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 June 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 June 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
JUNE 30, 1999
(Unaudited)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Interim Consolidated Balance Sheet as of June 30, 1999 and December 31, 1998 3 - 4
Interim Consolidated Statement of Income for the three months ended June 30,1999 5
Interim Consolidated Statement of Income for the six months ended June 30, 1999 6
Interim Consolidated Statement of Cash Flows for the period ended June 30, 1999 7 - 8
Interim Consolidated Statement of Stockholders' Equity for the period ended
June 30, 1999 9
Notes to Interim Consolidated Financial Statements 10 - 25
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheet
As of June 30, 1999 and December 31, 1998
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
$ $
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash ................................. 3,004,591 3,417,414
Accounts receivable (note 3) ......... 4,666,930 3,696,050
Inventory (note 4) ................... 6,880,146 7,229,444
Prepaid expenses and sundry assets ... 488,494 288,764
Income taxes recoverable ............. 38,524 38,738
---------- ----------
15,078,685 14,670,410
LOANS RECEIVABLE FROM AFFILIATED COMPANIES
(note 5) ............................. 2.487 1,933
DEFERRED PRODUCT COSTS (note 6) .......... 684,847 851,202
DEFERRED POLICY COSTS (note 7) ........... 281,408 268,506
MORTGAGES RECEIVABLE (note 8) ............ 337,306 321,841
PROPERTY, PLANT AND EQUIPMENT (note 9) ... 2.673,930 2,160,433
---------- ----------
19,058,663 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 June 30, 1999 and December 31, 1998
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
$ $
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C> <C>
Bank indebtedness (note 10) ............................ 3,615,893 3,327,022
Accounts payable and accrued expenses
(note 11) ......................................... 4,571,808 4,581,034
Income taxes payable ................................... -- --
Current portion of long-term debt (note 12) ............ -- 77,076
--------- ---------
8,187,701 7,985,132
LONG-TERM DEBT (note 12) ................................... 996,651 950,956
ADVANCES FROM RELATED PARTIES (note 13) .................... 1,172,089 1,174,987
DEFERRED INCOME TAXES ...................................... 164,320 156,786
---------- ----------
10,520,761 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 .......................... (1,744) (388,341)
RETAINED EARNINGS .......................................... 3,383,449 3,238,608
---------- ---------
8,537,902 8,006,464
---------- ---------
19,058,663 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 June 30,
(Amounts expressed in US dollars) (Unaudited)
<TABLE>
<CAPTION>
Three-months Three-months
June 30, June 30,
1999 1998
$ $
<S> <C> <C>
SALES .................................. 4,470,560 4,244,876
COST OF SALES .......................... 3,048,796 2,224,517
--------- ---------
GROSS PROFIT ........................... 1,421,764 2,020,359
--------- ---------
OPERATING EXPENSES
General and administrative ......... 582,918 526,546
Selling ............................ 667,828 532,732
Design studio ...................... 178,985 190,335
Book development costs ............. (30,803) 30,370
Amortization ....................... 181,592 150,770
--------- ---------
TOTAL OPERATING EXPENSES ............... 1,580,520 1,430,753
--------- ---------
OPERATING INCOME ....................... (158,756) 589,606
Interest expense ................... 62,702 137,384
--------- ---------
INCOME BEFORE INCOME TAXES ............. (221,458) 452,223
Income taxes (note 15) ............. (40,530) 184,539
---------- ---------
NET INCOME ............................. (180,927) 267,683
========== ==========
Net Income Per Share (note 14) ......... (0.07) 0.12
========== ==========
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 six months ended June 30,
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six-months Six-months
June 30, June 30,
1999 1998
$ $
<S> <C> <C>
SALES .................................. 9,518,017 10,751,465
COST OF SALES .......................... 5,973,239 6,302,625
--------- ----------
GROSS PROFIT ........................... 3,544,778 4,448,840
--------- ----------
OPERATING EXPENSES
General and administrative ......... 1,179,506 1,096,921
Selling ............................ 1,229,344 1,042,976
Design studio ...................... 371,734 364,195
Book development costs ............. 92,449 81,262
Amortization ....................... 369,134 308,562
--------- ----------
TOTAL OPERATING EXPENSES ............... 3,242,167 2,893,915
--------- ----------
OPERATING INCOME ....................... 302,611 1,554,925
Interest expense ................... 90,289 220,553
--------- ----------
INCOME BEFORE INCOME TAXES ............. 212,322 1,334,373
Income taxes (note 15) ............. 67,481 537,539
--------- ----------
NET INCOME ............................. 144,841 796,833
========= ==========
Net Income Per Share (note 14) ......... 0.05 0.37
========= ==========
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>
Six-months Six-months
June 30, June 30,
1999 1998
$ $
Cash flows from operating activities:
<S> <C> <C>
Net income .......................................................... 144,841 796,833
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization ........................................................ 369,134 308,562
(Increase) decrease in deferred product costs ....................... 204,614 441,106
(Increase) in accounts receivable ................................... (783,160) (542,672)
(Increase) decrease in inventory .................................... 687,801 314,537
(Increase) in prepaid expenses and sundry assets .................... (183,483) (132,655)
Increase (decrease) in accounts payable and accrued expenses ........ (226,428) (228,891)
Increase (decrease) in income taxes payable/recoverable ............. 2,049 456,872
Increase in deferred income taxes ................................... -- (4,843)
--------- ---------
Total adjustments .............................................. 70,527 612,016
--------- ---------
Net cash provided by (used in) operating activities ................. 215,368 1,408,849
--------- ---------
Cash flows from investing activities:
Increase in deferred policy costs ................................... 1 4,647
Purchases of property, plant and equipment .......................... (773,593) (546,296)
Increase in mortgages receivable .................................... -- 66,481
--------- ---------
Net cash used in investing activities ............................... (773,592) (475,168)
========= =========
</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>
Six-months Six-months
June 30, June 30,
1999 1998
$ $
Cash flows from financing activities:
<S> <C> <C>
Issuance of Common Stock ................................... -- 4,306,615
Proceeds from bank indebtedness ............................ 127,356 (582,605)
(Repayment of) proceeds from loans with affiliated companies (455) 34,865
Proceeds from long-term debt ............................... (79,752) (67,693)
Repayment of stockholders' loans ........................... (58,602) 455,370
Proceeds from loans with directors ......................... -- (681,008)
---------- ----------
Net cash provided by financing activities .................. (11,453) 3,465,544
---------- ----------
Effect of foreign currency exchange rate changes ................ 156,854 (35,844)
---------- ----------
Net (decrease) increase in cash and cash equivalents ............ (412,823) 4,363,381
Cash and cash equivalents, January 1 ............................ 3,417,414 442,655
---------- ----------
End of six month period ended June 30 ........................... 3,004,591 4,806,036
========== ==========
Income taxes paid ............................................... 146,000 38,428
========== ==========
Interest paid ................................................... 160,875 163,311
========== ==========
</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) 15,943
Issuance of common stock ...... 1,100,000 4,306,776
Net income for the six-month
period to June 30, 1998 .... -- 796,833 --
--------- ----------- ---------- ---------
Balance as of June 30, 1998 ... 2,600,000 4,306,778 2,732,898 (211,047)
Balance as of December 31, 1998 2,765,000 5,156,197 3,238,608 (388,341)
Foreign currency translation .. -- -- -- 386,597
Net income for the six-month
period to June 30, 1999 .... -- -- 144,841 --
--------- ----------- ---------- ---------
Balance as of June 30, 1999 2,765,000 5,156,197 3,383,449 (1,744)
========= =========== ========== =========
</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 is principally engaged in the design,
manufacture 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 Company's 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 Company's 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 Company's 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 Company maintains its 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 Company 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 Company's 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.
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 1ST Qtr 325,768 529,150
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation 130,635 (22,522)
------- --------
COMPREHENSIVE INCOME as at MARCH 31 456,403 506,628
NET INCOME (Loss) 2nd Qtr (180,927) 267,683
Foreign currency translation 255,962 38,465
------- ------
COMPREHENSIVE INCOME as at JUNE 30 531,438 812,776
======= ========
3. ACCOUNTS RECEIVABLE June 30 December 31,
1999 1998
$ $
Accounts receivable 4,847,853 3,842,820
Less: Allowance for doubtful accounts 180,923 146,770
--------- ---------
Accounts receivable, net 4,666,930 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 June 30, December 31,
1999 1998
$ $
Inventory comprised the following:
<S> <C> <C>
Raw materials 210,023 185,956
Finished goods 6,670,123 7,043,488
--------- ---------
6,880,146 7,229,444
--------- ---------
</TABLE>
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 July 1, 2000.
<TABLE>
<CAPTION>
DEFERRED PRODUCT COSTS
June 30, December 31
1999 1998
$ $
<S> <C> <C>
Book development costs 1,352,489 1,285,831
Deferred software costs 65,601 58,338
--------- ---------
Cost 1,418,090 1,344,169
--------- ---------
Less: Accumulated amortization
Book development costs 698,921 467,454
Deferred software costs 34,322 25,513
--------- ---------
733,243 492,967
--------- ---------
Net Deferred Product Costs 684,847 851,202
========= =========
</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 April 1, 2000.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
$ $
<S> <C> <C> <C>
1216748 Ontario Inc. 176,877 168,768
1217576 Ontario Inc. 160,429 153,073
--------- ---------
337,306 321,841
========= =========
</TABLE>
The fair value of the mortgages receivable is estimated
to be $350,000.
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
$ $
<S> <C> <C>
Leasehold improvements 30,635 29,230
Automobile 19,611 18,711
Equipment and furniture 297,492 283,502
Furniture and fixtures 252,075 240,517
Computer and equipment 489,681 348,874
Cylinders and related design costs 4,584,587 3,716,883
--------- ---------
Cost 5,674,081 4,637,717
--------- ---------
Less: Accumulated amortization
Leasehold improvements 14,817 12,671
Automobile 17,679 16,380
Equipment and furniture 223,426 203,399
Furniture and fixtures 194,792 185,861
Computer and equipment 295,997 245,381
Cylinders and related design costs 2,253,440 1,813,592
--------- ---------
3,000,151 2,477,284
--------- ---------
Net Assets 2,673,930 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 Company has available credit facilities up to a
maximum of $6,735,000 ($10,160,000 Canadian), which bear
interest at rates varying between the bank's prime rate and
prime plus 0.25%. 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
$1,657,000 from the Company, guarantees from affiliated
companies up to $563,000, assignment of life insurance of
$1,000,000 (Cdn) on each of the lives of two key officers
and assignment of fire insurance.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
$ $
Accounts payable and accrued expenses is comprised of the following:
<S> <C> <C>
Trade payables 4,265,984 4,230,024
Accrued expenses 305,824 351,010
--------- ----------
4,571,808 4,581,034
========= ==========
LONG-TERM DEBT
June 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
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 996,651 950,956
--------- ----------
996,651 1,028,032
Less: Current portion - (77,076)
--------- -----------
Long-term portion 996,651 950,956
========= ===========
</TABLE>
<PAGE>
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 July 1, 2000.
COMMON STOCK
Authorized
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>
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
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.
<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 June 18, 1998, the Company issued 1,100,000 common
shares to the public.
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.
c) 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 holders 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 option's
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, as 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 authorization 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 an 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. No
options were granted during this period.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Consolidated Statements
(Amounts expressed in US dollars)
(Unaudited)
Purchase Warrants
During 1998, common stock 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.
<TABLE>
<CAPTION>
15. INCOME TAXES
1999 1998
$ $
<S> <C> <C>
a) Current - -
Deferred 164,320 156,786
------- -------
164,320 156,786
======= =======
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Consolidated Statements
(Amounts expressed in US dollars)
(Unaudited)
15. INCOME TAXES (cont'd)
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:
<TABLE>
<CAPTION>
<S> <C> <C>
2001 $ 127,000
2002 286,000
2004 21,000
2005 100,000
-------
$ 534,000
=======
</TABLE>
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. 2,487 1,933
Mortgage receivable - 1216748 Ontario Inc. 176,877 168,768
Mortgage receivable - 1217576 Ontario Inc. 160,429 153,073
Rent paid - 966578 Ontario Inc. 8,098 4,236
</TABLE>
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.
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Consolidated Financial Statements
(Amounts expressed in US dollars)
(Unaudited)
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 June 30, 1999 three months six months
<S> <C> <C>
United States of America $ 2,159,301 $ 4,945,163
Canada 2,014,579 4,104,022
Other 296,680 468,832
----------- -----------
$ 4,470,560 $ 9,518,017
=========== ===========
Period ended June 30, 1998
United States of America $ 2,023,082 $ 5,415,204
Canada 2,142,566 4,518,270
Other 79,228 817,991
----------- -----------
$ 4,244,876 $ 10,751,465
=========== ===========
</TABLE>
The Company's 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.
Period ended June 30, 1999 three months six months
United States of America . $(104,485) $ 75,317
Canada ................... (72,573) 62,282
Other .................... (3,869) 7,242
--------- -------
$(180,927) $ 144,841
========= =======
Period ended June 30, 1998
United States of America . $ 125,739 $ 401,604
Canada ................... 141,465 334,670
Other .................... 479 60,559
--------- -------
$ 267,683 $ 796,833
========= =======
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Consolidated Financial Statements
(Amounts expressed in US dollars)
(Unaudited)
18. SEGMENTED INFORMATION (cont'd)
b) The breakdown of identifiable assets by geographic area is as
follows:
<TABLE>
<CAPTION>
Period ended June 30, 1999
<S> <C>
United States of America $ 2,519,251
Canada 15,161,202
Other 1,378,210
----------
$ 19,058,663
==========
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 2,042,113 2,517,971
--------- ---------
% of total sales 21% 23%
--------- ---------
Amounts included in accounts receivable $ 477,005 $1,194,710
--------- ---------
d) Purchases from major suppliers are as follows:
1999 1998
Purchases $ 2,316,787 $ 2,940,735
--------- ---------
% of total purchases 41% 33%
--------- ---------
Amounts included in accounts payable $ 1,341,753 $ 2,419,155
--------- ---------
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Consolidated Financial Statements
(Amounts expressed in US dollars)
(Unaudited)
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:
Within one year ............................. $300,905
Over one year but not exceeding two years ... 300,905
Over two years but not exceeding three years 300,905
Over three years but not exceeding four years 300,905
Over four years but not exceeding five years 300,905
Thereafter .................................. 100,302
---------
$ 1,604,827
=========
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Notes to Interim Consolidated Financial Statements
(Amounts expressed in US dollars)
(Unaudited)
21. LIFE INSURANCE POLICIES
The Company is the beneficiary 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
Company is 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 June 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 $14,020,000 (in varying amounts from April 1999
through June 2000). The following table presents the
aggregate national principal amounts, carrying values and
fair values of the Company's foreign exchange contracts
outstanding as of June 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>
June 30, 1999 June 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 - - - $8,235,000 - ($413,439)
1999 $ 9,240,000 - ($218,610) 9,750,000 - (196,710)
2000 $ 2,100,000 - $ 27,878
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operation
Three months ended June 30, 1999 compared to three months ended June 30,
1998.
Revenues for the three months ended June 30, 1999 were $4,470,560, a 5.3%
increase over prior year's revenues of $4,244,876. This increase was due to the
strengthening of the Canadian dollar versus the U.S. dollar, a dramatic increase
in export sales and a conscious effort to clear collections that are to be
discontinued in the near future.
Gross profit for the Company for the three months ended June 30, 1999 was
31.8% of sales, an decrease as compared to the same period one-year ago, which
was 47.8%. This decrease in gross profit margin can be attributed to a change in
sales mix due to an increase in sales to the export market and the weakening of
the U.S. dollar, of which over 50% of our sales arise. The Company's margins
were also impacted by the clearance of product during the quarter.
Selling expenses for the Company increased by 25.4% to $667,828 for the
three month period ended June 30, 1999 as compared to $532,732 for the three
month period ended June 30, 1998. This increase is attributable to additional
expenses incurred for public relations which did not occur until the second half
of 1998. Also, promotion expense increased due to two very successful trade
shows held in Toronto and Quebec City. Travel expense increased dramatically as
the Company's fabric sales force attended different trade shows to generate
additional business, which should increase sales for the remainder of the year.
General and administrative expenses for the Company increased by 10.7%, to
$582,918 for the three month period ended June 30, 1999 from $526,546 for the
three months ended June 30, 1998. Approximately $60,000 was expended for
consulting, legal and registration expenses relating to the new public entity.
The Company did not incur such expenses in the previous year.
Book development costs for the three month period ended June 30, 1999
generated a profit of $30,803, compared to an expenditure of $30,370 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 decreased by 6.0% to $178,985 for
the three months ended June 30, 1999, versus $190,335 for the same period last
year. Most of these savings relate to reduction in travel costs as we have moved
a good portion of our production to Canada from the United Kingdom.
Operating income for the three months ended June 30, 1999 showed a loss of
$158,756 compared to a profit of $ 589,606 for the three months ended June 30,
1998. Income was reduced by lower margins, and increased expenses from going
public in 1998.
Interest expense for the Company for the three months ended June 30, 1999
decreased to $62,702 from $137,384 for the three months ended June 30, 1998.
This decrease in interest expense is attributable to lower interest rates and
short term investment interest on the funds raised from the Company's public
offering.
The Company showed a net loss for the three months ended June 30, 1999 of
$180,927 as compared to net income of $267,683 for the same period ended June
30, 1998.
Earnings per share for the three months ended June 30, 1999 were ($0.07)
compared to $0.10 for the same period last year using the total shares presently
outstanding of 2,765,000.
<PAGE>
Six months ended June 30, 1999 compared to six months ended June 30, 1998.
Revenues for the six months ended June 30, 1999 were $9,518,017, a 11.5%
decrease over prior year's revenues of $10,751,465. This decrease was due to the
general weakening in the market as observed by the continued restructuring of
many companies within the wallpaper industry. The Company experienced a dramatic
drop in royalties on the sales of its product in other parts of the world. The
Company also launched one less new collection in the first six months of 1999 as
compared to 1998.
Gross profit for the Company for the six months ended June 30, 1999 was
37.2% of sales, a decrease as compared to the same period one-year ago, which
was 41.4%. 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, of which over 50% of the Company's sales arise. As the majority of the
Company's purchases are made in Canadian dollars, a stronger U.S. dollar will
help its gross margin, whereas a strong U.S. dollar has a negative impact on the
conversion of the financial statements. The Company is also beginning to source
other manufacturing facilities in Canada, which would also reduce its costs and
have a positive impact on its margins.
Selling expenses for the Company increased by 17.9% to $1,229,344 for the
six month period ended June 30, 1999 as compared to $1,042,976 for the six month
period ended June 30, 1998. This increase is attributable to additional expenses
incurred for public relations which did not occur until the second half of 1998.
Also, promotion expense increased due to two very successful trade shows held in
Toronto and Quebec City and travel expense has increased with the objective of
increasing fabric sales in the last half of 1999.
General and administrative expenses for the Company increased by 7.5%, to
$1,179,506 for the six months period ended June 30, 1999 from $1,096,921 for the
six months ended June 30, 1998. In the first six months of 1999, approximately
$105,000 was expended for consulting, legal, insurance and registration expenses
which did not occur in the previous year.
Rosedale Decorative Products Ltd. develops wallpaper and fabric sample
books which are created for each of its collections and are sold through
distributors. The majority of expenditures relating to the creation of sample
books are incurred during the fiscal quarter that is prior to the date of the
introduction of a collection. Some expenditures are incurred as early as six to
eight months in advance of the introduction of a collection. Because revenues
generated from the sale of sample books are generally received during fiscal
quarters that are subsequent to quarters where the expenses for such sample
books are recognized, our quarterly financial statements do not always reflect a
matching of revenues and expenses. For example, costs for a January launch would
be recorded in the following year. Before significant expenditures are incurred
to produce sample books, the Company ensures that there are firm orders for such
books. Therefore, there is little speculative risk in the production of sample
books.
Sample book development cost for the six-month period ended June 30, 1999
was $92,449 compared to $81,262 for the same period last year. We have increased
expenditures on sample book production as the market has become increasingly
competitive and our customers have become more demanding, choosing less books
for their stores. As sample books serve as our silent salesperson, it is
imperative that we design and produce high quality books to keep them in the
marketplace and on top of our customer s sales counters.
Design studio expenses for the Company increased by 2.1% to $371,734 for
the six months ended June 30, 1999, versus $364,195 for the same period last
year. Additional expenses were required as the Company's intention is to launch
an additional four collections in 1999 to trigger additional sales.
Operating income for the six months ended June 30, 1999 decreased to
$302,611 from $1,554,925 for the six months ended June 30, 1998. This decrease
relates to the decrease in sales and margins, plus additional expenses incurred
after the Company's public offering.
<PAGE>
Interest expense for the Company for the six months ended June 30, 1999
decreased to $90,289 from $220,553 for the six months ended June 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 six months ended June 30, 1999 decreased to $144,841 as
compared to $796,833 for the same period ended June 30, 1998. The decrease is
due to the lower sales and margins in 1999 and the slightly higher operating
expenses.
Earnings per share for the six months ended June 30, 1999 was $0.05
compared to $0.29 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 $412,823 for the six
months ended June 30, 1999. The principal sources of cash were Net Income of
$144,841, a decrease in Inventory of $687,801 and a small 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 six months ending June 30,
1999 were $773,592. This reflected planned capital addition for cylinders,
designs and engravings for new collections. In June 1998, the Company received
net proceeds from its initial public offering 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.
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
The Company's Annual Meeting of Shareholders was held on June
3,1999 in Toronto, Ontario. The Company's shareholders voted on, and approved,
the following three items:
1. The Company's shareholders elected the following five (5) directors to
serve until the 2000 Annual Meeting. The result of the vote was as follows:
<TABLE>
<CAPTION>
MEMBER FOR AGAINST ABSTENTIONS
<S> <C> <C> <C>
Alan Fine 2,602,010 19,100 0
Sidney Ackerman 2,602,010 19,100 0
Norman Maxwell 2,602,010 19,100 0
Ken Page 2,602,010 19,100 0
Gregory Sichenzia 2,587,010 34,100 0
</TABLE>
2. The Company's shareholders approved the resolution of the Board of
Directors to remove certain restrictions on the issuance of the Company's Class
A Special Shares. The Company's Articles of Incorporation authorize the issuance
of an unlimited number of shares of Class A Special Shares with such
designations, rights and preferences as shall be determined from time to time by
the Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue Special Shares with voting,
liquidation, conversion or other rights that could adversely affect the rights
of the holders of the Common Stock. In the Company's final prospectus
distributed in connection with the Company's initial public offering in June
1998, the Company made an undertaking that it would not offer the Special Shares
to certain officers and directors of the Company except on the same terms as it
is offered to all other existing shareholders or new shareholders. The
undertaking was necessary solely to qualify the Company's securities for sale in
the State of Oregon. The Company may now rely on an after-market trading
exemption for the sale of its securities in that State. The Board believes that
the restriction on the Special Shares no longer serves any purpose and the
Board, therefore, believes that removal of the restriction on the Special Shares
is in the best interest of the Company. The result of the vote was as follows:
For 1,594,420
Against 71,185
Abstentions 955,005
<PAGE>
3. The shareholders ratified the appointment of Schwartz Levitsky Feldman,
Chartered Accountants, as the Company's independent certified public accountants
for the 1999 fiscal year. The result of the balloting was as follows:
For 2,615,300
Against 3,810
Abstentions 2,000
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
six month period ended June 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.
<TABLE>
<CAPTION>
ROSEDALE DECORATIVE PRODUCTS LTD.
<S> <C> <C>
Date: August 12, 1999 By: /s/Alan Fine
Alan Fine
Date: August 12, 1999 By: /s/Norman G. Maxwell
Norman G. Maxwell
</TABLE>
<PAGE>
<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 SIX MONTHS ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> dec-31-1999
<PERIOD-END> jun-30-1999
<CASH> 3,004,591
<SECURITIES> 0
<RECEIVABLES> 4,847,853
<ALLOWANCES> 180,923
<INVENTORY> 6,880,146
<CURRENT-ASSETS> 15,078,685
<PP&E> 5,674,081
<DEPRECIATION> 3,000,151
<TOTAL-ASSETS> 19,058,663
<CURRENT-LIABILITIES> 8,187,701
<BONDS> 0
0
0
<COMMON> 5,156,197
<OTHER-SE> 3,381,705
<TOTAL-LIABILITY-AND-EQUITY> 19,058,663
<SALES> 9,518,017
<TOTAL-REVENUES> 9,518,017
<CGS> 5,973,239
<TOTAL-COSTS> 3,242,167
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,289
<INCOME-PRETAX> 212,322
<INCOME-TAX> 67,481
<INCOME-CONTINUING> 144,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,841
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.04
</TABLE>
