U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________________ to ____________________
Commission file number 1-14244
GLAS-AIRE INDUSTRIES GROUP LTD.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 84-1214736
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3137 GRANDVIEW HIGHWAY, VANCOUVER, BC V5M 2E9
- --------------------------------------------------------------------------------
(Address of principal executive office)
(604) 435-8801
- --------------------------------------------------------------------------------
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at July 31, 1998
- --------------------------------------------------------------------------------
Common Stock, $0.01 par value 1,587,504
<PAGE>
Glas-Aire Industries Group Ltd.
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
July 31, 1998 and January 31, 1998 3
Consolidated Condensed Statement of Operations
for the three months ended July 31, 1998 and 1997
and six months ended July 31, 1998 and 1997 4
Consolidated Condensed Statement of Cash Flow
for the three months ended July 31, 1998 and 1997
and six months ended July 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
July 31, January 31,
1998 1998
(Unaudited) (Audited)
----------- ---------
Assets
Current
Cash and Equivalents $ 2,061,554 $ 1,645,953
Accounts receivable 1,081,437 1,200,451
Inventories 627,060 772,780
Prepaid Expenses 35,438 19,095
----------- -----------
3,805,489 3,638,279
Fixed assets 1,609,785 1,408,816
----------- -----------
$ 5,415,274 $ 5,047,095
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ -- $ --
Accounts Payable and accrued liabilities 559,315 460,680
Incomes taxes payable 71,663 92,464
Current portion - capital lease 28,729
----------- -----------
659,707 553,144
Long Term Debt
Obligation Under Capital Lease 107,063 --
Deferred Income Taxes 281,327 281,327
----------- -----------
1,048,097 834,471
----------- -----------
Shareholders' Equity
Share capital 15,875 15,875
Contributed surplus 3,462,334 3,462,334
Treasury stock (248,351) (236,163)
Retained earnings 1,243,787 1,045,962
Cumulative translation adjustment (106,468) (75,384)
----------- -----------
4,367,177 4,212,624
----------- -----------
$ 5,415,274 $ 5,047,095
=========== ===========
See accompanying notes.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
------------------------------ ------------------------------
July 31, July 31, July 31, July 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,768,732 $ 1,786,976 $ 2,854,328 $ 2,982,617
Cost of sales 1,171,631 1,238,152 1,912,023 2,052,769
----------- ----------- ----------- -----------
Gross profit 597,101 548,824 942,305 929,848
Expenses
Depreciation 48,025 39,841 90,976 75,259
Research and development 83,374 124,803 185,972 220,679
Selling and distribution 95,094 112,414 174,400 198,508
General and administrative 99,731 99,286 204,082 227,805
Provision for profit sharing 28,020 20,713 31,550 26,545
Interest (8,078) (17,869) (27,339) (41,774)
----------- ----------- ----------- -----------
346,166 379,188 659,641 707,022
----------- ----------- ----------- -----------
Income before income taxes 250,935 169,636 282,664 222,826
Income taxes - current 75,214 55,322 84,839 72,419
Income taxes - deferred -- -- -- --
----------- ----------- ----------- -----------
Net Income (loss) for the period $ 175,721 $ 114,314 $ 197,825 $ 150,407
=========== =========== =========== ===========
Net income per share of common stock $ 0.12 $ 0.08 $ 0.13 $ 0.10
Weight average common shares outstanding 1,483,512 1,509,021 1,483,512 1,509,021
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
- 4 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended Six Months Ended
------------------------------ -----------------------------
July 31, July 31, July 31, July 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from:
Operating Activities
Income from operations $ 175,721 $ 114,314 $ 197,825 $ 150,407
Depreciation 48,025 39,841 90,976 75,259
Deferred income taxes 2,529 (4,259)
Gain on sale of capital assets (5,422) (5,422)
Net change in non-cash working capital (26,535) (195,192) 326,223 (372,005)
Cumulative translation adjustment (52,297) (10,728) (31,084) (15,807)
----------- ----------- ----------- -----------
Net cash (used in) operating activities 144,914 (33,202) 583,940 (171,827)
----------- ----------- ----------- -----------
Financing Activities
Increase in obligation under capital lease -- 161,569 --
Repayment of capital lease (16,952) -- (25,777) --
Purchase of treasury stock (12,188) (30,253) (12,188) (88,687)
Increase (decrease) in bank indebtedness (148,416) 53,476 169,273
Common stock -- -- --
----------- ----------- ----------- -----------
Net cash (used in) financing activities (177,556) 23,223 123,604 80,586
----------- ----------- ----------- -----------
Investing Activities
Proceeds from sale of fixed assets 20,763 20,763
Purchase of capital assets (44,473) (329,464) (291,943) (425,137)
----------- ----------- ----------- -----------
Net cash used in investing activities (44,473) (308,701) (291,943) (404,374)
----------- ----------- ----------- -----------
Decrease in cash during the period (77,115) (318,680) 415,601 (495,615)
----------- ----------- ----------- -----------
Cash and equivalents, beginning of period 2,138,669 1,942,997 1,645,953 2,119,932
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 2,061,554 $ 1,624,317 $ 2,061,554 $ 1,624,317
=========== =========== =========== ===========
Changes in non-cash working capital
Accounts receivable $ (288,256) $ (330,755) $ 119,014 $ (382,052)
Inventories 66,305 (27,847) 145,720 (202,725)
Prepaid expense (23,071) 158,870 (16,345) 115,874
Accounts payable and accrued liabilities 145,164 (30,131) 98,635 75,660
Income taxes payable 73,323 34,671 (20,801) 21,238
----------- ----------- ----------- -----------
(26,535) $ (195,192) $ 326,223 $ (372,005)
=========== =========== =========== ===========
- 5 -
</TABLE>
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financing Statement
July 31, 1998
1. The Company believes; the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only those
which are normal and recurring in nature) necessary to present fairly, the
financial position of the Company as of July 31, 1998 and the results of
operations and cash flows for the three and six month periods ending July
31, 1998 and 1997, respectively.
2. These financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Multicorp Holdings Inc., Glas-Aire Industries
Ltd., Glas-Aire Industries, Inc., and 326362 BC Ltd. All inter-company
transactions are eliminated.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. For further
information, refer to the Company's consolidated financial statements and
footnotes thereto included in the Company's Annual Report filed on Form
10-KSB with the Securities and Exchange Commission for the fiscal year
ended January 31, 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:
July 31, July 31,
1998 1997
-------- --------
Raw materials $406,868 $605,286
work-in-progress 108,892 126,699
Finished goods 91,222 75,537
Supplies 20,078 23,626
-------- --------
$627,060 $831,148
-------- --------
5. Bank Indebtedness
July 31, July 31,
1998 1997
-------- --------
Revolving Bank loan $ 0 $279,373
-------- --------
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% July 31, 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 flowing charger over all other assets
of the Company.
(c) an unlimited guarantee by the company and its subsidiary,
Glas-Aire Industries Ltd.
6. Income (loss) per share is calculated by dividing the weighted average
number of shares of common stock outstanding each period into the income
(loss) for the period. Warrants outstanding were antidilutive. Treasury
stock held by the Company is not included in the number of shares
outstanding.
7. On May 2,1996 the Company issued 680,000 shares of its common stock in an
underwritten public offering. As a result, the Company has 1,587,504 shares
of its common stock issued and outstanding at this time.
- 6 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
- --------------------------------------------------------------------------------
Three Months Ended July 31, 1998 vs Three Months Ended July 31, 1997
- --------------------------------------------------------------------
The Company's sales decreased by 1.02% from $1,786,976 for the three months
ended July 31, 1997, to $1,768,732 for the three months ended July 31, 1998.
This decrease was due to the temporary unavailability of parts for two products
supplied by a major customer, which adversely affected shipments and sales.
Cost of sales decreased by 5.37% for the three months ended July 31, 1998,
to $1,171,631 from $1,238,152 for the three months ended July 31, 1997. This net
decrease resulted from reduced sales, a 1.03% greater than expected direct labor
and overhead charge, a decline in materials cost by 1.31%, and a gain in foreign
exchange by 3.03%. This yielded a gross profit margin of 33.76%, an improvement
from 30.71% for the three month period ended July 31, 1997.
Depreciation expense increased by 20.54% from $39,841 for the three months
ended July 31, 1997, to $48,025 for the three months ended July 31, 1998. This
increase was the result of new equipment's being brought into service.
Expenses for research and development decreased by 33.20% from $124,803 for
the three months ended July 31, 1997 to $83,374 for the three months ended July
31, 1998. This decrease was the result of a technology fee of $12,986 being
attributed to the previous year, a $5,955 reduction in travel expenses to Japan
in 1998, and a decrease in R&D activities relating to aftermarket and Japanese
projects.
Selling and distribution expenses decreased by 15.41%, from $112,414 for
the three months ended July 31, 1997, to $95,094 for the three months ended July
31, 1998. This decrease was the result of a decrease in commission expenses of
$15,348 due to direct contact by the Company with one of its major customers
after the Company's termination of services of a sales agent, the inclusion of a
warranty claim for year 1997 of $12,426 in the previous year's claim, and an
increase in promotion of new products resulting from market study.
General and administrative expenses increased from $99,286 for the three
months ended July 31, 1997, to $99,731 for the three months ended July 31, 1998,
as a result of a decrease in the number of persons employed in administration,
losses on foreign exchanges, and additional maintenance support fees paid to the
EDI program as required from major customers.
Provision for profit sharing increased by 35.28% from $20,713 for the three
months ended July 31, 1997, to $28,020 for the three months ended July 31, 1998.
This increase was the result of an increase in income.
Interest income (net of interest expense) decreased by 54.79% from $17,869
for the three months ended July 31, 1997, to $8,078 for the three months ended
July 31, 1998, as a result of an increase in interest earnings of $3,334 on cash
deposits, an increase of approximately $2,825 in interest expenses for the lease
cost of the CNC Milling Machine Centre, and interest and penalty charges of
$10,300 related to the PST (Provincial Sales Tax) audit performed for the years
1992 to 1997.
Before income taxes, the Company's income increased from $169,636 for the
three months ended July 31, 1997, to $250,935 for the three months ended July
31, 1998. This increase in income resulted primarily from a lower cost of sales
and savings on operating costs.
- 7 -
<PAGE>
The Company's current provisions for income taxes increased from $55,322
for the three months ended July 31, 1997, to $75,214 for the three months ended
July 31, 1998. This resulted from an increase in income.
As a result of the foregoing, net income increased from $114,314 for the
three months ended July 31, 1997, to $175,721 for the three months ended July
31, 1998.
Six Months Ended July 31, 1998 vs Six Months Ended July 31, 1997
- ----------------------------------------------------------------
The Company's sales decreased by 4.3% from $2,982,617 for the six months
ended July 31, 1997, to $2,854,328 for the six months ended July 31, 1998. This
decrease was due to the temporary unavailability of parts for two products
supplied by a major customer, which adversely affected shipments and sales and a
general decline in automotive sales, particularly to non-U.S. based
manufacturers during the first quarter of 1998.
Cost of sales for the six months ended July 31, 1998, improved by 6.86% to
$1,912,023 from $2,052,769 for the six months ended July 31, 1997. This
improvement resulted from a decrease in materials cost of 2.28%, a decrease in
direct labor and overhead charges of 1.23%, and a gain on foreign exchange of
approximately 3.35%. The gross profit margin increased by 1.84% to 33.01% for
the six months period ended July 31, 1998, from 31.18% for the six month period
ended July 31, 1997.
Depreciation expense increased by 20.88% from $75,259 for the six months
ended July 31, 1997, to $90,976 for the six months ended July 31, 1998. This
increase was the result of the addition of new equipment into service.
Expenses for research and development decreased by 15.73% from $220,679 for
the six months ended July 31, 1997 to $185,972 for the six months ended July 31,
1998. This decrease was due to the inclusion of a technology fee of $17,400 in
the previous year, reduced travel expense of $5,600 to Japan, and a decrease in
R & D activities relating to aftermarket and Japanese projects.
Selling and distribution expenses decreased by 12.15%, from $198,509 for
the six months ended July 31, 1997, to $174,400 for the six months ended July
31, 1998. This decrease was primarily due to a combination of a reduction in
sales commissions of 7.73% in 1998 due to the Company's elimination of a sales
agent, which resulted in the direct involvement by the Company's staff with one
of its major customers, a decrease in warranty claims of $12,000, or 6.27%,
relating to 1996 sales, and an increase of 1.85% in a marketing study of the
aftermarket and the promotion of new products.
General and administrative expenses decreased by 10.41% from $227,805 for
the six months ended July 31, 1997, to $204,082 for the six months ended July
31, 1998 as a result of a decrease in the number of persons employed in
administration by 3.05%, a gain on foreign exchange of 3.34%, a loss of 1.97% on
sales of fixed assets in 1997, and a reduction in general administration costs
of 2.07%.
Provision for profit sharing increased 18.85% from $26,545 for the six
months ended July 31, 1997, to $31,550 for the six months ended July 31, 1998,
as a result of an increase in profit.
Interest income (net of interest expense) decreased by 34.56% from $41,774
for the six months ended July 31, 1997, to $27,339 for the six months ended July
31, 1998. This decrease occurred primarily due to a decline of 1.03% in interest
bearing deposits resulting from the expenditure of funds to purchase additional
assets to support the operations of the Company, an increase of approximately
11.49% in interest expenses for the lease cost of the CNC Milling Machine
centre, and the incurring of interest penalties of $10,300, or 22.04%, related
to the PST (Provincial Sales Tax) audit performed for the years 1992 to 1997.
- 8 -
<PAGE>
Before income taxes, the Company's income increased 26.85% from $222,826
for the six months ended July 31, 1997, to $282,664 for the six months ended
July 31, 1998. This increase in income was primarily due to lower costs of
sales, savings on operating costs, and gain on foreign exchange.
The Company's current provision for income taxes increased from $72,419 for
the six months ended July 31, 1997, to $84,839 for the six months ended July 31,
1998. This increase was the result of the Company's higher income.
As a result of the foregoing, net income increased 31.53% from $150,407 for
the six months ended July 31, 1997, to $197,825 for the six months ended July
31, 1998.
Financial Condition and Liquidity
Working capital was $3,145,782 at July 31, 1998 compared to $3,085,135 at
January 31, 1998. For the six months ended July 31, 1998, net cash provided from
operating activities totaled $583,940, including income from operations of
$197,825, depreciation of $90,976, a net change in non-cash working capital of
$326,223, and a cumulative translation adjustment of $(31,084). Net cash used in
financing activities was $123,604, which resulted from an increase in obligation
under capital lease of $161,569, repayment of capital lease of $(25,777), and
repurchase of treasury stock of $(12,188). Net cash used in investing activities
was $291,943, primarily as a result of the purchase of additional capital
assets. Over the six months ended July 31, 1998, changes in non-cash working
capital occurred as follows: (i) accounts receivable decreased by $119,014
primarily due to increased collection efforts, (ii) inventories decreased by
$145,720 as a result of the usage of raw materials remaining from the previous
year, (iii) prepaid expenses increased by $16,345 due to the deposit placed on
equipment; (iv) accounts payable and accrued liabilities increased by $98,635
primarily as a result of deferral of payment until August, and (v) income taxes
payable decreased by $20,801 due to taxes' being paid by installment. During the
next six months, the Company anticipates making total capital expenditures of
approximately $200,000 as follows: (i) $20,000 for computer-aided design
software and related hardware, (ii) $150,000 for leasehold improvements, and
(iii) $30,000 for the QS9000 (Quality Control Certification) process.
- 9 -
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
a) Exhibits: There are no exhibits for the six months ended July 31, 1998.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the six
months ended July 31, 1998.
- 10 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 12, 1998
GLAS-AIRE INDUSTRIES GROUP LTD.
/s/ Alex Y. W. Ding
-------------------------------------
Alex Y. W. Ding
President and Chief Operating Officer
- 11 -
<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 06/30/98
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1997
<PERIOD-START> FEB-01-1998 MAY-01-1997
<PERIOD-END> JUL-31-1998 JUL-31-1997
<CASH> 2,061,554 0
<SECURITIES> 0 0
<RECEIVABLES> 1,081,437 0
<ALLOWANCES> 0 0
<INVENTORY> 627,060 0
<CURRENT-ASSETS> 3,805,489 0
<PP&E> 1,700,761 0
<DEPRECIATION> 90,976 0
<TOTAL-ASSETS> 5,415,274 0
<CURRENT-LIABILITIES> 659,707 0
<BONDS> 388,390 0
0 0
0 0
<COMMON> 15,875 0
<OTHER-SE> 4,351,302 0
<TOTAL-LIABILITY-AND-EQUITY> 5,415,274 0
<SALES> 2,854,328 1,786,976
<TOTAL-REVENUES> 2,854,328 1,786,976
<CGS> 1,912,023 1,171,631
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 686,980 354,244
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (27,330) (8,078)
<INCOME-PRETAX> 282,664 250,935
<INCOME-TAX> 84,839 75,214
<INCOME-CONTINUING> 197,825 175,721
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 197,825 175,721
<EPS-PRIMARY> .13 .12
<EPS-DILUTED> .13 .12
</TABLE>
