<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: MARCH 31, 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
March 31, 1997
Transitional Small Business Disclosure Format: Yes ; No X
<PAGE> 2
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
INDEX
Page
No.
---
PART I. Financial Information
Item 1. Condensed Consolidated Balance Sheets - 3
March 31, 1997 and December 31, 1996
Condensed Consolidated Statements of Operations - 4
Three Months Ended March 31, 1997 and 1996
Condensed Consolidated Statement of Stockholders' Equity - 5
Three Months Ended March 31, 1997
Condensed Consolidated Statements of Cash Flows - 6-7
Three Months Ended March 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements - 8-10
Three Months Ended March 31, 1997 and 1996
Item 2. Management's Discussion and Analysis of 11-13
Financial Condition and Results of Operations
PART II. Other information 14
2
<PAGE> 3
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 288,193 $ 248,457
Marketable equity securities 12,596 23,775
Receivables, net 1,127,679 1,198,121
Inventories 1,885,842 1,717,621
Prepaid expenses and other assets 53,854 49,888
Deferred income taxes 20,000 15,000
------------------------- -------------------------
Total current assets 3,388,164 3,252,862
Property and equipment, net 6,229,837 6,251,935
Goodwill, net of amortization 2,156,104 2,190,052
Investment in joint ventures 342,680 326,780
Other 8,232 8,782
========================= =========================
$12,125,017 $12,030,411
========================= =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 810,707 $ 742,569
Accrued liabilities 108,539 138,298
Current maturities of long-term obligations 101,595 101,595
------------------------- -------------------------
1,020,841 982,462
Long-term obligations 92,146 117,830
Deferred income taxes 825,000 784,000
Minority interest in subsidiary 2,735 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) (41,501) (81,112)
Foreign currency translation adjustment (46,502) (46,502)
------------------------- -------------------------
Total stockholders' equity 10,184,295 10,144,684
========================= =========================
$12,125,017 $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
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
SALES AND REVENUES $ 1,664,252 $1,879,635
COST OF SALES 1,273,733 1,360,224
------------------------- ------------------------
GROSS PROFIT 390,519 519,411
OTHER EXPENSE (INCOME)
Selling, general and administrative expense 307,139 312,981
Interest expense 8,303 17,035
Equity in (income) loss of joint ventures (12,500) 59,484
Gain from sale of marketable equity securities - (167,123)
Unrealized loss on marketable equity securities 11,179 -
Interest and other income (513) (508)
------------------------- ------------------------
313,608 221,869
------------------------- ------------------------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 76,911 297,542
INCOME TAX EXPENSE 36,000 130,000
------------------------- ------------------------
EARNINGS BEFORE MINORITY INTEREST 40,911 167,542
MINORITY INTEREST 1,300 -
========================= ========================
NET EARNINGS $ 39,611 $ 167,542
========================= ========================
NET EARNINGS PER SHARE $ 0.01 $ 0.03
========================= ========================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,525,000 5,775,000
========================= ========================
</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
<TABLE>
<CAPTION>
Common Stock Paid-in
Shares Par Value Capital
------ --------- --------
<S> <C> <C> <C>
BALANCE, January 1, 1997 7,525,000 $75,250 $11,995,048
Net earnings
Foreign currency translation
adjustment
================== ================== ====================
BALANCE, March 31, 1997 7,525,000 $75,250 $11,995,048
================== ================== ====================
</TABLE>
<TABLE>
<CAPTION>
Stock Foreign
Subscription Accumulated Currency
Receivable Deficit Adjustment Total
----------- -------- ----------- -----
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997 $ (1,798,000) $ (81,112) $ (46,502) $ 10,144,684
Net earnings 39,611 39,611
Foreign currency translation
adjustment
================== ================== ================= ===================
BALANCE, March 31, 1997 $ (1,798,000) $ (41,501) $ (46,502) $ 10,184,295
================== ================== ================= ===================
</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
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 39,611 $ 167,542
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 100,979 93,762
Deferred income taxes 36,000 130,000
Foreign operations, net (12,500) 88,484
Unrealized loss on marketable equity securities 11,179 -
Interest due parent - 5,139
Minority interest 1,300 -
Changes in assets and liabilities:
Marketable equity securities - 213,348
Receivables 91,142 30,644
Inventories (168,221) (91,185)
Prepaid and other assets (3,966) 5,059
Accounts payable and accrued liabilities 38,378 509,270
---------------------- ------------------------
Net cash provided by (used in) operating activities 133,902 1,152,063
---------------------- ------------------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (44,382) (81,385)
Joint venture investments (3,400) -
---------------------- ------------------------
Net cash provided by (used in) investing activities (47,782) (81,385)
---------------------- ------------------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Sale of common stock - 199,000
Repayment of parent loan - (100,000)
Advances to officers and employees (20,700) -
Loan principal repayments (25,684) (151,285)
---------------------- ------------------------
Net cash provided by (used in) financing activities (46,384) (52,285)
---------------------- ------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,736 1,018,393
CASH AND CASH EQUIVALENTS, beginning of period 248,457 178,669
====================== ========================
CASH AND CASH EQUIVALENTS, end of period $ 288,193 $1,197,062
====================== ========================
</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
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 8,303 $ 17,035
====================== =====================
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)
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ("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 March 31, 1997, the Company has an investment in marketable
equity securities which are classified as trading securities. As of
March 31, 1997 the cost of $32,724 exceed the fair value of the
securities by $20,128. A loss in the amount of $11,179 is recognized
during the current period, while the remainder was recognized during
1996.
C. LONG-TERM OBLIGATIONS
During the three months ended March 31, 1997, the Company reduced
long-term obligations by $25,684. 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)
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 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 March 31,
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
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 three
month periods ended March 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Tax expense at federal statutory rate $ 26,000 $ 101,000
Non-deductible goodwill amortization 11,000 11,000
State income tax, net of federal benefit 5,000 12,000
Other -6,000 6,000
================== ==================
$ 36,000 $ 130,000
================== ==================
</TABLE>
10
<PAGE> 11
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL
The Company had working capital of $2,367,323 at March 31, 1997 as
compared to $2,270,400 at December 31, 1996, an improvement of $96,923.
The increase was primarily reflected in higher inventories, which is
consistent with the intended continuing expansion of the product range
offered by the Company.
During the three months ended March 31, 1997, cash flows from operating
activities was $133,902 and cash flows used in investing activities was
$47,782 while financing activities used $46,384, resulting in an
increase in cash of $39,736. During the same 1996 period, cash flows
from operating activities was $1,152,063 and cash used in investing
activities was $81,385, while financing activities used cash in the
amount of $52,285, which resulted in an increase in cash of $1,018,393.
The higher cash flow from operations in the 1996 period was primarily
from the proceeds received from the sale of marketable securities.
During the three months ended March 31, 1997, the Company incurred
$44,382 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 decreased 11% during the three month period ended March
31, 1997, as compared to the same period in 1996. The gross profit
margin during the three months ended March 31, 1997 was 23% as compared
to 28% 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. Sales decreased 11% during the
three month period ended March 31, 1997 as compared to the same year
earlier period, while manufacturing costs decreased by only 6% during
the same period.
Approximately $240,000 of the dye sale decline experienced by Rose
Color during the three month period ended March 31, 1997 as compared to
the same 1996 period was from the export sale of their green liquid
dye. A one container shipment which normally
11
<PAGE> 12
ROSE INTERNATIONAL LTD. AND SUBSIDIARIES
(A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP)
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
would have been shipped during the first quarter was shipped during the
last quarter of 1996.
OTHER EXPENSE (INCOME)
Selling, general and administrative expense decreased 2% during the
three month period ended March 31, 1997 as compared to the same 1996
period. The increased selling, general and administrative expense from
the new operations of SPS, which commenced during the second quarter of
1996, were offset by reduced commission expense of Rose Color, which
was due primarily to lower dye sales.
Interest expense during the three month period ended March 31, 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 1996 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 period.
12
<PAGE> 13
PART II
OTHER INFORMATION
Items 1 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: May 13, 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 MARCH 31, 1997 AND FOR THE THREE MONTH PERIOD THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-QSB FOR
THE QUARTER ENDED MARCH 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 288,193
<SECURITIES> 12,596
<RECEIVABLES> 1,130,429
<ALLOWANCES> 30,000
<INVENTORY> 1,885,842
<CURRENT-ASSETS> 3,388,164
<PP&E> 7,032,692
<DEPRECIATION> 802,855
<TOTAL-ASSETS> 12,125,017
<CURRENT-LIABILITIES> 1,020,840
<BONDS> 0
0
0
<COMMON> 75,250
<OTHER-SE> 10,111,782
<TOTAL-LIABILITY-AND-EQUITY> 12,125,017
<SALES> 1,664,252
<TOTAL-REVENUES> 1,664,252
<CGS> 1,273,733
<TOTAL-COSTS> 1,273,733
<OTHER-EXPENSES> 306,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,303
<INCOME-PRETAX> 76,911
<INCOME-TAX> 36,000
<INCOME-CONTINUING> 39,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,611
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
