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, 1998
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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 of (IRS Employer Identification No.)
incorporation or organization)
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, 1998
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Common Stock, $0.01 par value 1,587,504
Transitional Small Business disclosure Format Yes No X
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<PAGE>
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, 1998 and January 31, 1998 1
Consolidated Condensed Statement of Operations
for the three months ended April 30, 1998 and 1997 2
Consolidated Condensed Statement of Cash Flow
for the three months ended April 30, 1998 and 1997 3
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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<PAGE>
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,
1998 1998
(Unaudited) (Audited)
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Assets
Current
Cash and equivalents $ 2,138,669 $ 1,645,953
Accounts receivable 793,181 1,200,451
Inventories 693,365 772,780
Prepaid expenses 12,367 19,095
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3,637,582 3,638,279
Fixed assets 1,613,336 1,408,816
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$ 5,250,918 $ 5,047,095
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ 148,416 $ --
Accounts payable and accrued liabilities 414,151 460,680
Incomes taxes payable (1,660) 92,464
Current portion - capital lease 152,744 --
----------- -----------
713,651 553,144
Deferred Income Taxes 281,327 281,327
----------- -----------
994,978 834,471
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Shareholders' Equity
Share capital 15,875 15,875
Contributed surplus 3,462,334 3,462,334
Treasury stock (236,163) (236,163)
Retained earnings 1,068,065 1,045,962
Cumulative translation adjustment (54,171) (75,384)
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4,255,940 4,212,624
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$ 5,250,918 $ 5,047,095
=========== ===========
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<PAGE>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Operations
(Unaudited)
Three Months Ended
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April 30, April 30,
1998 1997
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Sales $ 1,085,596 $ 1,195,641
Cost of sales 740,392 814,617
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Gross Profit 345,204 381,024
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Expenses
Depreciation 42,951 35,418
Research and development 102,598 95,876
Selling and distribution 79,306 86,094
General and administrative 109,351 128,518
Provision for profit sharing 3,530 5,832
Interest (24,261) (23,905)
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313,475 327,833
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Income from before income taxes 31,729 53,191
Income taxes - current 9,625 17,097
Income taxes - deferred -- --
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Net Income (loss) for the period 22,104 36,094
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Net income per share of common stock $ .014 $ .024
=========== ===========
Weighted average common shares outstanding 1,587,504 1,525,421
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See accompanying notes.
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<PAGE>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended
--------------------------
April 30, April 30,
1998 1997
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Increase (Decrease) in Cash
Cash Flows from:
Operating Activities
Net Income for the period $ 22,104 $ 36,094
Depreciation 42,951 35,418
Deferred Income Taxes -- (6,788)
Gain on sale of capital assets -- --
Net change in non-cash working capital 352,758 (176,813)
Cumulative translation adjustment 21,213 (26,535)
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Net cash (used in) operating activities 439,026 (138,624)
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Financing Activities
Increase in obligation under capital lease 161,569 --
Repayment of capital lease (8,825)
Repayment of long-term debt -- --
Purchase of treasury stock -- (58,438)
Increase (decrease) in bank indebtedness 148,416 115,797
Common stock -- --
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Net cash (used in) financing activities 301,160 57,359
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Investing Activities
Proceeds from sale of fixed assets
Purchase of capital assets (247,470) (95,670)
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Net cash used in investing activities (247,470) (95,670)
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Decrease in cash during the period 492,716 (176,935)
Cash and equivalents, beginning of period 1,645,953 1,119,932
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Cash and equivalents, end of period $ 2,138,669 $ 942,997
=========== ===========
Changes in non-cash working capital
Accounts receivable 407,270 (51,297)
Inventories 79,415 (174,878)
Prepaid expense 6,726 (42,996)
Accounts payable and accrued liabilities (46,529) 105,791
Income taxes payable (94,124) (13,433)
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$ 352,758 $ (176,813)
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See accompanying notes.
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<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financial Statement
April 30, 1998
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, 1998 and the results
of operations and cash flows for the three month periods ended April 30,
1998 and 1997
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, 1998.
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,
1998 1997
---- ----
Raw materials $496,338 $587,340
Work-in-progress 76,535 126,398
Finished goods 102,718 67,318
Supplies 17,774 22,245
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$693,365 $803,301
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5. Bank Indebtedness
April 30, April 30,
1998 1997
---- ----
Revolving Bank loan $148,416 $225,897
======== ========
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 (6.5%-January
31, 1998, 6.5%-April 30, 1998) plus 1/2%. This line of credit is renewable
annually.
The following have been provided as collateral for these loans:
(a) general assignments of accounts receivable and inventories.
(b) a Cdn. $2,000,000 demand debenture granting a first fixed charge on
certain equipment and a floating charge over all other assets of the
Company.
(c) an unlimited guarantee by the Company and its subsidiary, Glas-Aire
Industries Ltd.
6. Income (loss) per share is calculated by dividing the weighted average
number of shares of common stock outstanding each period into the income
(loss) for the period. Warrants outstanding were anti-dilutive. Treasury
stock held by the Company is not included in the number of shares
outstanding 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 decreased by 9.2 % from $1,195,641 for the three months
ended April 30, 1997, to $1,085,596 for the three months ended April 30, 1998.
This decrease resulted primarily from a general decline in automotive sales, in
particular non-U.S. based manufacturers during the first quarter of 1998.
Gross profit margins, expressed as a percentage of sales, was 31.8% for the
three months ended April 30, 1998. This was approximately the same as the 31.87%
achieved for the three months ended April 30, 1997.
Depreciation expense increased by 21.27% from $35,418 for the three months
ended April 30, 1997, to 42,951 for the three months ended April 30, 1998. This
increase was the result of bringing new equipment into service.
Expenses for research and development increased by 7.01% from $95,876 for
the three months ended April 30, 1997, to $102,598 for the three months ended
April 30, 1998. This increase resulted from R&D activities relating to a number
of new projects that led to a significant increase in engineering activities.
Selling and distribution expenses decreased by 7.88%, from $86,094 for the
three months ended April 30, 1997, to $79,306 for the three months ended April
30, 1998. This decrease was primarily due to (1) decreased commission expenses
associated with decreased sales and (2) deferral of advertising and promotion
until later in the year in 1998.
General and administrative expenses decreased by 14.91% from $128,518 for
the three months ended April 30, 1997, to $109,351 for the three months ended
April 30, 1998. This was the result of (1) gain in foreign exchange of approx
(10%), (2) a decrease in the number of persons employed in administration in
line with the lower sales, and (3) deferral of expenses to the later part of the
year.
Provision for profit sharing decreased from $5,832 for the three months
ended April 30, 1997, to $3,530 for the three months ended April 30, 1998, as a
result of the decrease in profit.
Interest income (net of interest expense) increased from $23,905 for the
three months ended April 30, 1997, to $24,261 for the three months ended April
30, 1998. This was the net result of (1) increased interest earnings on cash
deposits and (2) interest expenses increased approximately $2,012 from the
leasing cost of CNC Milling Machine Centre
Before income taxes, the Company's income decreased from $53,191 for the
three months ended April 30, 1997, to $31,729 for the three months ended April
30, 1998. This decrease in income resulted primarily from the decline in sales.
The Company's accrued income taxes decreased from $17,097 for the three
months ended April 30, 1997, to $9,625 for the three months ended April 30,
1998, as a result of the decrease in taxable income.
Net income decreased from $36,094 for the three months ended April 30,
1997, to $22,104 for the three months ended April 30, 1998, primarily as a
result of lower sales.
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<PAGE>
Financial Condition and Liquidity
For the three months ended April 30, 1998, net cash provided from operating
activities totaled $439,026, including income from operating activities of
$22,104, depreciation of $42,951, a cumulative translation adjustment of $21,213
and a net change in non-cash working capital of $352,758. Net cash from
financing activities was $301,160 that resulted from an increase in obligation
under capital lease of $161,569, repayment of capital lease of ($8,825), and an
increase in bank indebtedness of $148,416. Net cash used in investing activities
was $247,470 as a result of the purchase of capital assets. Accounts receivable
decreased by $407,270 primarily due to increased collection efforts. Inventories
decreased by $79,415 as a result of the usage of the build-up of raw materials
from the last quarter. Prepaid expenses decreased by $6,726. Accounts payable
and accrued liabilities decreased by $46,529 as a result of lower sales. Income
taxes payable decreased by $94,124 due to income tax payment due in April 1998.
Working capital at April 30, 1998, was $2,923,931 as compared to $3,085,135 at
January 31, 1998. During the next six months the company anticipates making
total capital expenditures of approximately $250,000 as follows: (1) $70,000 for
computer aided design software and related hardware, (2) $30,000 for the QA9000
(Quality Control Certification) process and (3) $150,000 for leasehold
improvements.
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, 1998.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended April 30, 1998.
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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, 1998
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GLAS-AIRE INDUSTRIES GROUP LTD.
/s/ Alex Y.W. Ding
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Alex Y.W. Ding
President and Chief Operating Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED 4/30/98 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1997
<PERIOD-START> FEB-01-1998 FEB-01-1997
<PERIOD-END> APR-30-1998 APR-30-1997
<CASH> 2,138,669 0
<SECURITIES> 0 0
<RECEIVABLES> 793,181 0
<ALLOWANCES> 0 0
<INVENTORY> 693,365 0
<CURRENT-ASSETS> 3,637,582 0
<PP&E> 1,316,201 0
<DEPRECIATION> 42,951 0
<TOTAL-ASSETS> 5,250,918 0
<CURRENT-LIABILITIES> 713,651 0
<BONDS> 9,625 0
0 0
0 0
<COMMON> 15,875 0
<OTHER-SE> 4,240,065 0
<TOTAL-LIABILITY-AND-EQUITY> 5,250,918 0
<SALES> 1,085,596 1,195,641
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<CGS> 740,392 814,617
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<OTHER-EXPENSES> 313,475 327,833
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<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 31,729 53,191
<INCOME-TAX> 9,625 17,097
<INCOME-CONTINUING> 22,104 36,094
<DISCONTINUED> 0 0
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<EPS-PRIMARY> .14 .03
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