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, 1997
[ ] 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
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 Identification No.)
of incorporation or organization)
3137 GRANDVIEW HIGHWAY, VANCOUVER, BC V5M 2E9
---------------------------------------------
(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, 1997
- ----------------------------- ----------------------------
Common Stock, $0.01 par value 1,612,421
<PAGE>
Glas-Aire Industries Group Ltd.
INDEX
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Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
July 31, 1997 and January 31, 1996 3
Consolidated Condensed Statement of Operations
for the three months ended July 31, 1997 and
1996 and six months ended July 31, 1997 and 1996 4
Consolidated Condensed Statement of Cash
Flow for the three months ended July 31,
1997 and 1996 and six months ended July 31,
1997 and 1996 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>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
July 31, January 31,
1997 1997
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Assets
Current
Cash and Equivalents $ 1,624,317 $ 2,119,932
Accounts receivable 1,119,639 737,587
Inventories 831,148 628,423
Prepaid Expenses 42,635 158,509
Deferred Offering Costs -- --
----------- -----------
3,617,739 3,644,451
Fixed assets 1,555,068 1,220,531
$ 5,172,807 $ 4,864,982
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ 279,373 $ 110,100
Accounts Payable and accrued liabilities 535,398 459,738
Incomes taxes payable 36,500 15,262
Current portion - long term debt -- --
Current portion - capital lease -- --
----------- -----------
851,271 585,100
Long Term Debt
Obligation Under Capital Lease -- --
Deferred Income Taxes 183,239 187,498
----------- -----------
1,034,510 772,598
=========== ===========
Shareholders' Equity
Share capital 16,124 16,124
Contributed surplus 3,539,951 3,539,951
Treasury stock (236,163) (147,476)
Retained earnings 850,041 699,634
Cumulative translation adjustment (31,656) (15,849)
----------- -----------
4,138,297 4,092,384
$ 5,172,807 $ 4,864,982
=========== ===========
See accompanying notes
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</TABLE>
<PAGE>
<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,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,786,976 $ 1,183,000 $ 2,982,617 $ 1,970,363
Cost of sales 1,238,152 782,686 2,052,769 1,289,774
----------- ----------- ----------- -----------
Gross profit 548,824 400,314 929,848 680,589
Expenses
Depreciation 39,841 24,953 75,259 46,470
Research and development 124,803 57,833 220,679 107,736
Selling and distribution 112,414 81,045 198,508 138,735
General and administrative 99,286 97,030 227,805 193,109
Provision for profit sharing 20,713 21,676 26,545 26,071
Interest (17,869) (22,670) (41,774) (19,489)
----------- ----------- ----------- -----------
379,188 259,867 707,022 492,632
----------- ----------- ----------- -----------
Income before income taxes 169,636 140,447 222,826 187,957
Income taxes - current 55,322 55,755 72,419 71,298
Income taxes - deferred -- -- -- --
----------- ----------- ----------- -----------
Net Income (loss) for the period $ 114,314 $ 84,692 $ 150,407 $ 116,659
=========== =========== =========== ===========
Net income per share of common stock $ 0.08 $ 0.05 $ 0.10 $ 0.07
Weight average common shares outstanding 1,509,021 1,612,421 1,509,021 1,612,421
=========== =========== =========== ===========
See accompanying 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 Six Months Ended
July 31, July 31, July 31, July 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from:
Operating Activities
Income from operations $ 114,314 $ 84,692 $ 150,407 $ 116,659
Depreciation 39,841 24,953 75,259 46,470
Deferred income taxes 2,529 (1,217) (4,259) (124)
Gain on sale of capital assets (5,422) 0 (5,422) 0
Net change in non-cash working capital (195,192) 303,588 (372,005) 70,128
Cumulative translation adjustment 10,728 (6,837) (15,807) (1,408)
----------- ----------- ----------- -----------
Net cash (used in) operating activities (33,202) 405,179 (171,827) 231,725
----------- ----------- ----------- -----------
Financing Activities
Decrease in obligation under capital lease -- (89,907) -- (97,246)
Repayment of long-term debt -- (13,767) -- (27,304)
Purchase of treasury stock (30,253) -- (88,687)
Share offering expenses -- (811,301) -- (811,301)
Increase (decrease) in bank indebtedness 53,476 (128,940) 169,273 (255,926)
Common stock -- 3,400,000 -- 3,464,000
----------- ----------- ----------- -----------
Net cash (used in) financing activities 23,223 2,356,085 80,586 2,272,223
----------- ----------- ----------- -----------
Investing Activities
Proceeds from sale of fixed assets 20,763 263 20,763 263
Purchase of capital assets (329,464) (172,889) (425,137) (216,684)
----------- ----------- ----------- -----------
Net cash used in investing activities (308,701) (172,626) (404,374) (216,421)
----------- ----------- ----------- -----------
Decrease in cash during the period (318,680) 2,588,638 (495,615) 2,287,527
----------- ----------- ----------- -----------
Cash and equivalents, beginning of period 1,942,997 28,996 2,119,932 330,107
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 1,624,317 $ 2,617,634 $ 1,624,317 $ 2,617,634
=========== =========== =========== ===========
Changes in non-cash working capital
Accounts receivable $ (330,755) $ (307,627) $ (382,052) $ (92,436)
Inventories (27,847) 173,588 (202,725) 187,087
Prepaid expense 158,870 257,182 115,874 110,974
Accounts payable and accrued liabilities (30,131) 135,152 75,660 (95,573)
Income taxes payable 34,671 45,293 21,238 (39,924)
----------- ----------- ----------- -----------
$ (195,192) $ 303,588 $ (372,005) $ 70,128
=========== =========== =========== ===========
</TABLE>
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<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financing Statement
July 31, 1997
1. The Company believes; 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, 1997 and the results of
operations and cash flows for the three and six month periods ending July
31, 1997 and 1996, respectively.
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 BC 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 Annual Report filed on Form
10-KSB with the Securities and Exchange Commission for the fiscal year
ended January 31, 1997.
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:
July 31, July 31,
1997 1996
-------- --------
Raw materials $605,286 $375,937
Work-in-progress 126,699 64,101
Finished goods 75,537 45,977
Supplies 23,626 16,755
-------- --------
$831,148 $502,770
-------- --------
5. Bank Indebtedness July 31, July 31,
1997 1996
-------- --------
Revolving Bank loan $279,373 $ 0
-------- --------
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 (4.75%
January 31, 1997, 4.75% July 31, 1997) 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 charger 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 antidilutive. 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. As a result. The Company has 1,612,421 shares
of its common stock issued and outstanding at this time.
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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 July 31, 1997 vs Three Months Ended July 31, 1996
- --------------------------------------------------------------------
The Company's sales increased by 51.05% from $1,183,000 for the three
months ended July 31, 1996 to $1,786,976 for the three months ended July 31,
1997. This increase was due primarily to (1) new sales of $290,205 or 24.53%
generated by new customers, (2) sales of $171,907 or 14.53% generated by new
products and (3) sales increases of $141,864 or 11.99% in additional orders from
existing customers.
Cost of sales for the three months ended July 31, 1997, increased 58.19% to
$1,238,152 from $782,686 for the three months ended July 31, 1996. This increase
resulted from an increase in sales, with a greater than expected increase in
direct labor and overhead charges of $165,593 and an increase in materials cost
of $289,873. As a percentage of sales, an increase of 14% in direct labor and
overhead charges and 24.5% in material costs resulted in a decrease in gross
profit margin of 3.13% to 30.71% for the three month period ended July 31, 1997,
from 33.84% for the three month period ended July 31, 1996.
Depreciation expense increased by 59.66% from $24,953 for the three months
ended July 31, 1996 to $39,841 for the three months ended July 31, 1997. This
increase was the result of bringing new equipment into service.
Expenses for research and development increased by 115.80% from $57,833 for
the three months ended July 31, 1996 to $124,803 for the three months ended July
31, 1997. This increase was the result of increased R&D activities relating to a
number of new projects.
Selling and distribution expenses increased by 38.71%, from $81,045 for the
three months ended July 31, 1996 to $112,414 for the three months ended July 31,
1997. This increase was primarily due to increased commission expenses
associated with increased sales.
General and administrative expenses increased by 2.33% from $97,030 for the
three months ended July 31, 1996, to $99,286 for the three months ended July 31,
1997, as a result of (1) increased consulting and legal fees relating to the
Company becoming a fully reporting public company, and (2) losses on foreign
exchange. Excluding the expenses relating to being a public company, the general
and administrative expenses were actually lower by 3.2% from the same period in
1996. Management believes that this decrease resulted from continuing efforts in
automation at the office level and the general use of business systems which
have now reached a plateau and should level off.
Provision for profit sharing decreased by 4.44% from $21,676 for the three
months ended July 31, 1996 to $20,713 for the three months ended July 31, 1997.
This decrease was the result of using a lower rate of 10% applied against this
year's quarter as compared to 14% rate used for the same quarter in 1996.
Interest income (net of interest expense) decreased by 21.18% from
($22,670) for the three months ended July 31, 1996 to ($17,869) for the three
months ended July 31, 1997. This decrease occurred primarily because the Company
had more cash on deposit earning interest during the comparable period in the
prior year. The decline in interest bearing deposits resulted from the
expenditure of funds to purchase additional assets to support the Company's
increased sales.
Before income taxes, the Company's income increased from $140,447 for the
three months ended July 31, 1996 to $169,636 for the three months ended July 31,
1997. This increase in income resulted primarily due to higher sales.
- 7 -
<PAGE>
The Company's current provisions for income taxes decreased from $55,755
for the three months ended July 31, 1996 to $55,322 for the three months ended
July 31, 1997. This decrease was the result of using a lower tax rate of 33%
applied against this year's quarter as compared to the 40% rate used for the
same quarter in 1996.
As a result of the foregoing, net income increased from $84,692 for the
three months ended July 31, 1996 to $114,314 for the three months ended July 31,
1997.
Six Months Ended July 31, 1997 vs Six Months Ended July 31, 1996
- ----------------------------------------------------------------
The Company's sales increased by 51.37% from $1,970,363 for the six months
ended July 31, 1996, to $2,982,617 for the six months ended July 31, 1997. This
increase was due primarily to (1) new sales of $511,848 or 25.98% generated by
new customers, (2) sales of $212,996 or 10.81% generated by new products and (3)
sales increases of $287,410 or 14.58% in additional orders from existing
customers.
Cost of sales for the six months ended July 31, 1997, increased 59.16% to
$2,052,769 from $1,289,774 for the six months ended July 31, 1996. This increase
resulted from an increase in sales, with a greater than expected increase in
direct labor and overhead charges of $211,151 and an increase in materials cost
of $551,844. As a percentage of sales, an increase of 10.72% in direct labor and
overhead charges and 28% in material costs resulted in a decrease in gross
profit margin of 3.36% to 31.18 % for the six month period ended July 31, 1997,
from 34.54% for the six month period ended July 31, 1996.
Depreciation expense increased by 61.95% from $46,470 for the six months
ended July 31, 1996 to $75,259 for the six months ended July 31, 1997. This
increase was the result of adding new equipment into service.
Expenses for research and development increased by 104.83% from $107,736
for the six months ended July 31, 1996 to $220,679 for the six months ended July
31, 1997. This increase was due to the increased level of research and
development related to new projects.
Selling and distribution expenses increased by 43.09%, from $138,735 for
the six months ended July 31, 1996 to $198,509 for the six months ended July 31,
1997. This increase was primarily due to a combination of (1) higher sales
commissions of 36.47% in 1997, (2) an increase in warranty claims of 12K or
7.82% pertaining to 1996 sales and (3) a 1.2% decrease due to deferral of travel
and advertising expenses.
General and administrative expenses increased by 17.97% from $193,108 for
the six months ended July 31, 1996 to $227,805 for the six months ended July 31,
1997 as a result of (1) increased consulting and legal fees relating to the
Company becoming a fully reporting public company, and (2) losses on foreign
exchange. Excluding the expenses relating to being a public company, the general
and administrative expenses were actually lower by 6.8% from the same period in
1996. Management believes that this decrease resulted from continuing efforts in
automation at the office level and the general use of business systems which
have now reached a plateau and should level off.
Provision for profit sharing increased 1.82% from $26,071 for the six
months ended July 31, 1996 to $26,545 for the six months ended July 31, 1997, as
a result of the increase in profit.
Interest income (net of interest expense) increased by 114.35% from
($19,489) for the six months ended July 31, 1996 to ($41,774) for the six months
ended July 31, 1997. This increase occurred primarily because the proceeds of
the company's public offering (remaining after purchase of assets) were
available to earn interest for the entire six month period this fiscal year as
compared to only the period from the closing of the Company's public offering in
May of 1996 to the end of the period (i.e., 4 months versus 6 months).
- 8 -
<PAGE>
Before income taxes, the Company's income increased 18.55% from $187,957
for the six months ended July 31, 1996 to $222,826 for the six months ended July
31, 1997. This increase in income is primarily due to higher sales.
The Company's current provision for income taxes increased from $71,298 for
the six months ended July 31, 1996 to $72,419 for the six months ended July 31,
1997. This increase was the result of a lower tax rate during the current fiscal
year of 33% as compared to a tax rate of 40% for the same period in 1996.
As a result of the foregoing, net income increased 28.93% from $116,659 for
the six months ended July 31, 1996 to $150,407 for the six months ended July 31,
1997.
Financial Condition and Liquidity
- ---------------------------------
Working capital was $2,766,468 at July 31, 1997. The decrease in working
capital primarily resulted from the expenditure of available cash for capital
assets to support the Company's increased sales. The Company's current ratio
(i.e., the ratio of current assets to current liabilities) also declined from
approximately 6.23% at January 31, 1997 to 4.25% at July 31, 1997. For the six
months ended July 31, 1997, net cash used in operating activities totaled
$171,827, including income from operations of $150,407 and depreciation of
$75,259 and a net change in non-cash working capital of $372,005, and a
cumulative translation adjustment of $15,807. Net cash used in financing
activities was $80,586, which resulted from an increase in bank indebtedness of
$169,273, and repurchase of treasury stock for $88,687. Net cash used in
investing activities was $404,374, primarily as a result of the purchase of
additional capital assets. Over the six months ended July 31, 1997, changes in
non-cash working capital occurred as follows: (i) accounts receivable increased
by $382,052 primarily due to increased sales in July 1997. (ii) Inventories
increased by $202,725. (iii) Prepaid expenses decreased by $115,874 . (iv)
accounts payable and accrued liabilities increased by $75,660 primarily as a
result of increased inventory; and (v) income taxes payable increased by $21,238
due to higher sales in this quarter. During the next six months the company
anticipates making total capital expenditures of approximately $850,000 as
follows: (i) $650,000 for machinery and equipment, (ii) $150,000 for leasehold
improvements, and (iii) $50,000 for the QS9000 (Quality Control Certification)
process.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
a) Exhibits: There are no exhibits for the six months ended July 31, 1997.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the six
months ended July 31, 1997.
- 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: September 12, 1997
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GLAS-AIRE INDUSTRIES GROUP LTD.
by: /s/ Alex Y. W. Ding
------------------------------------------
Alex Y. W. Ding
President and Chief Operating Officer
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1996
<PERIOD-END> JUL-31-1997 JUL-31-1996
<CASH> 1,624,317 0
<SECURITIES> 0 0
<RECEIVABLES> 1,119,639 0
<ALLOWANCES> 0 0
<INVENTORY> 831,148 0
<CURRENT-ASSETS> 3,617,739 0
<PP&E> 1,630,327 0
<DEPRECIATION> 75,259 0
<TOTAL-ASSETS> 5,172,807 0
<CURRENT-LIABILITIES> 851,271 0
<BONDS> 183,239 0
0 0
0 0
<COMMON> 16,124 0
<OTHER-SE> 4,122,173 0
<TOTAL-LIABILITY-AND-EQUITY> 5,172,807 0
<SALES> 2,982,617 1,786,976
<TOTAL-REVENUES> 2,982,617 1,786,976
<CGS> 2,052,769 1,238,152
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 748,796 397,057
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (41,774) (17,869)
<INCOME-PRETAX> 222,826 169,636
<INCOME-TAX> 72,419 55,322
<INCOME-CONTINUING> 150,407 114,314
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 150,407 114,314
<EPS-PRIMARY> .10 .08
<EPS-DILUTED> .10 .08
</TABLE>
