UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from _______________ TO _______________.
333-44747
(Commission File Numbers)
ROSEDALE DECORATIVE PRODUCTS LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
ONTARIO, CANADA 5110
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
</TABLE>
731 MILLWAY AVENUE
CONCORD, ONTARIO
CANADA L4K 3S8
(Address of principal executive offices)
(619) 794-2602
(Registrants' telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [ X ] NO[ ]
As of September 30, 1999, 2,765,000 shares of Common Stock, no par value
per share, of Rosedale Decorative Products Ltd. were issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interim Consolidated Balance Sheet as of September 30, 1999
and December 31, 1998 3 - 4
Interim Consolidated Statement of Income for the three months
ended September 30,1999 5
Interim Consolidated Statement of Income for the nine months
ended September 30, 1999 6
Interim Consolidated Statement of Cash Flows for the period
ended September 30, 1999 7 - 8
Interim Consolidated Statement of Stockholders' Equity for the
period ended September 30, 1999 9
Notes to Interim Consolidated Financial Statements 10 - 25
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
$ $
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash 3,033,098 3,417,414
Accounts receivable (note 3) 5,719,159 3,696,050
Inventory (note 4) 6,635,084 7,229,444
Prepaid expenses and sundry assets 665,189 288,764
Income taxes recoverable 27,503 38,738
---------- ----------
16,080,033 14,670,410
---------- ----------
LOANS RECEIVABLE FROM AFFILIATED COMPANIES
(note 5) 2,624 1,933
DEFERRED PRODUCT COSTS (note 6) 872,011 851,202
DEFERRED POLICY COSTS (note 7) 280,564 268,506
MORTGAGES RECEIVABLE (note 8) 336,295 321,841
PROPERTY, PLANT AND EQUIPMENT (note 9) 2,734,224 2,160,433
---------- ----------
20,305,751 18,274,325
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
$ $
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C> <C>
Bank indebtedness (note 10) 4,408,456 3,327,022
Accounts payable and accrued expenses
(note 11) 4,886,848 4,581,034
Income taxes payable - -
Current portion of long-term debt (note 12) - 77,076
---------- ----------
9,295,304 7,985,132
LONG-TERM DEBT (note 12) 993,662 950,956
ADVANCES FROM RELATED PARTIES (note 13) 1,109,149 1,174,987
DEFERRED INCOME TAXES 163,827 156,786
---------- ----------
11,561,942 10,267,861
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 14) 5,013,883 5,013,883
ADDITIONAL PAID-IN CAPITAL (note 14) 142,314 142,314
CUMULATIVE TRANSLATION ADJUSTMENT (24,677) (388,341)
RETAINED EARNINGS 3,612,289 3,238,608
---------- ----------
8,743,809 8,006,464
---------- ----------
20,305,751 18,274,325
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three-months Three-months
September 30, September 30,
1999 1998
$ $
<S> <C> <C>
SALES 4,784,911 4,877,612
COST OF SALES 2,863,081 3,027,929
---------- ----------
GROSS PROFIT 1,921,830 1,849,683
---------- ----------
OPERATING EXPENSES
General and administrative 557,931 631,846
Selling 589,497 559,040
Design studio 198,958 71,096
Book development costs 12,371 84,729
Amortization 185,649 149,861
---------- ----------
TOTAL OPERATING EXPENSES 1,544,406 1,496,572
---------- ----------
OPERATING INCOME 377,424 353,111
Interest expense 56,835 (22,442)
---------- ----------
INCOME BEFORE INCOME TAXES 320,589 375,553
Income taxes (note 15) 91,749 145,590
---------- ----------
NET INCOME 228,840 229,963
========== ==========
Net Income Per Share (note 14) 0.08 0.11
========== ==========
Weighted average number of common shares
Outstanding (note 14) 2,765,000 2,160,753
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
nine-months nine-months
September 30, September 30,
1999 1998
$ $
<S> <C> <C>
SALES 14,302,928 15,629,077
COST OF SALES 8,836,320 9,330,554
---------- ----------
GROSS PROFIT 5,466,608 6,298,523
---------- ----------
OPERATING EXPENSES
General and administrative 1,737,437 1,728,767
Selling 1,818,841 1,602,015
Design studio 570,692 435,291
Book development costs 104,820 165,991
Amortization 554,783 458,423
---------- ----------
TOTAL OPERATING EXPENSES 4,786,573 4,390,487
---------- ----------
OPERATING INCOME 680,035 1,908,036
Interest expense 147,124 198,111
---------- ----------
INCOME BEFORE INCOME TAXES 532,911 1,709,925
Income taxes (note 15) 159,230 683,129
---------- ----------
NET INCOME 373,681 1,026,796
========== ==========
Net Income Per Share (note 14) 0.14 0.48
========== ==========
Weighted average number of common shares
Outstanding (note 14) 2,765,000 2,160,753
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-months Nine-months
September 30 September 30,
1999 1998
$ $
Cash flows from operating activities:
<S> <C> <C>
Net income 373,681 1,026,796
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization 554,783 458,423
(Increase) decrease in deferred product costs 17,229 498,365
(Increase) in accounts receivable (1,836,967) (364,073)
(Increase) decrease in inventory 909,056 349,617
(Increase) in prepaid expenses and sundry assets (359,513) (447,266)
Increase (decrease) in accounts payable and accrued expenses 98,997 (2,047,902)
Increase (decrease) in income taxes payable/recoverable 12,833 519,990
Increase in deferred income taxes - (12,532)
---------- ----------
Total adjustments (603,582) (1,045,378)
---------- ----------
Net cash provided by (used in) operating activities (229,901) (18,582)
---------- ----------
Cash flows from investing activities:
Increase in deferred policy costs 1 130,583
Purchases of property, plant and equipment (1,026,377) (699,903)
Increase in mortgages receivable - 80,401
---------- ----------
Net cash used in investing activities (1,026,376) (488,919)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-months Nine-months
September 30, September 30,
1999 1998
$ $
Cash flows from financing activities:
<S> <C> <C>
Issuance of Common Stock - 4,846,342
Proceeds from bank indebtedness 921,904 (811,348)
(Repayment of) proceeds from loans with affiliated companies (597) 34,949
(Repayment of)Proceeds from long-term debt (79,664) (247,443)
Repayment of stockholders' loans (117,319) 416,911
Proceeds from loans with directors - (717,744)
---------- ----------
Net cash provided by financing activities 724,324 3,521,667
---------- ----------
Effect of foreign currency exchange rate changes 147,637 (186,057)
---------- ----------
Net (decrease) increase in cash and cash equivalents (384,316) 2,828,109
Cash and cash equivalents, January 1 3,417,414 442,655
---------- ----------
End of nine month period ended September 30 3,033,098 3,270,764
========== ==========
Income taxes paid 318,210 75,672
========== ==========
Interest paid 255,375 198,111
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Common
Stock Cumulative
Number of Retained Translation
SHARES AMOUNT EARNINGS ADJUSTMENTS
$ $ $
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1997 1,500,000 2 2,188,055 (226,990)
Foreign currency translation (adj) - - (251,990) (134,270)
Issuance of common stock 1,265,000 5,156,195
Net income for the nine-month
period to September 30, 1998 - 1,026,796 -
Balance as of September 30, 1998 2,765,000 5,156,197 2,962,861 (361,260)
Balance as of December 31,
1998 2,765,000 5,156,197 3,238,608 (388,341)
Foreign currency translation - - - 363,664
Net income for the nine-month
period to September 30, 1999 - - 373,681 -
Balance as of September 30,
1999 2,765,000 5,156,197 3,612,289 (24,677)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
These consolidated financial statements include the accounts
of Rosedale Decorative Products Ltd. ("the company") and its
wholly owned subsidiaries, 521305 Ontario Inc. ("521305") and
1010037 Ontario Inc. ("1010037"), the parent companies of the
operating subsidiaries Ontario Paint and Wallpaper Limited
("Ontario") and Rosedale Wallcoverings and Fabrics Inc.
("Rosedale").
On June 15, 1998, the company acquired all the issued and
outstanding common shares of 521305 and 1010037 from their
shareholders in exchange for 1,500,000 shares of the company.
Since these companies were under common control by a related
group, this transaction has been recorded using the pooling of
interest method whereby the assets, liabilities and operations
have been consolidated as if the Company had owned the wholly
owned subsidiaries since incorporation. The company was
incorporated on May 14, 1997 by its shareholders for the purpose
of consolidating their 100% ownership interests in anticipation
of an initial public offering.
All material inter-company accounts and transactions have
been eliminated. (see note 14)
b) Principal Activities
The company. which was incorporated on May 14, 1997 is
principally engaged in the designing, manufacturing and marketing
of wallpapers and decorative fabrics in Canada, U.S. and Europe
through its operating subsidiaries Ontario Paint and Wallpaper
Limited and Rosedale Wallcoverings and Fabrics Inc. These
subsidiaries were incorporated in Canada on December 31, 1971 and
April 7, 1981 respectively.
c) Deferred Product costs
Expenditures relating to the design and distribution of
wallpaper and fabric sample books consisting book development and
design costs relating to collections that have not been launched
are deferred and amortized over a three-year period on a
straight-line basis. Proceeds from the sale of sample books are
offset against the book development costs when received.
d) Cash and Cash Equivalents (Bank Indebtedness)
Cash and cash equivalents (bank indebtedness) includes cash
on hand, amounts due from and to banks, and any other highly
liquid investments purchased with a maturity of three months or
less. The carrying amounts approximate fair values because of the
short maturity of those instruments.
e) Other Current Financial Instruments
The carrying amount of the companies' accounts receivable
and payable approximates fair value because of the short maturity
of these instruments.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
f) Long-term Financial Instruments
The fair value of each of the companies' long-term financial
assets and debt instruments is based on the amount of future cash
flows associated with each instrument discounted using an
estimate of what the companies' current borrowing rate for
similar instruments of comparable maturity would be.
g) Inventory
Inventory is valued at the lower of cost and fair market
value. Cost is determined on the first-in, first-out basis.
h) Property, Plant and equipment
Property, plant and equipment are recorded at cost and are
amortized on the basis of their estimated useful lives at the
undernoted rates and methods:
<TABLE>
<CAPTION>
<S> <C> <C>
Leasehold improvements 10% Straight-line
Cylinders and related design costs 5 years Straight-line
Equipment furniture and fixtures 20% Declining balance
Computer equipment 30% and 20% Declining balance
Automobile 30% Declining balance
</TABLE>
Amortization for assets acquired during the year is recorded
at one-half of the indicated rates, which approximate when they
were put into use.
i) Income taxes
The company accounts for income tax under the provisions of
Statement of Financial Accounting Standards No. 109, which
requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the
liability method, deferred income taxes are recognized for all
significant temporary differences between the tax and financial
statement bases of assets and liabilities.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
j) Foreign Currency Translation
The companies maintain their books and records in Canadian
dollars. Foreign currency transactions are translated using the
temporal method. Under this method, all monetary items are
translated into Canadian funds at the rate of exchange prevailing
at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate
in effect on the transaction dates. Transaction gains and losses
are included in the determination of earnings for the year.
The translation of the financial statements from Canadian
dollars ("CDN $") into United States dollars is performed for the
convenience of the reader. Balance sheet accounts are translated
using closing exchange rates in effect at the balance sheet date
and income and expense accounts are translated using an average
exchange rate prevailing during each reporting period. No
representation is made that the Canadian dollar amounts could
have been, or could be, converted into United Sates dollars at
the rates on the respective dates and or at any other certain
rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholders' equity.
k) Sales
Sales represent the invoiced value of goods supplied to
customers. Sales are recognized upon delivery of goods and
passage of title to customers.
l) Use of Estimates
The preparation of financial statements requires management
to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
m) Long-Lived Assets
On January 1, 1996, the companies adopted the provisions of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. SFAS No. 121
requires that long-lived assets to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 did not have a material impact on the
companies' result of operations.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
n) Stock Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based
Compensation, was issued. It introduced the use of a fair
value-based method of accounting for stock-based compensation. It
encourages, but does not require, companies to recognize
compensation expense for stock-based compensation to employees
based on the new fair value accounting rules. The Company chose
to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25. " Accounting for Stock Issued to Employees", and
related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market
price of the Company's stock at the measurement date over the
amount an employee must pay to acquire the stock.
2. COMPREHENSIVE INCOME
The company has adopted Statement of Financial Accounting
Standard No. 130 "Reporting Comprehensive Income as of December
1, 1998 which requires new standards for reporting and display of
comprehensive income and its components in the financial
statements. However, it does not affect net income or total
stockholders' equity. The components of comprehensive income are
as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C> <C>
NET INCOME to JUNE 30 144,841 796,833
OTHER COMPREHENSIVE INCOME (LOSS)
FOREIGN CURRENCY TRANSLATION 386,597 15,943
------- ------
COMPREHENSIVE INCOME as at JUNE 30 531,438 812,776
NET INCOME 3rd Qtr 228,840 229,963
FOREIGN CURRENCY TRANSLATION (22,933) (150,213)
-------- ---------
COMPREHENSIVE INCOME as at SEPTEMBER 30 737,345 892,526
</TABLE>
<TABLE>
<CAPTION>
3. ACCOUNTS RECEIVABLE September 30 December 31,
1999 1998
$ $
<S> <C> <C>
Accounts receivable 5,545,425 3,842,820
Less: Allowance for doubtful accounts 173,734 146,770
-------- ---------
Accounts receivable, net 5,719,159 3,696,050
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
4. INVENTORY September 30, December 31,
1999 1998
$ $
Inventory comprised the following:
<S> <C> <C>
Raw materials 148,663 185,956
Finished goods 6,486,421 7,043,488
-------- ---------
6,635,084 7,229,444
-------- ---------
</TABLE>
5. LOANS RECEIVABLE FROM AFFILIATED COMPANIES
The loans receivable from affiliated companies which are related
through common ownership bear interest at prime plus 1.5%, have no
specific repayment terms, and are not expected to be repaid prior to
October1, 2000.
6. DEFERRED PRODUCT COSTS
<TABLE>
<CAPTION>
September 30, December31,
1999 1998
$ $
<S> <C> <C>
Book development costs 1,617,197 1,285,831
Deferred software costs 65,404 58,338
-------- ---------
Cost 1,682,601 1,344,169
-------- ---------
Less: Accumulated amortization
Book development costs 771,862 467,454
Deferred software costs 38,728 25,513
-------- ---------
810,590 492,967
-------- ---------
Net Deferred Product Costs 872,011 851,202
======== =========
</TABLE>
7. DEFERRED POLICY COSTS
Deferred policy costs represents the prepaid portion of
premiums on the life insurance policies referred to in note 21.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
8. MORTGAGES RECEIVABLE
Second mortgages from companies related through common ownership,
secured by land and buildings, bear interest at 9% and are payable on
demand. No repayments are expected prior to October1, 2000.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
$ $
<S> <C> <C> <C>
1216748 Ontario Inc. 176,347 168,768
1217576 Ontario Inc. 159,948 153,073
-------- ---------
336,295 321,841
======== =========
</TABLE>
The fair value of the mortgages receivable is estimated to
be $350,000.
9. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
$ $
<S> <C> <C>
Leasehold improvements 34,723 29,230
Automobile 19,552 18,711
Equipment and furniture 296,600 283,502
Furniture and fixtures 251,319 240,517
Computer and equipment 493,645 348,874
Cylinders and related design costs 4,817,627 3,716,883
-------- ---------
Cost 5,913,466 4,637,717
-------- ---------
Less: Accumulated amortization
Leasehold improvements 15,540 12,671
Automobile 17,882 16,380
Equipment and furniture 227,867 203,399
Furniture and fixtures 194,208 185,861
Computer and equipment 301,243 245,381
Cylinders and related design costs 2,422,502 1,813,592
-------- ---------
3,179,242 2,477,284
-------- ---------
Net Assets 2,734,224 2,160,433
======== =========
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
10. BANK INDEBTEDNESS
The companies have available credit facilities up to a
maximum of $6,924,000 ($10,160,000 Canadian), which bear interest
at rates varying between the bank's prime rate plus 0.25% and
prime plus 1.25%. The indebtedness is secured by general
assignments of book debts, pledge of inventory under Section 427
of the Bank Act of Canada, general security agreements providing
a first floating charge over all assets, guarantees and
postponement of claims to a maximum of $1,703,000 from the
company, guarantees from affiliated companies up to $579,000,
assignment of life insurance of $1,000,000 (Cdn) on each of the
lives of two key officers and assignment of fire insurance.
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
$ $
Accounts payable and accrued expenses is comprised of the following:
<S> <C> <C>
Trade payables 4,672,049 4,230,024
Accrued expenses 214,799 351,010
-------- ---------
4,886,848 4,581,034
======== =========
</TABLE>
12. LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
$ $
a) Settlement Payable
Settlement of a claim initiated by a third party payable $7,242
monthly. The fair value of the settlement payable is
<S> <C> <C>
estimated to be $138,000 - 77,076
-------- ---------
b) Insurance Loan
Amount in excess of cash surrender values of life insurance
policies (note 21) which is payable on demand but is
expected to become due for payment in the year 2004. The
loan bears interest at prime plus 1.5% and is secured by
letters of guarantee from a major Canadian Chartered Bank
and a second collateral mortgage on the assets of the
companies 993,662 950,956
-------- ---------
993,662 1,028,032
-------- ---------
Less: Current portion - (77,076)
-------- ---------
Long-term portion 993,662 950,956
======== =========
</TABLE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
13. DUE TO STOCKHOLDERS AND DIRECTORS
Stockholders' and directors advances are secured by general
security agreements, bears interest at the National Bank of
Canada prime lending rate plus 1.5%, are without specific terms
of repayment, and are not expected to be repaid prior to
October1, 2000.
14. COMMON STOCK
a) Authorised
An unlimited number of common and preference shares
The preference shares are issuable upon approval by the
directors with the appropriate designation, rights, privileges
and conditions attaching to each share of such series.
Issued
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C> <C>
2,765,000 Common shares 5,013,883 5,013,883
1,265,000 WARRANTS 142,314 142,314
------- -------
5,156,197 5,156,197
--------- ---------
</TABLE>
b) During 1998, the company issued 1,265,000 common shares and 1,265,000
warrants as follows:
<TABLE>
<CAPTION>
<S> <C>
Proceeds received from the issuance $ 6,158,857
ISSUANCE COSTS (NET OF INCOME TAXES) (1,002,662)
-----------
NET PROCEEDS $ 5,156,195
---------
</TABLE>
Net proceeds include the deferred income tax recoveries
c) Weighted Average Number of Common Shares
On June 15, 1998, the shareholders transferred their 100%
ownership interests in 521305 Ontario Inc. and 1010037 Ontario
Inc. in exchange for the issuance of 1,500,000 common shares of
the company.
On June 18, 1998, the company issued 1,100,000 common shares
to the public.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
14. COMMON STOCK (cont'd)
c) Weighted Average Number of Common Shares
On July 29, 1998, the company issued 165,000 common shares
to the public.
The weighted average number of shares for 1998 was based on
the number of days the shares were outstanding during the year
under the assumption that the share transfer referred to above
occurred at the beginning of the year.
The weighted average number of shares for 1999 was based on
the shares outstanding as of January 1, 1999 as no further shares
have been issued.
d) The company has adopted a Stock Option Plan (the 1998
Plan), pursuant to which 750,000 shares of Common Stock are
reserved for issuance.
The 1998 Plan is for a period of ten years. Options may be
granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and
expertise to the Company. Options granted under the 1998 Plan may
be exercisable for up to ten years, may require vesting, and
shall be at an exercise price all as determined by the board.
Options will be non-transferable except to an option holder's
personal holding company or registered retirement savings plan
and are exercisable only by the participant during his or her
lifetime.
If a participant ceases affiliation with the Company by
reason of death, permanent disability or retirement at or after
age 70, the option remains exercisable for three months from such
occurrence but not beyond the options expiration date. Other
termination gives the participant three months to exercise,
except for termination for cause which results in immediate
termination of the option.
Options granted under the 1998 Plan by the directors of the
compensation committee or the board, may be exercised either with
cash, Common Stock having a fair market equal to the cash
exercise price, the participants personal recourse note, or with
an assignment to the Company of sufficient proceeds from the sale
of the Common Stock acquired upon exercise of the Options with an
authorisation to the broker or selling agent to pay that amount
to the company, or any combination of the above.
Options under the 1998 Plan must be issued within ten years
from the effective date of the 1998 Plan.
Any unexercised options that expire or that terminate upon
employees ceasing to be employed by the company become available
again for issuance under the 1998 Plan.
The 1998 Plan may be terminated or amended at any time by
the board of directors, except that the number of shares of
Common Stock reserved for issuance upon the exercise of options
granted under the 1998 Plan may not be increased without the
consent of the stockholders of the Company.
On August 19, 1999, the Board of Directors granted 336,500
stock options at the most recent closing price of the Company's
shares as traded on NASDAQ, specifically, U.S. $1.00 per share on
August 18, 1999. Officers, Directors and five percent
shareholders were granted 276,500 options. The remaining 60,000
options were granted to key employees.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
e) Stock Option Plan (cont'd)
The Officers, Directors and five percent shareholders that
were granted options and the respective amounts are listed below.
<TABLE>
<CAPTION>
<S> <C> <C>
Alan Fine Chairman and Chief Executive Officer 125,750
Sidney Ackerman Director and President 125,750
Norman Maxwell Director and Chief Financial Officer 25,000
</TABLE>
f) Purchase Warrants
During 1998, Purchase Warrants ("Warrants") were issued
pursuant to a Warrant Agreement between the company and J.P.
Turner and Company. Each Warrant entitles its holders to
purchase, during the four year period commencing on June 18,
1999, one share of common stock at an exercise price of $6.00 per
share, subject to adjustment in accordance with the anti-dilution
and other provision referred to below.
The Warrants may be redeemed by the company at any time
commencing one year from June 18, 1998 (or earlier with the
consent of the representative) and prior to their expiration, at
a redemption price of $0.10 per Warrant, on not less than 30
days' prior written notice to the holders of such Warrants,
provided that the closing bid price of the common stock if traded
on the NASDAQ SmallCap Market, or the last sale price of the
common stock, if listed on the NASDAQ National Market or on a
national exchange, is at least 150% ($9.00 per share, subject to
adjustment) of the exercise price of the Warrants for a period of
10 consecutive business days ending on the third day prior to the
date the notice of redemption is given. Holders of Warrants shall
have exercise rights until the close of the business day
preceding the date fixed for redemption.
The exercise price and the number of shares of common stock
purchasable upon the exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, including stock
dividends, stock splits, combinations or classification of the
common stock. The Warrants do not confer upon holders any voting
or any other rights of shareholders of the company.
No Warrant will be exercisable unless at the time of
exercise the company has filed with the Commission a current
prospectus covering the issuance of common stock issuable upon
the exercise of the Warrant and the issuance of shares has been
registered or qualified or is deemed to be exempt from
registration or qualification under the securities laws of the
state of residence of the holder of the Warrant. The company has
undertaken to use its best efforts to maintain a current
prospectus relating to the issuance of shares of common stock
upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it
is the company's intention to maintain a current prospectus,
there is no assurance that it will be able to do so.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
15. INCOME TAXES
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
a) Current - -
Deferred 163,827 156,786
-------- ---------
163,827 156,786
-------- ---------
</TABLE>
b) Deferred income taxes represented the tax charges derived from
temporary differences between amortization of property, plant
and equipment and amounts deducted from taxable income.
c) Rosedale has operating losses of approximately $534,000 which is
expected to he used to reduce future taxable income. The
potential tax benefit relating to the losses have been
recognized in the accounts to the extent that they reduce
deferred taxes. The deductibility of these losses if available
expires as follows:
2001 $ 130,000
2002 294,000
2004 22,000
2005 103,000
$ 549,000
Rosedale has been reassessed by Revenue Canada and the
Province of Ontario for fiscal year ended December 31, 1993 and
December 31, 1994 in the amount of approximately $717,000 (see
note 19). Should the assessments be upheld, the benefits of these
losses may not be realized.
16. RELATED PARTY TRANSACTIONS
Amounts due from or paid to companies which are related
through common ownership.
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C> <C>
Loan - 976168 Ontario Inc. 2,624 1,933
Mortgage receivable - 1216748 Ontario Inc. 176,347 168,768
Mortgage receivable - 1217576 Ontario Inc. 159,947 153,073
Rent paid - 966578 Ontario Inc. 12,267 4,236
Rent paid - 1216748 Ontario Inc. 2,044 -
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems
use two digits rather than four to identify a year.
Date-sensitive systems may recognize the year 2000 as 1900 or
some other date, resulting in errors when information using year
2000 dates is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the year 2000 Issue
may be experienced before, on or after January 1, 2000, and, if
not addressed, the impact on operations and financial reporting
may range from minor errors to significant systems failure, which
could affect a company's ability to conduct normal business
operations. It is not possible to be certain that all aspects of
the Year 2000 Issue affecting the company, including those
related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.
18. SEGMENTED INFORMATION
Rosedale is engaged primarily in the design, manufacturing,
marketing, and distribution and Ontario is engaged primarily in
the marketing and distribution of wallpaper and designer fabrics.
a) The breakdown of sales by geographic area is as follows:
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1999 THREE MONTHS NINE MONTHS
----------------------------------------------------------------------------------------------
<S> <C> <C>
United States of America $ 3,174,392 $ 8,119,555
Canada 1,416,899 5,520,921
Other 193,620 662,452
--------- ---------
$ 4,784,911 $ 14,302,928
========= =========
PERIOD ENDED SEPTEMBER 30, 1998
United States of America $ 3,974,672 $ 9,389,876
Canada 735,703 5,253,973
Other 167,237 985,228
--------- ---------
$ 4,877,612 $ 15,629,077
========= =========
</TABLE>
The companies' accounting records do not readily provide
information on net income by geographic area. Management is of
the opinion that the proportion of net income based principally
on sales, presented below, would fairly present the results of
operations by geographic area.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
18. SEGMENTED INFORMATION (cont'd)
PERIOD ENDED SEPTEMBER 30, 1999 THREE MONTHS NINE MONTHS
---------------------------------------------------------------------------------------------------
<S> <C> <C>
United States of America $ 136,816 $ 212,133
Canada 81,959 144,241
Other 10,065 17,307
--------- ---------
$ 228,840 $ 373,681
========= =========
PERIOD ENDED SEPTEMBER 30, 1998
United States of America $ 215,290 $ 616,894
Canada 10,504 345,174
Other 4,169 64,728
--------- ---------
$ 229,963 $ 1,026,796
========= =========
</TABLE>
b) The breakdown of identifiable assets by geographic area is as
follows:
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1999
<S> <C>
United States of America $ 4,183,087
Canada 14,773,627
Other 1,349,037
---------
$ 20,305,751
==========
YEAR ENDED DECEMBER 1998
United States of America $ 1,744,862
Canada 15,430,713
Other 1,098,750
---------
$ 18,274,325
==========
</TABLE>
c) Sales to major customers are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Sales 2,901,146 4,943,227
--------- ---------
% of total sales 20% 32%
--------- ---------
Amounts included in accounts receivable $ 801,699 $ 1,128,943
--------- ---------
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
d) Purchases from major suppliers are as follows:
1999 1998
<S> <C> <C>
Purchases $ 3,925,156 $ 4,804,394
--------- ---------
% of total purchases 48% 47%
--------- ---------
AMOUNTS INCLUDED IN ACCOUNTS PAYABLE $ 2,115,282 $ 2,347,141
--------- ---------
</TABLE>
19. CONTINGENCIES
Rosedale has been re-assessed by Revenue Canada and the
Province of Ontario for fiscal years ended December 31, 1993 and
December 31, 1994 for additional taxes estimated to be $717,000.
The company has objected to these re-assessments and has no
obligation to pay the portion relating to Revenue Canada in the
amount of $450,000 until the objections have been processed. No
provision has been made in the accounts for the additional taxes.
The company has retained a firm of tax specialists to
represent them in presenting their case to Revenue Canada and
currently the Notices of Objections are being considered by the
Chief of Appeals.
Since the company considers the re-assessments to be
incorrect, no liability has been set up in the accounts. Should
all or part of the re-assessments be upheld, the additional
income taxes would be taken into account in the year of
occurrence.
20. COMMITMENTS
Minimum payments under operating leases for premises amount
to approximately $300,000 per annum, exclusive of insurance and
other occupancy charges. The leases expire on October 31, 2004.
The future minimum lease payments over the next four years are as
follows:
Payable during the following periods:
<TABLE>
<CAPTION>
<S> <C>
Within one year $ 300,003
Over one year but not exceeding two years 300,003
Over two years but not exceeding three years 300,003
Over three years but not exceeding four years 300,003
Over four years but not exceeding five years 300,003
Thereafter 25,000
$ 1,525,015
</TABLE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
21. LIFE INSURANCE POLICIES
The companies are the beneficiaries of life insurance
policies with The Prudential of America Life Insurance Company
(Canada) ("PruCan") taken out on the lives of two of the officers
for a total insured value of $6.6 million. In consideration for
this benefit, the companies agreed to fund the premiums payable
on the policies. Funding is being provided by advances from the
Laurentian Bank of Canada ("Laurentian").
The Laurentian has a legal right of set-off of the cash
surrender values of the life insurance policies against the debt
owing to it by the companies. Accordingly the related assets and
liabilities have been offset in the financial statements.
The amounts offset were as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash surrender value of life insurance policies $ 1,817,683
Advances $ (1,817,683)
</TABLE>
The amount in excess of the cash surrender value of the life
insurance policies is included in long-term debt (see note 11).
The advances from Laurentian are payable on demand but are
expected to become due for payment in the year 2004. The
companies are liable for the interest on the advances. Security
is provided by first charges on the insurance policies, letters
of credit from a major Canadian chartered bank and general
security agreements creating a second charge over all corporate
assets.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
21. FOREIGN EXCHANGE CONTRACTS
As at September 30, 1999, the Company had outstanding
foreign exchange contracts to sell U.S. dollars to the National
Bank of Canada to hedge against fluctuations in foreign currency.
The purpose of the Company's foreign exchange hedging activities
is to protect the Company from the risk that the eventual dollar
net cash inflows resulting from the sale and purchase of products
in foreign currencies will not be adversely affected by changes
in exchange rates. It is the Company's policy to use derivative
financial instruments to reduce foreign risks. Fluctuations in
the value of these hedging instruments are offset by fluctuations
in the value of the underlying exposures being hedged. As the
contracts are settled, the related gains or losses, if any, will
be reported in the statements of financial position and income.
There is a potential risk of non-performance by the National Bank
of Canada, the financial institution that the Company has the
Foreign Forward Exchange Contracts with. However, given the
National Bank's prominence and financial condition, the Company
believes that this risk is insignificant. The Company had no
contracts outstanding with maturities beyond one year. The cash
requirements arise as the contracts are exercised to the value of
$10,085,000 (in varying amounts from October 1999 through June
2000). The following table presents the aggregate notional
principal amounts, carrying values and fair values of the
Company's foreign exchange contracts outstanding as of September
30, 1999. Deferred gains and losses on forward exchange contracts
are recognized in earnings when the future purchases and sales
being hedged are recognized. The Company does not hold or issue
financial instruments for trading purposes. The estimated fair
values of the derivatives used to hedge the Company's risks will
fluctuate over time.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
- ------------------------------------ -------------------------------------------
Forward Notional Forward Notional
Exchange Principal Carrying Fair Exchange Principal Carrying
CONTRACTS AMOUNTS VALUE VALUES CONTRACTS AMOUNTS VALUES
<S> <C> <C> <C> <C> <C> <C>
1998 - - - $5,965,000 - ($524,243)
1999 $ 7,985,000 - ($345,853) 10,050,000 - (639,876)
2000 $ 2,100,000 $ 31,545 2,100,000 - (66,624)
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998.
Revenues for the three months ended September 30, 1999 were $4,784,911, a
2% decrease over prior year revenues of $4,877,612. The substantial increase
(93%) in sales to the Canadian market was mostly offset by the 20% decrease in
sales to the United States market.
Gross profit for the three months ended September 30, 1999 was 40.2% of
sales, an increase as compared to the same period one-year ago, which was 37.9%.
This increase in gross profit margin can be attributed to a change in sales mix
due to an increase in sales to the Canadian market and the weakening of Sales to
the Export Market.
Selling expenses increased by 5.4% to $589,497 for the three month period
ended September 30, 1999 as compared to $559,040 for the three month period
ended September 30, 1998. Travel expense increased as our sales force attended
different customer shows to generate additional business, which should increase
sales for the remainder of the year. Also, Bin Expenses have increased as
compared to last year as we are aggressively pursuing new business from dealers
who stock wallpaper.
General and administrative expenses for the Company decreased by 11.7%, to
$557,931 for the three months period ended September 30, 1999 from $631,846 for
the three months ended September 30, 1998. This savings is mostly attributable
to the extraordinary expenses incurred by the Company during this period in 1998
due to its public offering.
Book development cost for the three-month period ended September 30, 1999
was $12,371 compared to $84,729 for the same period last year. This decrease
relates to a conscious effort to reduce the cost of sample book production.
Design studio expenses for the Company were $198,958 for the three months
ended September 30, 1999 versus $71,096 for the same period last year. As we
intend to increase the number of lines to be launched, design costs will
increase for a short period before stabilizing.
Operating income for the three months ended September 30, 1999 was $377,424
compared to $ 353,111 for the three months ended September 30, 1998. Income
increased with better margins being recorded, which was offset by increased
expenses.
<PAGE>
Interest expense for the Company for the three months ended September 30,
1999 was $56,835 compared to income of $22,442 for the three months ended
September 30, 1998. This change in interest is attributable to higher borrowings
to accommodate the extra lines being launched.
The Company showed a Net Profit for the three months ended September 30,
1999 of $228,840 as compared to $229,963 for the same period ended September 30,
1998.
Earnings per share for the three months ended September 30, 1999 were
$0.08, which is the same as last year, using the total shares presently
outstanding of 2,765,000.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998.
Revenues for the nine months ended September 30, 1999 were $14,302,928, an
8.5% decrease over prior year revenues of $15,629,077. This decrease was due to
the general weakening in the market, especially in the U.S. and overseas, as
observed by the continued restructuring of many companies within the wallpaper
industry. We have also experienced a dramatic decrease in Royalties on the sales
of our product in other parts of the world.
Gross profit for the nine months ended September 30, 1999 was 38.2% of
sales, a decrease as compared to the same period one-year ago, which was 40.3%.
This decrease in gross profit margin can be attributed to a change in sales mix
due to an increase in clearance sales and the weakening of the U.S. dollar.
Fifty percent (50%) of the Company's sales are made in U.S. dollars. As the
majority of our purchases are made in Canadian dollars, a stronger U.S. dollar
will help our gross margin, whereas a strong U.S. dollar has a negative impact
on the conversion of the financial statements. We are also beginning to use
other manufacturing facilities in Canada, which would also reduce our costs and
have a positive impact on our margins.
Selling expenses for the company increased by 13.5% to $1,818,841 for the
nine month period ended September 30, 1999 as compared to $1,602,015 for the
nine month period ended September 30, 1998. This increase is attributable to
additional expenses incurred for public relations, which did not occur until the
second half of 1998. Travel expense has increased with the objective of
increasing fabric sales in the last half of 1999. Bins Expense has also
increased over last year as we continue to increase our market share in the
Canadian market.
General and administrative expenses for the Company increased by 0.5%, to
$1,737,437 for the nine months period ended September 30, 1999 from $1,728,767
for the nine months ended September 30, 1998. The Company is taking action to
control expenses wherever possible and will continue to look for ways of cost
cutting.
Rosedale develops wallpaper and fabric sample books, which are created for
each collection and sold through distributors. The majority of expenditures for
the creation of sample books are incurred in the quarter before the introduction
of a collection. Some of these expenditures are incurred as early as nine to
eight months in advance. Revenues generated from the sales of sample books are
netted from the costs incurred in the same period and the net amount is shown on
the income statement. Because expenditures are made in the quarter before the
launch of a collection, there is not always a matching of revenues and expenses
e.g. costs for a January launch would be recorded in the following year. The
Company ensures that there are firm orders in place from customers before
<PAGE>
significant expenditures are incurred to produce the sample books. Therefore,
there is little speculative risk in their production. Book development cost for
the nine-month period ended September 30, 1999 was $104,820 compared to $165,991
for the same period last year. This decrease relates to a conscious effort in
reducing the cost of sample books. However, the market for books is very
competitive, and as these sample books are our silent salesperson, it is
imperative that we keep our books in the marketplace and on top of the counters.
Design studio expenses for the Company increased by 31.1% to $570,692 for
the nine months ended September 30, 1999 versus $435,291 for the same period
last year. Additional expenses were required as the intention is to launch an
additional four collections in 1999 to trigger additional sales.
Operating income for the nine months ended September 30, 1999 decreased to
$680,035 from $1,908,036 for the nine months ended September 30, 1998. This is
the cumulative effect of reduced sales and margins, plus additional expenses
incurred after the public offering.
Interest expense for the Company for the nine months ended September 30, 1999
decreased to $147,124 from $198,111 for the nine months ended September 30,
1998. This decrease in interest expense is attributable to lower interest rates
and short term investment interest on the funds raised from the public offering.
Net income for the nine months ended September 30, 1999 decreased to
$373,681 as compared to $1,026,796 for the same period ended September 30, 1998.
The decrease is due to the lower sales and margins in 1999 and the higher
operating expenses.
Earnings per share for the nine months ended September 30, 1999 was $0.14
compared to $0.37 for the same period last year using the total shares presently
outstanding of 2,765,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative net change in cash of $384,316 for the nine
months ended September 30, 1999. The principal sources of cash were Net Income
of $373,681, a decrease in Inventory of $909,056 and an increase in bank
indebtedness. These items were off set by cash used to increase Accounts
Receivable at the end of the period.
Cash flows used in investing activities for the nine months ending
September 30, 1999 were $1,026,377. This reflected planned capital addition for
cylinders, designs and engravings for new collections. The company received net
proceeds from it's initial public offering effective June 18, 1998 in the amount
of $5,156,195. The company believes that the proceeds of the offering, coupled
with the income from operations, will fulfill the company's working capital
needs for at least the next twelve to eighteen months. It is the company's
intention to utilize a good portion of these funds to develop new product lines
of wallpaper and fabric plus continue the development of floor coverings and
ceiling tiles, and using funds for possible acquisitions.
<PAGE>
YEAR 2000
The Company's review of its own operating systems does not indicate any
Year 2000 problems. However, the Company is highly dependent on third party
vendors. Failures and interruptions, if any, resulting from the inability of
certain computing systems of third party vendors, including the Company's
clearing broker to recognize the Year 2000 could have material adverse effect on
the Company's results of operations. There can be no assurance that the Year
2000 issue can be resolved by any of such third parties prior to the upcoming
change in the century. Although the Company may incur substantial costs,
particularly costs resulting from increased charges by its third party service
providers, as a result of such third party service providers correcting Year
2000 issues, such costs are not sufficiently certain to estimate at this time.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the nine month
period ended September 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSEDALE DECORATIVE PRODUCTS LTD.
DATE: NOVEMBER 11, 1999 BY: /S/ALAN FINE
-------------------------------
Alan Fine
DATE: NOVEMBER 11, 1999 BY: /S/NORMAN G. MAXWELL
-------------------------------
Norman G. Maxwell
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27: FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> dec-31-1999
<PERIOD-END> sep-30-1999
<CASH> 3,033,098
<SECURITIES> 0
<RECEIVABLES> 5,545,425
<ALLOWANCES> 173,734
<INVENTORY> 6,635,086
<CURRENT-ASSETS> 16,080,033
<PP&E> 5,913,466
<DEPRECIATION> 3,179,242
<TOTAL-ASSETS> 20,305,751
<CURRENT-LIABILITIES> 9,295,304
<BONDS> 0
0
0
<COMMON> 5,156,197
<OTHER-SE> 3,587,612
<TOTAL-LIABILITY-AND-EQUITY> 20,305,751
<SALES> 14,302,928
<TOTAL-REVENUES> 14,302,928
<CGS> 8,836,320
<TOTAL-COSTS> 4,786,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,124
<INCOME-PRETAX> 532,911
<INCOME-TAX> 159,230
<INCOME-CONTINUING> 373,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 373,681
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.09
</TABLE>
