 (25,291) 4,828
-------- --------- -------- ---------
$ 165,735 85,333 (165,735) 85,333
======= ======== ======= ========
</TABLE>
F-13
<PAGE> 26
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) INCOME TAXES, CONTINUED
Actual income tax expense applicable to earnings before income taxes and
minority interest is reconciled with the "normally expected" federal
income tax for the years ended December 31, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ------
<S> <C> <C>
Expected tax $ 101,639 36,000
State income taxes, net of federal income
tax effect 16,886 5,333
Amortization of goodwill not deductible
for tax purposes 43,960 44,000
Difference in expected tax and intercompany
tax allocation with former parent 13,817 --
Foreign tax credit utilized (3,632) --
Other 1,330 --
--------- ------
$ 174,000 85,333
========= ======
</TABLE>
The deferred income tax assets and liabilities at December 31, 1996 are
comprised of the following:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
------- ----------
<S> <C> <C>
Allowance for uncollectible accounts
receivable $ 12,000 --
Allowance for loss on marketable equity
securities 3,000 --
Foreign tax credit -- 49,000
Accumulated loss of joint venture -- 40,000
Technology transfer to joint venture -- 53,000
-------- -------
15,000 142,000
</TABLE>
F-14
<PAGE> 27
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) INCOME TAXES, CONTINUED
<TABLE>
<CAPTION>
CURRENT NONCURRENT
------- ----------
<S> <C> <C>
Less valuation allowance $ -- --
------- --------
Deferred income tax assets 15,000 142,000
Deferred income tax liability - asset basis -- (926,000)
------- --------
Net deferred income tax assets (liabilities) $15,000 (784,000)
======= ========
</TABLE>
The Company has available at December 31, 1996, unused foreign tax
credits of approximately $50,000 to be used against future federal
income tax liabilities and state operating loss carryforwards of
approximately $100,000. The state operating loss carryforwards expire
between 2001 and 2002.
(6) INVESTMENT IN JOINT VENTURE
The Company has a 49% interest in Mafatlal Rose Color Industries, Ltd.
(MRCI), a joint venture company located in Baroda, India. MRCI was
formed as a joint venture between the Company and Indian Dyestuff
Industries, Ltd. to produce a wide range of dyes and related
intermediates.
The Company's investment in MRCI is accounted for under the equity basis
of accounting. Operating losses of $34,956 and $66,476 were included in
the Company's net earnings for the years ending December 31, 1996 and
1995, respectively. At December 31, 1996, the Company's stockholder's
equity included a foreign currency translation adjustment of $46,502
related to the investment in MRCI. The Company sold data and raw
materials totaling $164,000 and $277,000 in 1996 and 1995, respectively.
(7) GOODWILL
The goodwill recorded by the Company is substantially due to push-down
accounting applied to the acquisition of Rose Color, Inc. by Struthers
Industries, Inc.
F-15
<PAGE> 28
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) RELATED PARTY TRANSACTIONS
Related party transactions are included in the financial statements as
follows:
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Rose International Ltd. and its subsidiaries
incurred legal fees to an affiliate owned by an
officer/director $27,286 7,803
JBW International, Inc. paid rentals to its
president under a month-to-month rental
agreement 9,000 9,000
</TABLE>
(9) CAPITAL STOCK
Stock subscriptions receivable were created through the sale of common
stock pursuant to Regulation D. The common stock was sold in two
offerings of 1,000,000 shares each at a price of $1.00 per share. The
entire 2,000,000 shares were subscribed for under the offerings. A Form
D was filed with the U.S. Securities and Exchange Commission on August
7, 1995 and August 26, 1996. As of December 31, 1996, $202,000 was
collected from the offerings.
On August 7, 1995, the directors of Rose International Ltd. adopted the
Incentive Stock Option Plan (the Plan) under which options to purchase
shares of Rose International Ltd.'s common stock are granted to key
employees by the Compensation Committee which was established by the
directors to administer the Plan. The option prices, determined by the
Compensation Committee, shall not be less than the fair market value of
the common stock at the date of grant. The purpose of the Plan is to
provide key employees of the Company with an opportunity to acquire or
increase their proprietary interest in the success of the Company and to
encourage them to remain in the employ of the Company. The number of
shares of common stock which may be granted under the Plan shall not
exceed 1,000,000 and no option shall be granted under the Plan after
August 7, 2005.
F-16
<PAGE> 29
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) CAPITAL STOCK, CONTINUED
The following is a summary of transactions related to all options to
purchase common stock issued under the Plan for the two years ended
December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1994 -
Granted 525,000 $ 1.00
Exercised -
Cancelled -
-------
Outstanding at December 31, 1995 525,000 1.00
Granted -
Exercised -
Cancelled 75,000 1.00
--------
Outstanding at December 31, 1996 450,000 1.00
=======
</TABLE>
The above options were granted with an exercise price equal to or
greater than the common stock's fair market value at the date of grant.
On August 10, 1995, the directors of Rose International Ltd. adopted the
1995 - 1996 Nonstatutory Stock Option Plan (the Nonstatutory Plan) under
which options to purchase shares of Rose International Ltd.'s common
stock are granted to key employees and consultants by the Compensation
Committee which was established by the directors to administer the
Nonstatutory Plan. The option prices, determined by the Compensation
Committee, shall require board of director approval if they are less
than 85% of the fair market value of the common stock at the date of
grant. The purpose of the Nonstatutory Plan is to encourage key
employees and consultants of the Company to promote the Company's
business. The number of shares of common stock which may be granted
under the Nonstatutory Plan shall not exceed 500,000 and no option shall
be granted under the Nonstatutory Plan after December 31, 1996.
F-17
<PAGE> 30
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) CAPITAL STOCK, CONTINUED
The following is a summary of transactions related to all options to
purchase common stock issued under the Nonstatutory Plan for the two
years ended December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1994 -
Granted 300,000 $ 2.50
Exercised -
Cancelled -
---------
Outstanding at December 31, 1995 300,000 2.50
Granted 55,000 1.68
Exercised -
Cancelled -
---------
Outstanding at December 31, 1996 355,000 2.11
=========
</TABLE>
The above options were granted with an exercise price equal to or
greater than the common stock's fair market value at the date of grant.
(10) COMMITMENTS
On June 1, 1994, Rose Color, Inc. (Color) entered into an employment
agreement with its president, which shall remain in force through May
31, 1997. The agreement states that Color shall pay the president an
initial monthly salary of $10,000 (which was raised to $12,000 in 1996)
and an initial monthly automobile allowance of $450 (which was raised to
$500 in 1996). The agreement also states that Color shall pay the
president an annual bonus equal to 2% (4% commencing in 1996) of Color's
annual profit, exclusive of management fees paid to its parent. The
bonus cannot exceed $120,000.
F-18
<PAGE> 31
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) COMMITMENTS, CONTINUED
On May 14, 1996, Rose International Ltd. acquired 100% of the issued and
outstanding shares of SPS Alfachem, Inc. (SPS) in exchange for $75,000
cash paid at closing and the promise to pay commissions, as described
below, to the former shareholders of SPS. The business combination was
accounted for as a purchase and SPS's operations from the acquisition
date through December 31, 1996 are included in the accompanying
consolidated financial statements of Rose International Ltd. and
subsidiaries. Assuming this business combination had occurred on January
1, 1995, it would not have a material effect on net sales, net earnings
and net earnings per share for the years ended December 31, 1995 and
December 31, 1996; therefore, pro-forma information is not presented.
In connection with the acquisition of SPS as described above, Rose is
required to pay commissions to the former shareholders of SPS. The
commissions shall be equal to 8% of the net margin realized on sales of
SPS's products existing at May 14, 1996 to SPS's customers existing at
that same date. The commission period shall be five years commencing on
May 14, 1996 and aggregate commissions paid shall not exceed $325,000
with no minimum amount guaranteed.
On May 14, 1996, SPS entered into an employment agreement with its vice
president (employee) which shall remain in force through May 31, 1999.
The agreement states that SPS shall pay the employee an annual salary of
$65,000 and an annual automobile allowance of $3,000. The agreement also
states that SPS shall pay the employee commissions equal to 10% of the
net margin realized on sales of SPS's existing products to customers
existing at the date of the agreement and 2% of the net margin realized
on sales of new products or sales of existing products to new customers.
(11) CONCENTRATION OF RISK
During the year ended December 31, 1996, sales to three customers
accounted for 36%, 16% and 13% of revenues. Accounts receivable at
December 31, 1996, from these three customers accounted for 30%, 12% and
5%, respectively, of total accounts receivable. During the year ended
December 31, 1995, sales to two customers accounted for 44% and 17% of
revenues. Accounts receivable at December 31, 1995, from these two
customers accounted for 51% and 16%, respectively, of total accounts
receivable. Management believes that the loss of these major customers
would have an adverse impact on the Company's operating results.
F-19
<PAGE> 32
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) CONCENTRATION OF RISK, CONTINUED
In 1996 and 1995, export sales to customers outside of the United States
amounted to 26% and 36%, respectively.
At December 31, 1996, the Company had cash deposits in a single
financial institution which exceeded the federally insured limit.
(12) SUBSEQUENT EVENTS
As of February 25, 1997, the aggregate cost of marketable equity
securities held by the Company at December 31, 1996 exceeded the
aggregate market value of these securities by approximately $14,411, as
compared with $8,949 at the balance sheet date.
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from December 31,
1996 financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 248,457
<SECURITIES> 23,775
<RECEIVABLES> 1,221,571
<ALLOWANCES> 30,000
<INVENTORY> 1,717,621
<CURRENT-ASSETS> 3,252,862
<PP&E> 6,988,309
<DEPRECIATION> 736,374
<TOTAL-ASSETS> 12,030,411
<CURRENT-LIABILITIES> 982,462
<BONDS> 117,830
0
0
<COMMON> 75,250
<OTHER-SE> 10,150,546
<TOTAL-LIABILITY-AND-EQUITY> 12,030,411
<SALES> 6,698,612
<TOTAL-REVENUES> 6,698,612
<CGS> 5,284,134
<TOTAL-COSTS> 5,284,134
<OTHER-EXPENSES> 1,202,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,091
<INCOME-PRETAX> 298,939
<INCOME-TAX> 174,000
<INCOME-CONTINUING> 128,504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,504
<EPS-PRIMARY> .017
<EPS-DILUTED> .017
</TABLE>
