U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 1-14244
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GLAS-AIRE INDUSTRIES GROUP LTD.
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(Exact name of small business issuer as specified in its charter)
NEVADA 84-1214736
- --------------------------------- ---------------------
(State or other jurisdiction (IRS Employer
of incorporation or rganization) Identification No.)
3137 GRANDVIEW HIGHWAY, VANCOUVER, B.C. V5M 2E9
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(Address of principal executive office)
(604) 435-8801
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at October 31, 1996
----------------------------- -------------------------------
Common Stock, $0.01 par value 1,573,421
<PAGE>
Glas-Aire Industries Group Ltd.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
October 31, 1996 and January 31, 1996 3
Consolidated Condensed Statement of Operations
for the three months ended October 31, 1996 and 1995,
and for the nine months ended October 31, 1996 and 1995 4
Consolidated Condensed Statement of Cash Flow for the
three months ended October 31, 1996 and 1995
and for the six months ended October 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
October 31, January 31,
1996 1996
------------ ------------
(Unaudited) (Audited)
Assets
Current
Cash and equivalents $ 2,341,603 $ 330,107
Accounts receivable 888,644 672,671
Inventories 631,108 689,858
Prepaid expenses 214,027 173,866
----------- -----------
4,075,382 1,866,502
Fixed assets 1,091,004 758,166
----------- -----------
Total Assets $ 5,166,386 $ 2,624,668
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ 140,732 $ 255,926
Accounts payable and accrued liabilities 622,856 511,006
Incomes taxes payable 107,770 138,457
Current portion - long term debt -- 27,304
Current portion - capital lease -- 33,616
----------- -----------
$ 871,358 $ 966,309
Long-term debt
Obligation under capital lease -- 63,630
Deferred income taxes 133,995 130,571
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$ 1,005,353 $ 1,160,510
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Shareholders' equity:
Share capital 16,166 9,238
Contributed surplus 3,556,919 911,148
Treasury stock (143,146) (17,010)
Retained earnings 743,599 589,834
Cumulative translation adjustment (12,505) (29,052)
----------- -----------
4,161,033 1,464,158
Total Liabilities and Shareholders' Equity $ 5,166,386 $ 2,624,668
=========== ===========
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<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
October 31, October 31, October 31, October 31,
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $ 1,215,439 $ 1,085,444 $ 3,185,802 $ 3,008,969
Cost of sales 919,431 649,797 2,209,204 1,853,104
----------- ----------- ----------- -----------
Gross profit 296,008 435,647 976,598 1,155,865
----------- ----------- ----------- -----------
Expenses
Depreciation 29,493 26,950 75,963 64,098
Research and development 73,760 96,349 181,496 190,642
Selling and distribution 77,529 60,867 216,264 211,794
General and administrative 83,890 99,899 263,049 366,211
Provision for profit sharing (1,970) 11,768 24,101 29,870
Interest (31,237) 1,934 (50,725) 11,353
----------- ----------- ----------- -----------
231,465 297,767 710,148 873,968
----------- ----------- ----------- -----------
Income from operations 64,543 137,880 266,450 281,897
Other income (4,492) (5,697) (18,440) (6,005)
----------- ----------- ----------- -----------
Income (loss) before income taxes 60,051 132,183 248,010 275,892
Income taxes - current 22,947 39,811 94,245 103,295
Income taxes - deferred 0 9,633 0 4,881
----------- ----------- ----------- -----------
Net Income (loss) for the period $ 37,104 $ 82,739 $ 153,765 $ 167,716
=========== =========== =========== ===========
Net income per share of common stock $ 0.02 $ 0.09 $ 0.10 $ 0.18
Weight average common shares outstanding 1,573,421 919,621 1,573,421 919,621
See accompanyings notes to consolidated financial statements
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended Nine Months Ended
October 31, October 31, October 31, October 31,
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from:
Operating Activities
Income from operations $ 37,104 $ 82,739 $ 153,765 $ 167,716
Depreciation 29,493 22,083 75,962 64,098
Deferred income taxes 3,548 11,327 3,424 9,589
Gain on sale of capital assets 1,017 (31) 1,017 (4,954)
Net change in non-cash working capital (186,347) 92,384 (116,221) (389,890)
Cumulative translation adjustment 17,953 8,601 16,547 22,896
----------- ----------- ----------- -----------
Net cash (used in) operating activities (97,232) 217,103 134,494 (130,545)
----------- ----------- ----------- -----------
Financing Activities
Decrease in obligation under capital lease -- (6,235) (97,246) (17,577)
Repayment of long-term debt -- (13,184) (27,304) (52,820)
Purchase of treasury stock (126,136) (17,010) (126,136) (17,010)
Share offering expenses -- (47,789) (811,301) (47,789)
Increase (decrease) in bank indebtedness 140,732 (9,072) (115,194) 284,291
Common stock -- -- 3,464,000 --
----------- ----------- ----------- -----------
Net cash (used in) financing activities $ 14,596 $ (93,290) $ 2,286,819 $ 149,095
----------- ----------- ----------- -----------
Investing Activities
Proceeds from sale of fixed assets 12,443 222 12,443 36,009
Purchase of capital assets (202,655) (42,728) (419,077) (143,404)
Deferred development costs (3,183) -- (3,183) --
----------- ----------- ----------- -----------
Net cash used in investing activities (193,395) (42,506) (409,817) (107,395)
----------- ----------- ----------- -----------
Decrease in cash during the period (276,031) 81,307 2,011,496 (88,845)
Cash and equivalents, beginning of period 2,617,634 219,172 330,107 389,324
----------- ----------- ----------- -----------
Cash and equivalents, end of period $2,341,603 $ 300,479 $ 2,341,603 $ 300,479
=========== =========== =========== ===========
Changes in non-cash working capital
Accounts receivable $ (123,535) $ 118,602 $ (216,973) $ 103,502
Inventories (128,339) (166,157) 58,750 (293,160)
Prepaid expense (151,135) (577) (40,161) (18,070)
Accounts payable and accrued liabilities 207,425 98,975 112,850 (115,227)
Income taxes payable 9,237 41,541 (30,687) (66,935)
----------- ----------- ----------- -----------
$ (186,347) $ 92,384 $ (116,221) $ (389,890)
=========== =========== =========== ===========
See accompanying notes.
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</TABLE>
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financing Statement
October 31, 1996
1. In the opinion of management, the accompanying unaudited, consolidated,
condensed financial statements contain all adjustments (consisting of only
those which are normal and recurring in nature) necessary to present,
fairly, the financial position of the Company as of October 31, 1996 and
the results of operations as well as cash flows for the three-month and
nine-month periods ended October 31, 1996 and 1995.
2. These financial statements include the accounts of the company and its
wholly-owned subsidiaries, Multicorp Holdings Inc., Glas-Aire Industries
Ltd., Glas-Aire Industries, Inc., and 326362 B.C. Ltd. All inter-company
transactions have been eliminated.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. For further
information, refer to the Company's consolidated financial statements for
the fiscal year ended January 31, 1996 and footnotes thereto included in
the Company's Registration Statement filed on Form SB-2.
3. Certain comparative figures from the prior year have been reclassified to
conform with the current year's presentation.
4. Inventories by component are as follows:
October 31, October 31,
1996 1995
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Raw materials $ 473,224 $ 455,354
Work-in-progress 81,078 80,240
Finished goods 56,782 100,016
Supplies 20,024 27,259
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$ 631,108 $ 662,869
5. Bank Indebtedness
October 31, October 31,
1996 1995
----------- -----------
Revolving Bank loan $ 140,732 $ 284,291
The revolving bank loan is a Cdn. $1,000,000 overdraft facility, which is
due on demand and bears interest at Canadian bank prime rates (8% January
31, 1996, 5% October 31, 1996) plus 1/2%. This line of credit is renewable
annually.
The following have been provided as collateral for these loans:
(a) general assignments of accounts receivable and inventories.
(b) a Cdn. $2,000,000 demand debenture granting a first fixed charge on
certain equipment and a floating charge over all other assets of the
Company.
(c) an unlimited guarantee by the Company and its subsidiary, Glas-Aire
Industries Ltd.
6. Income (loss) per share is calculated by dividing the weighted average
number of shares of Common Stock outstanding each period into the income
(loss) for the period. Warrants outstanding were anti-dilutive. Treasury
stock held by the Company is not included in the number of shares
outstanding
7. On May 2, 1996, the Company issued 680,000 shares of its common stock in an
underwritten public offering. Following the public offering, the stock
price declined and the Company repurchased 39,000 shares of the Common
Stock sold in the public offering because management believed that the
Common Stock was undervalued. As a result, the Company had a total of
1,573,421 shares of its Common Stock issued and outstanding at October 31,
1996.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
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Three Months Ended October 31, 1996 vs Three Months Ended October 31, 1995
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The Company's sales increased by 12% to $1,215,439 for the three months
ended October 31, 1996, compared to $1,085,444 for the three months ended
October 31, 1995. This was the result of the addition of new customers plus
volume increases in sales orders from existing customers.
Gross profit decreased by 32% from $435,647 for the three months ended
October 31, 1995, to $296,008 for the three months ended October 31, 1996. This
net decrease of 32% was due primarily to (1) increases in material costs; and
(2) increased labor costs related to upgrading the Company's facilities and
equipment for the production of both new and existing products for its customers
in Japan.
Depreciation expense increased by 10% from $26,950 for the three months
ended October 31, 1995, to $29,493 for the three months ended October 31, 1996.
This increase has been the result of adding new equipment into service.
Expenses for research and development decreased by 23% from $96,349 for the
three months ended October 31, 1995, to $73,760 for the three months ended
October 31, 1996. This decrease was primarily because the Company conducted more
research and development in-house rather than through outside contractors which
resulted in some cost savings.
Selling and distribution expenses increased by 27%, from $60,867 for the
three months ended October 31, 1995, to $77,529 for the three months ended
October 31, 1996. This increase was primarily due to increased travel expenses
relating to the Company's marketing efforts. Commission expenses also increased
due to the addition of new customers and volume increases in sales orders from
existing customers.
General and administrative expenses decreased by 16% from $99,899 for the
three months ended October 31, 1995, to $83,890 for the three months ended
October 31, 1996. This decrease was the result of the successful installation of
customized business and accounting computer systems for purchasing inventory
control, work order administration, and for accounting applications, which
facilitated the mechanization of certain management activities allowing
organizational downsizing. Management also believes that the decrease was also
due to effective training of employees in the use of those systems.
Provision for profit sharing decreased from $11,768 for the three months
ended October 31, 1995, to $(1,970) for the three months ended October 31, 1996,
primarily as a result of the higher cost of sales and the corresponding decline
in income.
Interest income increased from $7,972 for the three months ended October
31, 1995, to $32,245 for the three months ended October 31, 1996, as a result of
the investment of proceeds received in the Company's public offering. Interest
expense declined because the Company reduced its debt.
Before income taxes, the Company's income decreased 54% from $132,183 for
the three months ended October 31, 1995, to $60,051 for the three months ended
October 31, 1996. This decrease in income is primarily due to the higher cost of
sales.
The Company accrued income taxes of $49,444 for the three months ended
October 31, 1995, compared to $22,947 for the three months ended October 31,
1996, as a result of the decrease in taxable income.
As a result of the foregoing, net income decreased 55.1% from $82,739 for
the three months ended October 31, 1995, to $37,104 for the three months ended
October 31, 1996.
Financial Condition and Liquidity
Working capital was $3,204,024 at October 31, 1996. The increase in working
capital was the result of completion of the Company's public offering in May
1996. For the three months ended October 31, 1996, net cash used in operating
activities totaled $(97,232) including income from operations of $37,104,
depreciation of $29,493, a cumulative transaction adjustment of $17,953, and a
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<PAGE>
net change in non-cash working capital of $(186,347) Net cash from financing
activities was $14,596, which resulted from repurchasing 39,000 of the Company's
common shares for $(126,136), and an increase in bank indebtedness of $140,732.
Net cash used in investing activities was $(193,395) primarily as a result of
the purchase of capital assets. Accounts receivable increased by $242,137
primarily due to increased sales in October 1996. Inventories decreased by
$37,818 as a result of a build-up in inventories of acrylic and boxes during the
last quarter to facilitate planned shipments of future products sold. Prepaid
expenses increased by $150,558 due to deposit placed on equipment. Accounts
payable and accrued liabilities increased by $108,450 as a result of building up
for higher sales volume in October 1996. Income taxes payable decreased by
$32,304 as a result.
Nine Months Ended October 31, 1996 vs Nine Months Ended October 31, 1995
- ------------------------------------------------------------------------
The Company's sales increased by 6% to $3,185,802 for the nine months ended
October 31, 1996, compared to $3,008,969 for the nine months ended October 31,
1995. This has been the result of the addition of new customers plus volume
increases in sales orders from existing customers.
Gross profit decreased by 16% from $1,155,865 for the nine months ended
October 31, 1995, to $976,598 for the nine months ended October 31, 1996. This
net decrease of 16% was due primarily to (1) increases in material costs and (2)
increased labor costs related to upgrading the Company's facilities and
equipment for the production of both new and existing products for its customers
in Japan.
Depreciation expense increased by 19% from $64,098 for the nine months
ended October 31, 1995, to $75,963 for the nine months ended October 31, 1996.
This increase was the result of adding new equipment into service.
Expenses for research and development decreased by 5% from $190,642 for the
nine months ended October 31, 1995, to $181,496 for the nine months ended
October 31, 1996. This decrease was primarily because the Company conducted more
research and development in-house rather than through outside contractors which
resulted in some cost savings.
Selling and distribution expenses increased by 2%, from $211,794 for the
nine months ended October 31, 1995, to $216,264 for the nine months ended
October 31, 1996. This increase was primarily due to increased travel expenses
relating to the Company's marketing efforts. Commission expenses also increased
due to the addition of new customers, and volume increases in sales orders from
existing customers.
General and administrative expenses decreased by 28% from $366,211 for the
nine months ended October 31, 1995, to $263,049 for the nine months ended
October 31, 1996, as a result of the successful installation of customized
business and accounting computer systems for purchasing inventory control, work
order administration, and for accounting applications, which facilitated the
mechanization of certain management activities allowing organizational
downsizing. Management also believes that the decrease was also due to effective
training of employees in the use of those systems.
Provision for profit sharing decreased by 19% from $29,870 for the nine
months ended October 31, 1995, to $24,101 for the nine months ended October 31,
1996, as a result of the higher cost of sales and the corresponding decline in
income.
Interest income increased from $12,064 for the nine months ended October
31, 1995, to $67,352 for the nine months ended October 31, 1996, as a result of
the investment of proceeds received from the Company's public offering. Interest
expense declined from $23,417 for the nine months ended October 31, 1995, to
$16,627 for the nine months ended October 31, 1996.
Other expenses increased from $6,005 for the nine months ended October 31,
1995, to $18,440 for the nine months ended October 31, 1996, as a result of
increased legal expenses relating to the Company's obligations as a public
company and consulting fees related to public relations.
Before income taxes, the Company's income decreased by 10% from $275,892
for the nine months ended October 31, 1995, to $248,010 for the nine months
ended October 31, 1996. This decrease in income is primarily due to the higher
cost of sales.
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<PAGE>
The Company accrued income taxes of $108,176 for the nine months ended
October 31, 1995, compared to $94,245 for the nine months ended October 31,
1996, as a result of the decrease in taxable income.
As a result of the foregoing, net income decreased by 8% from $167,716 for
the nine months ended October 31, 1995, to $153,765 for the nine months ended
October 31, 1996.
Financial Condition and Liquidity
Working capital was $3,204,960 at October 31, 1996. The increase in working
capital was the result of completion of the Company's public offering in May
1996. For the nine months ended October 31, 1996, net cash used in operating
activities totaled $134,494, including income from operations of $153,765,
depreciation of $75,962, a cumulative translation adjustment of $16,547 and a
net change in non-cash working capital of $(116,221). Net cash used in financing
activities was $2,286,819, which resulted from a decrease in obligation under
capital lease of $(97,246), repayment of long term debt of $(27,304), repurchase
of 39,000 of the Company's common shares for $(126,136), a decrease in bank
indebtedness of $(115,194), a decrease in share offering expenses of $(811,301),
and an increase in common stock of $3,464,000. Net cash used in investing
activities was $(409,817) primarily as a result of the purchase of capital
assets. Accounts receivable increased by $320,475 primarily due to the increase
of sales in October 1996. Inventories increased by $351,910 as a result of a
build-up in inventories of acrylic and boxes to effectively facilitate planned
shipments of future products sold. Prepaid expenses increased by $22,091 due to
the deposit placed on equipment. Accounts payable and accrued liabilities
increased by $228,077 as a result of building up for higher sales volume in
October 1996. Income taxes payable decreased by $36,248.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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a) Exhibits: There are no exhibits for the quarter ended October 31, 1996.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the nine
months ended October 31, 1996.
- 9 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 13, 1996 GLAS-AIRE INDUSTRIES GROUP LTD.
/s/ Alex Ding
------------------------------------
Alex Ding, President
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10Q FOR THE QUARTER ENDED
OCTOBER 31, 1996.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1996 JAN-31-1996
<PERIOD-END> OCT-31-1996 OCT-31-1996
<CASH> 2,341,603 0
<SECURITIES> 0 0
<RECEIVABLES> 888,644 0
<ALLOWANCES> 0 0
<INVENTORY> 631,108 0
<CURRENT-ASSETS> 4,075,382 0
<PP&E> 1,091,004 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 5,166,386 0
<CURRENT-LIABILITIES> 871,358 0
<BONDS> 133,995 0
0 0
0 0
<COMMON> 16,166 0
<OTHER-SE> 4,144,867 0
<TOTAL-LIABILITY-AND-EQUITY> 5,166,386 0
<SALES> 3,185,802 1,215,439
<TOTAL-REVENUES> 3,185,802 1,215,439
<CGS> 2,209,204 919,431
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 710,148 231,465
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 248,010 60,051
<INCOME-TAX> 92,245 22,947
<INCOME-CONTINUING> 266,450 64,543
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 153,765 37,104
<EPS-PRIMARY> .10 .02
<EPS-DILUTED> .10 .02
</TABLE>
