<PAGE>
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 JULY 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from _______ to _______
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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) 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 July 31, 1996
- ------------------------------ ----------------------------
Common Stock, $0.01 par value 1,612,421
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Glas-Aire Industries Group Ltd.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
July 31, 1996 and January 31, 1996 3
Consolidated Condensed Statement of Operations
for the three months ended July 31, 1996 and 1995 4
Consolidated Condensed Statement of Cash Flow
for the three months ended July 31, 1996 and 1995
and six months ended July 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
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<CAPTION>
July 31, January 31,
1996 1996
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
Current
Cash and equivalents $2,617,634 $ 330,107
Accounts receivable 765,107 672,671
Inventories 502,770 689,858
Prepaid expenses 62,892 14,049
Deferred offering costs 0 159,817
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3,948,403 1,866,502
Fixed assets 928,117 758,166
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TOTAL ASSETS $4,876,520 $2,624,668
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $ 0 $ 255,926
Accounts payable and accrued liabilities 415,433 511,006
Incomes taxes payable 98,533 138,457
Current portion - long term debt 0 27,304
Current portion - capital lease 0 33,616
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513,966 966,309
Long-term debt
Obligation under capital lease 0 63,630
Deferred income taxes 130,447 130,571
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644,413 1,160,510
Shareholders' equity:
Share capital 16,166 9,238
Contributed surplus 3,556,919 911,148
Treasury stock (17,010) (17,010)
Retained earnings 706,492 589,834
Cumulative translation adjustment (30,460) (29,052)
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4,232,107 1,464,158
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,876,520 $2,624,668
========== ==========
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<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Operations
(Unaudited)
- ---------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Sales $1,183,000 $914,501 $1,970,363 $1,923,525
Cost of sales 782,686 578,577 1,289,774 1,198,440
---------- -------- ---------- ----------
Gross profit 400,314 335,924 680,589 725,085
Expenses
Depreciation 24,953 21,635 46,470 42,015
Research and development 57,833 29,423 107,736 94,293
Selling and distribution 81,045 88,124 138,735 150,927
General and administrative 82,038 135,757 179,160 266,312
Provision for profit sharing 21,676 7,405 26,071 18,102
Interest (22,670) 6,086 (19,489) 9,419
---------- -------- ---------- ----------
244,875 288,430 478,683 581,068
Income from operations 155,439 47,494 201,906 144,017
Other income (14,992) (2,632) (13,949) (308)
---------- -------- ---------- ----------
Income (loss) before income taxes 140,447 44,862 187,957 143,709
Income taxes - current 55,755 30,843 71,298 63,484
Income taxes - deferred -- (4,752) -- (4,752)
---------- -------- ---------- ----------
Net Income (loss) for the period $ 84,692 $ 18,771 $ 116,659 $ 84,977
========== ======== ========== ==========
Net income per share of common stock $0.05 $0.02 $0.07 $0.09
========== ======== ========== ==========
Weight average common shares outstanding 1,612,421 923,613 1,612,421 923,813
========== ======== ========== ==========
See accompanying notes to consolidated financial statements
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<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
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Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from:
Operating Activities
Income from operations $ 84,692 $ 18,771 $ 116,659 $ 84,977
Depreciation 24,953 21,635 46,470 42,015
Deferred income taxes (1,217) (5,413) (124) (1,738)
Gain on sale of capital assets 0 1,704 0 (4,923)
Net change in non-cash working capital 303,588 (302,874) 70,128 (482,274)
Cumulative translation adjustment (6,837) (3,190) (1,408) 14,295
---------- --------- ---------- ---------
Net cash (used in) operating activities 405,179 (269,367) 231,725 (347,648)
---------- --------- ---------- ---------
Financing Activities
Decrease in obligation under capital lease (89,907) (8,175) (97,246) (11,342)
Repayment of long-term debt (13,767) (14,121) (27,304) (39,636)
Purchase of treasury stock
Share offering expenses (811,301) 0 (811,301) 0
Increase (decrease) in bank indebtedness (128,940) 293,363 (255,926) 293,363
Common stock 3,400,000 0 3,464,000 0
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Net cash (used in) financing activities 2,356,085 271,067 2,272,223 242,385
---------- --------- ---------- ---------
Investing Activities
Proceeds from sale of fixed assets 263 19,909 263 35,787
Purchase of capital assets (172,889) (21,148) (216,684) (100,676)
---------- --------- ---------- ---------
Net cash used in investing activities (172,626) (1,239) (216,421) (64,889)
---------- --------- ---------- ---------
Decrease in cash during the period 2,588,638 461 2,287,527 (170,152)
Cash and equivalents, beginning of period 28,996 218,711 330,107 389,324
---------- --------- ---------- ---------
Cash and equivalents, end of period $2,617,634 $ 219,172 $2,617,634 $ 219,172
========== ========= ========== =========
Changes in non-cash working capital
Accounts receivable $ (307,627) $ 128,992 $ (92,436) $ (15,100)
Inventories 173,588 (59,438) 187,087 (127,003)
Prepaid expense 257,182 (16,685) 110,974 (17,493)
Accounts payable and accrued liabilities 135,152 (206,695) (95,573) (214,202)
Income taxes payable 45,293 (149,048) (39,924) (108,476)
---------- --------- ---------- ---------
$ 303,588 $(302,874) $ 70,128 $(482,274)
========== ========= ========== =========
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Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financing Statement
July 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 July 31, 1996 and the results of
operations as well as cash flows for the three month and six month periods
ended July 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 are 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 and footnotes
thereto included in the Company's Registration Statement filed on Form SB-2
for the fiscal year ended January 31, 1996.
3. Certain comparative figures from the prior year have been reclassified to
confirm with the current year's presentation.
4. Inventories by component are as follows:
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<CAPTION>
July 31, July 31,
1996 1995
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Raw materials $375,937 $362,609
Work-in-progress 64,101 56,688
Finished goods 45,977 62,399
Supplies 16,755 15,016
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$502,770 $496,712
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5. Bank Indebtedness July 31, July 31,
1996 1995
-------- --------
Revolving Bank loan $ 0 $293,363
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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, 6-1/2% April 30, 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 flowing 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.
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7. On May 2, 1996, the Company issued 680,000 shares of its common stock in an
underwritten public offering. As a result, the Company has 1,612,421 shares
of its common stock issued and outstanding at this time.
Item 2. Management's Discussion and Analysis of Financial Condition and Result
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of Operations
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THREE MONTHS ENDED JULY 31, 1996 VS THREE MONTHS ENDED JULY 31, 1995
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The Company's sales increased by 29% from 914,501 for the three months
ended July 31, 1995, to $1,183,000 for the three months ended July 31, 1996.
This favorable increase was the result of the addition of new customers plus
increased sales volume from existing customers.
Gross profit increased by 19% from 335,924 for the three months ended July
31, 1995, to $400,314 for the three months ended July 31, 1996. This net
increase of 19% was due primarily to increased sales volume from existing
customers and the addition of new customers. As a percentage of total sales
gross profit declined from 36.7% in 1995 to 33.8% in 1996. This decline
resulted principally from increased material costs.
Depreciation expense increased by 15% from $21,635 for the three months
ended July 31, 1995 to $24,953 for the three months ended July 31, 1996. This
increase was the result of adding new equipment into service.
Expenses for research and development increased by 96% from $29,423 for the
three months ended July 31, 1995 to $57,833 for the three months ended July 31,
1996. This increase was primarily due to the increased level of research and
development related to new projects.
Selling and distribution expenses decreased by 8%, from $88,124 for the
three months ended July 31, 1995 to $81,045 for the three months ended July 31,
1996. This decrease was primarily due to the deferral of travel until later in
the year in 1996, and higher sale commissions during the comparable period in
1995.
General and administrative expenses decreased by 40% from $135,757 for the
three months ended July 31, 1995 to $82,038 for the three months ended July 31,
1996. Management believes that this decline resulted from 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 down-sizing.
Provision for profit sharing increased from $7,405 for the three months
ended July 31, 1995 to $21,676 for the three months ended July 31, 1996, as a
result of the increased income.
Interest expense declined because the Company reduced its debt and interest
income increased, as a result of cash proceeds of the Company's public offering
closed in May 1996, being placed in interest bearing investments.
Before income taxes, the Company's income increased 213% from $44,862 for
the three months ended July 31, 1995 to $140,447 for the three months ended July
31, 1996. This increase in income is primarily due to reduced operating
expenses.
As a result of the foregoing, net income increased 351% from $18,771 for
the three months ended July 31, 1995 to $84,692 for the three months ended July
31, 1996.
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<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Working capital was $3,434,437 at July 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 July 31, 1996, net cash used in operating
activities totaled $405,179, including income from operations of $84,692 and
depreciation of $24,593 and a net change in non-cash working capital of
$303,588. Net cash used in financing activities was $2,356,085, which resulted
from a decrease in obligation under capital lease of $89,907, repayment of long
term debt of $13,767, a decrease in bank indebtedness of $128,940, decrease in
share offering expenses of $811,301, and an increase in common stock of
$3,400,000. Net cash used in investing activities was $172,626, as a result of
the purchase of capital assets. Over the three months ended July 31, 1996,
accounts receivable increased by $307,620 primarily due to increased sales in
July 1996. Inventories decreased by $173,588. Prepaid expenses increased by
$17,490 principally as a result of prepayment for the purchase of equipment.
Accounts payable and accrued liabilities increased by $135,527 as a result of
building up of inventory.
SIX MONTHS ENDED JULY 31, 1996 VS SIX MONTHS ENDED JULY 31, 1995
- ----------------------------------------------------------------
The Company's sales increased by 2.4% from $1,923,525 for the six months
ended July 31, 1995, to $1,970,363 for the six months ended July 31, 1996. This
increase principally resulted from the addition of new customers.
Gross profit declined by 6.1% from $725,085 for the six months ended July
31, 1995 to $680,589 for the six months ended July 31, 1996. This decrease was
due primarily to increases in material costs.
Depreciation expense increased by 10.6% from $42,015 for the six months
ended July 31, 1995 to $46,470 for the six months ended July 31, 1996. This
increase was the result of adding new equipment into service.
Expenses for research and development increased by 14.25% from $94,293 for
the six months ended July 31, 1995 to $107,736 for the six months ended July 31,
1996. This increase was due to the increased level of research and development
related to new projects.
Selling and distribution expenses decreased by 8%, from $150,927 for the
six months ended July 31, 1995 to $138,735 for the six months ended July 31,
1996. This decrease was primarily due to the deferral of travel expenses and
higher sale commissions in 1995.
General and administrative expenses decreased by 33% from $266,312 for the
six months ended July 31, 1995 to $179,160 for the six months ended July 31,
1996. Management believes that this decrease resulted from 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 down-sizing.
Provision for profit sharing increased 44% from $18,102 for the six months
ended July 31, 1995 to $26,071 for the six months ended July 31, 1996, as a
result of the increased income.
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<PAGE>
Interest expense declined because the Company reduced its debt and interest
income increased, as a result of the proceeds of the Company's public offering
closed in May 1996 being placed in interest bearing investments.
Before income taxes, the Company's income increased 30.7% from $143,709 for
the six months ended July 31, 1995 to $187,957 for the six months ended July 31,
1996. This increase in income is primarily due to reduced operating expenses.
The Company accrued income taxes of $58,732 for the six months ended July
31, 1995 and $71,298 for the six months ended July 31, 1996, as a result of the
increase in taxable income.
As a result of the foregoing, net income increased 37% from $84,977 for the
six months ended July 31, 1995 to $116,659 for the six months ended July 31,
1996.
FINANCIAL CONDITION AND LIQUIDITY
Working capital was $3,434,437 at July 31, 1996. The increase in working
capital was the result of completion of the Company's public offering in May
1996. For the six months ended July 31, 1996, net cash used in operating
activities totaled $231,725, including income from operations of $116,659 and
depreciation of $46,470 and a net change in non-cash working capital of $70,128.
Net cash used in financing activities was $2,272,223, which resulted from a
decrease in obligation under capital lease of $97,246, repayment of long term
debt of $27,304, a decrease in bank indebtedness of $255,926, decrease in share
offering expenses of $811,301, repayment of long-term debt of $27,304 and an
increase in common stock of $3,464,000. Net cash used in investing activities
was $216,421, as a result of the purchase of capital assets. Over the six
months ended July 31, 1996, accounts receivable increased by $92,436 primarily
due to increased sales in July 1996. Inventories decreased by $187,088.
Prepaid expenses increased by $48,843 principally as a result of prepayment for
the purchase of equipment. Accounts payable and accrued liabilities decreased
by $95,573 as a result of increased inventory.
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 six months ended July 31, 1996.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the six
months ended July 31, 1996.
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<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: September 12, 1996
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GLAS-AIRE INDUSTRIES GROUP LTD.
/s/ Edward Ting
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Edward Ting
Chairman
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR PERIOD ENDED 07/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1996 JAN-31-1996
<PERIOD-START> FEB-01-1996 MAY-01-1996
<PERIOD-END> JUL-31-1996 JUL-31-1996
<CASH> 2,617,624 0
<SECURITIES> 0 0
<RECEIVABLES> 765,107 0
<ALLOWANCES> 0 0
<INVENTORY> 502,770 0
<CURRENT-ASSETS> 3,948,403 0
<PP&E> 928,117 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 4,876,520 0
<CURRENT-LIABILITIES> 513,966 0
<BONDS> 130,447 0
0 0
0 0
<COMMON> 3,573,085 0
<OTHER-SE> 659,022 0
<TOTAL-LIABILITY-AND-EQUITY> 4,876,520 0
<SALES> 1,970,363 1,183,000
<TOTAL-REVENUES> 1,970,363 1,183,000
<CGS> 1,289,774 782,686
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 459,194 222,205
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,489 22,670
<INCOME-PRETAX> 187,957 140,447
<INCOME-TAX> 71,798 55,755
<INCOME-CONTINUING> 116,659 84,692
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 116,659 84,692
<EPS-PRIMARY> 0.07 0.05
<EPS-DILUTED> 0.07 0.05
</TABLE>
