<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1999 Commission File Number 0-2331
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GLASSMASTER COMPANY
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(Exact name of small business issuer as specified in its charter)
South Carolina 57-0283724
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(State of incorporation) (IRS Employer ID No.)
PO Box 788, Lexington SC 29071
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 803-359-2594
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Securities registered pursuant to Section 12 (b) of the Exchange Act: None
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Securities registered pursuant to Section 12 (g) of the Exchange Act:
Title of Class: Common Stock, par value $.03 per share
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Indicate by an "X" 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, and (2) has been subject to such filing requirements for
the past 90 days. YES [X] NO [ ]
Indicate by an "X" if disclosure of delinquent filers in response to Item 405 of
regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $21,024,882 .
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The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $725,977 as of October 31, 1999, based on the
average high and low sales price of $1.125 per share.
The number of shares outstanding of the registrant's common stock, as of October
31, 1999 was 1,630,696 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The information set forth under items 9, 10, 11, and 12 of Part III of this
report is incorporated by reference from the issuer's definitive proxy statement
for the 2000 annual meeting of stockholders that will be filed no later than
December 31, 1999.
<PAGE> 2
PART I
Item 1. Business
(a)(b) General Development and Narrative Description of Business
Glassmaster Company (the "Company") is a diversified manufacturer of
thermoplastic and thermoset plastic materials, industrial controls, and
electronics which produces a variety of product lines to supply customers
throughout multiple industries. The Company classifies its business into two
operating segments: Industrial Products, consisting of extruded synthetic
monofilaments, pultruded fiberglass products, and composites and; Controls and
Electronics, consisting of mechanical and electronic controls and electronic
test equipment. For segment and geographic information, see Note 13 of Notes to
Financial Statements.
The Company was founded in 1946 and incorporated under the laws of
the State of South Carolina. The Company manufactured only fiberglass pleasure
boats until 1982 when, due to the cyclical nature of the pleasure boat business,
the Company began to diversify into industrial-related manufacturing. During
1982 and 1983 the Company developed from within manufacturing facilities to
produce extruded monofilaments and fiberglass antennas. In 1988, the Company
purchased the industrial controls business to further diversify and expand its
line of industrial-related products, and Glassmaster Controls Company, Inc. was
formed. In 1989, the company discontinued the manufacture and sale of fiberglass
boats.
In recent years, the Company has expanded its product offerings to
include electronic test equipment (the Amtest line of test equipment was
acquired by Glassmaster Controls Company, Inc. in October, 1997) and has
internally developed the capability to provide contract manufacturing services
that produce customized electronic products, including circuit boards utilizing
surface mount and through-hole technologies. Management believes the addition of
electronic capabilities will leverage its ability to provide its existing
customer base with more complete product solutions as well as entice new
customers by offering vertically integrated, mechanical and electronic contract
manufacturing.
During 1998 and 1999 the Company developed and introduced the
Glassmaster Composite Modular Building System(TM), which is a t-slotted
framework system used in a wide variety of industrial applications, including
machine frames, guarding and enclosures, workstations and tables, and shelving
for storage.
During the fourth quarter of 1999, the Company announced its decision
to discontinue the manufacture and sale of its marine antennas and other low
margin product lines and in October, 1999 completed the sale of certain related
assets. See Note 12 of Notes to Financial Statements for further discussion.
There have been no bankruptcy, receivership, or similar proceedings
against the company since its inception. During the last three years there has
been no material acquisition or disposition of any significant amount of assets
other than that described above or in the ordinary course of business.
The Company's common stock was first offered to the public in 1959
and currently has approximately 1,200 stockholders. During the last several
years the Company's common stock was listed and traded on the Nasdaq SmallCap
Market, however, on November 8, 1999, the common stock of the company was
de-listed from Nasdaq due to minimum market value of public float requirements.
The Company's common stock is currently traded on the Over-the-Counter Bulletin
Board (symbol: GLMA.OB).
INDUSTRIAL PRODUCTS
The Company's Monofilament Division extrudes monofilaments from
nylon, polyester, polyolefins and other engineering resins for use in a wide
array of markets and applications including textiles (sewing thread), lawn and
garden care (trimmer line), recreational products (fish line), and industrial
weaving and industrial filtration. Monofilament, as produced by the Company,
begins with a thermoplastic resin which is processed through a melting device
(extruder) and subsequently oriented to form single strand fibers of various
diameters, tensile strengths and moduli. Specialized monofilaments for
industrial applications are manufactured for use in other major industries
including paper machine clothing for the paper industry and abrasive bristles
for brushes used in metal and wood finishing. The Company markets its
monofilament products primarily on a private brand basis, which are sold by
company salesmen to original equipment manufacturers and distributors throughout
North America and, to a lesser degree, Europe, South America, and the Pacific
Rim.
<PAGE> 3
Item 1. Business (Cont'd)
The Company's Composites Division manufactures pultruded fiberglass
(thermoset) and composite profiles that are used in the assembly of the
Glassmaster Composites Modular Building System(TM). This division previously
manufactured a line of fiberglass marine and CB antennas as well as specialty
fiberglass rod stock. These product lines were discontinued in 1999. This
division is currently establishing a network of regional distributors throughout
North America to sell the Composite Modular Building System(TM) product line.
CONTROLS AND ELECTRONICS
The Company, through its wholly-owned subsidiary, Glassmaster
Controls Company, Inc., located in Kalamazoo, Michigan, manufactures and
assembles a wide range of industrial controls, including mechanical cable and
wire assemblies, mechanical and electronic HVAC instrument panels, and circuit
board-based electronic controls and modules. Industrial controls are used
primarily in medium and large capacity trucks and to a lesser degree,
automobiles, farm equipment, and recreational boats and are sold to original
equipment manufacturers throughout North America by in-house sales efforts and
commissioned manufacturers sales representatives. The Company also manufactures
and assembles the Amtest line of vehicle test equipment used by mechanics,
rebuilders, fleets, and garages to analyze and repair automotive and truck
engines and their related electronic devices. Amtest vehicle test equipment is
sold by in-house sales efforts to distributors throughout North America. The
company also offers custom electronic products utilizing surface mount (SMT) and
through hole circuit board contract assembly that are sold by in-house sales
efforts and manufacturers sales representatives.
The names "Glassmaster", "CompCore", "NYBRAD", and "Glassmaster
Composite Modular Building System" are registered trademarks of the Company. The
Company has applied for a U.S. Patent for its recently introduced product, the
"Glassmaster Composite Modular Building System".
The Company believes it is a significant competitor in the United
States market for specialty monofilament products. While firm price competition
can be experienced within some lines of the monofilament and flexible wire
control products, overall, the Company produces products which center on
performance, engineering and customer service and it is these product lines
which provide the Company with a stable revenue base. Sales and profitability
growth are dependent to varying degrees upon favorable economic conditions and
penetration into the industrial textile, paper machine clothing, and domestic
truck manufacturing industries, as well as acceptance of recently introduced
electronics and composites products. Unfavorable weather conditions can have an
impact on monofilament trimmer line sales.
Sales of the Company's industrial products are somewhat seasonal with
sales to the lawn and garden care markets concentrated in the second and third
quarters of the fiscal year (December - May). While some fluctuations in
inventory levels will occur from time to time, the Company is not required to
carry significant amounts of inventory to meet delivery requirements or to carry
unusually large amounts of materials and supplies to insure itself of a
continuous allotment of goods from suppliers. The Company does not provide
extended payment terms to its customers in excess of those normally offered for
these industries. Other than as described in Note 13 of Notes to Financial
Statements, the dependence upon any one customer or small group of customers is
not material. The Company currently offers no product or service requiring
government approval and the effect of existing or probable government
regulations on the operations of the Company is considered to be immaterial.
At August 31, 1999, the order backlog was $1,868,155 compared to
$2,344,844 at August 31, 1998.
The Company has no full-time employees engaged in research and
development activities, however, certain employees at each of the Company's
manufacturing locations spend a portion of their time in new product development
and process improvement. Expenditures for research and development were
approximately $912,000 in 1999 and $854,000 in 1998.
No material effects have resulted from compliance with federal,
state, and local provisions regulating the discharge of materials into the
environment, or any other regulations protecting the environment. The Company
does not expect to make any material capital expenditures for environmental
control facilities for the current or succeeding fiscal year.
The Company and its subsidiary furnished employment for approximately
207 persons at August 31, 1999 and 218 persons at August 31, 1998.
<PAGE> 4
Item 2. Properties
General corporate offices, the monofilament manufacturing facilities
(Plant I & II), and the Monofilament Division offices are located at 126
Glassmaster Road in Lexington, South Carolina. The total facility is composed of
170,000 square feet, and is owned by the Company in fee simple.
The Company operates its Composites Division offices and
manufacturing plant at 71 Industrial Park Road in Newberry, South Carolina. The
total facility is composed of 31,000 square feet and is owned by the Company in
fee simple.
Glassmaster Controls Co., Inc. operates its industrial controls
business at 831 Cobb Ave. in Kalamazoo, Michigan. The total facility is composed
of 109,000 square feet and is owned by the Company in fee simple.
The Company believes that facilities are adequate for the immediate
future, and that the machinery and equipment used in these facilities are well
maintained and in good operating condition. Estimated percentage utilization
capacities during the year ended August 31, 1999 were as follows: Monofilament
Plant - 70%; Composites Plant - 25%; Controls Plant - 50%.
Item 3. Legal Proceedings
There are no material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.
Item 5. Market for Registrants Common Equity and Related Stockholder Matters
(a)(1) The Company's common stock traded on The Nasdaq SmallCap Market tier of
the Nasdaq Stock Market under the symbol GLMA. On November 8, 1999 the Company's
common stock was de-listed from Nasdaq due to minimum market value of public
float requirements. As of November 8, 1999 the Company's common stock trades on
the Over-the-Counter market Bulletin Board under the symbol GLMA.OB.
(a)(1)(ii)The table below sets forth the high and low sales price per share
during each quarter in the last two years as quoted on the Small Cap Market tier
of the Nasdaq Stock Market.
<TABLE>
<CAPTION>
Quarter Ending High Low
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<S> <C> <C>
August 31, 1997 .875 .750
December 1, 1997 4.750 2.875
March 2, 1998 4.125 3.500
June 1, 1998 3.875 2.563
August 31, 1998 2.500 1.500
November 30, 1998 1.750 1.750
March 1, 1999 2.500 1.000
May 31, 1999 1.375 .938
August 31, 1999 1.094 1.094
</TABLE>
Since September 1, 1999 and to the date of this report, the high and low sales
price per share was $1.156 and $.813, respectively.
(b) There were 1,185 shareholders of record at October 31, 1999.
(c)(1) On October 24, 1997, Directors of the Company declared a cash dividend of
$.03 per common share payable on or about January 30, 1998 to stockholders of
record on January 9, 1998. No other dividends have been declared or paid in the
last three years.
(c)(2) According to the terms of a financing agreement, the Company is
restricted from paying cash dividends unless approved by the lending
institution.
<PAGE> 5
PART II
Item 6. Management's Discussion and Analysis
Review of Operations
Comparison of 1999 to 1998
Consolidated sales for the fiscal year ended August 31, 1999 were
$21.0 million compared to $24.6 million last year, a decrease in sales of 14.3%.
The net loss for the year was $995,984, or $.61 per share. The loss includes
non-recurring, after-tax charges of $459,000, or $.28 per share, that were
associated with the Company's decision to discontinue certain product lines. Net
income last year was $119,434, or $.07 per share.
NET SALES. In the industrial products segment, sales declined 20% to
$14.6 million from $18.1 million in 1998. Sales of monofilament products
decreased 18% compared with the prior year, due to declines in shipments of
textile related weaving filaments and sewing thread, and nylon trimmer line.
Difficult market conditions in the North American textile industry caused by
competitive pressures from Asian imports impacted demand from Monofilament
Division customers doing business in these markets. Sales of nylon trimmer line
were lower primarily due to the decision by a key customer, involved in the
re-packaging of bulk trimmer line for sale into the retail market, to
discontinue their re-packaging division because of pricing pressures from the
large retailers. The decline in sales of bulk line to this customer was
partially offset by expanded internal winding and packaging capabilities that
enabled sales of re-packaged line directly to the retail distribution chain.
Sales of monofilament are expected to improve as textile-related markets slowly
recover and current and potential customers complete the product evaluation
process of recently developed specialty monofilaments.
At the Composites Division, sales declined approximately 44% from the
prior year due to discontinued product lines, lower sales of marine antennas,
and disappointing sales of the recently introduced product, The Glassmaster
Composite Modular Building System(TM). At the end of the 1998 fiscal year, this
division discontinued the manufacture and sale of pultruded fiberglass handles,
used primarily in lawn, garden, and home tools, which accounted for
approximately half of the 44% decline in sales. The lower sales of marine and CB
antennas accounted for the remainder of the decrease in Composites division
sales. Due to declining sales and changing technologies, and to concentrate its
full efforts on the new Glassmaster Composite Modular Building System(TM), the
Composites Division announced during the 1999 fourth quarter that the
manufacture and sale of fiberglass marine and CB antennas would be discontinued.
Certain assets related to this product line were sold in October, 1999 (refer to
Note 12 of Notes to Financial Statements for further information). While sales
of the new product line, the Glassmaster Composite Modular Building System(TM),
have been modest to date during customer product evaluation, new distributor
agreements have been formulated and additional sales and design support is now
available. Improved results for this product line are expected in the 2000
fiscal year.
In the controls and electronics segment, Glassmaster Controls Company
("Controls") sales increased 1.5% to $6.5 million, compared to last year's $6.4
million, due to improved electronic product sales and steady demand from its
base of heavy truck manufacturing customers that offset slow sales to farm
equipment manufacturers. Expanded circuit-board manufacturing capacity and new
product engineering and development efforts should allow further sales growth in
the electronics product line as the 2000 fiscal year progresses.
GROSS PROFIT. Total gross profit declined from $3.9 million last year
to $2.0 million this year, due to the decrease in sales at Monofilament and
non-recurring charges at Composites. When expressed as a percent of sales, gross
profit was 9.6% of sales this year, down from 16.1% of sales in the prior year.
As discussed more fully in Note 12 of Notes to Financial Statements, $599,260
was charged to Composites cost of goods sold to write down inventories
associated with discontinued product lines. Absent this change, gross profit was
$2.6 million, or 12.4% of sales this year, still well below the prior year's
16.1% of sales and primarily due to the costs associated with maintaining a
trained, technical workforce at Monofilament, notwithstanding lower sales and
reduced production requirements. Gross profit margins, expressed in dollars and
as a percentage of sales, will improve as sales and related manufacturing
throughput increase at Monofilament and new product sales at Composites and
Controls begin to contribute higher margin revenue.
EXPENSES. Total expenses were down from $3.1 million last year to
$3.0 million this year. Included in the current year total was a $114,297 loss
on the sale of assets related to the discontinued marine antenna product line.
Net of this amount, total expenses declined by approximately $180,000, primarily
due to lower variable selling expenses, which decreased in tandem with the lower
industrial products sales volumes.
<PAGE> 6
Item 6. Management's Discussion and Analysis (Cont'd)
Comparison of 1999 to 1998 (Cont'd)
INCOME FROM OPERATIONS. Income (Loss) from Operations was
($1,020,619) in the current year versus an operating profit of $826,948 last
year. Lower sales and gross profit at Monofilament and non-recurring charges at
Composites caused a loss from operations at the industrial products segment of
$681,654 this year compared with operating income of $1.2 million last year.
Income from operations at the controls and electronics segment declined to
$397,000 this year compared to $434,000 last year, due to higher fixed costs
associated with the expanded electronics product line.
INTEREST EXPENSE. Interest expense increased to $669,000 this year
compared with $628,000 in the previous fiscal year. The increased interest
expense is primarily due to higher average short-term borrowings required to
support working capital.
PROVISION FOR INCOME TAXES. The Company has recognized a total
benefit from income taxes in the current year totaling $693,641. The current
portion of the income tax benefit ($83,515) is due to a federal net operating
loss carryback, for which the Company will receive a cash refund of prior taxes
paid. The deferred portion of the income tax benefit relates primarily to
federal and state net operating loss carry-forwards that will be used to offset
future taxable income. Income tax expense in the last fiscal year was $79,108.
Comparison of 1998 to 1997
(Excerpted from the 1998 Form 10-KSB)
Consolidated sales increased 15% to $24.6 million during the fiscal
year ended August 31, 1998 compared to prior year sales of $21.3 million. Net
Income for the year declined to $119,434, or $.07 per share from $234,699, or
$.14 per share in 1997.
NET SALES. Sales by the Monofilament Division increased 12.9% to
$16.5 million from $14.6 million in 1997. Shipments of monofilament improved
across the product line, particularly sewing thread and nylon weaving and
trimmer line products. Sales of recently developed specialty filaments also
contributed to the year over year increase in monofilament sales.
Sales by the Composites Division improved 15% to $1.5 million this
year compared to $1.3 million in the prior year. The increase was primarily due
to new specialty pultruded products introduced during the year. This division
also introduced the Glassmaster Composites Modular Building System(TM) during
1998. This new product is a corrosive-resistant, non-conductive composite
building framework system that offers an alternative to competitive products
made out of aluminum, steel, or plastics. To date this product has been
purchased primarily for product evaluation by potential customers, and therefore
did not contribute significantly to 1998 sales.
Glassmaster Controls Company ("Controls") sales increased 22.6% to
$6.4 million from $5.2 million last year. The increase in sales was fueled
primarily by growth in the heavy-duty truck manufacturing business. This segment
of customers comprises approximately 65% of Controls' annual sales and their
production volumes, which began improving during 1997, continued to expand
throughout most of this fiscal year. Investments in surface mount and through
hole circuit-board assembly equipment and the acquisition of Amtest, Inc., a
small Michigan corporation, specializing in the development, manufacture, and
sale of automotive related electronic testing equipment has allowed Controls to
offer products with electronic characteristics that will complement its full
range of mechanical cable and wire assemblies and control panels. While these
new product offerings contributed modestly to 1998 sales, additional engineering
and marketing efforts are underway that will potentially enable this product
line to generate significant revenue growth during the 1999 fiscal year.
GROSS PROFIT. Total gross profit increased 4% compared to the prior
year due to the expansion in sales. However, when expressed as a percent of
sales, gross profit declined to 16.1% of sales during the 1998 fiscal year
compared with 17% in 1997. The decline in gross profit percent is attributable
to product development costs and related manufacturing inefficiencies as well as
an unfavorable mix of products sold at Composites.
EXPENSES. Total expenses increased by $260,000 primarily due to
higher variable selling expenses associated with the increased sales volumes and
additional advertising expense at Composites. As a percentage of sales, total
expenses declined to 12.7% in 1998, compared with 13.4% of sales in 1997.
<PAGE> 7
Item 6. Management's Discussion and Analysis (Cont'd)
Comparison of 1998 to 1997 (Cont'd)
(Excerpted from the 1998 Form 10-KSB)
INCOME FROM OPERATIONS. Operating income declined 11% to $827,000
this year from $933,000 last year despite the increase in sales. The decline in
operating income is due to the decline in gross profit at Composites which more
than offset improvements in operating income at both Monofilament and Controls.
INTEREST EXPENSE. Interest expense declined slightly from the prior
year and was 2.6% of sales this year compared to 3.0% of sales during 1997.
While average debt levels were higher this year versus the prior year due to
increased capital expenditures and reduced cash flow generated from operations,
the company took advantage of lower long-term interest rates and refinanced a
significant percentage of its short-term debt thereby realizing interest cost
savings.
PROVISION FOR INCOME TAXES. The effective income tax rate increased
over the 1997 rate due to a decrease in the tax benefit resulting from
accelerated depreciation methods utilized for tax purposes and an increase in
taxable income associated with life insurance not deductible for tax purposes.
Liquidity and Capital Resources
Cash provided by operating activities declined to $56,653 this year
compared with $680,191 in the 1998 fiscal year. The decline in cash provided was
primarily due to a pre-tax loss of $1,689,625 in the current year versus pre-tax
income of $198,542 last year. Decreases in accounts receivable and inventories
totaling $1,015,687 mitigated the impact that the pre-tax loss had on cash
provided by operating activities in the current year.
Cash used by investing activities declined to $640,140 this year
compared to $1,233,489 in the prior year primarily due to a reduced investment
in fixed assets. Capital spending by the industrial products segment was
dramatically reduced in the current year compared to 1998 due to lower sales and
operating profits. Capital spending at the controls and electronics segment was
little changed in 1999 compared with 1998 as spending on equipment to expand
electronics capabilities and capacity has occurred over the two-year period. In
August, 1999, Glassmaster Controls Company, Inc. committed to acquire additional
circuit board assembly equipment at a cost of approximately $200,000. This
equipment will be acquired during the first and second quarter of the 2000
fiscal year and will be funded by five-year term debt previously committed. No
other material commitments for capital expenditures existed at fiscal year-end.
Net cash provided by financing activities was $566,978 this year
compared with $577,032 last year. In the prior year period, the Company
restructured its debt by refinancing approximately $2.4 million of existing
long-term debt and converting $2.6 million of existing short-term lines of
credit into a single $5.0 million ten-year term loan. The 1998 debt
consolidation and restructuring provided additional cash to finance capital
additions and the Company renewed its $2.5 million short-term revolving line of
credit for an additional three-year period, which now continues until July,
2001. In 1999, net cash provided by financing activities primarily resulted from
borrowings against the revolving lines of credit and additional term-loan
financing for equipment purchases at Controls.
Due to disappointing operating results and non-recurring charges
incurred by the industrial products segment, resulting in a current year
consolidated net loss of $995,984, the Company is in violation of certain
financial covenants contained in its primary lending agreements. These lending
agreements currently provide a revolving working capital line of credit and
long-term equipment and real estate financing for the industrial products
segment in South Carolina. Because the Company is in violation of these loan
covenants, the Company is in technical default of the lending agreements and
under the terms thereof, the lending institution(s) can impose additional
restrictions and penalties on the Company, including terminating the
agreement(s) and demanding full payment of all outstanding obligations under the
loan(s). If this demand for payment would occur, the Company would be forced to
locate alternative sources of funding to continue normal operations at the
industrial products segment. There is no assurance that new sources of funding
could be arranged under such circumstances or that revised financing agreements
would contain terms as favorable to the Company as the current agreement(s). The
Company has requested temporary waivers for the loan covenant violations from
the lending institutions involved. As of the date of this report, the Company
has not yet received a written waiver notice from the lenders, but has been
verbally assured the written waiver is forthcoming.
The Company currently anticipates that its cash requirements during
the 2000 fiscal year will be provided from operations and from borrowings under
existing and committed credit lines.
<PAGE> 8
Item 6. Management's Discussion and Analysis (Cont'd)
YEAR 2000 DISCLOSURE. The Company began working on the Year
2000 Compliance Issue in early 1998. The plan was divided into three separate
phases: (1) The Internal Assessment Phase, whereby the Company's internal
information systems were analyzed and non-Year 2000 compliant hardware and
software identified and scheduled for upgrade or replacement. (2) The Vendor
Assessment Phase, which involved contacting all strategic suppliers, service
providers, and trading partners to inquire and subsequently receive assurances
(or intentions) regarding their Year 2000 compliance. (3) The Upgrade,
Implementation, & Testing Phase, whereby all non-compliant hardware and software
systems were upgraded or replaced, then implemented into normal business
operations, and subsequently tested for Year 2000 compatibility.
The Internal Assessment Phase was completed in the first quarter of 1998. This
assessment produced several areas of vulnerability, including network operating
systems, the Company's basic accounting package, and various desktop software
applications. In addition, minor hardware issues with personal computers and
certain peripherals, as well as some non-IT related hardware concerns were
exposed.
Although the Vendor Assessment Phase was completed in the fourth quarter of
1998, the Company continuously monitors the status of all critical suppliers and
service providers, to insure they are on schedule to complete their own
compliance efforts. Concerns regarding utilities fall within this ongoing
assessment phase, in that, the inability of utility companies to supply
uninterrupted power, fuel, and water on and after January 1, 2000 is critical to
the Company's ability to maintain operations. In addition, financial
institutions fall within this scope, as their inability to provide basic
services would also have a material impact on the Company's operations. To date,
the company is not aware of any external agent with Year 2000 issues that would
materially impact the Company's results of operations. However, the Company has
no way of ensuring that external agents will be Year 2000 ready. Furthermore,
the inability of external agents to complete Year 2000 initiatives in a timely
fashion could have material impact on the Company. Other than utility providers
and financial institutions as outlined above, the effect of non-compliance by
external agents can not be determined. The Company is currently establishing
contingency plans to mitigate any risks posed by the non-compliance of external
agents. These plans will be continuously reviewed and modified as needed
throughout the end of 1999 and into the first quarter of 2000.
The Upgrade, Implementation, & Testing Phase, which was begun in the second
quarter of 1998, is approximately 95% complete as of October 31, 1999. In fact,
all mission-critical IT and non-IT systems are currently compliant, pending
final enterprise-wide testing for compatibility and interoperability, scheduled
to be completed by December 15, 1999. This includes the Company's basic
accounting system, including customer order management, purchasing and
procurement, inventory management, accounting and finance, product
manufacturing, distribution and logistics, budgeting and planning, and
personnel/payroll. All critical network system hardware and software has been
upgraded and implemented into daily operations. All desktop PC hardware and
software has been upgraded and implemented. All essential manufacturing and
warehousing operations are currently compliant, including process control,
material handling, quality control, diagnostic & testing, and health & safety.
This assessment is based on manufacturers test results and vendor
certifications. The company can not be certain that information provided by
these sources is accurate. Therefore, the Company is formalizing contingency
plans to preclude any problems arising from non-compliant hardware or software
in both IT and non-IT systems. These plans are currently under development and
should be finalized by December 15, 1999. Enterprise-wide testing of critical
systems for compatibility and interoperability is ongoing, and will be completed
by December 15, 1999.
The Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity, or financial condition due to the general uncertainty
inherent in the Year 2000 problem. The Company's Year 2000 compliance plan is
expected to significantly reduce this level of uncertainty. The Company believes
that, with the implementation of new business systems, Year 2000 readiness of
its primary vendors and service providers, and completion of the Year
2000-compliance plan as scheduled, it will maintain normal operations. Although
there is no reason to question the compliance plans presented by the Company's
utility providers or financial institutions, the inability of either of these to
provide basic services for an extended period would have a significant impact on
the Company's operations presenting a "worst case scenario" that could be
potentially damaging.
<PAGE> 9
Item 7. Financial Statements
Financial Statements of Glassmaster Company and the Notes to
Financial Statements for the fiscal years ended August 31, 1999 and 1998 appear
on pages 12 through 22, the Index to the Exhibits and Exhibits appear on pages
24 through 26, and the Report of Independent Auditors appears on page 23 of this
report.
Item 8. Changes in Disagreements with Accountants on Accounting and Financial
Disclosure
There have been no changes in or disagreements with accountants on
accounting financial disclosures.
PART III
Items 9, 10, 11, and 12. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16 (a) of the Exchange Act; Executive
Compensation; Security Ownership of Certain Beneficial Owners and Management;
and Certain Relationships and Related Transactions.
Information for items 9-12 of this report appears in the Proxy
Statement for the 2000 Annual Meeting of Shareholders to be held on January 21,
2000 and is incorporated herein by reference.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-B)
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Company, filed as Exhibit 3.1 to Form 10-K for the year
ended August 31, 1991 and incorporated herein by
reference.
3.2 Amended and Restated Bylaws of the Company, filed as
exhibit 3.2 to Form 10-K for the year ended August 31,
1991 and incorporated herein by reference.
10 Amended and restated Glassmaster Company 1992 Incentive
Stock Option Plan, filed as exhibit 10 to Form 10-KSB for
the year ended August 31, 1993 and incorporated herein by
reference.
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant
27 Financial Data Schedule (SEC use only)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended August 31, 1999.
<PAGE> 10
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
GLASSMASTER COMPANY
<TABLE>
<S> <C>
By /s/ Raymond M. Trewhella By /s/ Steven R. Menchinger
--------------------------------- ----------------------------------
Raymond M. Trewhella, President Steven R. Menchinger, Corporate
(Principal Executive Officer) Controller and Treasurer
(Principal Financial Officer)
(Principal Accounting Officer)
Date November 29, 1999 Date November 29, 1999
------------------------------- ---------------------------------
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant, and in the capacities, and on the dates indicated.
<TABLE>
<S> <C>
By /s/ Stephen W. Trewhella By /s/ Raymond M. Trewhella
--------------------------------- ----------------------------------
Stephen W. Trewhella, Director Raymond M. Trewhella, Director
Date November 29, 1999 Date November 29, 1999
------------------------------- ---------------------------------
By /s/ H. D. Harrelson By /s/ Melvin L. Chavis
--------------------------------- ----------------------------------
H. D. Harrelson, Director Melvin L. Chavis, Director
Date November 29, 1999 Date November 29, 1999
------------------------------- ---------------------------------
By /s/ James F. Kane By /s/ John Taylor
--------------------------------- ----------------------------------
James F. Kane, Director John Taylor, Director
Date November 29, 1999 Date November 29, 1999
------------------------------- ---------------------------------
</TABLE>
<PAGE> 11
GLASSMASTER COMPANY
LEXINGTON, SC
FINANCIAL STATEMENTS
FISCAL YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Balance Sheet ................................. 12
Statement of Stockholders Equity .............. 13
Income Statement .............................. 14
Statement of Cash Flows ....................... 15
Notes to Financial Statements ................. 16-22
Independent Auditor's Report .................. 23
</TABLE>
<PAGE> 12
GLASSMASTER COMPANY
LEXINGTON SC
BALANCE SHEET
AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
August 31, 1999 August 31, 1998
------------------------- ------------------------
<S> <C> <C> <C> <C>
Assets
Cash $ 126,297 $ 142,806
Accounts Receivable - Trade $2,737,998 $3,433,186
Less: Allowance for Doubtful Accts 61,643 2,676,355 59,844 3,373,342
---------- ----------
Accounts Receivable - Other 144,884 6,876
Inventories 2,832,108 3,150,406
Prepaid Expenses 70,110 58,322
Income Tax Refund Receivable 83,515 0
Deferred Income Taxes 15,878 22,107
----------- -----------
Current Assets 5,949,147 6,753,859
Fixed Assets (Net of Depreciation)
Manufacturing Property 5,696,875 6,184,946
Other Assets 630,276 532,788
----------- -----------
Total Assets $12,276,298 $13,471,593
=========== ===========
Liabilities
Accounts Payable 1,404,325 1,601,630
Accrued Expenses 297,787 258,932
Accrued Income Taxes 0 16,915
Notes and Mortgages Payable - Current 2,913,952 1,882,092
----------- -----------
Current Liabilities 4,616,064 3,759,569
Other Liabilities
Notes and Mortgages Payable - Long Term 4,804,624 5,272,306
Deferred Income Taxes 0 4,804,624 590,924 5,863,230
----------- ----------- ---------- -----------
Total Liabilities 9,420,688 9,622,799
Stockholders' Equity
Capital Stock (Authorized 5,000,000 Shares
$.03 Par - 1,630,696 (1999), 1,627,896 (1998)
Shares Issued and Outstanding) 48,921 48,837
Paid-In Capital 1,357,840 1,355,124
Donated Capital 124,210 124,210
Retained Earnings 1,324,639 2,855,610 2,320,623 3,848,794
-------- ----------- ---------- -----------
Total Liabilities and Equity $12,276,298 $13,471,593
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE> 13
GLASSMASTER COMPANY
LEXINGTON SC
STATEMENT OF STOCKHOLDERS EQUITY
FISCAL YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
Capital Stock:
Balance - September 1 $ 48,837 $ 48,603
Proceeds from Sale of Shares
Under Stock Option Plan 84 234
----------- ----------
Balance - August 31 48,921 48,837
----------- ----------
Additional Paid In Capital:
Balance - September 1 1,355,124 1,344,058
Proceeds from Sale of Shares
Under Stock Option Plan 2,716 11,066
----------- ----------
Balance - August 31 1,357,840 1,355,124
----------- ----------
Donated Capital: 124,210 124,210
----------- ----------
Retained Earnings:
Balance - September 1 2,320,623 2,250,026
Net Income (Loss) (995,984) 119,434
Common Stock Dividends Paid (48,837)
----------- ----------
Balance - August 31 1,324,639 2,320,623
----------- ----------
Total Stockholders Equity $ 2,855,610 $3,848,794
=========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE> 14
GLASSMASTER COMPANY
LEXINGTON SC
INCOME STATEMENT
FISCAL YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
Sales $ 21,024,882 $24,548,803
Cost of Sales 18,998,635 20,609,145
------------ -----------
Gross Profit on Sales 2,026,247 3,939,658
Expenses
Selling Expense 1,131,315 1,234,059
General and Administrative and Other Expense 1,889,672 1,834,293
Provision for Doubtful Accounts 25,879 44,358
------------ -----------
Total Expenses 3,046,866 3,112,710
------------ -----------
Income (Loss) from Operations (1,020,619) 826,948
Interest Expense 669,006 628,406
------------ -----------
Income (Loss) Before Income Taxes (1,689,625) 198,542
Provision for Income Taxes
Current (83,515) 35,094
Deferred (610,126) 44,014
------------ -----------
Total - Provision for Income Taxes (693,641) 79,108
------------ -----------
Net Income (Loss) $ (995,984) $ 119,434
============ ===========
Earnings (Loss) Per Common Share
(Basic and Diluted)
Income from Continuing Operations $ (.61) $ .07
============ ===========
Net Income (Loss) Per Share $ (.61) $ .07
============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE> 15
GLASSMASTER COMPANY
LEXINGTON SC
STATEMENT OF CASH FLOWS
FISCAL YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
August 31, 1998 August 31, 1997
--------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) ($995,984) $ 119,434
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation & Amortization 910,324 808,689
Increase (Decrease) in Deferred Income Taxes (610,126) 44,014
(Loss) Gain on Sale of Assets 145,829 (16,655)
Changes in Operating Assets and Liabilities:
Accounts Receivable Decrease (Increase) 696,987 (23,292)
Accounts Receivable - Other Decrease (Increase) (138,008)
Inventories Decrease (Increase) 318,700 (409,638)
Prepaid Expenses Decrease (Increase) (12,190) (47,032)
Income Tax Refund Receivable Decrease (Increase) (83,515)
Accounts Payable Increase (Decrease) (199,746) 179,868
Accrued Expenses Increase (Decrease) 41,297 19,642
Income Taxes Payable Increase (Decrease) (16,915) 5,161
--------- -----------
Net Cash Provided (Used) by Operating Activities 56,653 680,191
--------- -----------
Cash Flows From Investing Activities
Cash Payments for the Purchase of Fixed Assets (524,589) (1,183,642)
Cash Payments for the Procurement of Patents (11,999)
Cash Received from Sale of Assets 16,655
Cash Surrender Value - Life Insurance (115,551) (54,503)
--------- -----------
Net Cash Provided (Used) by Investing Activities (640,140) (1,233,489)
--------- -----------
Cash Flows From Financing Activities
Proceeds From Issuance of Common Stock 2,800 11,300
Proceeds From Issuance of Short-term Debt 200,000 300,000
Proceeds From Issuance of Long-Term Debt 266,736 5,110,712
Principal Payments on Short-Term Debt (250,000)
Principal Payments on Long-Term Debt (629,760) (3,274,162)
Dividends Paid (48,837)
Net Increase (Decrease) in Line of Credit 727,202 (1,228,592)
Cash Payments for Loan Closing Costs (43,389)
--------- -----------
Net Cash Provided (Used) by Financing Activities 566,978 577,032
--------- -----------
Net Increase (Decrease) in Cash (16,509) 23,734
Cash at Beginning of Year 142,806 119,072
--------- -----------
Cash at End of Year $ 126,297 $ 142,806
========= ===========
Supplemental Disclosures of Cash Flow Information
Cash Paid For:
Interest (Net of Amount Capitalized) $ 675,880 $ 616,895
Income Taxes Paid 16,915 26,439
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE> 16
GLASSMASTER COMPANY
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
Note 1. Summary of Significant Accounting Policies
Description of Business
Glassmaster Company is a manufacturer and supplier of
extruded (thermoplastic) synthetic monofilament, pultruded
(thermoset) fiberglass products and composites. Glassmaster
Controls Company, Inc., its wholly owned subsidiary, designs,
manufactures, and assembles a wide range of electronic and
mechanical industrial controls and electronic testing
equipment. Information about the Company's business operating
segments is presented in more detail in Note 13.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Principles of Consolidation
The consolidated financial statements for the year ended
August 31, 1999 and 1998, include the accounts of Glassmaster
Company and its wholly owned subsidiary, Glassmaster Controls
Company, Inc. which was organized and incorporated under the
laws of the State of Michigan, on October 28, 1988. All
material intercompany transactions have been eliminated.
Revenue Recognition
The Company recognizes revenue from product sales upon
shipment to its customers.
Reclassifications
Certain prior year amounts have been reclassified to
conform to the current year presentation.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the company
considers all short-term debt securities purchased with a
maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowances
Accounts receivable are the result of the Company's sales
activities. The company provides an allowance for losses on
trade receivables based on a review of its past collection
history. Accounts receivables have been reduced by an
allowance for doubtful accounts in the amount of $61,643 and
$59,844 for the years ended August 31, 1999 and 1998,
respectively.
Inventories
The method of determining the amount of inventories is the
lower of cost or market on a first-in, first-out basis.
Inventories as shown on the Balance Sheet are classified
below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Materials $1,312,182 $1,714,351
Work in Process 513,101 478,137
Finished Products 1,006,825 957,918
---------- ----------
Total $2,832,108 $3,150,406
========== ==========
</TABLE>
<PAGE> 17
GLASSMASTER COMPANY
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
Note 1. Summary of Significant Accounting Policies (Cont'd)
Advertising
The company follows the policy of charging the costs of
advertising to expense as incurred. Advertising expense was $
73,578 and $113,040 for the years ended August 31, 1999 and
1998, respectively.
Research and Development
Research and development costs are charged to expense as
incurred. The costs incurred for the years ended August 31,
1999 and 1998 were $912,173 and $854,301, respectively. These
costs have generally been charged to cost of goods sold.
Long-Lived Assets
The Company periodically evaluates long-lived assets for
impairment of value by assessing current and future cash flows
including the consideration of factors such as business
trends, prospects and market conditions.
Income Taxes
Income taxes are provided for in accordance with SFAS No.
109, "Accounting for Income Taxes" which requires that income
taxes be provided for using the liability method.
Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes
standards for the way that public business enterprises report
information about operating segments in annual and interim
financial statements. The Company has adopted SFAS No. 131 in
the 1999 fiscal year. See Note 13 for disclosures relative to
the Company's business segments.
Note 2. Fixed Assets
The basis for determining the values of fixed assets is
cost. Included in land is property valued at $100,374 that was
donated to the Company by Lexington County, South Carolina.
The provision for depreciation charged against income for
the fiscal years ended August 31, 1999 and 1998, totaled
$877,437 and $801,286, respectively. The company computes
depreciation using the straight line method over the estimated
useful lives of the assets as indicated below. The company
utilizes applicable accelerated methods for tax purposes.
<TABLE>
<CAPTION>
Estimated Useful
1999 1998 Lives
----------- ------------ --------------
<S> <C> <C> <C>
Land $ 190,274 $ 190,274 N/A
Buildings 3,820,989 3,819,937 30 to 40 years
Furniture and Fixtures 439,557 454,116 5 to 7 years
Automotive Equipment 272,443 312,419 3 to 5 years
Plant Equipment 6,635,805 6,566,489 7 to 10 years
Tooling & Dies 637,566 908,885 3 to 5 years
---------------------------
Total 11,996,634 12,252,120
Less:
Accumulated Depreciation (6,299,759) (6,067,174)
---------------------------
Fixed Assets, net $ 5,696,875 $ 6,184,946
===========================
</TABLE>
<PAGE> 18
GLASSMASTER COMPANY
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
Note 3. Income Taxes
Components of the provision (benefit) for income taxes on
continuing operations are shown below:
<TABLE>
<CAPTION>
1999 1998
--------------------- ------------------
Current Deferred Current Deferred
--------- --------- ------- --------
<S> <C> <C> <C> <C>
Federal $(83,515) $(504,075) $35,094 $ 47,361
State (106,051) (3,347)
----------------------------------------------
Total $(83,515) $(610,126) $35,094 $ 44,014
==============================================
</TABLE>
The principal elements accounting for the difference
between the statutory federal income tax rate and the
effective rates are:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Expected tax at statutory rates $ 67,504
Refund of tax due to NOL carryback $(83,515)
Alternative Minimum Tax Credit (13,689)
Increase (decrease) resulting from effect of:
Depreciation (13,394)
CSV Life Insurance over premiums paid (707)
Other (4,620)
-----------------------
Current Tax Provision $(83,515) $ 35,094
=======================
</TABLE>
For South Carolina tax purposes a net operating loss
carry-forward of $2,402,150 is available for future periods.
The carry-forward will expire in the year ended August 31,
2014. For Federal tax purposes, the corporation sustained a
net operating loss of $1,805,825. A total of $ 162,421 was
used to carryback the NOL to tax years 1996 and 1997 resulting
in a refund of previously paid taxes of $83,515. The remaining
NOL of $1,643,404 is available for future periods and will
expire in the year ended August 31, 2019.
For income tax reporting, an Alternative Minimum Tax credit
of $16,446 is indefinitely available to reduce future regular
taxes. For financial statement reporting, the credit has been
recognized as a deferred tax asset.
The net deferred tax assets and liabilities consisted of
the following components as of August 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred Tax Assets Relating to:
Allowance for Doubtful Accounts $ 15,878 $ 22,107
Alternative Minimum Tax Credit 16,446 16,446
Federal and State NOL carryforwards 649,679 14,056
Deferred Tax Liabilities Relating to:
Property and Equipment (610,192) (590,924)
----------------------------
Net Deferred Tax Asset (Liability) $ 71,811 $(538,315)
============================
</TABLE>
The components giving rise to the deferred tax assets and
liability described above have been included in the
accompanying balance sheet as of August 31, 1999 and 1998 as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Current Assets $ 15,878 $22,107
Other Assets 55,933 30,502
Other Liabilities (590,924)
</TABLE>
Note 4. Accounts Receivable - Other
Accounts Receivable - Other consists mainly of the
receivable due from the sale of certain assets related to the
discontinued antenna product line. This transaction is
discussed in more detail in Note 12.
Note 5. Other Assets
Other assets are composed of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CSV Life Insurance $507,811 $392,261
Deferred Tax Assets 55,933 30,502
Loan Fees, net of Amortization 52,125 58,026
Other 14,407 51,999
--------------------------------
Total $630,276 $532,788
================================
</TABLE>
<PAGE> 19
GLASSMASTER COMPANY
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
Note 6. Notes and Mortgages Payable
Substantially all property, plant and equipment and a
portion of CSV Life Insurance are pledged as collateral for
the scheduled borrowings. In addition, inventories and
customer receivables are pledged as collateral to provide the
company and it's subsidiary with revolving lines of credit for
working capital requirements. The amount available for
borrowings under these lines of credit varies with
fluctuations in the amount of inventories on hand and customer
receivables outstanding with maximum available credit lines of
$2,500,000 for the company and $650,000 for the company's
subsidiary. The balances as of August 31, 1999 were $1,388,598
and $440,000 and the balances as of August 31, 1998 were
$751,396 and $350,000. These credit agreements are subject to
renegotiation and renewal on a three-year basis. The current
contracts will expire July 1, 2001 and January 30, 2000,
respectively.
Special provisions of the loan agreements restrict payment
of cash dividends without the consent of the lender as well as
providing for minimum cash flow requirements and maximum debt
to net worth requirements in addition to providing for other
minimum financial ratio requirements. The company was in
violation of several of these loan covenants as of August 31,
1999. The company's lenders have indicated that temporary
waivers for these violations for a one year period will be
granted.
The following table sets forth the Company's indebtedness
at the end of fiscal years 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------
Current Long-Term Current Long-Term
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgages, interest from 8.15% to 8.8%
fixed, maturities to 2008 $ 434,624 $4,482,521 $ 361,892 $4,906,783
Notes, interest from prime + .5% to
prime + 1.25%, due within 1 year 1,828,598 1,101,396
Installment Notes, interest from 1.9%
to prime + 1%, maturities to 2002 198,630 161,473 160,511 202,793
Local Government 2nd Mortgage, interest
at 3% fixed, maturity Nov. 9, 2004 2,100 160,630 8,293 162,730
Notes from Individuals, interest
ranging from 7.75% to 8.5%, maturities
within 12 months 350,000 250,000
Note from Officer, interest 8.25% due
within 1 year 100,000
--------------------------------------------------------
Total $2,913,952 $4,804,624 $1,882,092 $5,272,306
========================================================
</TABLE>
The Prime interest rate was 8.50% for the years ended
August 31, 1999 and 1998.
The principal maturities on the notes and mortgages payable
over the next five years is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
2000 $2,913,952
2001 766,567
2002 522,583
2003 537,994
2004 543,443
After 2004 2,434,037
----------
Total $7,718,576
==========
</TABLE>
<PAGE> 20
GLASSMASTER COMPANY
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
Note 7. Leases
The Company entered into an operating lease for various
pieces of equipment on August 19, 1997. The lease calls for
monthly payments of $11,171 for a period of sixty months.
Future minimum lease payments under the lease are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
2000 $134,052
2001 134,052
2002 122,881
---------
Total 390,985
=========
</TABLE>
Note 8. Stock Options
The Company has an incentive stock option plan. Under the
plan the Company may grant options for up to 260,000 shares of
common stock. Options granted under the plan become
exercisable at varying percentages from date of grant through
expiration, either at termination of employment or ten years
after date of grant. The exercise price of each option is
equal to the market price of the company's stock on the date
of grant. The exercise prices for the options range from $1 to
$4.
Following is a summary of the status of the incentive stock
options for the years ended August 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------- --------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding-Beginning of Year 36,500 $ 3.34 49,700 $ 2.74
Exercised (2,800) 1.00 7,800 1.45
Forfeited (5,400) 3.22
-------------------------------------------------
Outstanding-End of Year 33,700 3.54 36,500 3.34
=================================================
</TABLE>
Following is a summary of the status of the incentive
options outstanding at August 31, 1999:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
----------------------------------------------- --------------------
Weighted
Average Weighted
Remaining Average
Exercise Contractual Exercise Exercise
Price Number Life Price Number Price
----- ------ ---- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$1.00 5,200 3 years $1.00 5,200 $1.00
4.00 28,500 5 years 4.00 22,800 4.00
</TABLE>
Note 9. Earnings Per Share
The weighted average number of shares used in the
computation of basic and diluted earnings per common share
were 1,629,354 in 1999 and 1,625,748 in 1998. Options on
33,700 and 36,500 shares of common stock as of August 31, 1999
and 1998 respectively were not included in computing diluted
earnings per share because their effects were antidilutive.
<PAGE> 21
GLASSMASTER COMPANY
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
Note 10. Defined Contribution Plan
The Company established a qualified 401(K) defined
contribution plan effective January 1, 1990. The plan year
ends on December 31. Participation in the plan is voluntary
and employees may contribute from 1% to 15% of eligible
compensation on a tax-deferred basis. The amount to be
contributed by the company will be determined each year prior
to December 1. The proposed match for the plan year 1998 is
$.25 cents for each $1.00 of employee contributions up to a
maximum 6% of eligible compensation.
The plan provides for the company to make a discretionary
contribution on behalf of all eligible employees (those with
one full year of active service) regardless of whether they
have elected to voluntarily participate in the plan. This
discretionary contribution will be allocated based on a ratio
of the employees total W-2 earnings to the total W-2 earnings
of all eligible employees. Any discretionary contribution will
be dependent upon the overall profitability of the corporation
and will be made with the approval of the Board of Directors.
The amount of expense charged to operations was $40,471 for
the year ended August 31, 1999 and $82,285 for 1998.
Note 11. Financial Instruments
(A) Balance Sheet Financial Instruments
The carrying amount reported in the balance sheets for cash
and cash equivalents, accounts receivable and accounts payable
approximates fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amount
for long-term debt approximates fair value because the
underlying instruments are primarily at current market rates.
(B) Concentration of Credit Risk
Financial instruments that potentially subject the Company
to concentrations of credit risk consist of accounts
receivable. All receivables originate from the Company's
normal business activities as described in note one. These
receivables are unsecured.
Note 12. Discontinued Product Lines and Charges Against Earnings
In the fourth quarter of 1999, the Company announced its
decision to discontinue the manufacture and sales of its
marine antennas and other low margin product lines included in
its Industrial Products operating segment. A pre-tax charge of
$713,557 was included in income from operations. Of this
amount, $599,260 was charged to cost of goods sold to
write-down certain inventories associated with the
discontinued product lines to estimated net realizable value.
Concurrently, the Company began the process of selling and
disposing of the related assets. On October 20, 1999, the
Company reached a final agreement to sell the inventory,
equipment and tooling, customer lists, and other assets
associated with the marine antenna product line for $170,000.
The sale resulted in a loss of $114,297, which has been
included in general, and administrative expenses and accounts
for the balance of the pre-tax charge. The Company had
received $32,056 of the sales price prior to year end. The
remaining $137,944 of the sales price has been recorded as an
other receivable.
Note 13. Business Segments
The company has adopted FASB No. 131 relating to
disclosures about segments of an enterprise and related
information effective for the year ended August 31, 1999. The
Company classifies its business into two segments based on
products offered and geographic location; Industrial Products
and Controls and Electronics. The Industrial Products segment
produces extruded synthetic monofilament line, pultruded
fiberglass products, and composites that are sold to original
equipment manufacturers and distributors for use in a variety
of industrial applications and markets. The Controls and
Electronics segment produces flexible cable controls,
mechanical and electronic HVAC controls, molded control
panels, and electronic testing equipment that is sold to
original equipment manufacturers and distributors in the heavy
truck, marine, and agricultural industries and is also a
contract manufacturer of custom electronic products, including
printed circuit boards.
The accounting policies of the segments are the same as
those described in the summary of significant accounting
policies. The Company evaluates performance based on profit or
loss from operations before income taxes not including
nonrecurring gains and losses. There are currently no
significant intersegment sales and transfers, therefore no
eliminations have been made to the information below.
<PAGE> 22
GLASSMASTER COMPANY
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
Note 13. Business Segments (Cont'd)
Included in the tables below is relevant financial data
provided by each reportable segment. The amounts shown in the
Other column are generally those expenses and assets which are
associated with the Company's corporate headquarters and other
entity wide expenses which have not been included in segment
information.
<TABLE>
<CAPTION>
Year Ended August 31, 1999
-----------------------------------------------------
Industrial Controls &
Products Electronics Other Total
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Segment Assets $ 7,545,244 $3,554,726 $1,775,864 $ 12,875,834
Expenditures for Segment
Assets 291,320 207,916 25,353 524,589
Depreciation and
Amortization 581,879 264,976 63,469 910,324
Research and Development 865,153 47,020 912,173
Revenues from
External Customers 14,563,196 6,461,686 21,024,882
Segment Profit (Loss) (681,654) 397,403 (736,367) (1,020,618)
Interest Expense 669,006
---------------
Income (Loss) Before Income
Taxes $ (1,689,625)
===============
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31, 1998
-----------------------------------------------------
Industrial Controls &
Products Electronics Other Total
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Segment Assets $ 9,167,620 $3,277,619 $1,026,354 $ 13,471,593
Expenditures for Segment
Assets 895,978 262,661 25,003 1,183,642
Depreciation and
Amortization 507,020 252,419 49,250 808,689
Research and Development 828,163 26,138 854,301
Revenues from
External Customers 18,181,241 6,367,562 24,548,803
Segment Profit (Loss) 1,175,067 434,093 (782,212) 826,948
Interest Expense 628,406
---------------
Income (Loss) Before Income
Taxes $ 198,542
===============
</TABLE>
Geographic Information
<TABLE>
<CAPTION>
Year Ended August 31, 1999
-------------------------------------------
Total Long-Lived
Revenues Assets Assets
----------- ------------ -----------
<S> <C> <C> <C>
United States $17,745,967 $ 12,276,298 $ 5,696,875
Other Foreign Countries 3,279,015 0 0
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31, 1998
-------------------------------------------
Total Long-Lived
Revenues Assets Assets
----------- ------------ -----------
<S> <C> <C> <C>
United States $20,975,967 $ 13,471,593 $ 6,184,946
Other Foreign Countries 3,572,836 0 0
</TABLE>
Revenues in the above schedule are attributed to countries
based on the location of the customer.
Major Customer
Revenues from one customer of Glassmaster Company's Controls
and Electronics segment represent approximately $2,724,865 of
the Company's consolidated revenues for the year ended August
31, 1999. There were no major customers during the year ended
August 31, 1998.
.
<PAGE> 23
Independent Auditor's Report
To the Board of Directors and Stockholders
Glassmaster Company
Lexington, S.C. 29072
We have audited the accompanying consolidated balance sheets of Glassmaster
Company and subsidiary as of August 31, 1999 and 1998, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Glassmaster
Company and subsidiary as of August 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Brittingham, Dial, and Jeffcoat
Certified Public Accountants
West Columbia, SC
November 3, 1999
<PAGE> 24
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Exhibit Sequential Page No.
----------- ------- -------------------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Company, filed as Exhibit 3.1 to Form 10-K for the year
ended August 31, 1991 and incorporated herein by
reference.
3.2 Amended and Restated Bylaws of the company, filed as
Exhibit 3.2 to Form 10-K for the year ended August 31,
1991 and incorporated herein by reference.
10 Amended and restated Glassmaster Company 1992 Incentive
Stock Option Plan, filed as exhibit 10 to Form 10-KSB for
the year ended August 31, 1993 and incorporated herein by
reference.
11 Computation of Earnings Per Share for two years ended
August 31, 1998 and 1997.
21 Subsidiaries of the Company.
27 Financial Data Schedule (SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 11
GLASSMASTER COMPANY
COMPUTATION OF EARNINGS PER SHARE
For the two years ended August 31, 1999
(Thousands except for per share figures)
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Primary:
Income (Loss) from Continuing Operations $ (996) $ 119
Income (Loss) from Discontinued Operations 0 0
------- ------
Net Income(Loss) $ (996) $ 119
======= ======
Basic:
Average Shares Outstanding 1,629 1,626
Per Share Amounts:
Continuing Operations $ (.61) $ .07
Discontinued Operations 0 0
------- ------
Net Income (Loss) $ (.61) $ .07
Diluted:
Average Shares Outstanding 1,629 1,626
Net effect of dilutive stock options under the treasury stock
method using the average market price 0 0
------- ------
Total 1,629 1,626
Per Share Amounts:
Continuing Operations $ (.61) $ .07
Discontinued Operations 0 0
------- ------
Net Income (Loss) $ (.61) $ .07
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of Glassmaster Company
1) Glassmaster Controls Company, Inc. is a wholly-owned subsidiary of
the Company, organized and incorporated under the laws of the State
of Michigan on October 28, 1988.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE PERIOD ENDED AUGUST 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 126
<SECURITIES> 0
<RECEIVABLES> 2,738
<ALLOWANCES> 62
<INVENTORY> 2,832
<CURRENT-ASSETS> 5,949
<PP&E> 11,997
<DEPRECIATION> 6,300
<TOTAL-ASSETS> 12,276
<CURRENT-LIABILITIES> 4,616
<BONDS> 4,805
0
0
<COMMON> 49
<OTHER-SE> 2,807
<TOTAL-LIABILITY-AND-EQUITY> 12,276
<SALES> 21,025
<TOTAL-REVENUES> 21,025
<CGS> 18,999
<TOTAL-COSTS> 18,999
<OTHER-EXPENSES> 3,021
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 669
<INCOME-PRETAX> (1,690)
<INCOME-TAX> (694)
<INCOME-CONTINUING> (996)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (996)
<EPS-BASIC> (.61)
<EPS-DILUTED> (.61)
</TABLE>
