FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended: January 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 1-14244
GLAS-AIRE INDUSTRIES GROUP LTD.
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(Name of small business issuer in its charter)
Nevada 84-1072256
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3137 Grandview Highway
Vancouver, B.C. V5M 2E9 Canada
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(Mailing Address of principal executive offices)
Registrant's telephone number, including area code (604) 435-8801
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.01 par value Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer 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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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer'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-K. Yes No X
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The issuer's revenue for its most recent fiscal year was: $4,316,372
The aggregate market value of the issuer's voting stock held as of January 31,
1997, by nonaffiliates of the issuer was $1,787,289.
As of January 31, 1997, issuer had 1,612,421 shares of its $0.01 par value
common stock outstanding.
Transitional Small Business Disclosure Format. Yes No
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<PAGE>
TABLE OF CONTENTS
PART I PAGE
Item 1. Business .....................................
Item 2. Properties ...................................
Item 3. Legal Proceedings ............................
Item 4. Submission of Matters to a Vote
of Security Holders ..........................
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters ..............
Item 6. Selected Financial Data ......................
Item 7. Management's Discussion and Analysis of
Financial Condition and
Results of Operations ........................
Item 8. Financial Statements and Supplementary Data
--Independent Auditor's Report ...............
Item 9. Changes in and Disagreements With Accountants
onAccounting and Financial Disclosure ........
PART III
Item 10. Directors and Executive Officers
of the Registrant .............................
Item 11. Executive Compensation ........................
Item 12. Security Ownership of Certain Beneficial
Owners and Management .........................
Item 13. Certain Relationships and
Related Transactions ...........................
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ........................
SIGNATURES
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PART I
Item 1 - Business
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General
The Company designs, develops, manufactures and sells sunroof wind
deflectors, hood protectors and rear air deflectors for cars, light trucks and
vans. It uses plastics and thermoforming technology to produce these products.
The Company is currently in the research and development stage for manufacturing
door visors.
During the fiscal year ended January 31, 1997, approximately 96% of the
Company's sales were to automobile manufacturers. The Company's clients/joint
product development partners include BMW Canada Inc., Chrysler Corporation,
General Motors Corporation, General Motors of Canada Ltd., Honda Access America
Inc., Honda Access Corp. (Japan), IMI Inc., Jaguar Cars Inc., Mazda (North
America) Inc., Mac Neil Automotive Products Limited, Nissan Canada Inc., Nissan
Motor Co. Ltd. (Japan), Nissan Motor Corporation in the U.S., Subaru of America
Inc., Subaru Canada Inc., Toyota Canada Inc., Toyota Motor Corp. (Japan) and
Uniparts Group Ltd. (UK). The Company manufactures products according to
specifications either developed jointly with or provided by its clients, who in
turn market the products, on a retail basis, under their own brand names through
their dealership and distribution networks. Management believes that the Company
offers its customers high quality product design and development capabilities.
In 1989, the Company received the "British Columbia Export Award" and in
1992 and 1993, it was one of six companies out of approximately 500 to receive
the "Nissan Superior Performance Award" granted to outstanding parts and
accessories suppliers. In 1995, the Company was awarded the " Nissan First Team
Supplier Award" for 1994 in recognition of its performance as a supplier to
Nissan. In 1997, the Company received the Business Management Excellence award
in export category from the ETHNO Business Council of British Columbia in
conjunction with the Business Development Bank of Canada.
The Company sells its products in the United States, Japan, Canada and the
United Kingdom. Net export sales to customers by geographic area consisted of
the following for each of the three years ended January 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------------------------------------
1995 1996 1997
---------------- ------------- ------------
(Stated in thousands of United States dollars)
<S> <C> <C> <C> <C> <C> <C>
United States $3,342 82.4% $3,420 82% $3,121 72%
Canada 487 12.0% 503 12% 620 14%
Japan 146 3.6% 198 5% 491 12%
Other 82 2.0% 71 1% 84 2%
</TABLE>
Industry Overview
The Company operates in a diverse, expanding automotive components market.
The Specialty Equipment Market Association's ("SEMA") 1993 market study
indicated that this market segment (which includes all after-market accessories,
dealer installed accessories, car care products, utility accessories and those
products that, while not fitting the absolute definition of a specialty product,
were purchased by consumers for the purpose of improving their vehicle and not
for routine maintenance) grew from $2.35 billion in 1985 to $4.58 billion in
1992. The 1995-96 SEMA Market Study estimates this market segment at $5.47
billion in 1994. According to the 1995-96 SEMA Market Study,
accessory/appearance products accounted for the largest share of 1994 sales in
the specialty equipment market 48.9% or approximately $2.68 billion at
manufacturer price. Management considers the Company's products to fall within
the accessory/appearance products category.
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The 1995-96 SEMA Market Study indicates that the 1994 light truck market
for specialty equipment products totaled $1.53 billion at manufacturer price, or
28.0% of the total $5.47 billion 1994 specialty equipment product purchases. The
light truck market includes all discretionary products purchased for the
modification of light trucks. SEMA found that the largest portion (51.3%) of the
1994 light truck market was comprised of accessory/appearance products. The
Company's light truck accessory products include its sunroof wind deflectors,
hood protectors and rear air deflectors. Management intends to utilize its
relationships with Chrysler, General Motors, Mac Neil Automotive Products
Limited, Nissan, Subaru and Toyota to promote these light truck related
products. According to Trucking Times, vol. 8, issue 1, total light vehicle
sales for the 1996 calendar year ended at 15.1 million, up 2.7% from 1995. For
the year overall, 43.5% of all vehicles sold in US were trucks. Total truck
sales were nearly 8% higher than the total for 1995.
According to the Automotive News, February 3, 1997, Japan's vehicle
production edged up 1.5% in 1996 to 10,345,786 units, this particular industry's
first increase since 1990.
According to Lang Marketing Resources, Inc. ("Lang"), in 1994, 6% of
domestic vehicles had a factory installed sunroof, with more than one-third of
import cars so equipped. Furthermore, Lang states that the sunroof market is
much larger than these numbers indicate, since many units are installed after
cars are received by the dealerships, and that sunroof installation is not
limited to passenger cars, with a growing number of applications being designed
for light trucks, vans and limos.
According to SEMA, in 1992, 5% of vehicle owners purchased their
appearance/ accessory products from car dealerships - the network through which
the Company's products are sold to the ultimate consumer - while the remainder
purchased these products directly from the manufacturer or from various sources
in the after-market distribution network. Management of the Company is exploring
the possibility of expanding the Company's methods of distribution to include
non-dealership retail outlets. See "--Business Strategy--New Distribution
Channel."
Business Strategy
Management's strategies for future expansion are as follows:
Increasing production capacity/efficiency. During the past year, one CNC
(computer numeric control) router has been purchased and successfully
commissioned. Another identical machine is now on order and expected to be in
production in May 1997. These 2 new CNC routers will alleviate the present
capacity restriction for the machining operations and facilitate research and
development (R&D) activities related to prototyping as well as development of
tools for thermoforming. The efficiency of thermoforming will be increased by
converting the oven of the existing MAAC machine from electricity to gas radiant
type. Another MAAC (a semi-automatic, rotary thermoforming machine considered a
key capital resource for the Company's production) machine will be considered if
and when justified by the increased business. Work-in-Progress ("WIP") movement
will be handled by a customized conveyor system improving the overall efficiency
of material handling on the factory floor. A CNC mill is planned to address the
fabrication of large aluminum moulds required to facilitate the surface
requirements of the Company's products for the Japanese market. At present, such
moulds are being out-sourced at premium costs. The purchase of a 1,000 plus tons
molding machine is planned to enable the door visor manufacturing for Isuzu
initially, then for other Japanese clients/prospects. Also the Company may
purchase another machine (-200 tons) to manufacture parts of its existing
products which are being out-sourced. The Company may continue out-sourcing
semi-finished door visors from an injection molding supplier in order to reduce
the risks related to new technology and business. In addition, the machine may
allow the Company to cultivate door visor demand in the U.S. under its
distribution agreement with Mac Neil Automotive Products Limited.
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Increasing sales to automobile manufacturers. Approximately 96% of the
Company's sales are to automobile manufacturers. Management of the Company
believes that increased sales to automobile manufacturers can be accomplished in
two ways: (i) through increased sales of existing and new products to existing
customers; and (ii) through the addition of new customers.
The Company markets itself and its products to automobile manufacturers
primarily through personal contact by management and by sales representatives,
the distribution of written and computerized information about the Company and
its products, incentive programs and attendance at trade shows. These efforts
are aimed at increasing sales of existing products as well as obtaining
contracts for the development and sale of new products to existing and new
customers. Management is attempting to increase the Company's customer base by
personally contacting new prospects, employing more effective marketing tools,
utilizing sales representatives and utilizing its existing relationships with
domestic and import automobile manufacturers. The Company has been working with
a representative based in Japan to increase both its customer base and sales to
existing customers in Japan. The efforts of this group are augmented by a
full-time Japanese employee based at the Company's engineering department, who
performs the technical liaison function with the Japanese automobile
manufacturers. Marketing efforts in North America are supported by B/T Western
Corporation of California and Patteri Sales Inc. of Michigan, both well
established and highly respected companies in the automotive business.
Frequently, an increase in sales to automobile manufacturers is
accomplished through the development and introduction of new products. Last
year, the Company was awarded a contract by Toyota (Japan) and the first
associated shipment was made in late 1996. Since then, the Company initiated
five more joint design/development projects with Toyota (Japan). The door visor
contract with Isuzu (Japan) has been signed. In addition, Toyota (Japan) is also
evaluating door visor test samples, and management is hopeful that a contract
for door visors will result. The Company perceives the door visor project as an
effective vehicle to facilitate its entry into the Japanese door visor market.
The door visors will be manufactured using plastic injection molding technology,
which will represent a new manufacturing technique for the Company. Management
is discussing the feasibility of developing door visors for vehicles
manufactured by Honda, Nissan, and Toyota. The Company has allocated $30,000 to
research and development and an additional $162,000 to purchasing tooling and
equipment for producing prototypes of new door visor designs.
New distribution channel. Traditionally, a majority of the Company's
products were channeled to parts distribution centers of major car manufacturers
who, in turn, private labeled the parts via their dealer networks as
accessories/options for automobile buyers. The Company is attempting to create a
new distribution channel into the aftermarket through a distribution arrangement
with Mac Neil Automotive Products Limited ("Mac Neil"). Although Mac Neil is
well established in the automobile accessory aftermarket, there can be no
assurance that the Company will succeed in developing this new distribution
channel. The Company will continue to explore similar distribution opportunities
in Japan and elsewhere; however, there can be no assurance that the Company will
be successful in developing any new distribution channels.
Acrylic manufacturing. Acrylic is the single most expensive raw material
used in manufacturing the Company's products. The cost of purchasing this
material represents approximately 30% of the selling price of the Company's
products. In view of this fact, management of the Company has been investigating
manufacturing acrylic for the Company's own use. To this end, the Company has
been trying to locate a reputable technology partner and investigated the
availability of re-conditioned production equipment for acrylic. So far, neither
a technology partner nor suitable equipment have been identified. However, the
Company will continue to investigate this opportunity because management
believes that the large potential cost savings related to this strategy could be
of significant benefit to the Company. Investors are cautioned that: (i) the
Company has no experience or expertise in producing acrylic; (ii) the
possibility of manufacturing acrylic is in the investigative stage; and (iii)
management may or may not proceed with the purchase of acrylic manufacturing
equipment following the completion of its investigation.
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Possible Merger/Acquisition. Throughout the past year, the Management of
the Company actively investigated several merger/acquisition opportunities;
however, none of those investigations resulted in a merger/acquisition
opportunity for the Company. Management of the Company will continue their
efforts to identify suitable merger/acquisition opportunities. If a merger or
acquisition were to occur, it could involve the issuance of additional shares of
Common Stock of the Company which could dilute the ownership of the Company's
shareholders.
Products
The Company manufactures sunroof wind deflectors, hood protectors and rear
air deflectors for cars, light trucks and vans. The Company manufactures its
products primarily from acrylic based raw materials.
Sunroof wind deflectors. Sunroof wind deflectors reduce the noise and ear
discomfort resulting from air turbulence from open sunroofs. The Company
manufactures sunroof wind deflectors for passenger cars, sport-utility vehicles
and mini-vans equipped with electric sliding sunroofs. The Company markets its
sunroof wind deflectors in the United States, Canada, Japan and the United
Kingdom.
Hood protectors. Hood protectors are designed both to enhance the
appearance of a vehicle and to protect the windshield and hood from insects,
stones and other road debris. The Company manufactures hood protectors for
sport-utility vehicles, light-duty pickup trucks and mini-vans. The Company
markets its hood protectors in the United States, Canada and Japan.
Rear air deflectors. Rear air deflectors are mounted on the roof of a
sport-utility vehicle or mini-van over the rear hatchback door. This product is
designed to reduce dust and grime buildup on the rear window and improve
visibility. The Company manufactures rear wind deflectors for sport-utility
vehicles and mini-vans. The Company markets its rear air deflectors in the
United States and Canada.
The following table sets forth the percentage of net sales of each of the
Company's product lines for the years ended January 31, 1995, 1996 and 1997.
Fiscal year ended
January 31,
--------------------------------
Product Line 1995 1996 1997
------------ ---- ---- ----
Sunroof wind deflectors 60% 66% 54%
Hood protectors 24% 21% 31%
Rear air deflectors 16% 13% 15%
New Products. Past marketing efforts in Japan resulted in the
identification by management of a potential new product for the Company: door
visors. These are accessories which allow the use of open windows for air
circulation by keeping out rain and other elements. Management of the Company
believes that there is a significant market not only in Japan but also in the
U.S.. Last year, the Company signed an agreement with Isuzu of Japan to develop
and supply a door visor for Isuzu's heavy trucks, and management is optimistic
that door visors will become a significant product for the Company. Management
also has initiated dialogues with Dahiatsu, Honda, Nissan, Toyota and Suzuki
regarding the feasibility of developing door visors for their vehicles.
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Product Obsolescence/Design Changes. Due to automobile design changes by
automobile manufacturers, the Company's products will become obsolete and/or
require modification. Continued utilization of the Company's products by the
OEMs is substantially dependent upon the Company's ability to quickly and
reliably adjust the design of its products to conform with design changes by the
automobile manufacturers. Design changes and product obsolescence could have a
material adverse effect on the Company's profitability.
Major Customers
The Company sells principally to automobile manufacturers in the United
States, Japan, Canada and the United Kingdom. In the fiscal year ended January
31, 1997, sales in the United States accounted for approximately 72% of the
Company's sales (including sales to United States subsidiaries of foreign
automobile manufacturers). Canada accounted for 15% and Japan accounted for
11.0% of the Company's sales during the fiscal year ended January 31, 1997.
As reflected below, the Company has four customers which account for 10% or
more of the Company's sales:
<TABLE>
<CAPTION>
Percent of Company's Sales
Fiscal year ended
January 31,
------------------------------
Customer Products 1995 1996 1997
-------- -------- ---- ---- ----
<S> <C> <C> <C> <C>
Nissan Motor Corporation Sunroof wind deflectors, 32% 35% 31%
in the U.S. hood protectors and rear
air deflectors
Honda Access Corp (Japan) Sunroof wind deflectors 7% 8% 11%
General Motors Canada Hood protectors and rear 6% 6% 10%
air deflectors
Honda Access America Inc.(1) Sunroof wind deflectors 25% 25% 19%
</TABLE>
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(1) Prior to December 1994, the customer was American Honda Motor Co., Ltd.
During the fiscal year ended January 31, 1997, ten additional customers
accounted for approximately 29% of the Company's sales.
The Company believes that it has a stable relationship with its customers,
as evidenced by the fact that its four largest customers have dealt with the
Company for more than three years. If, however, the Company were to lose Nissan
Motor Corporation in the U.S., Honda Access America, General Motors Canada, or
Honda Access Corp in Japan or if these customers were to significantly reduce
their purchases from the Company, the Company's revenues, earnings and financial
position would be materially adversely affected.
The Company manufactures accessories for Nissan Motor Corporation in the
U.S., Honda Access America Inc. and General Motors of Canada on a purchase
order/invoice basis. For General Motors in the U.S., the Company has a virtual
just-in-time drop shipment program utilizing its warehouse facilities in
Bellingham, WA. The Company warrants its products to coincide with the
automobile warranty provided by the automobile manufacturer to the consumer, or
in the case of replacement parts and accessories, for the balance of the life of
the new vehicle warranty or a minimum of 12 months or 12,000 miles after the
date of installation on the vehicle, whichever is greater. The Company is
obligated to reimburse its OEM customers for all legitimate quality related
warranty claims paid by them.
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<PAGE>
Manufacturing
The Company currently manufactures and assembles its products at its plant
in Vancouver, B.C., Canada. The Company's current line of products is produced
primarily from acrylic based raw materials, using conventional thermoforming
techniques. Thermoforming involves heating a sheet of acrylic to soften it and
then molding the softened acrylic into the desired shape. Recently, the Company
developed an enhanced vacuum thermoforming process to address the Japanese
demand. Most of the product developments which the Company will undertake will
use existing technology.
The Company's manufacturing operation consists of four major functions: (i)
cutting; (ii) molding; (iii) machining; and (iv) finishing. Cutting entails
cutting the acrylic, which is purchased in large sheets, to an appropriate size
for the product being manufactured. Molding is one of the most critical
operations demanding accurate control of many parameters - tooling, feed rate,
timing, heating and cooling. The Company currently utilizes one three-station
rotary thermoformer which performs three functions simultaneously -
loading/unloading, heating and forming. The three stations rotate so that after
the machine operator loads the acrylic it passes automatically through the
heating station followed by the forming station and finally to the unloading
station without further human intervention. Next, the molded pieces of acrylic
are machined to form the blades of the wind deflector. This function is
performed primarily with computer numeric control ("CNC") routers. Finishing
consists of (i) flame polishing whereby the edges of the blades are polished by
use of a flame; (ii) stamping identifying marks on the product; (iii)
application of gasket/extrusion; (iv) labeling; (v) cleaning; and (vi) boxing.
Recently, the Company upgraded its plant/facilities by installing/implementing
dust containment equipment and complimentary operations to address the Japanese
demand and improve its competitive position elsewhere.
Management intends to manufacture the Company's door visors using plastic
injection molding techniques. Although the Company has limited experience or
expertise in plastic injection molding, management is optimistic that the
Company will be able to successfully perform plastic injection molding
activities. The plastic injection molding process consists of three phases: (i)
mold design and production; (ii) plastic injection; and (iii) finishing. Great
care must be taken in the mold design process and in the selection of materials
to produce the mold in order to create a high quality appearance of the
completed product by reducing or eliminating potential flaws such as the sinkage
of materials and irregularities in the knit line of joints. The mold-making
process takes from two to eight months, depending on the size and complexity of
the mold. Mold-making requires specialized machines and is capital intensive. It
is customary in the industry for the customer to bear the cost of producing the
molds and to own them. The completed mold is then mounted onto injection molding
machines, which are classified according to clamping force (the pressure per
square inch required to hold a mold in place during the injection molding
process). After injection molding, products are finished. Finishing consists of
smoothing and polishing, stamping identifying marks, application of
gasket/extrusion, labeling, cleaning and boxing the product.
Raw Materials and Suppliers. Acrylic is the single most expensive raw
material used in manufacturing the Company's products. The Company currently
purchases its acrylic from Acrylco Manufacturing Ltd. (a Canadian distributor
for Mitsubishi Canada Limited) and Aristech Chemical International Limited in
Florence, Kentucky. The Company does not have a long-term contract with either
of these suppliers. If the Company were to lose either of these suppliers of
acrylic, management is confident that an alternate supplier could be found,
although the number of acrylic suppliers is limited. The absence of an alternate
supplier of acrylic would have a serious adverse effect on the Company.
Management of the Company intends to continue investigating manufacturing of
acrylic for the Company's own use, and to purchase reconditioned acrylic
manufacturing equipment if management determines that it is in the best
interests of the Company to do so. See "Use of Proceeds" and "--Business
Strategy--Acrylic Manufacturing."
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The principal components purchased by the Company are extrusions (long
plastic strips used in mounting the protectors to vehicles), gaskets for sealing
deflectors on to vehicles' roofs, and corrugated boxes. Supplies of these
components are readily available from various suppliers.
Quality Assurance. Management maintains strict quality assurance procedures
for every product manufactured by the Company throughout the manufacturing
process. The Company's acrylic suppliers provide a certificate with each batch
of acrylic showing that it has been sampled for heat and other tests relative to
its production. Other incoming components are manufactured according to
specifications provided by the Company and are checked upon receipt against
these specifications by the Company's incoming inspection personnel. During the
production stage, the Company's quality assurance personnel monitor each
operation in the manufacturing process. All work in process is also checked
during the fabrication and assembly processes using operator statistical process
control procedures. The Company's culture emphasizes that quality is the
responsibility of every employee; thus, every line worker is also encouraged to
be a quality assurance inspector. After packing and before shipment, the quality
assurance personnel randomly check goods according to product specifications.
Historically, the Company's level of defective products has been low,
representing approximately 1% of annual net sales. Generally, the Company
warrants its products to coincide with the automobile warranty provided by the
automobile manufacturer to the consumer, and is obligated to reimburse the
automobile manufacturer for all legitimate quality related warranty claims paid
by it. To date, the Company's warranty expenses have been insignificant.
Management of the Company intends to register for QS-9000 quality
standards. These standards were developed by Chrysler/Ford/General Motors
Supplier Quality Requirements Task Force. Recently, the North American
automobile manufacturers shifted their supplier quality requirements to QS-9000.
In the Fall of 1996, the Company was informed about this shift by General Motors
(Canada and the U.S.) and responded by changing its focus from ISO 9000 to
QS-9000. Since then, the Company prepared, published its QS-9000 Quality Policy
Manual and submitted to General Motors (Canada), as the first step towards
certification. It must be noted that substantial effort is required to
formulate, publish and implement all of the practices mandated by QS-9000.
Management is optimistic that the Company will receive its certification before
the end of calendar 1998. However, investors are cautioned that there can be no
assurance that the Company will, in fact, be granted QS certification or that,
once granted, it will retain such certification.
Marketing and Distribution
Marketing. The Company markets itself primarily through personal contact,
the distribution of written and computerized information about the Company and
its products, incentive programs and attendance at trade shows. These functions
are primarily performed by management of the Company; however, the Company has
contracts with three sales representatives - two in the United States and one in
Japan - who have established relationships with large automobile manufacturers.
The sales representatives handle the day-to-day customer contacts. As the
Company's sales increase, the Company may hire additional personnel or may
contract with additional sales representatives if additional marketing personnel
are needed.
Management believes that the Company should attempt to strengthen its
customer base by increasing both the number of customers and the number of
products sold to each customer, by expanding into additional geographic markets
and through establishing new channels of distribution. (See " Business--Business
Strategy.") In that regard, management intends to utilize the following
promotional strategies:
- The Company's existing corporate brochure will be reviewed/updated to
include new products and processes, when necessary. A new brochure was published
in April 1997.
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<PAGE>
- A corporate and product profile is available on digital medium (i.e.,
computer disks and CD ROM). This will enable the Company to present itself and
its products more effectively using both digitized information available on
disks and CD ROMS, and on digital networks for rapid information transfer over
telephone lines anywhere on the globe, as well as demonstrating the Company's
innovative spirit. Management also intends to provide access to information on
the Company and its products through the INTERNET. The Company's web page may be
accessed at www.glasaire.com.
- Representatives of the Company will continue traveling to Japan, China,
Europe etc. to present the Company and its products to potential customers as
well as new distributors or other contacts for entering the non-dealership
after-market segment.
- The Company will continue increasing its participation in major trade
shows associated with its products.
Distribution. The Company's products are supplied to parts distribution
centers of major car manufacturers who, in turn, private label the parts via
their dealer networks as accessories/options for automobile buyers. Recently,
the Company started distribution into the U.S. aftermarket through a
distribution arrangement with Mac Neil.
The Company generally sells and ships its products "F.O.B. factory" and
most of its customers are responsible for the transportation of finished
products from the Company's factory or warehouse facility to their final
destination and bear the risk of loss during transportation.
With respect to most customers located in North America, the Company has
Electronic Data Interchange ("EDI") capability which facilitates receipt of
orders from customers and transmission of invoices to customers electronically.
After receipt of purchase orders from customers, wherever located, the Company
generally bulk-ships the ordered parts to the customers' parts distribution
centers within a mutually acceptable lead time, usually 30 days.
Research and Development and Product Design
Management believes that its product development capabilities are important
to the future success of the Company's business. The Company has four permanent
employees engaged in research and development at its Vancouver facility. In
addition, the Company contracts out the Company's research and development
function to a research and development company which employs four permanent
research and development professionals who work on the Company's projects.
During the fiscal years ended January 31, 1995, 1996 and 1997, the Company spent
approximately $83,775, $264,856 and $395,099, respectively, towards research and
development. The increase in research and development costs from 1995 to 1997
resulted from increased research and development activities asociated with
development of new products and improvements to existing products. Management
expects that this trend of increased spending on research and development
activities will continue. In addition, management has allocated funds for the
purchase of computer aided design software and related hardware which will
facilitate the electronic transfer of technical data and drawings between the
Company and engineering departments of the Company's OEM customers. This
software is expected to increase the efficiency of the Company's research and
development function and to simplify the engineering process. As the Company's
customers are principally automobile manufacturers, the major responsibility of
the product design personnel is to produce designs to the satisfaction of and in
accordance with the specifications developed with or provided by the automobile
manufacturers. The Company's cycle time for product development is relatively
short, ranging from three to six months.
When the design of a vehicle model changes configuration, the Company must
retool its products to insure proper fit of its products. Although frequent
model or configuration changes would increase the Company's costs, tooling costs
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generally are not substantial and frequently may be passed on to the customer,
often over a two year period. However, investors are cautioned that continued
utilization of the Company's products by the OEMs as well as the aftermarket is
substantially dependent upon the Company's ability to quickly and reliably
adjust the design of its products to conform with design changes by the
automobile manufacturers and that design changes and product obsolescence could
have a material adverse effect on the Company's profitability.
Competition
The Company has several competitors which have substantially greater
technical, financial and marketing resources than the Company. The Company's
major competitor in the sunroof wind deflector market remain to be Mascotech of
the U.S. In the hood protector market, its major competitor is still
Deflecta-Shield and in the rear air deflector market it is Jac Products.
Management believes that the principal competitive factors in the
automobile accessories industry, in order of importance, are quality, customer
service and price. Management of the Company believes that the Company can
effectively compete with its competitors because of the high quality of the
Company's products and its commitment to customer service and product
innovation.
Seasonality
The Company's products are not subject to significant seasonal variation.
The Company's backlog as of any given date is not a meaningful measure of the
Company's future business because the Company's customers generally require
rapid shipment of orders.
Employees
As of January 31, 1997, the Company employed 37 production workers, four
research and development personnel, two clerical/administrative staff and six
management staff members. In addition, the Company has a contract with a
research and development company which four engineers and technologists for the
Company's projects.
The Company attempts to maintain amiable and communicative relations with
its employees. The Company is not a party to any labor contracts or collective
bargaining agreements. The Company has experienced no labor stoppages in recent
years and management believes that relations with its employees are
satisfactory. The Company believes there is an adequate supply of suitable labor
available.
Item 2 - Properties
The Company currently sub-leases 15,744 square feet of factory, warehouse
and office space located at 3137 Grandview Highway, Vancouver, B.C., Canada V5M
2E9 and leases an additional 6,033 square feet located at 3147 Grandview
Highway, both from unaffiliated parties. The lease and sub-lease for those
facilities provide for an aggregate base rent in the amount of CDN$9,325 per
month through September 30, 1996 and CDN$9,779 per month from October 1, 1996
through September 30, 1997. The lease and sub-lease both expire on September 30,
1997. The lease and the sub-lease are both triple net leases, and the Company is
responsible for its share of common area expenses and maintenance. The Company
has an option to renew both the lease and the sub-lease for further two-year
terms through September 30, 1999.
The Company also rents 5,000 square feet of warehouse space in Bellingham,
Washington, at a rental of US$1,800 per month. This facility is used primarily
for warehousing products for distribution to certain US customers. The lease on
the property expired on March 31, 1994 and the property is currently being
-9-
<PAGE>
rented on a month-to-month basis, without a written rental agreement. Effective
April 1, 1997, the Company entered into a sublease arrangement with Mac Neil for
twenty-five percent (25%) of the space in this warehouse for products
manufactured for Mac Neil by third parties. Part of this sublease arrangement is
handling of these third party products by the Company.
These facilities are adequate for the Company's present level of business;
however, in order to accommodate the full projected increase in the Company's
sales, management anticipates acquiring additional manufacturing space either by
leasing additional space in the current facilities or by moving to a larger
facility within the next 2 years.
Patents, Trademarks, Licenses, Franchises, Concessions or Royalty Agreements
The Company does not hold any patents on any of its products, nor does it
have any licenses, trademarks, franchises, concessions or royalty agreements.
Government/Environmental Regulation
The Company is subject to various federal, provincial and local
environmental laws and regulations. Management believes that the company's
operations currently comply in all material respects with applicable laws and
regulations. Management of the Company believes that the trend in environmental
litigation and regulation is toward stricter standards, and that these stricter
standards may result in higher costs for the Company and its competitors. Such
changes in the law and regulations may require the company to make additional
capital expenditures which, while not presently estimable with certainty, are
not presently expected to be material to the Company. Costs for environmental
compliance and waste disposal have not been material to the Company in the past.
Item 3 - Legal Proceedings
- --------------------------
The Company is not aware of any material pending litigation to which the
Company is or may be a party, nor is it aware of any pending or contemplated
proceedings against it by governmental authorities. The Company knows of no
legal proceedings pending or threatened, or judgments entered against, any
director or officer of the Company, or legal proceeding to which any director,
officer or security holder of the Company is a party adverse to, or has a
material interest adverse to, the Company.
Item 4 - Submission of Matters To a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted by the Company to a vote of the Company's
shareholders through the substitution of proxies or otherwise, during the fourth
quarter of the fiscal year covered by this report.
PART II
-------
Item 5 - Market For Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
The Company's Common Stock is traded in the over-the-counter market on the
NASDAQ SmallCap Market under the symbol "GLAR" and on the Pacific Stock Exchange
under the Symbol GLA.
The table set forth below presents the range, on a quarterly basis, of high
and low bid prices per share of Common Stock as reported by the National
Quotation Bureau, Inc.
-10-
<PAGE>
Quarter Ended High Bid Low Bid
------------- -------- -------
Fiscal 1997
May 2 thru July 31, 1996 $5.00 $2.875
August 1 thru October 31, 1996 3.25 2.375
November 1 thru January 31, 1997 2.875 1.50
The closing bid price of the Common Stock as of January 31, 1997, was
$1.625 per share. As of January 31, 1997, the Company had approximately 30
shareholders of record and estimates that its Common Stock was beneficially
owned by in excess of 610 shareholders based upon ownership in " street name."
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors out of funds legally available therefore. No
dividends have been declared to date by the Company, nor does the Company
anticipate declaring and paying cash dividends in the foreseeable future.
Item 6 - Selected Financial Data
- --------------------------------
The selected financial information set forth below is derived from the
audited consolidated financial statements of the Company, which are prepared in
accordance with generally accepted accounting principles in the United States of
America and stated in United States dollars. The consolidated financial
statements at January 31, 1996 and 1997 and for the fiscal years ended January
31, 1995, 1996 and 1997 have been audited by BDO Dunwoody, Chartered
Accountants, and appear elsewhere herein. The selected consolidated financial
data is qualified in its entirety by reference to, and should be read in
conjunction with, the Consolidated Financial Statements, related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
-11-
<PAGE>
<TABLE>
<CAPTION>
As of January 31,
---------------------------------------------
Balance Sheet Data 1996 1997
---- ----
(In thousands of United States dollars, except share data)
<S> <C> <C>
Working capital $ 900 $ 3,059
Total assets 2,625 4,865
Long-term debt --- ---
Obligation under capital lease 64 0
Deferred income taxes 131 188
Shareholders' equity 1,464 4,092
Year ended January 31,
---------------------------------------------
Income Statement Data 1995 1996 1997
---- ---- ----
Sales $ 4,057 $ 4,192 $ 4,316
Cost of sales 2,407 2,742 3,028
------ ----- -----
Gross profit 1,650 1,450 1,288
Research and development 84 265 395
Selling and distribution 175 326 282
General and administrative 511 503 414
Provision for profit sharing 83 32 23
Interest 52 16 (62)
------- ------- --------
Income before income taxes 745 308 236
Income taxes 271 123 126
------ ------ ------
Net income per share $ 0.25 $ 0.20 $ 0.80
======== ======== ========
Net income $ 474 $ 185 $ 110
======== ======== ========
Weighted average number of
shares outstanding 913,095(1) 921,890 1,426,038
</TABLE>
- -----------
(1) Adjusted to retroactively reflect the 0.65-share and 0.493-share stock
dividends declared by the Company on September 26, 1995 and October 27,
1995, respectively. Not adjusted to retroactively reflect the
re-acquisition by the Company of 4,192 shares of Common Stock in August
1995.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
Overview
The Company derives its revenues from the sale of automotive accessories
manufactured by it. The Company's sales increased from $4,057,205 for the fiscal
year ended January 31, 1995, to $4,191,581 for the fiscal year ended January 31,
1996, to $4,316,372 for the fiscal year ended January 31, 1997. The Company had
net income of $473,903 in the fiscal year ended January 31, 1995, with a
decrease to $184,584 in net income for the fiscal year ended January 31, 1996,
and a decrease to $109,800 in net income for the fiscal year ended January 31,
1997. Gross profit margins decreased by 6.1 percentage points, from 40.7% for
the fiscal year ended January 31, 1995, to 34.6% for the fiscal year ended
January 31, 1996, and to 29.8% for the fiscal year ended January 31, 1997, due
to increased expenses; however, management believes that it will be able to
increase gross profit and net income in future periods by increasing the
Company's production capacity and production efficiency. Increased revenue in
future periods will depend on the Company's ability to strengthen its customer
base through the development of new products, increasing the number of customers
and expanding into additional geographic markets and distribution channels,
while maintaining or increasing sales of its existing products to current
customers. Management intends to increase production capacity and production
-12-
<PAGE>
efficiency through the purchase of additional equipment and machinery.
Management of the Company intends to investigate manufacturing acrylic for the
Company's own use, and to purchase acrylic manufacturing equipment if management
determines that it is in the best interests of the Company to do so. Management
believes that it may be able to significantly reduce its raw materials costs by
manufacturing its own acrylic. Investors are cautioned that the possibility of
manufacturing acrylic is in the investigative stage and management may or may
not proceed with the purchase of acrylic manufacturing equipment following the
completion of its investigation. Investors are further cautioned that there can
be no assurance that gross profit and net income will, in fact, increase in
future periods. See "Use of Proceeds" and "Business--Business Strategy."
Results of Operations
The following table sets forth selected income data as a percentage of net
sales for the periods indicated.
Year ended January 31,
----------------------------------------
1995 1996 1997
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 59.3 65.4 70.2
----- ------ ------
Gross profit 40.7 34.6 29.8
Research and development 2.1 6.3 9.2
Selling and distribution 4.3 7.8 6.5
General and administrative 12.6 12.0 9.6
Provision for profit sharing 2.0 0.8 0.5
Interest 1.3 0.4 (1.4)
----- ----- -----
Income before income taxes 18.4 7.3 5.5
Income taxes 6.7 2.9 2.9
----- ----- -----
Net income 11.7 4.4 2.5
==== ===== =====
Year Ended January 31, 1997 Compared to Year Ended January 31, 1996
Sales. The Company's sales increased by 3% from $4,191,581 for the year
ended January 31, 1996, to $4,316,372 for the year ended January 31, 1997. This
increase resulted primarily from the addition of new customers. Revenues from
the Company's four major customers accounted for approximately 71% of the
Company's sales during the year ended January 31, 1997.
Gross Profit. Gross profit margins, expressed as a percentage of sales,
decreased from 34.6% for the year ended January 31, 1996, to 29.8% for the year
ended January 31, 1997. This net decrease of 4.8% was due primarily to (1)
increase in material cost of 1.8%, and (2) increase in labor cost of 3% due to
the unproductive labor hours consumed, in implementing the new vacuum
thermoforming plus CNC trimming technologies on the factory floor.
Research and Development. Expenses for research and development increased
by 49% from $264,856 for the year ended January 31, 1996, to $395,099 for the
year ended January 31, 1997. This increase was primarily due to increased
utilization of the Company's Engineering department for R&D activities.
Selling and Distribution. Selling and distribution expenses decreased by
13.7%, from $326,490 for the year ended January 31, 1996, to $281,669 for the
year ended January 31, 1997. This decrease was primarily due to decreased travel
expenses, decreased advertising and promotion, and decreased freight charges.
-13-
<PAGE>
General and Administrative. General and administrative expenses decreased
by 17.7% from $503,030 for the year ended January 31, 1996, to $414,174 for the
year ended January 31, 1997, primarily as a result of the implementation 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 for the use of those systems.
Provision for Profit Sharing. Provision for profit sharing decreased by
27.7% from $32,516 for the year ended January 31, 1996, to $23,498 for the year
ended January 31, 1997. This lower profit was a result of lower profitability of
the Company.
Interest. Interest income (net of interest expense) increased from
($15,732) for the year ended January 31, 1996, to $61,354 for the year ended
January 31, 1997, primarily as a result of interest earned on cash deposits
obtained from the public offering.
Income before Income Taxes. Before income taxes, the Company's income
decreased from $307,557 for the year ended January 31, 1996, to $235,318 for the
year ended January 31, 1997.
Income Taxes. The Company provided for income taxes of $122,973 for the
year ended January 31, 1996, and $125,518 for the year ended January 31, 1997.
The Company's effective tax rate in 1997 was 53% as a result of additional taxes
paid during 1997 related to Revenue Canada's reassessment of the Company's 1994
and 1995 income taxes. The additional tax expensed by the Company in 1997 was
$21,500. The reassessments resulted in certain income tax credits related to the
Company's research and development expenditure being disallowed. Management is
contesting this reassessment because management believes that the credits taken
were appropriate. In the meantime, the additional taxes have been paid in order
to stop the accrual of interest and penalties as this matter is being contested
by the Company.
Net Income. Net income decreased from $184,584 for the year ended January
31, 1996, to $109,800 for the year ended January 31, 1997.
Year Ended January 31, 1996 Compared to Year Ended January 31, 1995
Sales. The Company's sales increased by 3.31% from $4,057,205 for the year
ended January 31, 1995, to $4,191,581 for the year ended January 31, 1996. This
increase resulted primarily from a special promotional program by one of the
Company's customers which increased the Company's sales in spite of a general
slowdown experienced by the automobile industry in the first part of 1995 and a
trade dispute between the United States and Japanese governments. Revenues from
the Company's two major customers accounted for approximately 60.5% of the
Company's sales during the year ended January 31, 1996.
Gross Profit. Gross profit margins, expressed as a percentage of sales,
decreased from 40.7% for the year ended January 31, 1995, to 34.6% for the year
ended January 31, 1996 due to an increase in value of the Canadian dollar which
diminished the exchange rate benefit reflected in the gross profit margin of the
Company for the prior fiscal year and due to the higher cost of raw materials.
Research and Development. Expenses for research and development increased
by 216% from $83,775 for the year ended January 31, 1995, to $264,856 for the
year ended January 31, 1996 primarily as a result of the recognition by the
Company during the fiscal year ended January 31, 1995 of an investment tax
credit related to research and development and an increase in the number of
research and development projects and in the complexity of those projects.
-14-
<PAGE>
Selling and Distribution. Selling and distribution expenses increased by
86%, from $175,361 for the year ended January 31, 1995, to $326,490 for the year
ended January 31, 1996. This increase was primarily due to new market
development costs and the hiring of additional sales representatives.
General and Administrative. General and administrative expenses decreased
by 1.6% from $511,182 for the year ended January 31, 1995, to $503,030 for the
year ended January 31, 1996, primarily as a result of additional management and
rental income received.
Provision for Profit Sharing. Provision for profit sharing decreased by 61%
from $82,968 for the year ended January 31, 1995, to $32,516 for the year ended
January 31, 1996 due to lower income in fiscal year 1996.
Interest. Interest expense decreased by 70% from $52,450 for the year ended
January 31, 1995 to $15,732 for the year ended January 31, 1996 as a result of
the reduction of bank indebtedness.
Income before Income Taxes. Before income taxes, the Company's income
decreased from $744,671 for the year ended January 31, 1995, to $307,557 for the
year ended January 31, 1996. This decrease in income resulted primarily from the
lower profit margin and higher research and development and selling and
distribution expenses.
Income Taxes. The Company provided for income taxes of $270,768 for the
year ended January 31, 1995, and $122,973 for the year ended January 31, 1996.
The reduction in income taxes reflected the lower taxable income.
Net Income. Net income decreased from $473,903 for the year ended January
31, 1995, to $184,584 for the year ended January 31, 1996 primarily as a result
of the lower profit margin and higher research and development and selling and
distribution expenses.
Liquidity and Capital Resources
The Company has traditionally relied on internally generated funds and
short-term bank borrowings to finance its operations and expansion, although
capital expenditures have been partly financed by long-term debt. The Company
received net proceeds from a public offering amounting to $2,773,000 in May
1996.
The Company has in place a demand revolving credit facility in the
principal amount of CDN$1,000,000 with a financial institution. As of January
31, 1997, the Company owed $110,100 on its credit facility. Interest on this
indebtedness equals the Canadian prime rate plus 1/2%. The credit facility is
secured by accounts receivable, inventories, certain equipment and other assets
of the Company and an unlimited guarantee by the Company and its subsidiary,
Glas-Aire Industries Ltd. The credit facility was renewed in December 1996 for a
one-year period. During the fiscal year ended January 31, 1997, the Company paid
a total of $7,384 in interest. The amount of total short-term borrowings
outstanding at January 31, 1997 and 1996 was $110,100 and $255,926,
respectively.
Working capital was $3,059,351 at January 31, 1997. The increase in working
capital was the result of completion of the Company's public offering in May
1996. For the year ended January 31, 1997, net cash used in operating activities
totaled $884,363 including net income of $109,800, depreciation of $110,480, and
a net change in non-cash working capital of $1,162,587. Term deposits increased
by $1,000,000 and accounts receivable increased by $64,916 primarily due to the
increase in sales at the end of January 1997. Inventories decreased by $61,435
due to lower purchases prior to year end. Accounts payable decreased by $51,268
because of lower purchases just prior to year end. Net cash generated from
operations total $84,684 for the year ended January 31, 1996, including net
-15-
<PAGE>
income of $184,584 and a depreciation of $87,470. Accounts receivable decreased
by $151,106 primarily due to improved collections. Inventories increased by
$320,149 as a result of the buildup of raw materials just prior to the period
end in anticipation of future sales. Accounts payable increased by $47,702
because of higher purchases just prior to year end.
Net cash from financing activities was $2,234,846 for the year ended
January 31, 1997, primarily due to the completion of the Company's public
offering which yielded net proceeds of $2,652,699, decrease in bank indebtedness
of $145,827, the repayment of long term debt of $27,304, capital lease buy out
of $97,246, and repurchase of tshares for $147,476.
Net cash used in investing activities amounted to $573,861 for the year
ended January 31, 1997, was primarily due to the purchase of fixed assets. Net
cash used in investing activities amounted to $137,226 and $234,530 for the
years ended January 31, 1996 and 1995, respectively. Capital expenditures during
the year ended January 31, 1997 totaled $586,305 and were financed primarily by
the funds received from the public offering. Capital expenditures during the
years ended January 31, 1996 and 1995 totaled $188,197 and $256,194,
respectively, and were financed primarily by the bank line of credit.
The Company expects that working capital requirements and capital additions
will continue to be funded through a combination of the proceeds of the public
offering completed in May 1996, internally generated funds, and existing bank
facilities and capital leases. The Company's working capital requirements are
expected to increase in line with the growth of the Company's business, and it
either has or will generate sufficient working capital to meet the Company's
requirements during this fiscal year.
Impact of Inflation
The Company believes that inflation has not had a material effect on its
business. Although the cost to the Company of certain raw materials used in the
manufacture of its products, primarily acrylic, has increased over the past few
years, the Company has been able to increase the prices of its products
accordingly.
Exchange Rates
The Company sells most of its products to international customers. The
Company's principal markets are the United States and Japan. The Company sells
most of its products in United States dollars, but pays for its material
components and labor principally in Canadian dollars. The Company has never
engaged in exchange rate hedging activities and management does not believe that
such activities are necessary. Management will continue to evaluate this issue
and, if management deems it necessary in the future, it may implement some
hedging techniques to minimize the Company's foreign exchange exposure.
Exchange rates between the United States and Canadian dollar for the fiscal
years ended January 31, 19945, 1996 and 1997, including the average exchange
rate for the period, are as follows:
Fiscal year ended Average Exchange Rate
January 31, Exchange Rate for Period
----------------- ------------- ---------------------
1997 1.U.S.$:1.3470 Cdn.$ 1 U.S.$:1.3625 Cdn.$
1996 1 U.S.$:1.3734 Cdn.$ 1 U.S.$:1.3685 Cdn.$
1995 1 U.S.$:1.4022 Cdn.$ 1 U.S.$:1.3736 Cdn.$
-16-
<PAGE>
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
Included at pages F-1.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
------------------------------------------------------------------------
The Company has not had any reported or material disagreement with its
accountants on any matter of accounting principles, practices or financial
statement disclosure.
PART III
Item 10 - Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The directors, executive officers, and one of the key employees of
Glas-Aire Industries Group Ltd. are as follows:
-17-
<PAGE>
Name Age Position
---- --- --------
Edward Ting 49 Chief Executive Officer and Chairman
of the Board of Directors
Alex Yie Wie Ding 37 President, Chief Opera;ting Officer
and Treasurer and Director
Omer Esen 54 General Manager, Chief Financial Officer
Linda Kwan 51 Financial Controller
Chris G. Mendrop 45 Director
Robert J. Patteri 57 Director
Edward Ting. Mr. Ting has served as Chief Executive Officer and Chairman of
the Board of Directors of the Company since inception. From September 1992 to
February 1995, Mr. Ting also served as President of the Company. Since March
1988, Mr. Ting also has served as President, Chief Executive Officer and a
director of Electrocon International Inc., a publicly traded, Hong Kong-based
holding company that conducts operations through its subsidiaries in two
separate business segments - the distribution of semi-conductor products
(primarily computer chips) to small and medium-sized manufacturers located in
Hong Kong and the People's Republic of China, and the distribution of golf
carts, irrigation products and systems, fertilizer and turf equipment to golf
clubs in Hong Kong, Macao and the People's Republic of China. As President and
Chief Executive Officer of Electrocon, Mr. Ting is responsible for the overall
management, strategy and direction of that company. Mr. Ting is the brother of
Alex Yie Wie Ding. Mr. Ting intends to devote an average of 20 hours per month
to the Company's business.
Alex Yie Wie Ding. Mr. Ding has served as the General Manager, Chief
Operating Officer and a director of the Company since inception and has served
as President of the Company since February 1995. As of November 1, 1996 he also
assumed the responsibility of Chief Operating Officer and Treasurer. He is
responsible for the overall management, strategy and direction of the Company
and its subsidiaries and supervises all senior officers and managers of the
Company who report directly to him. Mr. Ding's responsibilities include advising
senior staff, as well as manufacturer representative agencies, on a variety of
management procedures, methods and techniques; research, analysis and evaluation
of major projects and programs; planning and directing operations; supervising
senior staff in personnel administration, production schedules, inventory
control, quality assurance and customer and warranty services to OEMs; assisting
with financial analysis and preparation of budgets and forecasts; attending
trade shows; serving as liaison with OEM customers; and sales and marketing
functions. Mr. Ding also serves on the boards of Better Business Bureau of the
lower mainland of British Columbia as well as Sunbrite Business Association.
From September 1988 to June 1991, Mr. Ding was General Manager of Hing Wor
Inc., a clothing manufacturer. Mr. Ding has a Bachelors degree in Civil
Engineering and a post-graduate diploma in management (MBA Level 1), both from
McGill University. Mr. Ding is the brother of Edward Ting.
Omer Esen. Mr. Esen has served as Vice President of Operations for the
Company since February 1995, assumed the position of Chief Financial Officer on
November 1, 1996, and recently was appointed as the General Manager. In that
position, Mr. Esen plans, organizes, directs and controls all operations
including production, research and development, customer service,
purchasing/inventory control, shipping/receiving and quality assurance. He also
develops and installs computerized business systems and interacts with various
-18-
<PAGE>
government agencies to procure funding for export and other activities. From
June 1992 until February 1995, Mr. Esen was employed as Vice President of
Operations for West Bay Sonship Yachts Ltd. In that position, he developed and
installed various computerized business control systems and interfaced with
various levels of government to procure funding for the acquisition of new
capital resources.
From January 1988 until June 1992, Mr. Esen was employed as Director of
Operations for DBA Communication Systems Inc. Mr. Esen holds a Bachelors degree
in Electrical Engineering from Faraday House Engineering College, University of
London, in London, England and a diploma in Business Administration from the
University of British Columbia.
Linda Kwan. Ms Kwan has served as the Company's Accounting Manager from
March 1995 until November 1996 at which time she was appointed as the Financial
Controller. Ms. Kwan is a member of the Certified Management Accountants of
Canada. From October 1992 to March 1995, Ms. Kwan provided accounting consulting
services to a number of businesses and individuals. From May 1983 to March 1992,
Ms. Kwan was employed by York-Hannover Developments, Ltd. ("York-Hannover") in
various positions. Her last position with York-Hannover was as its Controller.
Ms. Kwan is a graduate of Hong Kong Technical College and holds a Diploma in
Commercial Business and Accounting from that institution.
Chris G. Mendrop. Mr. Mendrop has been a director of the Company since its
inception. He has been Chief Executive Officer of Corporate Development Capital,
Inc., an investment advisory and financial consulting firm located in Denver,
Colorado, since July 1992. From December 1990 until its sale in December 1992,
Mr. Mendrop was a principal of Asset Income Securities, Inc., a NASD member
broker-dealer which provided financial consulting and placement agent services
to alternate credit companies seeking asset securitization to access the capital
markets. From May 1990 to July 1992, he served as Corporate Secretary to Western
Acceptance Corporation, in which position he guided that company in financial
policy and assisted in capital raising, in the development of the first
insurance premium securitized financing in the country and other asset-backed
financings. Mr. Mendrop holds a Bachelor of Science degree in Economics from
Colorado State University and a Masters of Business Administration degree in
Finance from the University of Colorado.
Robert J. Patteri. Mr. Patteri was appointed a member of the Board of
Directors in April 1996. Mr. Patteri is currently serving on the SEMA Board of
Directors as Chairman of the SEMA Educational Services Committee and he also has
served on the SEMA Long Range Strategic Planning Committee. For the past 15
years he has been the owner of R. J. Patteri & Associates, Inc., an automobile
industry aftermarket representation agency and consulting firm. Mr. Patteri has
sold his ownership interest in this company to several employees of R.J. Patteri
& Associates, Inc.; however, he is continuing to consult with that company. In
addition, Mr. Patteri is the owner of Patteri Sales, Inc., an OEM representation
agency, and he devotes a substantial portion of his time to that business. Over
the years Mr. Patteri has directed the sales and marketing of three automotive
aftermarket manufacturers, an industrial distribution company and an import
company and has managed a regional financial services office. Mr. Patteri's
seminars on motivation, enthusiasm and sales have been presented to numerous
automotive companies such as NAPA, General Motors, Auto Value, and Northwood
University. Mr. Patteri attended Northwestern University, the University of
Chicago and holds a degree in Business from Western Illinois University.
The directors of the Company are elected annually and serve until their
successors take office or until their death, resignation or removal. The
executive officers serve at the pleasure of the Board of Directors.
Pursuant to the Underwriting Agreement between the Company and the
Representative, the Representative may, in its discretion, designate one person
to either serve on the Board of Directors of the Company or to attend Board of
Directors meetings as an observer. The Representative has not yet designated
such person.
-19-
<PAGE>
Item 11 - Executive Compensation
- --------------------------------
The following table summarizes all compensation paid to the Chief Executive
Officer and the President of the Company for services rendered to the Company
during the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation
Name -------------------------------------------------
and Fiscal year Other
principal ended annual
position January 31, Salary Bonus compensation
-------- ----------- ------ ----- ------------
<S> <C> <C> <C> <C>
Edward Ting 1997 $ 0 $ 6,801 $ 48,000(1)
Chief Executive Officer, 1996 $ 0 $ 30,350 $ 40,000(1)
Chairman of the Board 1995 $ 0 $ 0 $ 44,691(1)
Alex Y.W. Ding 1997 $ 49,357 $ 6,801 0
President, Chief Operating Officer 1996 $ 45,600 $ 25,263 0
1995 $ 3,700(2) $ 0 $ 33,500(2)
Chris G. Mendrop
Director 1997 $ 0 $ 0 $ 12,000(3)
</TABLE>
- -------------
(1) Represents consulting fees paid by the Company to Mr. Ting. During the
fiscal year ended January 31, 1997, Mr. Ting was paid a consulting fee of
$4,000 per month for ten months and the amount of $30,350 pursuant to the
Company's profit sharing program described below.
(2) Represents consulting fees paid by the Company to Mr. Ding prior to January
1995.
(3) Represents consulting fees paid by the Company to Mr. Chris G. Mendrop
during the fiscal year ended January 31, 1997.
Employment Agreements. Effective February 1, 1996, the Company entered into
employment agreements with Edward Ting, Alex Ding and Omer Esen. The agreements
are for two year terms. Under those employment agreements, Messrs. Ting, Ding
and Esen are entitled to base annual compensation of $48,000(US), $47,877(US)
and $46,036(US), respectively. Messrs. Ding and Esen are paid in Canadian
dollars and the US dollar figures in the preceding sentence are based upon
conversion at the average exchange rate during the year. In addition, Messrs.
Ting, Ding and Esen were paid bonuses of $6,801(US), $6,801(US) and $4,250(US),
respectively, for the fiscal year ended January 31, 1997. Messrs. Ding and Esen
will be paid in Canadian dollars, and the exchange rate has been calculated
based upon the exchange rate referred to above. In addition to base compensation
and the minimum bonuses as provided in the agreements, Messrs. Ting, Ding and
Esen will be entitled to participate in the profit sharing program described
below.
Directors. Directors are not compensated for their services as directors;
however, they are reimbursed for all reasonable expenses incurred in connection
therewith.
Profit Sharing Program. Rather than paying its executives high salaries,
management believes it desirable to provide incentives through a profit sharing
program. Accordingly, in 1994, the Company adopted a profit sharing program
which provides that an amount equal to 10% of the Company's income before income
taxes and provision for profit sharing may be distributed to officers and
employees of the Company. The first distributions pursuant to the plan,
aggregating approximately $83,000, were made in April 1995, based on the net
income of the Company for the fiscal year ended January 31, 1995. The Board of
Directors of the Company has adopted an amendment to the profit sharing program
-20-
<PAGE>
under which the maximum amount that can be distributed under the program in any
one fiscal year is $100,000. Distributions under the plan for the fiscal year
ended January 31, 1997, aggregated approximately $23,498.
Option Plans. The Board of Directors of the Company has adopted an
Incentive Stock Option Plan (the "Qualified Plan") which provides for the grant
of options to purchase an aggregate of not more than 160,000 shares of the
Company's Common Stock. The purpose of the Qualified Plan is to make options
available to management and employees of the Company in order to provide them
with a more direct stake in the future of the Company and to encourage them to
remain with the Company. The Qualified Plan provides for the granting to
management and employees of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code").
The Board of Directors of the Company has adopted a Non-Qualified Stock
Option Plan (the "Non-Qualified Plan") which provides for the grant of options
to purchase an aggregate of not more than 160,000 shares of the Company's Common
Stock. The purpose of the Non-Qualified Plan is to provide certain key
employees, independent contractors, technical advisors and directors of the
Company with options in order to provide additional rewards and incentives for
contributing to the success of the Company. These options are not incentive
stock options within the meaning of Section 422 of the Code.
The Qualified Plan and the Non-Qualified Plan (the "Stock Option Plans")
will be administered by a committee (the "Committee") appointed by the Board of
Directors which determines the persons to be granted options under the Stock
Option Plans and the number of shares subject to each option. No options granted
under the Stock Option Plans will be transferable by the optionee other than by
will or the laws of descent and distribution and each option will be
exercisable, during the lifetime of the optionee, only by such optionee. Any
options granted to an employee will terminate upon his ceasing to be an
employee, except in limited circumstances, including death of the employee, and
where the Committee deems it to be in the Company's best interests not to
terminate the options.
The exercise price of all incentive stock options granted under the
Qualified Plan must be equal to the fair market value of such shares on the date
of grant as determined by the Committee, based on guidelines set forth in the
Qualified Plan. The exercise price may be paid in cash or (if the Qualified Plan
shall meet the requirements of rules adopted under the Securities Exchange Act
of 1934) in Common Stock or a combination of cash and Common Stock. The term of
each option and the manner in which it may be exercised will be determined by
the Committee, subject to the requirement that no option may be exercisable more
than 10 years after the date of grant. With respect to an incentive stock option
granted to a participant who owns more than 10% of the voting rights of the
Company's outstanding capital stock on the date of grant, the exercise price of
the option must be at least equal to 110% of the fair market value on the date
of grant and the option may not be exercisable more than five years after the
date of grant. The exercise price of all stock options granted under the
Non-Qualified Plan must be equal to at least 80% of the fair market value of
such shares on the date of grant as determined by the Committee, based on
guidelines set forth in the Non-Qualified Plan.
Compliance with Section 16(a) of the Exchange Act
The Company has received representations from each other person that served
during fiscal 1996 as an officer or director of the Company confirming that
there were no transactions that occurred during the Company's most recent fiscal
year end which required the filing of a Form 5.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
- -------------------------------------------------------------------------
-21-
<PAGE>
The following table sets forth as of January 31, 1997, the beneficial
ownership of the Company's Common Stock by each person known to the Company to
own beneficially more than 5% of the Company's Common Stock and by the officers
and directors of the Company, individually and as a group. Unless otherwise
stated below, each such person has sole voting and investment power with respect
to all such shares of Common Stock.
<TABLE>
<CAPTION>
Amount and
Name and Address of Nature of
Beneficial Owner Beneficial Ownership Percent of Class(1)
---------------- -------------------- -------------------
<S> <C> <C>
Alex Ding
3137 Grandview Highway
Vancouver, B.C.,
Canada V5M 2E9 295,808(2) 18.3%
397568 B.C. Ltd.
3137 Grandview Highway
Vancouver, B.C.,
Canada V5M 2E9 283,108 17.6%
Edward Ting
21045 Comer Drive
Saratoga, California 95070 191,584(3) 11.88%
Viola Ting
21045 Comer Drive
Saratoga, California 95070 138,729 8.6%
Chris G. Mendrop
1860 Blake Street
Denver, Colorado 80202 24,917(5) 1.5%
Omer Esen
3137 Grandview Highway
Vancouver, B.C.
Canada V5M 2E9 247 0.0%(6)
Directors and executive officers
as a group (7 persons) 512,551(2)(3) 38.8%
</TABLE>
- -------------
(Footnotes on following page)
(1) Excludes (i) 102,000 shares of Common Stock issuable upon exercise of the
Representative's over-allotment option issued in connection with the public
offering completed in May 1996; (ii) 30,794 shares of Common Stock issuable
upon exercise of the Prior Underwriter's Warrants; (iii) 68,000 shares of
Common Stock issuable upon exercise of the Representative's Warrants to be
issued in conjunction with this offering; and (iv) 320,000 shares of Common
Stock reserved for issuance under the Company's Stock Option Plans. See
"Market for Common Equity and Related Stockholder Matters--Common Stock
Outstanding or Reserved for Issuance," "Concurrent Sales by Selling
Warrantholder," "Description of Securities--Prior Underwriter's Warrants,"
"Underwriting--Representative's Warrants" and "Management--Executive
Compensation--Option Plans."
-22-
<PAGE>
(2) Includes 283,108 shares owned of record by 397568 B.C. Ltd., a company
which is owned by Mr. Ding.
(3) Includes 138,729 shares owned of record by Viola Ting, the wife of Edward
Ting.
(4) Includes 32,155 shares owned of record by Dr. Bajaj's wife, which shares
may be deemed to be beneficially owned by Dr. Bajaj.
(5) Includes 9,519 shares owned of record by Corporate Development Capital,
Inc., a company controlled by Mr. Mendrop and one other individual.
(6) Represents less than 1%.
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
Certain Transactions
In May 1991, a company owned by Alex Yie Wie Ding acquired 48.97% of the
outstanding shares of Multicorp from an unaffiliated party and incurred an
installment purchase obligation in the amount of CDN$375,000 with respect to the
purchase. Multicorp has made advances to Mr. Ding's company which correspond to
the company's payment obligations under the installment purchase. In December
1992, prior to the exchange of the Company's stock with the stockholders of
Multicorp under which the Company acquired 100% of the outstanding capital stock
of Multicorp, Multicorp declared a dividend on the shares owned by Mr. Ding's
company in the amount of CDN$375,000. Mr. Ding's company then repaid the
advances previously paid to it in the amount of CDN$75,000 and made a loan to
the Company in the amount of CDN$300,000. The repayment schedule under the loan
corresponds to the repayment schedule under the installment purchase obligation
incurred by Mr. Ding's company to the former stockholder of Multicorp. In
essence, the Company has assumed the payment obligation to the former
stockholder of Multicorp. The loan from Mr. Ding's company was repaid in full
(including $26,745 of principal) during the year ended January 31, 1997.
In May 1994, the Company made a loan in the principal amount of $300,000 to
a company controlled by Edward Ting, the Chairman of the Board of Directors and
Chief Executive Officer of the Company. The loan was not evidenced by a written
agreement or promissory note, but bore interest at the rate of 9% per annum. The
loan was paid in full prior to January 31, 1995. In November 1994, the Board of
Directors adopted a policy resolution prohibiting the Company from making any
loan or advance of money or property to a director of the Company and limiting
the Company's ability to make such loans or advances to officers of the Company
or its subsidiaries unless a majority of independent disinterested outside
directors determine that such loan or advance may reasonably be expected to
benefit the Company. Further, all future loans and advances, if approved, will
be made on terms that are no less favorable to the Company than those that are
generally available from unaffiliated third parties.
In November 1993, Mr. Alex Ding, the President of the Company, made a loan
to the Company in the principal amount of CDN$80,000. The loan was not evidenced
by a written agreement or promissory note, but bore interest at the rate of 10%
per annum. The loan was paid in full prior to January 31, 1995.
In late 1994, a company controlled by a former officer of the Company made
a loan to the Company in the principal amount of $100,000. The loan, which bore
interest at the rate of 10% per annum, was repaid in full prior to January 31,
1996.
Effective February 1, 1996, the Company entered into a Consulting Agreement
with Corporate Development Capital, Inc. ("CDC"), a corporation owned and
controlled by Chris G. Mendrop, a director of the Company, pursuant to which CDC
has agreed to assist the Company in the development of a long-term strategic
plan, including but not limited to the areas of management, marketing and
finance, and to perform such other management consulting services for the
Company as shall be requested from time to time by the President of the Company.
As compensation for these services, CDC was entitled to be paid $16,000 on or by
-23-
<PAGE>
the date of closing of the public offering and $4,000 per month for the 12
months thereafter. In addition, Mr. Mendrop was issued 12,800 shares of the
Company's Common Stock pursuant to the Consulting Agreement. All amounts due
under this agreement have been paid.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) and (d) Financial Statements and Schedules
The financial statements listed by the Registrant on the accompanying
Financial Statements (see pages F-1 through F-10) are filed as part of this
Annual Report.
(b) Reports on Form 8-K: The Company has not filed a report on Form 8-K.
(c) Exhibits:
1.1 Contract with Isuzu (Japan) for door visors;
-24-
<PAGE>
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.
GLAS-AIRE INDUSTRIES GROUP LTD.
Date: April 28, 1997 By: /s/ Alex Yie Wie Ding
-------------- --------------------------------
Alex Yie Wie Ding, President
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.
Date: April 28, 1997 /s/ Edward Ting
-------------- --------------------------------------
Edward Ting, Secretary, Chief
Executive Officer and Chairman
of the Board
Date: April 28, 1997 By: /s/ Alex Yie Wie Ding
-------------- --------------------------------
Alex Yie Wie Ding, Chief
Operating Officer, Treasurer
and Director
Date: April 28, 1997 /s/ Omer Esen
-------------- --------------------------------------
Omer Esen, Vice President of
Operations and Chief Financial Officer
Date: April 28, 1997 /s/ Chris G. Mendrop
-------------- ---------------------------------------
Chris G. Mendrop, Director
Date: April 28, 1997 /s/ Robert J. Patteri
-------------- ---------------------------------------
Robert J. Patteri, Director
-25-
<PAGE>
- --------------------------------------------------------------------------------
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders of
Glas-Aire Industries Group Ltd.
We have audited the consolidated balance sheets of Glas-Aire Industries Group
Ltd. and subsidiaries as at January 31, 1997 and 1996 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three year period ended January 31, 1997.
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
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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 consolidated financial statements described above present
fairly, in all material respects, the financial position of the Company and its
subsidiaries as at January 31, 1997 and 1996 and the results of their operations
and cash flows for each of the years in the three year period ended January 31,
1997, in conformity with generally accepted accounting principles in the United
States.
Chartered Accountants
Langley, British Columbia
March 18, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Balance Sheets
(Stated in U.S. Dollars)
- -------------------------------------------------------------------------------------------------------
January 31, January 31,
1997 1996
----------- ----------
<S> <C> <C>
Assets (Note 4)
Current
Cash and equivalents $ 1,119,932 $ 330,107
Term deposit (Note 1) 1,000,000 --
Accounts receivable 737,587 672,671
Inventories (note 2) 628,423 689,858
Prepaid expenses 158,509 14,049
Deferred offering costs 0 159,817
----------- -----------
3,644,451 1,866,502
Fixed assets, net (Note 3) 1,220,531 758,166
----------- -----------
$ 4,864,982 $ 2,624,668
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness 110,100 $ 255,926
Accounts payable and accrued liabilities 459,738 511,006
Incomes taxes payable 15,262 138,457
Current portion of long term debt (Note 5) -- 27,304
Current portion of obligation under capital lease -- 33,616
----------- -----------
585,100 966,309
Obligation under capital lease -- 63,630
Deferred income taxes (Note 7) 187,498 130,571
----------- -----------
772,598 1,160,510
----------- -----------
Commitments, (Note 8)
Shareholders' Equity
Share capital (Notes 6(a) and (c)) 16,124 9,238
Contributed surplus 3,539,951 911,148
Treasury stock (Note 6(b) (147,476) (17,010)
Retained earnings 699,634 589,834
Cumulative translation adjustment (15,849) (29,052)
----------- -----------
4,092,384 1,464,158
----------- -----------
$ 4,864,982 $ 2,624,668
=========== ===========
The accompanying summary of significant accounting policies and notes are an integral part of these
financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Statements of Income
(Stated in U.S. Dollars)
- ----------------------------------------------------------------------------------------------------------------------
Years ended January 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales (Note 9) $ 4,316,372 $ 4,191,581 $ 4,057,205
Cost of sales 3,027,968 2,741,400 2,406,798
----------- ----------- -----------
Gross Profit 1,288,404 1,450,181 1,650,407
----------- ----------- -----------
Expenses
Research and development 395,099 264,856 83,775
Selling and distribution 281,669 326,490 175,361
General and administrative 414,174 503,030 511,182
Provision for profit sharing 23,498 32,516 82,968
Interest (61,354) 15,732 52,450
----------- ----------- -----------
1,053,086 1,142,624 905,736
----------- ----------- -----------
Income before income taxes 235,318 307,557 744,671
Income taxes (Note 7) 125,518 122,973 270,768
----------- ----------- -----------
Net Income for the year (Note 7) $ 109,800 $ 184,584 $ 473,903
=========== =========== ===========
Net income per share $ 0.08 $ 0.20 $ 0.52
=========== =========== ===========
Weight average number of shares outstanding 1,426,038 921,890 913,095
=========== =========== ===========
The accompanying summary of significant accounting policies and notes are anintegral part of these financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLAS-AIRE INDUSTRIES GROUP LTD.
Consolidated Statements of Changes in Shareholders' Equity
(Stated in U.S. Dollars)
- ----------------------------------------------------------------------------------------------------------------------------------
Additional Cumulative Total
Common Stock Paid-in Retained Treasury Translation Shareholders'
Shares Amount Capital Earnings Stock Adjustment Equity
--------------------------- ------- ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
January 31, 1994 832,975 $ 8,330 $ 656,524 $ (68,653) $ -- $ (26,035) $ 570,166
Net income 473,903 473,903
Shares issued 90,838 908 254,624 255,532
Change in cumulative
translation adjustment (12,220) (12,220)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance -
January 31, 1995 923,813 $ 9,238 $ 911,148 $ 405,250 $ -- $ (38,255) $ 1,287,381
Net income 184,584 184,584
Shares repurchased
(Note 8(b)) (17,010) (17,010)
Change in cumulative
translation adjustment 9,203 9,203
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance -
January 31, 1996 923,813 $ 9,238 $ 911,148 $ 589,834 $ (17,010) $ (29,052) $ 1,464,158
Net income 109,800 109,800
Shares issued (Note 6(a)) 692,800 6,928 2,645,771 2,652,699
Shares repurchased
(Note 6(b)) (147,476) (147,476)
Shares retired (4,192) (42) (16,968) 17,010 --
Change in cumulative
translation adjustment 13,203 13,203
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance -
January 31, 1997 1,612,421 $ 16,124 $ 3,539,951 $ 699,634 $ (147,476) $ (15,859) $ 4,092,384
=========== =========== =========== =========== =========== =========== ===========
The accompanying summary of significant accounting policies and notes are an integral part of these financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Statements of Cash Flows
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------------------
Years ended January 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in cash
Cash Flows from:
Operating Activities
Net income for the year $ 109,800 $ 184,584 $ 473,903
Depreciation 110,480 87,470 90,041
Deferred Income Taxes 56,927 22,246 27,914
(Gain) loss on sale of capital assets 1,017 (3,343) 3,013
Net change in non-cash working capital (1,162,587) (206,273) (109,551)
----------- ----------- -----------
Net cash (used in) provided by
operating activities (884,363) 84,684 485,320
----------- ----------- -----------
Financing Activities
Repayment of obligation under capital lease (97,246) (27,639) (34,939)
Repayment of long-term debt (27,304) (67,338) (66,252)
Advances to shareholder -- -- (59,108)
Issuance of shares 2,652,699 -- 255,532
Repurchase of shares (147,476) (17,010) --
Deferred offering costs -- (159,817) --
Increase (decrease) in bank indebtedness (145,827) 255,926 (600,815)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 2,234,846 (15,878) (505,582)
----------- ----------- -----------
Investing Activities
Proceeds from sale of fixed assets 12,444 50,971 21,664
Purchase of fixed assets (586,305) (188,197) (256,194)
----------- ----------- -----------
Net cash used in investing activities (573,861) (137,226) (234,530)
----------- ----------- -----------
Foreign currency translation adjustment 13,203 9,203 (12,220)
----------- ----------- -----------
(Decrease) increase in cash during the year 789,825 (59,217) (267,012)
Cash and equivalents, beginning of year 330,107 389,324 656,336
----------- ----------- -----------
Cash and equivalents, end of year $ 1,119,932 $ 330,107 $ 389,324
=========== =========== ===========
The accompanying summary of significant accounting policies and notes are an integral part
of these financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Statements of Cash Flows (continued)
(Stated in U.S. Dollars)
- ---------------------------------------------------------------------------------------------
Years ended January 31,
1997 1996 1995
----------- ----------- -----------
Changes in non-cash working capital
<S> <C> <C> <C>
Term deposit $(1,000,000) $ 0 $ 0
Accounts receivable (64,916) 150,106 (272,588)
Inventories 61,435 (320,149) (4,735)
Prepaid expenses 15,357 (13,446) 1,718
Accounts payable and accrued liabilities (51,268) 47,702 (4,026)
Income taxes payable (123,195) (70,486) 170,080
----------- ----------- -----------
$(1,162,587) $ (206,273) $ (109,551)
=========== =========== ===========
Supplemental disclosure of cash flow
relating to:
Interest $ (74,591) $ 15,732 $ 52,450
Income taxes 217,894 173,414 72,774
The accompanying summary of significant accounting policies and notes are an integral part
of these financial statements.
F-6
</TABLE>
<PAGE>
GLAS-AIRE INDUSTRIES GROUP LTD.
Summary of Significant Accounting Policies
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
Nature of Business The Company is a Nevada corporation and was
incorporated on September 29, 1992. The Company
manufactures and distributes wind deflector products
to automobile manufacturers in the United States,
Canada and Japan.
Basis of Consolidation 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 and accounts are
eliminated.
These financial statements have been prepared in
accordance with accounting principles generally
accepted in the United States.
Comparative Figures Certain comparative figures from the prior year have
been reclassified to conform with the current year's
presentation.
Inventories Inventories are recorded at the lower of cost, on a
first-in, first-out basis, or market value. Market
value for raw materials is defined as replacement
cost and for work-in-progress and finished goods as
net realizable value.
Fixed Assets Fixed assets are recorded at cost less accumulated
depreciation. Depreciation is calculated using the
declining-balance method, except for leasehold
improvements where the straight-line method is used,
at the following annual rates:
Office equipment - 10%
Manufacturing equipment - 10%
Computer equipment and software - 15% - 50%
Dies and molds - 10%
Automotive - 30%
Leasehold improvements - 10%
Equipment under capital lease - 10%
Income per Share Income per share is calculated by dividing the
weighted average number of shares of common stock
outstanding each year into the income for the year.
Warrants outstanding were anti-dilutive. Treasury
stock held by the Company is not included in the
number of shares outstanding.
Cash Equivalents Cash equivalents consist of short term deposits with
maturity of ninety days or less.
Research and
Development Research and development costs are expensed as
incurred.
Income Taxes The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards No.
109, which requires the asset and liability method of
accounting for income taxes. The asset and liability
method requires the recognition of deferred tax
assets and liabilities for the future tax
consequences of temporary differences between the
financial statement basis and the tax basis of assets
and liabilities.
F-7
<PAGE>
GLAS-AIRE INDUSTRIES GROUP LTD.
Summary of Significant Accounting Policies (continued)
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
Investment Tax
Credits The Company is eligible for investment tax credits on
certain research and development costs. These credits
are deducted from the related expenses and are
recognized in the year in which they are claimed.
Foreign Currently
Translation The functional currency of the companies' operations
is the Canadian dollar. These financial statements
have been translated into United States currency
using FAS No. 52. Under this method assets and
liabilities are translated at the rate of exchange at
the balance sheet date and revenues and expenses and
dividends are translated at the rate of exchange in
effect when those items are recognized in the
financial statements. The resulting exchange gains
and losses are deferred and are shown as a separate
component of shareholder' equity.
All figures are reported in U.S. dollars. Exchange
rates between the U.S. and Canadian dollar for each
of the applicable years reported in these financial
statements, with bracketed figures reflecting the
average exchange rate for the year, are:
January 31, 1995 - 1 U.S. $:1.4022 Cdn. $ (1.3736 Cdn. $)
January 31, 1996 - 1 U.S. $:1.3734 Cdn. $ (1.3685 Cdn. $)
January 31, 1997 - 1 U.S. $:1.3470 Cdn. $ (1.3625 Cdn. $)
Accounting Estimates The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
Fair Value of
Financial Instruments The carrying values of cash and equivalents, accounts
receivable and accounts payable, approximate their
fair values because of the short maturity of these
instruments.
New Accounting
Standard Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of" (SFAS
No. 121) issued by the Financial Accounting Standards
Board (FASB) is effective for financial statements
for fiscal years beginning after December 15, 1995.
The new standard establishes guidelines regarding
when impairment losses on long-lived assets, which
include plant and equipment, and certain identifiable
intangible assets, should be recognized and how
impairment losses should be measured. The Company's
adoption of this pronouncement did not have an effect
on its financial position or results of operations.
F-8
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Notes to Consolidated Financial Statements
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Term Deposit
January 31, January 31,
1997 1996
---------- -----------
Deposit, interest at 5.6%, matures October 6, 1997 $1,000,000 $ 0
========== ===========
- --------------------------------------------------------------------------------------------------------------
2. Inventories
January 31, January 31,
1997 1996
Raw materials $ 443,808 $ 496,820
Work-in-progress 111,865 114,680
Finished goods 51,477 63,113
Supplies 21,273 15,245
---------- -----------
$ 628,423 $ 689,858
=========== ===========
- --------------------------------------------------------------------------------------------------------------
3. Fixed Assets
January 31, 1997 January 31, 1996
------------------------------ ---------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Office equipment $ 106,827 $ 39,296 $ 64,448 $ 33,364
Manufacturing equipment 1,087,479 368,688 573,909 253,806
Computer equipment and software 111,499 61,962 94,940 51,663
Dies and molds 416,838 153,567 304,409 128,294
Automotive 29,954 2,995 17,456 651
Leasehold improvements 111,327 16,885 56,446 11,495
Equipment under capital lease - - 174,765 48,934
------------ ------------ --------- ---------
$ 1,863,924 $ 643,393 $ 1,286,373 $ 528,207
============ ============ =========== ==========
Net book value $ 1,220,531 $ 758,166
=========== ==========
F-9
</TABLE>
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
4. Bank Indebtedness
January 31, January 31,
1997 1996
----------- -----------
Revolving bank loan $ 110,100 $ 255,926
=========== ===========
The revolving bank loan is a Cdn. $1,000,000 overdraft facility, which is
due on demand and bears interest at Canadian bank prime rate (8% - January
31, 1996; 4.75% - January 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 changed 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.
- --------------------------------------------------------------------------------
5. Long-term Debt
<TABLE>
<CAPTION>
January 31, January 31,
1997 1996
----------- -------------
<S> <C> <C>
Loan from 397568 B.C. Ltd., a shareholder, bearing
no interest, payable in quarterly installments of
$13,941. Installments may not exceed the net
earnings in each year $ - $ 27,304
Less current portion - 27,304
--------- ------------
$ - $ -
========== =============
F-10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------
6. Share Capital
<S> <C> <C> <C> <C>
(a) Authorized
3,000,000 Common shares with a par value
of $0.01 each
1,000,000 Preferred shares with a par value
of $0.01 each
January 31, January 31,
1997 1996
----------- ------------
Issued
1,612,421 Common shares (1996 - 923,813) $ 16,124 $ 9,238
=========== ===========
</TABLE>
During the year, 692,800 shares were sold at $5 per share, aggregating
$3,464,000 less costs and expenses of $811,301, yielding $2,652,699 to the
Company.
In connection with public offerings in 1993 and 1996, the Company issued
warrants to the underwriters to purchase shares as follows:
Shares Price Expiry Date
------ ----- -----------
30,794 $ 4.55 June 1998
68,000 $ 6.00 April 2001
(b) During the year, the company repurchased 50,000 common shares, at
share prices between $1.94 and $3.47 per share, amounting to $147,476.
These shares are accounted for as treasury stock until reissued or
retired. The purchase of the shares reduced shareholders' equity.
(c) On September 26, 1995, the Company declared a stock dividend pursuant
to which 0.65 shares of common stock were paid on each share of common
stock issued and outstanding as of October 9, 1995. On October 27,
1995, the Company declared a further stock dividend pursuant to which
0.493 shares of common stock were paid on each share of common stock
outstanding on November 1, 1995. The financial statements have been
retroactively restated to give effect to the stock dividends.
F-11
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------
7. Income Taxes
The provision for income taxes in the consolidated statements of income consists of:
January 31, January 31, January 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current $ 71,741 $ 102,928 $ 242,854
Deferred 53,777 20,045 27,914
------------- ------------- -------------
$ 125,518 $ 122,973 $ 270,768
============= ============= =============
The effective income tax rate on earnings consists of the following:
January 31, January 31, January 31,
1997 1996 1995
% % %
----------- ----------- ------------
General combined federal and
provincial rate 45.3 45.3 45.3
Manufacturing reduction (7.0) (7.0) (7.0)
Utilization of losses carried forward - - (1.9)
Underaccural of prior year taxes 14.7 1.7 -
---- ---- -----
Effective rate 53.0 40.0 36.4
==== ==== ====
The components of deferred taxes are as follows:
January 31, January 31,
1997 1996
------------ ------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
Deferred tax liabilities
Depreciation $ 489,551 $ 187,498 $ 340,917 $ 130,571
============ ============== ============= ===========
F-12
</TABLE>
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. Dollars)
8. Commitments
The Company is committed to the following minimum payments under operating
leases for premises:
Year ending January 31, 1998 $ 89,550
1999 92,960
2000 61,975
Rent expense was $121,252, $98,207 and $92,040 for the years ended January
31, 1997, 1996 and 1995 respectively.
- --------------------------------------------------------------------------------
9. Sales Information
(a) Sales figures include sales to the following countries:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
United States $ 3,121,000 $ 3,420,000 $ 3,342,000
Japan 491,000 198,000 146,000
Canada and other 704,000 574,000 569,000
(b) Sales to customers who each accounted for more than 10% of the
Company's sales are as follows:
January 31, January 31, January 31,
1997 1996 1995
------------ ----------- -----------
Customer 1 $ 828,000 $ 1,066,000 $ 957,000
Customer 2 1,341,000 1,470,000 1,237,000
Customer 3 491,000 -- --
- ---------------------------------------------------------------------------------------------------------------
10. Related Party Transactions
The Company had the following transactions with related parties:
January 31, January 31, January 31,
1997 1996 1995
----------- ------------ -----------
(a) Fees paid to
directors/shareholders
for ongoing consulting services $ 60,000 $ 52,250 $ 69,390
(b) In connection with the public offering in May 1996, a director was issued 12,800 shares valued at
$64,000 and paid consulting fees of $44,000 (1996-$20,000).
F-13
</TABLE>
PURCHASE AGREEMENT
THIS AGREEMENT, effective as of September 1st, 1995, is made by and among
ICL. CO., LTD., a corporation organized and existing under the law of Japan,
having its principal place of business at 26-7 Minami-oi 3-chome, Shinagawa-ku,
Tokyo 140, Japan (hereinafter referred to as 'Purchaser' ), and Glas Aire
Industries Ltd., a corporation organized and existing under the law of Canada,
having its principal place at 3137 Grandview Highway, Vancouver, B.C. Canada,
V5M 2E9, Qualidux Industrial(B.C.), a corporation organized and existing under
the law of Canada, having its principal place at 135 Riverside Drive, North
Vancouver, B.C., Canada, V711 lT6, and Federation of Canadian Manufacturers in
Japan, a corporation organized and existing under the law of Japan, having its
principal place at 3-2-5 Maihama, Urayasu-shi, Chiba 279, Japan (three
corporations hereinafter referred to as "Suppliers").
WITNESSETH:
WHEREAS, Purchaser is engaged in the manufacture of accessories of motor
vehicles in Japan, WHEREAS, Suppliers are engaged in Canada in the manufacture
of door visors for motor vehicles,
WHEREAS, Purchaser desires to purchase from Suppliers certain door visors
for use in motor vehicles provided by Purchaser; and,
WHEREAS, Suppliers desire to manufacture and supply the door visors to
Purchaser.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS
-----------
As used in this agreement, the following terms shall have the respective
meanings set forth below.
1.1 "Door Visors" shall mean door visors for use in vehicles and/or trucks
provided by Purchaser whose door visors are manufactured by Suppliers in
accordance with General Specifications described in Exhibit A attached hereto
and approved samples under Section 3.2(ii) or such other door visors that
Purchaser and Suppliers may agree to include within the scope of this Agreement
by specific amendment hereto, which are to be purchased or are purchased by
Purchaser from Suppliers under this Agreement.
1.2 "Service Door Visors" shall mean any Door Visors, or subassemblies
designed for use with Door Visors which are to be purchased or are purchased by
Purchaser from Suppliers under this Agreement, for after-sale service or
replacement of Door visors.
1.3 "Products" shall mean a pair of Door Visors, left side visor and right
side visor, and/or Service Door Visors.
1.4 "General Specifications" shall mean the general specifications which
identify and describe the Door Visors to be manufactured by Suppliers and
purchased by Purchaser and which may be changed or modified from time to lime in
accordance with the applicable provisions of the Change Procedures Manual.
<PAGE>
1.5 "Purchase Procedures Manual" shall mean the manual prepared by
Purchaser, setting forth the procedures and terms and conditions that will be
applicable in connection with the supply of Door Visors by Suppliers and his
purchase by Purchaser under this Agreement.
1.6 "Change Procedures Manual" shall mean the manual prepared by Purchaser,
setting forth the procedures and terms and conditions that will be applicable in
connection with in design or specifications of Door Visors.
1.7 "Quality Assurance Manual" shall mean the manual prepared by Purchaser,
setting forth the procedures that will be applicable in connection with the
quality assurance in Suppliers' manufacturing of the Door Visors as well as
inspections and quality evaluations of Door Visors required to be made by the
parties referenced in such manual.
1.8 "Claim Procedures Manual" shall mean the manual prepared by Purchaser,
setting forth the procedures that will be applicable in connection with the
claim procedures regarding the Affected Deliveries and Defective Products
(hereinafter defined in Section 9.1).
1.9 "Field Claim Settlement Procedures Manual" shall mean the manual
prepared by Purchaser, setting forth the procedures that will be applicable in
connection with the claim and settlement procedures regarding the field claims
relating to Products.
2. RELATIONSHIP OF THE PARTIES
---------------------------
2.1 Purchaser agrees to purchase from Suppliers, and Suppliers agree to
manufacture and supply to Purchaser on a continuous basis in accordance with the
terms and conditions of this Agreement, Door Visors for use in motor vehicles or
trucks provided by Purchaser.
2.2 Purchaser may designate, with prior written notice to Suppliers, any
third parties as agents for Purchaser who provide services related to inland
and/or ocean transportation, export and/or import, and/or ordering of Door
Visors, and/or any other services designated by Purchaser.
2.3 Glas Aire Industries, Ltd. shall be a major responsible corporation and
Supplier under the Purchase Agreement, the laws of Japan and the commercial
agreement with Qualidux Industries(B.C.), secondary responsible corporation.
2.4 Qualidux Industrial(B.C.) shall be a major producer for Door Visors
requested by the Purchaser and shall maintain the level of quality as required
under the control and administration of Glas Aire Industries, Ltd., having the
obligation of complete financial support in case that Glas Aire Industries, Ltd.
has difficulty of finance for the management or operation of Door Visor
production.
2.5 When Glas Aire Industries, Ltd. and Qualidux Industrial(P.C.) will set
up a joint venture company or operation for the production of Door Visors
requested by the Purchaser, Glas Aire Industries, Ltd. shall be a major
responsible corporation for any quality problems, any financial problems and any
managemental problems occurred between two corporations, no matter how the stock
share of the venture company will be held between two corporations.
2.6 Federation of Canadian Manufacturers in Japan shall be an agent for
both of Glas Aire Industries, Ltd. and Qualidux Industrial(B.C.) and assistant
for ICL for acceleration of this production project.
-2-
<PAGE>
3. MANUFACTURE AND SUPPLY OF DOOR VISORS
-------------------------------------
3.1 Suppliers shall manufacture the Door Visors to be supplied to Purchaser
hereunder, in accordance with the General Specifications and the samples
approved by Purchaser pursuant to Section 3.2 (ii).
3.2 The samples of Door Visors shall be manufactured by Suppliers and
approved by Purchaser in accordance with the following procedures.
(i) Suppliers shall manufacture in accordance with the General
Specifications, and test evaluate in accordance with Purchaser's
instructions, and deliver to Purchaser, together with information and data
regarding the results of such test and evaluation by Suppliers, samples of
the Door Visors for Purchaser's final evaluation and approval, in such
numbers and at such times as may be agreed upon by Purchaser and Suppliers.
(ii) Purchaser shall notify Suppliers of its approval or disapproval
thereof in writing. If Purchaser disapproves of the samples, Purchaser
shall provide Suppliers with the reasons therefor, and Suppliers shall take
all necessary corrective actions to obtain Purchaser's approval.
3.3 Suppliers agree to make no change in the design or specifications of
Door Visors, unless such proposed changes are communicated to Purchaser and
Purchaser agrees to such changes in accordance with Section 3.4.
3.4 Changes in Door Visors requested by Purchaser or initiated by Suppliers
shall be processed between Purchaser and Suppliers in accordance with the Change
Procedures Manual.
3.5 If determined by Purchaser to be necessary for the manufacture and
supply of Door Visors. Purchaser may furnish Suppliers with such necessary
special tools at Purchaser's costs, subject to the terms and conditions mutually
agreed upon by both parties.
4. PURCHASE PROCEDURES
-------------------
4.1 As an aid to Suppliers in planning its manufacture of Door Visors,
Purchaser shall provide Suppliers with good faith estimates of purchases
anticipated to be made by Purchaser during a specified future period of Lime as
agreed between Purchaser and Suppliers, which estimates shall be set forth in
each purchase order issued by Purchaser to Suppliers pursuant to Section 4.2,
provided that such estimates shall not be binding on Purchaser.
4.2 Unless otherwise agreed in writing, for the purpose of ordering Door
Visors , Purchaser shall issue a purchase order to Suppliers containing (i) a
firm order for Door Visors for a specified period as agreed between Purchaser
and Suppliers and (ii) a requested delivery date for such Door Visors. Each
purchase order shall be sent by telex or facsimile, at 20 days before the
requested date of delivery of Door Visors by Suppliers to Purchaser, and two
copies of each such purchase order duly signed by Purchaser shall be immediately
mailed by Purchaser to Suppliers.
4.3 Suppliers shall notify Purchaser, by telex or facsimile, within five(5)
business days from the date of the purchase order, whether or not Suppliers
accept such purchase order and one copy of each purchase order shall be duly
counter-signed and immediately returned by Supplier to Purchaser. Suppliers
shall accept any purchase order if the quantities of the Door Visors specified
in such purchase order do not grossly exceed the estimated quantities of the
Door Visors specified in the purchase order last issued by Purchaser to
Suppliers pursuant to Section 4.2.
-3-
<PAGE>
4.4 Each individual purchase agreement for the Door Visors shall become
effective between Purchaser and Suppliers upon the acceptance by telex or
facsimile by Suppliers, in accordance with Section 4.3. of a purchase order
issued by Purchaser pursuant to Section 4.2.
4.5 If, at any time during the term of this Agreement, Suppliers are unable
to manufacture and supply the full amount of the total quantity of Door Visors
specified in the applicable purchase order issued by Purchaser and accepted by
Suppliers, then, Suppliers will promptly advise Purchaser of the situation and
steps, if any, which Suppliers propose to take to correct the deficiencies.
Purchaser shall discuss with Suppliers and determine the quantity which will be
supplied to Purchaser, the delivery schedule, and the manner and means of
delivery to Purchaser. giving due consideration to such situation, the
Suppliers' proposal on the steps to be taken and the results of such,
discussion. Purchaser and Suppliers shall be bound by such determination of
Purchaser.
4.6 Notwithstanding Section 4.5, the amount of all additional costs and
any loss or damage incurred by Purchaser resulting from Suppliers' failure to
deliver Door Visors in accordance with the applicable purchase order issued by
Purchaser and accepted by Suppliers, shall be borne by Suppliers and in the case
of any loss or damage, promptly paid by Suppliers to Purchaser upon demand.
4.7 The details of purchase procedures for Door Visors including
manners of packing, packaging and loading of Door Visors, and the quantities of
Door Visors of which each quantity of Door Visors to be ordered by Purchaser
hereunder shall be in multiples shall be set forth in the Purchase Procedures
Manual.
5. PRICE AND PAYMENT
-----------------
5.1 Unless otherwise agreed in writing, the price for a pair of Door Visors
shall be quoted in U.S. dollars on FOB designated Warehouse basis.
5.2 The price for Door Visors is set forth in Exhibit B. All changes of
such a price and the effective date thereof shall be agreed and determined by
both parties in writing.
5.3 The price for Door Visors listed in each individual purchase agreement
effected under Section 4.4 shall be the price in effect at the time such
purchase order is issued by Purchaser pursuant to Section 4.2.
5.4 Changes of the price for Door Visors that become necessary because of
changes in the design or specifications of Door Visors shall be made in
accordance with the Change Procedures Manual.
5.5 Unless otherwise agreed in writing, payment for Door Visors shall be
made in U.S. dollars by telegraphic transfer remittance to the bank designated
by Suppliers within thirty(30) days after shipment of Door Visors from warehouse
of Suppliers to Purchaser and the receipt of original or copy of Bill of Lading
by the Purchaser.
5.6 Payment for tooling cost invested by Suppliers for the production of
Door Visors shall not be reimbursed to Suppliers without the quality of Door
Visors approved by Purchaser.
-4-
<PAGE>
6. DELIVERY 0F DOOR VISORS
-----------------------
6.1 Unless otherwise agreed in writing, the delivery of Door Visors by
Suppliers to Purchaser shall be made on FOB Warehouse of Glas Aire Industries,
Ltd. The entire property, control, beneficial ownership and legal title in and
to such Door Visors and the risk of loss and damage thereof will pass from
Suppliers to Purchaser, after loading of the Door Visors on truck or railroad at
the warehouse of Glas Aire Industries, Ltd.
6.2 Suppliers shall pack, package, and load Door Visors in the manner set
forth in the Purchase Procedures Manual.
6.3 Suppliers may be requested to have an export function of the shipment
to Japan for certain periods or tentatively, in order to accelerate the export
procedures to Japan, having the responsibility for the shipment from the
warehouse of Glas Aire to a designated port warehouse which will be informed
before the shipment will be started.
7. SERVICE DOOR VISORS
-------------------
7.1 Purchaser and Suppliers shall determine the items that constitute
Service Door Visors, the prices for Service Door Visors and other terms and
conditions applicable thereto, and shall prepare and sign a written agreement
specifying such determinations.
7.2 Immediately after the signing of the said written agreement under
Section 7.1, Suppliers furnish Purchaser with descriptions and drawings of
Service Door Visors including data and information necessary for after-sale by
Purchaser.
7.3 If and when Purchaser ceases to use any Door Visors or any part or
subasssembly thereof on the vehicles provided by Purchaser, or this Agreement is
terminated or expires, Suppliers agree to provide Service Door Visors in meeting
the future service requirements of Purchaser for a period of three continuous
years thereafter.
8. QUALITY ASSURANCE
-----------------
8.1 In accordance with Quality Assurance Manual, Suppliers shall measure
the Door Visors and assure that the Door Visors are in compliance with the
General Specifications and shall further take all steps necessary to ensure that
the level of quality of the Door Visors is no less than that of the samples
approved under Section 3.2 (ii).
8.2 Before delivery, Suppliers shall inspect the Door Visors in accordance
with the Quality Assurance Manual. Suppliers shall maintain adequate records
regarding its quality control inspections and shall submit the results of such
inspections to Purchaser from time to time as required by the Quality Assurance
Manual. In addition to the foregoing records, Suppliers will establish and
maintain a record-keeping system which provides Suppliers with the ability to
trace any defects to a specific period of manufacture.
8.3 Purchaser may, at any time during the ordinary business hours of
Suppliers, audit and inspect in accordance with Quality Assurance Manual,
materials, the manufacturing and assembling process, molds, tools and dies, and
facilities to be utilized for the manufacture of Door Visors at the premises of
Suppliers before delivery thereof to Purchaser.
8.4 Unless otherwise indicated by Purchaser, Purchaser will not perform any
inspection of Products after the delivery thereof.
-5-
<PAGE>
9. CLAIM PROCEDURES
----------------
9.1 If Purchaser should discover any misdelivery or short delivery
("Affected Delivery"), or any defective or malfunctioning Products, or any loss,
damage, discrepancy or non-conformity of any kind("Defective Products") prior to
such time as the vehicle on which the Door Visors have been installed passes the
Purchaser's final inspection or such time as Service Door Visors are installed
on a vehicle, Purchaser shall determine and shall notify Suppliers, in
accordance with the Claim Procedures Manual, (i) whether Suppliers shall replace
or supplement such Affected Delivery at Suppliers' cost, or grant Purchaser a
credit, or (ii) whether Suppliers shall replace or repair the Defective Products
at Suppliers' cost, grant Purchaser a credit, or bear the costs and expenses
incurred by Purchaser in repairing the Defective Products, all in accordance
with the Claim Procedures Manual. Thereupon, Suppliers shall follow Purchaser's
instructions contained in such notification.
9.2 After such time as the vehicle on which Door Visors have been installed
passes the Purchaser's final inspection or such time as Service Door Visors are
installed on a vehicle, all claims(including claims based on the warranty policy
determined by Purchaser) with respect to the said Door Visors or Service Door
Visors shall be settled between Purchaser and Suppliers in accordance with the
Field Claim Settlement Procedures Manual.
10. WARRANTY
--------
10.1 Suppliers warrant that Products supplied and purchased hereunder
shall; i) be of good material and workmanship, and free from defect in design
and manufacture,
ii) conform to the specification described in the General
Specifications, or descriptions and drawings furnished by Suppliers to
Purchaser pursuant to Section 7.2, and
iii) be of the same or higher level of quality as the approved samples
under Section 3.2(ii).
11. FORMALITIES
-----------
11.1 Purchaser shall take the necessary steps to satisfy the requirements
of laws, regulations or governmental orders relating to Door Visors in the
countries where the vehicles on which Door Visors have been installed, are sold
to and/or used by customers. Upon Purchaser's request, Suppliers shall fully
cooperate with Purchaser in taking such necessary steps.
12. PRODUCT LIABILITY
-----------------
12.1 Purchaser and Suppliers each agrees to indemnify, defend and hold
harmless the other from and against any liabilities, claims and demands arising
out of the death of or injury to any person or damage to any property alleged to
have resulted from a defect in or malfunction of any of the products, provided
such alleged defect or malfunction resulted from or arose out of the activities
performed by such party in fulfilling its respective obligations under this
Agreement.
-6-
<PAGE>
12.2 With respect to any actual, potential, or threatened product liability
claim, action, or proceeding relating to any Products("PL CLAIM"), Suppliers
shall; (i), in case of a PL Claim against Suppliers, communicate with Purchaser
from time to time and observe the instructions of Purchaser., and, in case of a
PL Claim against Purchaser, cooperate with Purchaser in investigating the facts
and circumstances surrounding the PL claim and in litigating the matter;(ii)
refrain from taking positions adverse to the interests of Purchaser; and (iii)
not institute any claim, action, or proceeding, whether by crossclaim,
third-party claim, interpleader, or otherwise, against Purchaser.
12.3 Each of the parties agrees not to disclose to any third parties any
information with respect to the arrangements effected under this Article 12,
except as may be required as a matter of law or in any judicial proceedings
involving such party.
13. RECALL
------
13.1 In the event that an inquiry or investigation is made as to Purchaser
and/or Suppliers by any government or governmental agencies with respect to any
defect in any Product, Suppliers shall cooperate with Purchaser to deal with
such inquiry or investigation, shall follow instructions given by Purchaser to
Suppliers and shall provide Purchaser with technical materials and other
information requested by such government or governmental agencies or considered
by Purchaser to be necessary in dealing with such inquiry or investigation.
13.2 In the event that any defect in any Product is discovered during the
course of an inquiry or investigation under Section 13.1 or a test or other
measures conducted by Purchaser, Purchaser shall determine whether or not to
recall such Product. In case Purchaser determines to do so, Purchaser shall also
determine the timing, method and other matters necessary for such recall, and
the sharing of expenses for carrying out such recall between Purchaser and
Suppliers and Suppliers agrees to be bound by Purchaser's determination.
14. GENERAL, PROVISIONS
-------------------
14.1 Confidentiality
During the term of this Agreement and for five years after The termination
thereof, both parties shall hold confidential and shall not disclose to any
third party any of the information and data furnished by the other party under
this Agreement.
14.2 Patents
Suppliers will defend, protect, and hold harmless Purchaser, its
successors, assigns, purchasers, and users of Products, against all suits, at
law or in equity, and from all damages, claims, and demands for actual or
alleged infringement of Japanese or foreign patents by reason of the use or sale
of the Products at any place in the world, unless such infringement arises
solely from the use of any technical information or design which Purchaser may
have provided to Suppliers in connection with Products.
14.3 Prohibition
Suppliers shall not execute any sales, transaction or grant of Door Visors,
designs and specification to any third party without permission of Purchaser in
writing.
-7-
<PAGE>
14.4 Force Majeure
Any party to this Agreement shall notify the other party without delay if
all or part of its responsibilities under this Agreement cannot be performed due
to an act of God, war, riot, revolution, change or abolition of laws,
governmental order or restriction, strike or other dispute, traffic accident, or
other force majeure, and such party shall be relieved of performing such
responsibilities for the period during which such force maieure situation
exists. Such party shall exert its best efforts to neutralize the effect of or
eliminate such force majeure situation as soon as possible.
14.5 Term
This Agreement shall come into force on the date first above written and,
unless earlier terminated as provided in this Agreement, shall remain in force
until August 31, 1996. This Agreement shall be automatically renewed for
successive one(1) year period, unless either party gives to the other party
written notice of its intention not to renew this Agreement by registered letter
at least five (5) months prior to the expiration of the relevant term.
14.6 Termination
(i) This Agreement may be terminated at any time by either party:
(a) if the other party defaults in the performance of any provision of
this Agreement and such default continues unremedied for a period of
forty-five(45) days after notice in writing thereof;
(b) if Isuzu Motors, LTD. Japan does not provide or produce any
vehicles in and/or for markets of Japan or any other countries.
(ii) If any of the following events occur with respect to Suppliers,
Purchaser may, without serving on Suppliers any notice of demand, immediately
terminate this Agreement and/or any individual purchase agreement effected under
Section 4.4, by serving on Supplier written notice of termination:
(a) If the property of Suppliers is subject to attachment, provisional
attachment, provisional disposition, disposition by public sale,
disposition for failure to pay taxes or any other similar disposition by a
public authority; or if Suppliers file a petition or have a petition filed
against it by any person for corporate rehabilitation, corporate
reorganization, bankruptcy, or sale by public auction;
(b) If any note or draft issued or accepted by Suppliers is
dishonored, or Suppliers becomes unable to make payments on its
obligations;
(c) If Suppliers undertake a reduction of capital, a dissolution, a
transfer of all or an important portion of its business or a material
alternation or abandonment of its business; provided that, when a
resolution of the general meeting of shareholders is required to undertake
one of the above acts, this Agreement may be terminated at any time after
such resolution is adopted;
-8-
<PAGE>
(d) If a serious change arises in the assets, financial condition or
business of Suppliers, and the attainment of the purpose of this Agreement
thereby becomes impossible or Purchaser reasonably believes that it will
become impossible.
14.7 Survival Provisions
The provision of Sections 7.3, 9.1, 9.2, 12.1, 12.2, 12.3, 13.1, 13.2,
14.1, 14.2, 14.11, 14.13 and 14.14 shall survive any expiration or termination
of this Agreement.
14.8 Waiver
The failure of any party hereto at any time to require performance by the
other party of any responsibility or obligation hereunder shall in no way effect
the full right to require such performance at any time thereafter. Nor shall the
waiver by any party of a breach of any provision hereof constitute a waiver of
any succeeding breach of the same or other provision nor shall it constitute a
waiver of the responsibility or obligation itself.
14.9 Compliance with Law
Except as otherwise specifically provided in this Agreement, .each of the
parties hereto shall be responsible for compliance with and for the obtaining of
such approvals as may be required under such national, federal, state,
provincial, territorial, and local laws, rules, executive orders, regulations,
and ordinances as may be applicable to its performance of its responsibilities
and obligations under this Agreement.
14.10 Assignability
This Agreement may not be assigned by any party to any person, firm or
corporation, nor may any party transfer or assign or attempt to transfer or
assign any right or transfer or delegate any obligation or responsibility under
this Agreement to any person, firm or corporation without the prior written
consent of the other party.
14.11 Law, Construction, and Severability
This Agreement shall be governed by and construed according to the laws of
Japan. Should any provision of this Agreement be deemed in contradiction with
the laws of any jurisdiction where it is to be performed or unenforceable for
any reason, such provision shall be deemed null and void, but this Agreement
shall remain in force in all other respects.
Should any provision of this Agreement be or become ineffective because of
changes in applicable laws or interpretations thereof or should this Agreement
fail to include a provision that is required as a matter of law, the validity of
the other provisions of this Agreement shall not be affected thereby. If such
circumstances arise, Suppliers and Purchaser shall negotiate appropriate
modifications to this Agreement to reflect those changes that are required by
law.
The table of contents, Section, Article, and paragraph headings in this
Agreement are for the convenience of the parties and shall not be considered in
any question of interpretation or construction of this Agreement.
14.12 Governing Language
This Agreement and all other agreements, documents, books, manuals,
schedules, and notices that are referred to herein or supplementary hereto are
to be prepared or furnished in the English language.
-9-
<PAGE>
14.13 Disputes
Any and all disputes concerning questions of fact or law arising from or in
connection with interpretation, performance, non-conformance or termination of
this Agreement (including the validity, scope, or enforceability of this
Agreement to arbitrate) or any transaction conducted under this Agreement shall
be settled by mutual consultation between the parties in good faith as promptly
as possible, but failing amicable settlement, shall be finally settled under the
rules of conciliation and arbitration of the Japan Commercial Arbitration
Association. Any such arbitration shall take place in Tokyo, Japan, and shall be
the sole method of dispute solution. Such arbitration shall be conducted in
English.
14.14 Sole Agreement
This Agreement cancels and supersedes all previous agreements of the
parties relating to the subject matter covered herein.
There are no other agreements or understandings, either oral or in writing,
between the parties affecting this Agreement or relating to the manufacture and
supply by Supplier or the purchase by Purchaser of Products, except as otherwise
specifically provided or referred to in this Agreement.
14.15 Notices
Except as otherwise specifically provided in any other agreement, manuals,
or documents referred to in this Agreement, any notice required or permitted to
be given under this Agreement shall be in writing. Any such notice to Purchaser
shall be directed to and addressed as follows:
Purchasing Department
ICL. CO., LTD.
3-26-7 Minami oi, Shinagawa-ku
Tokyo, 140 Japan
facsimile: O3-3763-6819
Any such notice to Suppliers shall be directed to and addressed as follows:
Glas Aire Industries Inc.
3137 Grandview Highway
Vancouver, B.C. Canada, V5M 2E9
facsimile: 604-433-0221
A notice shall be either delivered to the address aforesaid or sent by
prepaid registered or certified mail or sent by telex or facsimile and properly
confirmed by prepaid registered or certified mail.
-10-
<PAGE>
IN WITNESS WHEREOF, Purchaser and Suppliers have caused this Agreement to
be executed in duplicate as of the day and Year set forth below by their duly
authorized officers.
ICL. CO., LTD. GLAS AIRE\ NDUSTRIES, INC.
SIGN: s/ Mitsuru Nagamuma SIGN: /s/ Alex Y.W. Ding
-------------------------------- ---------------------------
BY: Mitsuru Nagamuma BY: Alex Y. W. Ding
---------------------------------- ----------------------------
TITLE: Director, Purchasing TITLE: President
-------------------------------- -------------------------
DATE: First of September, 1995 DATE: First of September. 1995
------------------------ ------------------------
QUALIDUX INDUSTRIAL(B.C.)
SIGN: /s/ W. Bernie Ting As a witness for the production
-------------------------- of Door Visors under cooperation
among corporations:
BY: W. Bernie Ting
----------------------------
FEDERATION OF CANADIAN
MANUFACUTURING IN JAPAN
TITLE: General Manager
-------------------------
DATE: First of September, 1995 SIGN: /s/ Brett Davis
------------------------ ------------------
BY: Brett Davis
---------------------------
TITLE: General Manager
------------------------
DATE: First of September, 1995
-------------------------
-11-
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1996
<PERIOD-END> JAN-31-1997 JAN-31-1996
<CASH> 1,119,932 330,107
<SECURITIES> 0 0
<RECEIVABLES> 737,587 672,671
<ALLOWANCES> 0 0
<INVENTORY> 628,423 689,858
<CURRENT-ASSETS> 3,644,451 1,866,502
<PP&E> 1,863,924 1,286,373
<DEPRECIATION> 643,393 528,207
<TOTAL-ASSETS> 4,864,982 2,624,668
<CURRENT-LIABILITIES> 585,100 966,309
<BONDS> 187,498 194,201
0 0
0 0
<COMMON> 3,408,599 903,376
<OTHER-SE> 683,785 560,782
<TOTAL-LIABILITY-AND-EQUITY> 4,864,982 2,624,668
<SALES> 4,316,372 4,191,581
<TOTAL-REVENUES> 4,316,372 4,191,581
<CGS> 3,027,968 2,741,400
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,114,440 1,126,892
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (61,354) 15,732
<INCOME-PRETAX> 235,318 307,557
<INCOME-TAX> 125,518 122,973
<INCOME-CONTINUING> 109,800 184,584
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 109,800 184,584
<EPS-PRIMARY> $0.08 $0.20
<EPS-DILUTED> $0.08 $0.20
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