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, 1997
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________________ to ____________________
Commission file number 1-14244
---------------
GLAS-AIRE INDUSTRIES GROUP LTD.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 84-1214736
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3137 GRANDVIEW HIGHWAY, VANCOUVER, B.C. V5M 2E9
-----------------------------------------------
(Address of principal executive office)
(604) 435-8801
-------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(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
----- -----
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at October 31, 1997
- ----------------------------- -------------------------------
Common Stock, $0.01 par value 1,612,421
<PAGE>
Glas-Aire Industries Group Ltd.
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
October 31, 1997 and January 31, 1996 1
Consolidated Condensed Statement of Operations
for the three months ended October 31, 1997
and 1996, and for the nine months ended
October 31, 1997 and 1996 2
Consolidated Condensed Statement of Cash Flow
for the three months ended October 31, 1997
and 1996 and for the six months ended
October 31, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
October 31, January 31,
1997 1996
(Unaudited) (Audited)
----------- -----------
Assets
Current
Cash and Equivalents 1,871,162 $ 2,119,932
Accounts receivable 901,915 737,587
Inventories 686,831 628,423
Prepaid Expenses 31,900 158,509
----------- -----------
3,491,808 3,644,451
Fixed assets 1,502,184 1,220,531
----------- -----------
$ 4,993,992 $ 4,864,982
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ 110,100
Accounts Payable and accrued liabilities $ 503,233 459,738
Incomes taxes payable 89,890 15,262
Current portion - long term debt -- --
Current portion - capital lease --
----------- -----------
593,123 585,100
Long Term Debt
Obligation Under Capital Lease -- --
Deferred Income Taxes 179,324 187,498
----------- -----------
772,447 772,598
----------- -----------
Shareholders' Equity
Share capital 16,124 16,124
Contributed surplus 3,539,951 3,539,951
Treasury stock (236,163) (147,476)
Retained earnings 952,321 699,634
Cumulative translation adjustment (50,688) (15,849)
----------- -----------
4,221,545 4,092,384
----------- -----------
$ 4,993,992 $ 4,864,982
=========== ===========
See accompanying notes.
-1-
<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,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,899,446 $ 1,215,439 $ 4,882,063 $ 3,185,802
Cost of sales 1,365,662 919,431 3,418,431 2,209,204
----------- ----------- ----------- -----------
Gross profit 533,784 296,008 1,463,632 976,598
----------- ----------- ----------- -----------
Expenses
Depreciation 44,039 29,493 119,298 75,963
Research and development 90,035 73,760 310,714 181,496
Selling and distribution 107,505 77,529 306,014 216,264
General and administrative 127,121 88,382 354,924 281,489
Provision for profit sharing 16,655 (1,970) 43,200 24,101
Interest (17,494) (31,237) (59,268) (50,725)
----------- ----------- ----------- -----------
367,861 235,957 1,074,882 728,588
----------- ----------- ----------- -----------
Income from operations 165,923 60,051 388,750 248,010
Income taxes - current 63,643 22,947 136,062 94,245
Income taxes - deferred -- -- -- --
----------- ----------- ----------- -----------
Net Income (loss) for the period $ 102,280 $ 37,104 $ 252,688 $ 153,765
----------- ----------- ----------- -----------
Net income per share of common stock $ .07 $ 0.02 $ .17 $ 0.10
Weight average common shares outstanding 1,509,021 1,573,421 1,509,021 1,573,421
----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements
-2-
</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,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Increase (decrease) in cash
Cash flows from:
Operating Activities
<S> <C> <C> <C> <C>
Income from operations $ 102,280 $ 37,104 $ 252,688 $ 153,765
Depreciation 44,039 29,493 119,298 75,962
Deferred income taxes (3,916) 3,548 (8,174) 3,424
Net change in non-cash working capital 394,000 (186,347) 21,996 (116,221)
Cumulative translation adjustment (19,026) 17,953 (34,840) 16,547
----------- ----------- ----------- -----------
Net cash (used in) operating activities 517,377 (98,249) 350,968 133,477
----------- ----------- ----------- -----------
Financing Activities
Decrease in obligation under capital lease -- -- -- (97,246)
Repayment of long-term debt -- -- -- (27,304)
Purchase of treasury stock -- (126,136) (88,687) (126,136)
Share offering expenses -- -- -- (811,301)
Increase (decrease) in bank indebtedness (279,373) 140,732 (110,100) (115,194)
Common stock -- 3,464,000
----------- ----------- ----------- -----------
Net cash (used in) financing activities (279,373) $ 14,596 (198,787) $ 2,286,819
----------- ----------- ----------- -----------
Investing Activities
Proceeds from sale of fixed assets 13,460 15,340 13,460
Purchase of capital assets 8,841 (202,655) (416,291) (419,077)
Deferred development costs (3,183) (3,183)
----------- ----------- ----------- -----------
Net cash used in investing activities 8,841 (192,378) (400,951) (408,800)
----------- ----------- ----------- -----------
Decrease in cash during the period 246,845 (276,031) (248,770) 2,011,496
Cash and equivalents, beginning of period 1,624,317 2,617,634 2,119,932 330,107
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 1,871,162 $ 2,341,603 $ 1,871,162 $ 2,341,603
----------- ----------- ----------- -----------
Changes in non-cash working capital
Accounts receivable $ 217,722 $ (123,535) $ (164,328) $ (216,973)
Inventories 144,316 (128,339) (58,408) 58,750
Prepaid expense 10,734 (151,135) 126,609 (40,161)
Accounts payable and accrued liabilities (32,165) 207,425 43,495 112,850
Income taxes payable 53,393 9,237 74,628 (30,687)
----------- ----------- ----------- -----------
$ 394,000 $ (186,347) $ 21,996 $ (116,221)
=========== =========== =========== ===========
See accompanying notes.
-3-
</TABLE>
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financing Statement
October 31, 1997
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, 1997 and
the results of operations as well as cash flows for the three-month and
nine-month periods ended October 31, 1997 and 1996.
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, 1997 and footnotes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended January 31,
1997, filed with the Securities and Exchange Commission.
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,
1997 1996
-------- --------
Raw materials $410,018 $473,224
Work-in-progress 159,458 81,078
Finished goods 97,951 56,782
Supplies 19,404 20,024
-------- --------
$686,831 $631,108
5. Bank Indebtedness
October 31, October 31,
1997 1996
----------- -----------
Revolving Bank loan $ 140,732
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, 5.25 % October 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 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. As a result, the Company had a total of
1,612,421 shares of its Common Stock issued and outstanding at October 31,
1997.
-4-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Three Months Ended October 31, 1997 vs Three Months Ended October 31, 1996
The Company's sales increased by 56.28% to $1,899,446 for the three months
ended October 31, 1997, compared to $1,215,439 for the three months ended
October 31, 1996. This increase was due primarily to (1) new sales of $297,587
or 24.48% generated by new customers, (2) sales of $386,420 or 31.8% generated
by new parts and additional orders from existing customers.
Cost of sales for the three months ended October 31, 1997, increased 48.53%
to $1,365,662 from $919,431 for the three months ended October 31, 1996. This
increase resulted from an increase in sales, with a greater than expected
increase in direct labor and overhead charges of $62,832 and an increase in
material cost of $383,400. As a percentage of sales, an increase of 5.1% in
direct labor and overhead charges and 31.5% in material costs resulted in an
increase in gross profit margin of 3.75% to 28.1% for the three month period
ended October 31, 1997 from 24.4% for the three months ended October 31, 1996.
Depreciation expense increased by 49.32% from $29,493 for the three months
ended October 31, 1996, to $44,039 for the three months ended October 31, 1997.
This increase was the result of adding new equipment into service.
Expenses for research and development increased by 22.1% from $73,760 for
the three months ended October 31, 1996, to $90,035 for the three months ended
October 31, 1997. This increase was primarily due to the Company conducting more
research and in-house development rather than using outside contractors.
Selling and distribution expenses increased by 38.67%, from $77,529 for the
three months ended October 31, 1996, to $107,505 for the three months ended
October 31, 1997. This increase was primarily due to (1) increased travel
expenses relating to the Company's marketing efforts, (2) increased Commission
expenses due to the addition of new customers and volume increases in sales
orders from existing customers.
General and administrative expenses increased by 43.8% from $88,382 for the
three months ended October 31, 1996, to $127,121 for the three months ended
October 31, 1997, as a result of (1) increased consulting and legal fees (15%)
relating to the Company becoming a fully reporting public company, (this
included $12,353 relating to annual reports to all investors), (2) losses on
foreign exchange (31%). Excluding the expenses relating to being a public
company, the general and administrative expenses were actually lower by 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 increased from $(1,970) for the three months
ended October 31, 1996, to $16,655 for the three months ended October 31, 1997,
as result of the increase in profit.
Interest income (net of interest expense) decreased by 44% from $31,237 for
the three months ended October 31, 1996, to $17,494 for the three months ended
October 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.
-5-
<PAGE>
The Company's income from operations increased 176.3% from $60,051 for the
three months ended October 31, 1996, to $165,923 for the three months ended
October 31, 1997. This increase in income resulted primarily from higher sales.
The Company accrued income taxes of $22,947 for the three months ended
October 31, 1996, compared to $63,643 for the three months ended October 31,
1997, as a result of the increase in taxable income.
As a result of the foregoing, net income increased 175.66% from $37,104 for
the three months ended October 31, 1996, to $102,280 for the three months ended
October 31, 1997.
Nine Months Ended October 31, 1997 vs Nine Months Ended October 31, 1996
The Company's sales increased by 53.24% to $4,882,063 for the nine months
ended October 31, 1997, compared to $3,185,802 for the nine months ended October
31, 1996. This increase was due primarily to (1) new sales of $863,529 or 27.10%
generated by new customers, (2) sales of $832,732 or 26.14% generated by new
parts and additional orders from existing customers.
Cost of sales for the nine months ended October 31, 1997, increased 54.74%
to $3,418,431 from $2,209,204 for the nine months ended October 31, 1996. This
increase resulted from an increase in sales, with a greater than expected
increase in direct labor and overhead charges of $273,983 and an increase in
material cost of $935,244. As a percentage of sales, an increase of 8.60% in
direct labor and overhead charges and 29.36% in material costs resulted in a
decrease in gross profit margin of .67% to 29.98% for the nine months ended
October 31, 1997, from 30.65% for the nine month period ended October 31, 1997.
Depreciation expense increased by 57.05% from $75,963 for the nine months
ended October 31, 1996, to $119,298 for the nine months ended October 31, 1997.
This increase was the result of adding new equipment into service.
Expenses for research and development increased by 71.20% from $181,496 for
the nine months ended October 31, 1996, to $310,714 for the nine months ended
October 31, 1997. This increase was primarily due to the Company conducting more
research and in-house development rather than using outside contractors.
Selling and distribution expenses increased by 41.5%, from $216,264 for the
nine months ended October 31, 1996, to $306,014 for the nine months ended
October 31, 1997. 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 increased by 26.1% from $281,489 for
the nine months ended October 31, 1996, to $354,924 for the nine months ended
October 31, 1997, as a result of (1) increased consulting and legal fees
relating to the Company becoming a fully reporting public company, (2) increased
in administration cost of $12,353 relating to annual reports to all investors,
(3) losses on foreign exchange. Excluding the expenses relating to being a
public company, the general and administrative expenses were actually lower by
4.4% from the same period in 1996. Management believes that this decrease
resulted from continuing efforts in automation at the office level and general
use of business systems that have now reached a plateau and should level off.
-6-
<PAGE>
Provision for profit sharing increased by 79.25% from $24,101 for the nine
months ended October 31, 1996, to $43,200 for the nine months ended October 31,
1997, as a result of the increase in profit.
Interest income (net of interest expense) increased by 16.84% from $50,725
for the nine months ended October 31, 1996, to $59,268 for the nine months ended
October 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 nine 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.. 7 months versus 9 months).
The Company's income from operations increased by 56.75% from $248,010 for
the nine months ended October 31, 1996, to $388,750 for the nine months ended
October 31, 1997. This increase in income is primarily due to higher sales.
The Company accrued income taxes of $94,245 for the nine months ended
October 31, 1996, compared to $136,062 for the nine months ended October 31,
1997. This is the result of the increase in income from higher revenue.
As a result of the foregoing, net income increased by 64.33% from $153,765
for the nine months ended October 31, 1996, to $252,688 for the nine months
ended October 31, 1997.
Financial Condition and Liquidity
Working capital was $2,898,685 at October 31, 1997 compared to $3,059,351
at January 31, 1997. The decrease in working capital primarily resulted from the
expenditure of available cash from capital assets to support the Company's
increased sales. For the nine months ended October 31, 1997, net cash provided
from operating activities totaled $350,967, including income from operations of
$252,688, depreciation of $119,298, a cumulative translation adjustment of
$(34,840) and a net change in non-cash working capital of $21,996. Net cash used
in financing activities was $198,787, which resulted from a decrease in bank
indebtedness of $110,100, and the repurchase of treasury stock for $88,687. Net
cash used in investing activities was $400,951, primarily as a result of the
purchase of capital assets. Over the nine months ended October 31, 1997, changes
in non-cash working capital occurred as follows: (i) Accounts receivable
increased by $164,328 primarily due to increase in sales in October 1997, (ii)
Inventories increased by $58,408, (iii) Prepaid expenses decreased by $126,609,
(iv) Accounts payable and accrued liabilities increased by $43,495 as a result
of increased inventory; and (v) Income taxes payable increased by $74,628 due to
higher sales. During the next three months the company anticipates making total
capital expenditures of approximately $330,000 as follows: (i) $250,000 for
machinery and equipment, (ii) $50,000 for leasehold improvements, and (iii)
$30,000 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 quarter ended October 31, 1997.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the nine
months ended October 31, 1997.
-7-
<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 12, 1997 GLAS-AIRE INDUSTRIES GROUP LTD.
-----------------
/s/ Alex Ding
------------------------------------
Alex Ding, President
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1997
<PERIOD-END> OCT-31-1997 OCT-31-1997
<CASH> 1,871,162 0
<SECURITIES> 0 0
<RECEIVABLES> 901,915 0
<ALLOWANCES> 0 0
<INVENTORY> 686,831 0
<CURRENT-ASSETS> 3,491,808 0
<PP&E> 1,502,184 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 4,993,992 0
<CURRENT-LIABILITIES> 593,123 0
<BONDS> 179,324 0
0 0
0 0
<COMMON> 16,124 0
<OTHER-SE> 4,205,421 0
<TOTAL-LIABILITY-AND-EQUITY> 4,993,999 0
<SALES> 4,882,063 1,899,446
<TOTAL-REVENUES> 4,882,063 1,899,446
<CGS> 3,418,431 1,365,662
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,015,614 350,367
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (59,268) (17,494)
<INCOME-PRETAX> 388,750 165,923
<INCOME-TAX> 136,062 63,643
<INCOME-CONTINUING> 252,688 102,280
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 252,688 102,280
<EPS-PRIMARY> .17 .07
<EPS-DILUTED> .17 .07
</TABLE>
