-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qu6QFxgkCcVdqi748Uoz8M3C2iMHP3DBn9FK950NuVPmdEg3a3qcp/ZdDil2YJ/+ VRmF2qxuafkUdmKCLDo97g== 0000950123-97-006886.txt : 19970815 0000950123-97-006886.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950123-97-006886 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROSE INTERNATIONAL LTD CENTRAL INDEX KEY: 0001017655 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 731479833 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28720 FILM NUMBER: 97661023 BUSINESS ADDRESS: STREET 1: 100 W 5TH STREET STREET 2: SUITE 601 CITY: TULSA STATE: OK ZIP: 74103 BUSINESS PHONE: 9185821788 MAIL ADDRESS: STREET 1: 100 W 5TH STREET STREET 2: SUITE 601 CITY: TULSA STATE: OK ZIP: 74103 10QSB 1 ROSE INTERNATIONAL LTD. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: JUNE 30, 1997 Commission File Number: 0-28720 ROSE INTERNATIONAL LTD. (Exact name of small business issuer as specified in its charter) DELAWARE 73-1479833 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 7633 E 63RD PLACE, SUITE 220, TULSA, OKLAHOMA 74133 (Address of principal executive office) 100 WEST 5TH STREET, SUITE 601, TULSA, OKLAHOMA 74103 (Former address of principal executive office) (918) 461-1667 (Issuer's telephone number, including area code) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes...X.... No......... State the number of shares outstanding of each of the issuer's classes of common equity, as of the close of the period covered by this report. COMMON STOCK $0.01 PAR VALUE 7,525,000 ---------------------------- --------- Class Outstanding at June 30, 1997 Transitional Small Business Disclosure Format: Yes ; No X 2 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES INDEX
Page No. ---- PART I. Financial Information Item 1. Condensed Consolidated Balance Sheets - 3 June 30, 1997 and December 31, 1996 Condensed Consolidated Statements of Operations - 4 Three and Six Months Ended June 30, 1997 and 1996 Condensed Consolidated Statement of Stockholders' Equity - 5 Six Months Ended June 30, 1997 Condensed Consolidated Statements of Cash Flows - 6-7 Six Months Ended June 30, 1997 and 1996 Notes to Condensed Consolidated Financial Statements - 8-10 Six Months Ended June 30, 1997 and 1996 Item 2. Management's Discussion and Analysis of 11-13 Financial Condition and Results of Operations PART II. Other information 14
2 3 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) CONSOLIDATED BALANCE SHEET
June 30, December 31, 1997 1996 (Unaudited) (Audited) ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 155,015 $ 248,457 Marketable equity securities 9,000 23,775 Receivables, net 1,249,741 1,198,121 Inventories 2,036,948 1,717,621 Prepaid expenses and other assets 64,263 49,888 Deferred income taxes 22,000 15,000 ------------ ------------ Total current assets 3,536,967 3,252,862 Property and equipment, net 6,217,394 6,251,935 Goodwill, net of amortization 2,121,968 2,190,052 Investment in joint ventures 305,516 326,780 Other 7,670 8,782 ------------ ------------ $ 12,189,515 $ 12,030,411 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,051,212 $ 742,569 Accrued liabilities 111,128 138,298 Current maturities of long-term obligations 104,012 101,595 ------------ ------------ 1,266,352 982,462 Long-term obligations 64,431 117,830 Deferred income taxes 781,000 784,000 Minority interest in subsidiary 3,835 1,435 STOCKHOLDERS' EQUITY Common stock 75,250 75,250 Paid-in capital 11,995,048 11,995,048 Stock subscription receivable (1,798,000) (1,798,000) Retained earnings (deficit) (151,766) (81,112) Foreign currency translation adjustment (46,635) (46,502) ------------ ------------ Total stockholders' equity 10,073,897 10,144,684 ------------ ------------ $ 12,189,515 $ 12,030,411 ============ ============
See accompanying notes to consolidated financial statements. 3 4 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- SALES AND REVENUES $ 1,782,388 $ 1,566,316 $ 3,446,640 $ 3,445,951 COST OF SALES 1,479,766 1,194,242 2,753,499 2,554,466 ----------- ----------- ----------- ----------- GROSS PROFIT 302,622 372,074 693,141 891,485 OTHER EXPENSE (INCOME) Selling, general and administrative expense 414,287 281,417 720,861 594,398 Interest expense 6,809 10,016 15,112 27,051 Equity in (income) loss of joint ventures 33,631 12,363 21,131 71,847 Gain from sale of marketable equity securities -- -- -- (167,123) Unrealized loss on marketable equity securities 3,596 -- 14,775 -- Interest and other income (534) (4,552) (484) (5,060) ----------- ----------- ----------- ----------- 457,789 299,244 771,395 521,113 ----------- ----------- ----------- ----------- EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST (155,167) 72,830 (78,254) 370,372 INCOME TAX EXPENSE (46,000) 37,000 (10,000) 167,000 ----------- ----------- ----------- ----------- EARNINGS BEFORE MINORITY INTEREST (109,167) 35,830 (68,254) 203,372 MINORITY INTEREST 1,100 -- 2,400 -- ----------- ----------- ----------- ----------- NET EARNINGS $ (110,267) $ 35,830 $ (70,654) $ 203,372 =========== =========== =========== =========== NET EARNINGS PER SHARE $ (0.01) $ 0.01 $ (0.01) $ 0.03 =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 7,525,000 6,525,000 7,525,000 6,150,000 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements 4 5 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Stock Foreign Common Stock Paid-in Subscription Accumulated Currency Shares Par Value Capital Receivable Deficit Adjustment Total ------ --------- ------- ---------- ------- ---------- ----- Balance, January 1, 1997 7,525,000 $ 75,250 $ 11,995,048 $(1,798,000) $ (81,112) $(46,502) $10,144,684 Net earnings (loss) (70,654) (70,654) Foreign currency translation (133) (133) adjustment ---------- -------- ------------ ----------- --------- -------- ----------- 7,525,000 $ 75,250 $ 11,995,048 $(1,798,000) $(151,766) $(46,635) $10,073,897 ========== ======== ============ =========== ========= ======== ===========
See accompanying notes to consolidated financial statements. 5 6 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ (70,654) $ 203,372 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 203,017 190,352 Deferred income taxes (10,000) 167,000 Foreign operations, net 21,131 100,847 Unrealized loss on marketable equity securities 14,775 -- Interest accrued -- 6,473 Minority interest 2,400 -- Changes in assets and liabilities: Marketable equity securities -- 213,348 Receivables (33,880) (212,531) Inventories (319,327) (409,983) Prepaid and other assets (14,375) (214) Accounts payable and accrued liabilities 281,471 309,475 --------- --------- Net cash provided by (used in) operating activities 74,558 568,139 --------- --------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES Capital expenditures (99,278) (179,348) Subsidiary investment -- (75,000) --------- --------- Net cash provided by (used in) investing activities (99,278) (254,348) --------- --------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES Collection of stock subscription receivable -- 202,000 Repayment of parent loan -- (221,859) Advances to officers and employees (17,740) -- Loan principal repayments (50,982) (177,186) --------- --------- Net cash provided by (used in) financing activities (68,722) (197,045) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (93,442) 116,746 248,457 178,669 --------- --------- $ 155,015 $ 295,415 ========= =========
See accompanying notes to consolidated financial statements. 6 7 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 1997 1996 ---- ---- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $15,112 $27,051 ======= ======= Income taxes paid $ - $ - ======= ======= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
See accompanying notes to consolidated financial statements. 7 8 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of Rose International Ltd. include the accounts of Rose International Ltd. ("Rose Ltd."), its wholly-owned subsidiaries, Rose Color, Inc. ("Rose Color") and SPS Alfachem, Inc. ("SPS") and the 80% owned subsidiary of Rose Color, JBW International, Inc. ("JBW"). Rose Ltd. is a majority-owned subsidiary of M&M Group, Inc. ("M&M"). (Rose Ltd. and its subsidiaries are collectively referred to as the "Company"). The financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation. These financial statements have not been audited. The consolidated balance sheet at December 31, 1996 included in this report has been derived from the audited consolidated balance sheet. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report for the year ended December 31, 1996, which is included in the Company's Form 10-KSB which was filed in April 1997. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year. Certain reclassifications of the amounts presented for the comparative period have been made to conform to the current presentation. B. MARKETABLE SECURITIES As of June 30, 1997, the Company has an investment in marketable equity securities which are classified as trading securities. As of June 30, 1997 the cost of $32,724 exceed the fair value of the securities by $23,724. A loss in the amount of $14,775 is recognized during the current period, while the remainder was recognized during 1996. C. LONG-TERM OBLIGATIONS During the six months ended June 30, 1997, the Company reduced long-term obligations by $50,982. The Company did not add any additional long-term obligations during the period. D. COMMON STOCK AND COMMON STOCK OPTIONS On August 7, 1995 the Board of Directors of the Company authorized an Incentive Stock Option Plan (the "Plan") which for a term of ten years provides that one million shares of 8 9 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) the Company's common stock be reserved for issuance to selected key employees and consultants. The Plan is to be administered by a compensation committee composed of two directors of the Company, and this committee may grant no more than three hundred thousand shares of common stock to any one individual at a price based on the fair market value of the shares at the date of grant. The grant may be exercised over a ten year period, in not less than one thousand share lots and when exercised, the stock must be held for six months prior to sale. The options may be exercised only by the person to whom the option is granted and the Plan may be modified by the Board of Directors at any time. At June 30, 1997 the Company had granted options outstanding totaling 450,000 shares for ten years at an exercise price of $1.00 per share in accordance with the Plan, none of which had been exercised. On August 10, 1995 the Board of Directors adopted a 1995-1996 Nonstatutory Stock Option Plan for its officers, directors, key employees and consultants reserving 500,000 common shares for this option plan, which expired December 31, 1996. The options may be granted at prices determined by the compensation committee, which administers this plan, and may be exercised upon grant and paid for at the discretion of the Compensation Committee, with any unpaid amounts for shares received being evidenced by promissory notes. At June 30, 1997 the Company had outstanding grants which totaled 355,000 shares at an average exercise price of $2.11 per share, none of which had been exercised. Common stock options do not have an impact on primary earnings per share or fully-diluted earnings per share as the average trading price and the ending trading price has approximated or been less than the lowest exercise price of the common stock options. E. INCOME TAXES The Company follows SFAS No. 109, "Accounting for Income Taxes". Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. SFAS No. 109 requires that a valuation allowance be established to reduce deferred tax assets to the amount that is more likely than not to be realized. 9 10 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Deferred income taxes result primarily from temporary differences in recognizing depreciation expense and foreign operations for tax and financial reporting purposes. The following reconciles the Company's expected income tax expense utilizing statutory tax rates to the actual tax expense for the six month periods ended June 30:
1997 1996 ---- ---- Tax expense at federal statutory rate $(27,000) $126,000 Non-deductible goodwill amortization 22,000 22,000 State income tax, net of federal benefit (5,000) 19,000 -------- -------- Total income tax expense $(10,000) $167,000 -------- --------
10 11 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A. LIQUIDITY AND CAPITAL The Company had working capital of $2,270,615 at June 30, 1997 as compared to $2,270,400 at December 31, 1996. Working capital has remained constant during the current period with inventory increases being offset by accounts payable increases, which is consistent with the continuing expansion of the product range offered by the Company. During the six months ended June 30, 1997, cash flow from operating activities was $74,558 and cash flow used in investing activities was $99,278 while financing activities used $68,722, resulting in a decrease in cash of $93,442. During the same 1996 period, cash flow from operating activities was $568,139 and cash used in investing activities was $254,348, while financing activities used cash in the amount of $197,045, which resulted in an increase in cash of $116,746. The higher cash flow from operations in the 1996 period was primarily from the proceeds received from the sale of marketable securities and the difference in net earnings. During the six months ended June 30, 1997, the Company incurred $99,278 for capital expenditures. The Company has a capital expenditure plan which calls for a total investment of approximately $1,200,000 during 1997 and 1998, as the funds become available. Some of the planned investment may be delayed, depending upon the availability of funds. The major items included in the capital expenditure budget include construction of a semi-automatic waste treatment facility, the replacement of older reactors and added storage, the purchase of additional equipment to be utilized in expanding powder dye production, the construction of a pilot plant and laboratory and office equipment. B. RESULTS OF OPERATIONS The operations of the Company are all within one segment, the manufacture and marketing of chemicals. SALES AND COSTS OF SALES Total revenues were the same during the six month period ended June 30, 1997, as compared to the same period in 1996. The gross profit margin during the six months ended June 30, 1997 was 20% as compared to 26% during the same period in 1996. Total revenues increased 14% during the three month period ended June 30, 1997, as compared to the same period in 1996. The gross profit margin during the three months ended June 30, 1997 was 17% as compared to 24% during the same period in 1996. The manufacture and sale of a wider variety of dyes is not without its cost. The efficiencies gained when producing the same product on a fairly continuous basis are lost when the manufacturing effort emphasizes a larger variety of dyes. The Passaic Valley Sewerage Commissioners (PVSC) on June 9, 1997 obtained a Temporary Restraining Order on Rose Color, for alleged transgressions of the sewer 11 12 ROSE INTERNATIONAL LTD. AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF M&M GROUP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) permit. Rose Color has fully cooperated with PVSC in investigating the complaints and taking agreed remedial action. A draft consent order has been forwarded to PVSC for their approval. Production during the period from June 9, 1997 to present was severely reduced while the investigation was underway and this resulted in a loss of overhead recovery, loss of sales opportunities, additional capital expenditure and the spoiling of three batches of product due to delays in the production cycles. Rose Color has a defined plan to restore production levels and ensure compliance with PVSC requirements. OTHER EXPENSE (INCOME) Selling, general and administrative expense increased $126,463 (21%) during the six months ended June 30, 1997 as compared to the same 1996 period and increased $132,870 (47%) during the three months ended June 30, 1997 as compared to the same 1996 period. The $126,000 increase during the six months ended June 30, 1997 includes an increase of $78,000 in Rose Ltd. and $59,000 in SPS which was partially offset by a decrease at Rose Color in the amount of $11,000. The Rose Ltd. increase includes $40,000 in audit costs, $28,000 in payroll costs and $10,000 in other general office costs. These costs were all borne by Struthers Industries, Inc. during the 1996 period. The decline in Rose Color's selling, general and administrative costs is primarily the result of reduced legal expenses of $50,000, which was partially offset by increased administrative costs associated with Rose Color's new pigment dye division. The $59,000 increase in SPS administrative and selling costs is primarily due to being active during the full 1997 period while SPS was only active approximately 6 weeks during the 1996 period. Interest expense during the six month period ended June 30, 1997 is approximately one-half the amount incurred during the same 1996 period. The reduction in interest expense is primarily due to the reduction of debt during the period. The Company realized a gain of $167,123 from the sale of marketable equity securities during the first quarter of 1996. The Company did not have any sale transactions during the comparable 1997 periods. 12 13 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Passaic Valley Sewerage Commissioners (PVSC) on June 9, 1997 obtained a Temporary Restraining Order on Rose Color, for alleged transgressions of the sewer permit. Rose Color has fully cooperated with PVSC in investigating the complaints and taking agreed remedial actions. A draft consent order has been forwarded to PVSC for their approval. Items 2 through 5 of Part II have been omitted as not required, not significant, or because the information has been previously reported. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Not applicable (b) Reports on Form 8-K - Not applicable SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROSE INTERNATIONAL LTD. Date: August 11, 1997 By: /s/ G. David Gordon ------------------------- --------------------------- G. David Gordon President and Principal Accounting Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (a) FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND FOR THE SIX MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (b) FORM 10-QSB FOR THE QUARTER ENDED JUME 30, 1997. 6-MOS DEC-31-1997 JUN-30-1997 155,015 9,000 1,279,741 30,000 2,036,948 3,536,967 7,087,586 870,192 12,189,515 1,266,352 0 0 0 75,250 10,150,413 12,189,515 3,446,640 3,446,640 2,753,499 2,753,499 756,767 0 15,112 (80,654) (10,000) (70,654) 0 0 0 (70,654) (0.01) (0.01)
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