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 March 31, 2000
[ ] 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 March 31, 2000, 2,786,714 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
MARCH 31, 2000
(Unaudited)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Interim Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 3 - 4
Interim Consolidated Statements of Income for the three months ended
March 31, 2000 and March 31,1999 5
Interim Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and March 31, 1999 6 - 7
Interim Consolidated Statements of Stockholders' Equity for the three months
ended March 31, 2000 and March 31, 1999 8
Condensed Notes to Interim Consolidated Financial Statements 9
</TABLE>
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
$ $
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash 1,754,444 3,240,720
Accounts receivable 5,019,305 3,341,592
Inventory 6,714,489 7,385,373
Prepaid expenses and sundry assets 636,018 626,074
Income taxes recoverable 31,209 95,827
---------- ----------
14,155,465 14,689,586
LOAN RECEIVABLE FROM AFFILIATED COMPANY - 2,054
DEFERRED PRODUCT COSTS 738,358 861,366
MORTGAGES RECEIVABLE 340,471 341,910
PROPERTY, PLANT AND EQUIPMENT 2,947,413 2,901,705
---------- ----------
18,181,707 18,796,621
========== ==========
</TABLE>
See condensed notes to the consolidated financial statements
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
$ $
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C>
Bank indebtedness 4,240,217 4,744,567
Accounts payable and accrued expenses 4,894,400 5,289,746
---------- ----------
9,134,617 10,034,313
DUE TO STOCKHOLDERS & DIRECTORS 1,670,329 1,560,918
DEFERRED INCOME TAXES 218,987 219,913
---------- ----------
11,023,933 11,815,144
---------- ----------
STOCKHOLDERS' EQUITY
COMMON STOCK 5,061,956 5,061,956
ADDITIONAL PAID-IN CAPITAL 142,314 142,314
ACCCUMULATED OTHER COMPREHENSIVE INCOME 38,047 66,849
RETAINED EARNINGS 1,915,457 1,710,358
---------- ----------
7,157,774 6,981,477
---------- ----------
18,181,707 18,796,621
========== ==========
</TABLE>
See condensed notes to the consolidated financial statements
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statement of Income
For the period ended March 31
(Amounts expressed in US dollars)
(Unaudited)
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<CAPTION>
Three-months Three-months
March 31, March 31,
2000 1999
$ $
<S> <C> <C>
SALES 5,923,396 5,047,457
COST OF SALES 3,783,792 2,924,443
---------- ----------
GROSS PROFIT 2,139,604 2,123,014
---------- ----------
OPERATING EXPENSES
General and administrative 641,838 596,588
Selling 706,031 561,516
Design studio 168,719 192,749
Book development costs 41,280 123,252
Amortization 216,753 187,542
---------- ----------
TOTAL OPERATING EXPENSES 1,774,621 1,661,647
---------- ----------
OPERATING INCOME 364,983 461,367
Interest expense 91,085 27,587
---------- ----------
INCOME BEFORE INCOME TAXES 273,898 433,780
Income taxes 68,799 108,012
---------- ----------
NET INCOME 205,099 325,768
========== ==========
Basic and diluted Net Income Per Share 0.07 0.12
========== ==========
Weighted average number of common shares
Outstanding 2,786,714 2,765,000
========== ==========
</TABLE>
See condensed notes to the consolidated financial statements
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three-months ended Three-months ended
March 31 March 31,
2000 1999
$ $
Cash flows from operating activities:
<S> <C> <C>
Net income 205,099 325,768
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization 216,753 187,542
Decrease in deferred product costs 119,046 47,192
Increase in accounts receivable (1,687,004) (1,661,604)
Decrease in inventory 637,997 220,264
(Increase) in prepaid expenses and sundry assets (12,543) 18,292
Increase (decrease) in accounts payable and accrued expenses (372,031) 85,239
Increase in income taxes payable/recoverable 64,033 10,857
Increase in deferred income taxes - 61,229
---------- ----------
Total adjustments (1,033,749) (1,030,989)
---------- ----------
Net cash used in operating activities (828,650) (705,221)
---------- ----------
Cash flows from investing activities:
Increase in deferred policy costs - 1
Purchases of property, plant and equipment (274,509) (269,720)
Increase in mortgages receivable - -
---------- ----------
Net cash used in investing activities (274,509) (269,719)
========== ==========
</TABLE>
See condensed notes to the consolidated financial statements
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of Cash Flows
(Amounts expressed in US dollars)
(Unaudited)
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<CAPTION>
Three-months ended Three-months ended
March 31, March 31,
2000 1999
$ $
Cash flows from financing activities:
<S> <C> <C>
(Repayment of) Proceeds from bank indebtedness (483,015) 907,271
(Repayment of) proceeds from loans with affiliated companies 110,056 (8,366)
Proceeds from long-term debt - (78,313)
Repayment of stockholders' loans - (22,283)
Proceeds from (repayment of) directors loans 7,636 -
---------- ----------
Net cash provided by financing activities (365,323) 798,309
---------- ----------
Effect of foreign currency exchange rate changes (17,794) 55,676
---------- ----------
Net (decrease) increase in cash and cash equivalents (1,486,276) (120,955)
Cash and cash equivalents, January 1 3,240,720 3,417,414
---------- ----------
End of three month period ended March 31 1,754,444 3,296,459
========== ==========
Income taxes paid 40,785 15,903
========== ==========
Interest paid 93,237 66,662
========== ==========
</TABLE>
See condensed notes to the consolidated financial statements
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Interim Consolidated Statements of changes in Stockholders' Equity
(Amounts expressed in US dollars)
(Unaudited)
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<CAPTION>
Common
Stock Common Additional Other
Number of Stock Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income (loss)
------------- ------------- -------------- ------------- -------------
$ $ $ $
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31,
1998 2,765,000 5,013,883 142,314 3,238,608 (388,341)
Issuance of common stock 21,714 48,073 - - -
Foreign currency translation - - - - 455,190
Net loss for the year - - - (1,528,250) -
--------- --------- ------- ----------- ---------
Balance as of December 31,
1999 2,786,714 5,061,956 142,314 1,710,358 66,849
Issuance of common stock - - - - -
Foreign currency translation - - - - (28,802)
Net income for the three-month
Period to March 31, 2000 - - - 205,099 -
--------- --------- ------- ----------- ---------
Balance as of March 31,
2000 2,786,714 5,061,956 142,314 1,915,457 38,047
========= ========= ======= =========== =========
</TABLE>
See condensed notes to the consolidated financial statements
<PAGE>
ROSEDALE DECORATIVE PRODUCTS LTD.
Condensed Notes to Consolidated Financial Statements
As of March 31,2000
(Amounts expressed in US dollars)
(Unaudited)
1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of all
recurring accruals) considered necessary for fair presentation have
been included. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the
year ended December 31, 2000. Interim financial statements should be
read in conjunction with the Company's annual audited financial
statements.
The unaudited consolidated financial statements include the accounts
of Rosedale Decorative Products Ltd. ("the company") and its wholly
owned subsidiaries, Rosedale Wallcoverings and Fabrics Inc.
("Rosedale") and Ontario Paint and Wallpaper Limited ("Ontario"),
respectively.
All material inter-company accounts and transactions have been
eliminated.
2. CONTINGENCIES
a) 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 corporate income taxes estimated to be
$765,000. The company has objected to these re-assessments and
has no obligation to pay the portion relating to Revenue Canada
in the amount of $500,000 until the objections have been
processed. 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.
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.
As at March 31, 2000, Rosedale made payments in respect to the
above income tax re-assessments amounting to $248,570 to the
Province of Ontario. This amount has been included in prepaid
expenses and sundry assets.
b) Rosedale and Ontario have guaranteed the indebtedness of
affiliated companies in the amount of $1,716,240 through general
security agreements ranking behind the National Bank of Canada.
As at March 31, 2000, the indebtedness of the affiliated
companies amounted to $Nil.
c) Rosedale has disputed invoices from a supplier in the amount of
approximately $100,000 for which debit notes have been issued.
As at March 31, 2000, these debit notes were not cleared with
the supplier.
d) Rosedale and Ontario have issued guarantees secured by general
security agreements for certain bank loans to two affiliated
companies.
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation
Three months ended March 31, 2000 as compared to three months ended March
31, 1999.
Revenues for the three months ended March 31, 2000 were $5,923,396, a 17.4%
increase over prior year revenues of $5,047,457. This increase resulted mainly
from an increase of 37% in sales in the U.S. market. This represents a
significant turn-around in revenues for the Company. We anticipate that this
positive trend will continue throughout the year.
Gross profits as a percentage of revenue for the three months ended March
31, 2000 was 36.1%, as compared to the same period one-year ago of 42.1%. This
decline in gross profit margins can be attributed to a change in the sales mix
as well as the weakening of the U.S. dollar. As the majority of our purchases
are made in Canadian dollars, a stronger U.S. dollar will have a positive effect
on our gross profits. The company has also begun to manufacture product in
Canada, which will reduce costs as well as improve gross margins.
Selling expenses have increased by 25.7% to $706,031 for the three-month
period ended March 31, 2000 as compared to $561,516 for the same period last
year. In addition, extra sales people have been hired to increase our presence
in our local market. The positive results from this expansion will begin to show
results in the second quarter. Warehousing expense has increased to accommodate
additional fabric sales. Promotion expenses increased as a result of our
participation in a Canada-wide wallpaper advertising campaign along with other
manufacturers and distributors.
General and administrative expenses for the Company increased by 7.6%, to
$641,838 for the three months period ended March 31, 2000 from $596,588 for the
three months ended March 31, 1999. Such expenses decreased as a percentage of
revenues from 11.8% to 10.8% during the respective period. Increased legal and
insurance expenses accounted for the largest increases with general inflation
accounting for the remainder.
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 expenditures are incurred as early as six 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 significant
expenditures are incurred to produce the sample books. Therefore, there is
little speculative risk in their production. Book development cost for the
three-month period ended March 31, 2000 was $41,280 compared to $123,252 for the
same period last year. This decrease can be attributed to lowering costs of
manufacturing the books. We are constantly looking for ways to reduce costs.
<PAGE>
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 decreased by 12.4% to $168,719 for
the three months ended March 31, 2000 versus $192,749 for the same period last
year. Staff reductions and other related savings have been made as we continue
to utilize the CAD system more effectively.
Operating income for the three months ended March 31, 2000 decreased 21% to
$364,983 from $ 461,367 for the three months ended March 31, 1999. This relates
to the decrease in gross margins and a marginal increase in expenses.
Interest expense for the Company for the three months ended March 31, 2000
increased to $91,085 from $27,587 for the three months ended March 31, 1999.
This increase in interest expense is attributable to higher interest rates and
increased borrowings.
Net income for the three months ended March 31, 2000 was $205,099 as
compared to $325,768 for the three months ended March 31, 1999. The reduction in
gross margins largely contributed to this decline.
Basic and fully diluted earnings per share for the three months ended March
31, 2000 were $0.07 compared to $0.12 for the same period last year. Earnings
per share were calculated based on 2,786,714 common shares issued as of March
31, 2000 and 2,765,000 shares outstanding as of March 31, 1999.
The Company anticipates a profitable year in 2000 as opposed to the losses
incurred in 1999.
Liquidity and Capital Resources
The Company had a negative net change in cash of $1,486,276 for the three
months ended March 31, 2000. The principal sources of cash were Net Income of
$205,099, a decrease in Inventories and Deferred Products Costs and an increase
in Income Taxes Payable. These items were off set by cash used to reduce
Accounts Payable and an increase in Accounts Receivable at the end of the
period.
Cash flows used in investing activities for the three months ending March
31, 2000 were $274,509. This reflected planned capital addition for cylinders,
designs and engravings for new collections It is the Company's intention to
continue to utilize a good portion of these funds to develop new product lines
of wallpaper and fabric plus continue the development of our floor coverings,
ceiling tiles, and area rug product categories.
<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 three month
period ended March 31, 2000.
<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: May 12, 2000 By: /s/Alan Fine
Alan Fine
Date: May 12, 2000 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 BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDED IN
THE REGISTRANT'S FORM 10-QSB FOR THE 3 MONTHS ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-2000
<PERIOD-END> mar-31-2000
<CASH> 1,754,444
<SECURITIES> 0
<RECEIVABLES> 5,470,239
<ALLOWANCES> 450,933
<INVENTORY> 6,714,489
<CURRENT-ASSETS> 14,155,465
<PP&E> 6,578,308
<DEPRECIATION> 3,630,895
<TOTAL-ASSETS> 18,181,707
<CURRENT-LIABILITIES> 9,134,617
<BONDS> 0
0
0
<COMMON> 5,204,270
<OTHER-SE> 1,915,457
<TOTAL-LIABILITY-AND-EQUITY> 18,181,707
<SALES> 5,923,396
<TOTAL-REVENUES> 5,923,396
<CGS> 3,783,792
<TOTAL-COSTS> 1,774,621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,085
<INCOME-PRETAX> 273,898
<INCOME-TAX> 68,799
<INCOME-CONTINUING> 205,099
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 205,099
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
