U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________ to ____________________
Commission file number 1-14244
GLAS-AIRE INDUSTRIES GROUP LTD.
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(Exact name of small business issuer as specified in its charter)
NEVADA 84-1214736
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3137 GRANDVIEW HIGHWAY, VANCOUVER, B.C. V5M 2E9
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(Address of principal executive office)
(604) 435-8801
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at April 30, 1997
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Common Stock, $0.01 par value 1,612,421
Transitional Small Business Disclosure Format Yes No X
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Glas-Aire Industries Group Ltd.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
April 30, 1997 and January 31, 1997 1
Consolidated Condensed Statement of Operations
for the three months ended April 30, 1997 and 1996 2
Consolidated Condensed Statement of Cash Flow
for the three months ended April 30, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
April 30, January 31,
1997 1997
(Unaudited) (Audited)
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Assets
Current
<S> <C> <C>
Cash and equivalents $ 942,997 $ 1,119,932
Term deposit 1,000,000 1,000,000
Accounts receivable 788,884 737,587
Inventories 803,301 628,423
Prepaid expenses 201,505 158,509
Deferred Offering Costs -- --
----------- -----------
3,736,687 3,644,451
Fixed assets 1,280,783 1,220,531
$ 5,017,470 $ 4,864,982
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ 225,897 $ 110,100
Accounts payable and accrued liabilities 565,529 459,738
Incomes taxes payable 1,829 15,262
Current portion - long term debt -- --
Current portion - capital lease -- --
----------- -----------
793,255 585,100
Long Term Debt
Deferred Income Taxes 180,710 187,498
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973,965 772,598
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Shareholders' Equity
Share capital 16,124 16,124
Contributed surplus 3,539,951 3,539,951
Treasury stock (205,914) (147,476)
Retained earnings 735,728 699,634
Cumulative translation adjustment (42,384) (15,849)
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4,043,505 4,092,384
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$ 5,017,470 $ 4,864,982
=========== ===========
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<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Operations
(Unaudited)
Three Months Ended
----------------------------------------
April 30, April 30,
1997 1996
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<S> <C> <C>
Sales $ 1,195,641 $ 787,363
Cost of sales 814,617 507,088
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Gross Profit 381,024 280,275
Expenses
Depreciation 35,418 21,517
Research and development 95,876 49,903
Selling and distribution 86,094 57,690
General and administrative 128,518 96,078
Provision for profit sharing 5,832 4,395
Interest (23,905) 3,182
----------- -----------
327,833 232,765
Income from before income taxes 53,191 47,510
Income taxes - current 17,097 15,543
Income taxes - deferred
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Net income (loss) for the period 36,094 31,967
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Net income per share of common stock $ 0.03 $ 0.03
=========== ===========
Weighted average common shares outstanding 1,389,038 932,421
=========== ===========
See accompanying notes.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended
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April 30 April 30
1997 1996
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Increase (Decrease) in Cash
Cash Flows from:
Operating Activities
<S> <C> <C>
Net income for the period $ 36,094 $ 31,967
Depreciation 35,418 21,517
Deferred income taxes (6,788) 1,093
Gain on sale of capital assets
Net change in non-cash working capital (176,813) (233,460)
Cumulative translation adjustment (26,535) 5,429
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Net cash (used in) operating activities (138,624) (173,454)
Financing Activities
Decrease in obligation under capital lease (7,339)
Repayment of long-term debt (13,537)
Purchase of treasury stock (58,438)
Share offering expenses
Increase (decrease) in bank indebtedness 115,797 (126,986)
Common stock 64,000
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Net cash (used in) financing activities 57,359 (83,862)
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Investing Activities
Proceeds from sale of fixed assets
Purchase of capital assets (95,670) (43,794)
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Net cash used in investing activities (95,670) (43,794)
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Decrease in cash during the period (176,935) (301,110)
Cash and equivalents, beginning of period 1,119,932 330,107
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Cash and equivalents, end of period $ 942,997 $ 28,997
=========== ===========
Changes in non-cash working capital
Accounts receivable $ (51,297) $ 215,190
Inventories (174,878) 13,500
Prepaid expense (42,996) (146,208)
Accounts payable and accrued liabilities 105,791 (230,725)
Income taxes payable (13,433) (85,217)
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$ (176,813) $ (233,460)
=========== ===========
See accompanying notes.
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</TABLE>
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Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financial Statement
April 30, 1997
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
those which are normal and recurring in nature) necessary to present fairly
the financial position of the Company as of April 30, 1997 and the results
of operations and cash flows for the three month periods ended April 30,
1997 and 1996.
2. These financial statements included the accounts of the Company and its
wholly-owned subsidiaries, Multicorp Holdings Inc., Glas-Aire Industries
Ltd., Glas-Aire Industries, Inc., and 326362 B.C. Ltd. All inter-company
transactions are eliminated.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. For further
information, refer to the Company's consolidated financial statements and
footnotes thereto included in the Company's Registration Statement filed on
Form 10K-SB with the Securities and Exchange Commission for the fiscal year
ended January 31, 1997.
3. Certain comparative figures from the prior year have been reclassified to
conform with the current year's presentation.
4. Inventories by component are as follows:
April 30, April 30,
1997 1996
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Raw materials $587,340 $513,661
Work-in-progress 126,398 82,392
Finished goods 67,318 66,204
Supplies 22,245 14,101
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$803,301 $676,358
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5. Bank Indebtedness
April 30, April 30,
1997 1996
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Revolving Bank loan $225,897 $128,940
======== ========
The revolving bank loan is a Cdn. $1,000,000 overdraft facility, which is
due on demand and bears interest at Canadian bank prime rates
(4.75%-January 31, 1997, 4.75%-April 30, 1997) plus 1/2%. This line of
credit is renewable annually.
The following have been provided as collateral for these loans:
(a) general assignments of accounts receivable and inventories.
(b) a Cdn. $2,000,000 demand debenture granting a first fixed charge on
certain equipment and a flowing charger over all other assets of the
Company.
(c) an unlimited guarantee by the Company and its subsidiary, Glas-Aire
Industries Ltd.
6. Income (loss) per share is calculated by dividing the weighted average
number of shares of common stock outstanding each period into the income
(loss) for the period. Warrants outstanding were anti-dilutive. Treasury
stock held by the Company is not included in the number of shares
outstanding
7. On May 2, 1996, the Company issued 932,421 shares of its common stock in an
underwritten public offering. As a result, the Company has 1,612,421 shares
of its common stock issued and outstanding at this time.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Result of Operations
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The Company's sales increased by 52% from approximately $787,363 for the
three months ended April 30, 1996 to $1,195,641 for the three months ended April
30, 1997. This increase was primarily due to the addition of new customers, and
orders from existing customers.
Gross profit margins, expressed as a percentage of sales, decreased from
35.6% for three months ended April 30, 1996 to 31.9% for the three months ended
April 30, 1997. As a percentage of sales, the gross profit margin declined due
to normal problems associated with the introduction of new products into
manufacturing during this quarter.
Depreciation expense increased by 64.6% from $21,517 for the three months
ended April 30, 1996 to $35,418 for the three months ended April 30, 1997. This
increase was the result of bringing new equipment into service.
Expenses for research and development increased by 92.1% from $49,903 for
the three months ended April 30, 1996 to $95,876 for the three months ended
April 30, 1997. This increase resulted from R&D activities relating to a number
of new projects which led to a significant increase in engineering activities.
Selling and distribution expenses increased by 49.2%, from $57,690 for the
three months ended April 30, 1996 to $86,094 for the three months ended April
30, 1997. This increase was primarily due to increased commission expenses
associated with increased sales.
General and administrative expenses increased by 34% from $96,078 for the
three months ended April 30, 1996, to $128,518 for the three months ended April
30, 1997, as a result of (1) increased consulting and legal fees relating to the
Company becoming a fully reporting public company, and (2) losses on foreign
exchange. Excluding the expenses relating to being a public company, the general
administrative expenses were actually lower by $10,312 or 10.6% from the same
period in 1996. This is due to continuing efforts in automation at the office
level and the general use of business systems which have now reached a plateau
and should level-off.
Provision for profit sharing increased by 33% from $4,395 for the three
months ended April 30, 1996 to $5,832 for the three months ended April 30, 1997,
as a result of the increase in profit.
Interest income (net of interest expense) increased from ($3,182) for the
three months ended April 30, 1996 to $23,905 for the three months ended April
30, 1997, as a result of interest earned on cash deposits obtained from the
public offering.
Before income taxes, the Company's income increased from $47,510 for the
three months ended April 30, 1996 to $53,191 for the three months ended April
30, 1997. This increase in income resulted primarily due to higher sales.
The Company's accrued income taxes increased from $15,543 for the three
months ended April 30, 1996 and $17,097 for the three months ended April 30,
1997 as a result of the increase in taxable income.
Net income increased from $31,967 for the three months ended April 30, 1996
to $36,094 for the three months ended April 30, 1997, primarily as a result of
increased sales.
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<PAGE>
Financial Condition and Liquidity
For the three months ended April 30, 1997, net cash used in operating
activities totaled $138,624, including income from operations of $36,094 and
depreciation of $35,418, and a net change in non-cash working capital of
($176,813). Net cash from financing activities was $57,359 which resulted from a
increase in bank indebtedness of $115,797, and repurchase of shares for $58,438.
Net cash used in investing activities was $95,670, as a result of the purchase
of capital assets. Accounts receivable increased by $266,487 primarily due to
increased sales from customers, Inventories increased by $188,378 as a result of
build-up of raw materials for future products sold. Prepaid expenses decreased
by $103,212 due to expenses incurred in the same period in 1996 that were
associated with the Company's public offering. Accounts payable and accrued
liabilities increased by $336,516 as a result of building up for higher sales
volume in the second quarter in 1997. Income taxes payable decreased by $71,784
due to income tax payment due in April 1997. Working capital at April 30, 1997,
was $2,943,432 compared to $3,059,351 at January 31, 1997.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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a) Exhibits: There are no exhibits for the three months ended April 30, 1997.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended April 30, 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 13, 1997
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GLAS-AIRE INDUSTRIES GROUP LTD.
/s/ Alex Y.W. Ding
-------------------------------------
Alex Y.W. Ding
President and Chief Operating Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1996
<PERIOD-END> APR-30-1997 APR-30-1996
<CASH> 1,942,997 0
<SECURITIES> 0 0
<RECEIVABLES> 788,884 0
<ALLOWANCES> 0 0
<INVENTORY> 803,301 0
<CURRENT-ASSETS> 3,736,687 0
<PP&E> 1,316,201 0
<DEPRECIATION> 35,418 0
<TOTAL-ASSETS> 5,017,470 0
<CURRENT-LIABILITIES> 793,255 0
<BONDS> 180,710 0
0 0
0 0
<COMMON> 16,124 0
<OTHER-SE> 4,027,381 0
<TOTAL-LIABILITY-AND-EQUITY> 5,017,470 0
<SALES> 1,195,641 787,363
<TOTAL-REVENUES> 1,195,641 787,363
<CGS> 814,617 507,088
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 327,833 232,765
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 53,191 47,510
<INCOME-TAX> 17,097 15,543
<INCOME-CONTINUING> 36,094 31,967
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 36,094 31,967
<EPS-PRIMARY> .03 .03
<EPS-DILUTED> .03 .03
</TABLE>
