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, 1998
[ ] 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
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Common Stock, $0.01 par value Pacific Stock Exchange
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: $6,409,954
The aggregate market value of the issuer's voting stock held as of January 31,
1998, by nonaffiliates of the issuer was $2,809,752.
As of January 31, 1998, issuer had 1,587,504 shares of its $0.01 par value
common stock outstanding.
Transitional Small Business Disclosure Format. Yes X No
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<PAGE>
TABLE OF CONTENTS
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PART I PAGE
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a
Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
Item 8. Financial Statements and Supplementary Data--
Independent Auditor's Report 19
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the
Registrant 19
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management 23
Item 13. Certain Relationships and Related Transactions 24
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 26
SIGNATURES 27
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PART I
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Item 1 - Business
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Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below under "Factors That May Affect Future
Results," as well as those discussed elsewhere in this Form 10-KSB.
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.
During the fiscal year ended January 31, 1998, approximately 95% 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
American Operations, 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, 1996, 1997 and 1998.
Year ended January 31,
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1996 1997 1998
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thousands of United States dollars)
United States $3,420 82% $3,121 72% 5,153 80%
Canada 503 12% 620 14% 551 9%
Japan 198 5% 491 12% 585 9%
Other 71 1% 84 2% 121 2%
Industry Overview
The Company operates in a diverse, expanding automotive products market.
The Specialty Equipment Market Association's ("SEMA") '1997 Market Study'
indicated that in 1996, this market segment ( the typical industry definition
states that automotive specialty equipment is all products and services used to
modify the performance, appearance, and/or handling of vehicles) reached $6.32
billion at the manufacturing level and retail sales were $17.65 billion, an
increase of 45.2 percent from 1990's sales of $4.35 billion. In comparison, the
total number of cars and light trucks registered in the U.S. increased 10.6
percent, going from 179 million in 1990 to 198 million in 1996.
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The market segment, Specialty Accessories and Appearance Products accounted
for the largest share of 1996 sales in the specialty equipment market
representing approximately 51.1% or $3.23 billion at the manufacturing level.
The other two segments: Racing and Performance; and Wheels, Tires and Suspension
Components had an estimated 24.1% and 24.8% market share, respectively.
Management considers the Company's products: sunroof wind deflectors, hood
protectors/deflectors and rear air deflectors to fall within the Specialty
Accessories and Appearance Product category. Management intends to utilize its
relationships with the parts & accessories department of various auto makers to
promote these appearance products.
During 1996 U.S. manufacturers sales of light-truck specialty equipment
products reached an estimated $1.80 billion, and retail sales were approximately
$5.03 billion, representing 28.5 percent of the overall specialty equipment
market. Truck sales continued their six year rise capturing 43.7 percent of new
vehicle (i.e., vehicles with a gross vehicle weight of 10,000 pounds or less )
unit sales for calendar year 1996. According to Keith Crain of Automotive News,
March 23, 1998: "the hot segment in the next couple of years is going to be the
all-wheel-drive four-door station wagon." Sales of the Company's products for
light trucks and station wagons include its hood protectors and rear air
deflectors had also increased steadily in recent years and the Company intends
to continue to promote these products in the U.S.
According to Automotive News, January 19, 1998, Japan's new vehicle sales,
snapped a four-year streak of increases and fell 5 percent from 1996, to 6.73
million units. The year started strong as buyers rushed to beat an April 1 rise
in sales tax. Management believes that a foundering Japanese economy combined
with several major corporate bankruptcies caused sales to fall for the rest of
the year. Industry executives are hoping for a rebound in the second half of
1998 on expectations that the Japanese government will complete the economic
stimulus package. Sales of the Company's most popular product, sunroof wind
deflectors managed to increase slightly contrary to the decline in new vehicle
sales.
According to SEMA, in 1996, 14.1% of vehicle owners purchased their
accessories/appearance products from new-vehicle dealers (i.e., the network
through which the Company's products are sold to the ultimate consumers) and
38.8% purchased these products directly through mail order and the remaining
47.1% from various sources in the after-market distribution network. Management
of the Company is exploring the possibility of expanding the Company's method of
distribution to include non-dealership retail outlets. See " --Business
Strategy--New Distribution Channel."
Business Strategy
Management's strategies for future operations and expansion are as follows:
Increasing production capacity/efficiency. During the past year, the third
CNC (Computer Numeric Control) router has been added, increasing the machining
capacity and R&D/Engineering capability. Further, a CNC mill has also been
purchased and successfully commissioned to improve the lead time of
prototype/production tooling for thermoforming. In the past, the Company had to
depend upon subcontractors for milling of large aluminum tools for
thermoforming. The limited number of such subcontractors in the Pacific
Northwest with mills suitable for this kind of work, limited the Company's lead
time enhancement efforts. Management believes that this mill will provide the
surface requirements for the Company's products to a demanding market segment
more cost effectively than in the past. Management also intends to increase the
efficiency of thermoforming by utilizing multi-task tools. The use of multi-task
tools has already started. Another MAAC (a semi-automatic, rotary thermoforming
machine considered a key capital resource for the Company's production) machine
will be
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considered if and when justified by the increased business. Management believes
that Work-in-Progress ("WIP") will be significantly reduced through the use of a
powerful production planning program (developed by the Company and integrated
into the computerized business systems), which should improve the overall
efficiency of material handling on the factory floor. If WIP is reduced, this
will also free-up scarce factory floor space and have a favorable impact on the
inventory carrying costs. This particular strategy of WIP reduction avoids the
purchase of expensive material handling equipment (e.g. conveyor system).
Management also intends to focus its efforts upon improving the sales to
overhead ratio and increase the Company's gross margin by reorganization, the
use of more effective tools and better utilization of resources.
Increasing sales to automobile manufacturers. Approximately 95% 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
Thyssen Nippon Co. Ltd. (a representative based in Japan) to increase both its
customer base and sales to existing clients in Japan. Marketing efforts in North
America are supported by B/T Western Corporation of California and Illinois 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. During
the last year, the Company established a relationship with Daihatsu Motor Co.
Ltd. (Japan) for the manufacture of products. Management is very pleased with
the development of this relationship because the Company's products will be
utilized as production parts (not accessories). The first associated shipment
was made in April 1998. Management believes that the addition of Daihatsu to the
Company's client list will enhance the Company's reputation in the automotive
industry, and intends to use this success in its efforts to penetrate deeper
into the Japanese automotive market.
New distribution channel. Traditionally, a majority of the Company's
products are 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 joint venture with two
reputable marketing/sales professionals in California, under Distinctive
Motoring Inc. (DMI). DMI is scheduled to start test marketing in April 1998.
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. Last
year, the Company carried 3% of its products into the aftermarket through Mac
Neil Automotive Products Limited, however, this channel proved less than
effective due to incompatibility of two companies' marketing strategies.
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
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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.
Door visors. In 1996, the Company worked on a "door visor project" for
Isuzu Car Life Company Limited of Japan ("ICL"). This project was successfully
brought to prototype stage but canceled before it could be carried into
production due to manufacturing delays attributable to the Company's
subcontractor for injection moulded products, and difficulties with procurement
of raw material acceptable to ICL. Although, at this time, the revival of the
project with ICL is remote, the Company will seek other opportunities to utilize
the technology it has developed. At present, management believes that no
injection moulded door visors are being manufactured in North America due to the
lack of technology related to moulding of such large parts with exacting
requirements. In Japan, the door visor business is estimated at $100 million
dollars per year at the factory level. Management believes that the U.S.
represents a significant potential market for door visors. Although there can be
no assurance, management is optimistic that the Company will be able to obtain
Canadian Government's funding for its marketing activities of door visors in the
United States.
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 viable 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, 1996, 1997 and 1998.
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Fiscal year ended
January 31,
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Product Line 1996 1997 1998
------------ ---- ---- ----
Sunroof wind deflectors 66% 54% 52%
Hood protectors 21% 31% 22%
Rear air deflectors 13% 15% 26%
New Products. The Company intends to maintain its generic product groups
(i.e. sunroof wind deflectors, hood protectors and rear air deflectors),
however, it plans to upgrade its product offerings in all 3 categories to
address its clients'/prospects' new, more stringent requirements in terms of
surface finish, complex shapes, alternate attachment mechanisms and dimensional
accuracy. This strategy is expected to increase the Company's competitiveness
and help expand its target market, especially in Japan.
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
original equipment manufacturers ("OEMs"), 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. The Company will
attempt to counteract this with improved lead times, as a result of using more
efficient design software and milling its own prototype tools for thermoforming.
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, 1998, sales in the United States accounted for approximately 81% of the
Company's sales (including sales to United States subsidiaries of foreign
automobile manufacturers). Canada accounted for 9% and Japan accounted for 9% of
the Company's sales during the fiscal year ended January 31, 1998.
As reflected below, the Company has three major customers who account for
9% or more of the Company's sales:
<TABLE>
<CAPTION>
Percent of Company's Sales
Fiscal year ended
January 31,
------------------------------
Customer Products 1996 1997 1998
-------- -------- ---- ---- ----
<S> <C> <C> <C> <C>
Nissan Motor Corporation Sunroof wind deflectors, 35% 31% 34%
(in U.S.A) hood protectors and rear
air deflectors
Honda Access America Inc.(1) Sunroof wind deflectors 25% 25% 21%
and rear air deflectors
Subaru of America Inc. Sunroof wind deflectors 11% 9%
and rear air deflectors
</TABLE>
(1) Prior to December 1994, the customer was American Honda Motor Co., Ltd.
During the fiscal year ended January 31, 1998, approximately 11 other
customers accounted for 36% of the Company's sales.
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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, Subaru of America Inc.,
General Motors Corporation in the USA, Toyota Tususho America Inc. 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 the majority of its customers 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.
Manufacturing
The Company currently manufactures and assembles its products at its plant
in Vancouver, B.C., Canada. The Company's current line of products are produced
primarily from acrylic based raw materials, using thermoforming. Thermoforming
involves heating a sheet of acrylic to soften it and then molding the softened
acrylic into the desired shape. The Company is able to meet the stringent
Japanese surface requirements by using an enhanced thermoforming process it has
developed, using milled aluminum tools, in a clean-air facility. 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, 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. Last year, the
Company completed the installation of an extensive dust containment system and
implemented complimentary operations to meet the more stringent requirements of
some of its customers.
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 all products 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 emphasizes that quality is the responsibility of
every employee. 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. In September 1997, the Company
appointed a professional as the QS9000 Coordinator, prepared/published its
QS-9000 Quality Manuals, trained its employees and had a "pre-assessment" done
by QMI (Quality Management Institute) in December 1997: the Company intends to
complete the implementation process by fall of 1998 then apply for
certification. It must be noted that substantial effort/expense is required to
implement all of the practices mandated by QS-9000. Management is optimistic
that the Company will receive its certification before the end of calendar 1999.
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 two sales representatives in the United States, who have
established relationships with large automobile manufacturers and a distribution
arrangement with a Company in Japan. The Company intends to augment its
marketing/sales efforts in Japan by establishing an office there and moving its
Japanese Technical Liaison Officer from Vancouver B.C. to Japan. 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 as well as other promotional
matter will be reviewed/updated to include new products and processes, when
necessary. A new brochure was published in April 1997 also new display materials
were created for trade shows etc.
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- 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 prospects 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.
Door visors. The Company will seek opportunities to utilize the technology
it has developed related to injection moulded door visors. Management does not
believe that injection moulded door visors are being manufactured in North
America due to the lack of technology related to moulding of such large parts
with exacting requirements. In Japan, the door visor business is estimated at
$100 million dollars per year at the factory level. Management believes that the
U.S. represents a significant potential market for door visors. Although there
can be no assurance, management is optimistic that the company will be able to
obtain Canadian government funding for its marketing activities of door visors
in the United States.
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. The Company
is attempting to create a new distribution channel into the aftermarket through
a joint venture with two reputable marketing/sales professionals in California,
under Distinctive Motoring Inc. (DMI). DMI is scheduled to start test marketing
in April 1998.
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 as well as process development
capabilities are important to the future success of the Company's business. The
Company has three 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, 1996, 1997 and
1998, the Company spent approximately $264,856, $395,099 and $393,182,
respectively, towards research and development. The increase in research and
development costs from 1996 to 1998 resulted from increased research and
development activities associated with development of new products and
improvements to existing products. Research and Development activities have been
directed towards refinement of a convenient hood protector attachment system
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using adhesion, research into various materials used for thermoforming tools and
development of sophisticated software to facilitate complex machining of
deflector blades. Management expects that this trend of increased spending on
research and development activities will continue with emphasis upon procurement
of an advanced CAD/CAM (Computer Aided Design/Computer Aided Manufacturing)
software and related hardware. This strategy is expected to reduce the typical
design time by 30%. 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
current cycle time for product development ranges 3-6 months. The use of
advanced CAD/CAM combined with in-house milling of thermoforming tools is
projected to shrink this cycle time to 2-4 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, in this case,
tooling costs 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 is Plastic Form (a
subsidiary of Mascotech of the U.S.). In the hood protector and rear air
deflector market, its major competitor is still Autotron (a subsidiary of
Deflecta-Shield).
Management believes that the principal competitive factors in the OEM
automobile accessories industry, in order of importance, are quality, customer
service and price. Management of the Company believes that the Company can
effectively compete 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, 1998, the Company employed 52 production workers, 7
research and development personnel, 2 clerical/administrative staff and 3
management staff members. In addition, the Company has a contract with a
research and development company with 4 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.
9
<PAGE>
Factors That May Affect Future Results
Major Customers. The Company has three customers which, together, accounted
for 64% of its sales during the fiscal year ended January 31, 1998. There can be
no assurance that these customers will continue to purchase the Company's
products at these levels in the future. The loss of any one of these major
customers, or a significant reduction in their purchases from the Company, would
have a material adverse effect upon the Company and its operations.
Dependence Upon Automobile Industry. The Company's products consist
exclusively of automobile accessories, specifically sunroof wind deflectors,
hood protectors and rear air deflectors, which are sold to OEMs. Accordingly,
the market for the Company's products is tied to the success of the automobile
industry, and the success of the Company is dependent upon that single industry.
A significant decline in the automobile industry, in general, over which the
Company would have no control, could have a serious adverse effect on the
Company and its business. In addition, economic factors adversely affecting
automobile production and discretionary consumer spending could have a material
adverse effect on the Company's results of operations.
Dependence Upon Japanese Automobile Manufacturers. A significant percentage
of the Company's sales were to Japanese automobile manufacturers or United
States or Canadian subsidiaries of Japanese automobile manufacturers. The
passage of protectionist legislation, including increased import tariffs, or
public sentiment against imports could result in a decrease in sales of Japanese
automobiles which would have a direct negative impact on the Company's sales. In
addition, the significant economic problems being experienced in Japan could
have a material and adverse affect upon the Company's Japanese customers, which
could materially and adversely affect the Company. Although management expects
that the Company's sales will be influenced by the unfavorable economic
situation in Japan, management believes that the Company will be able to address
sales declines from that segment of its market by sales of new products to the
Company's North American customers. Further, the devaluation of the Japanese Yen
could result in Japanese automobile manufacturers looking to Japanese suppliers
of automobile accessories which also could have a serious negative impact on the
Company's sales.
Dependence Upon Key Personnel. The Company's future performance will depend
to a significant extent upon the efforts and abilities of certain members of
senior management as well as upon the Company's ability to attract and retain
qualified engineering, technical, design, marketing and production personnel. In
particular, the Company is dependent upon the experience and abilities of Edward
Ting, the Company's Chief Executive Officer and the Chairman of its Board of
Directors, Alex Ding, the Chief Operating Officer and President of the Company,
and Omer Esen the General Manager and Chief Financial Officer of the Company.
Accordingly, the loss of the services of Mr. Ting, Mr. Ding, Mr. Esen or other
key personnel could have a material adverse effect on the Company and its future
operations. If Mr. Ting, Mr. Ding, or Mr. Esen were to be unavailable for any
reason, there can be no assurance that the Company would be able to employ a
qualified person or persons on terms suitable to the Company.
Competition. The Company's sales and profitability should be considered in
light of the competitive environment in which the Company operates. The
Company's business is in an industry which is highly competitive, and many of
its competitors, both local and international, have substantially greater
technical, financial and marketing resources than the Company. The principal
factors which determine the Company's competitive position include quality,
customer service and price. Management believes that its research and
development capabilities, concentration on increased production efficiencies and
commitment to customer service and product innovation will enable the Company to
continue to compete effectively. However, there can be no assurance that the
Company's products will be competitive in the face of advances in product
technology developed by the Company's competitors or by automobile manufacturers
themselves. In addition, there are no significant technological or manufacturing
barriers to entry into the automobile accessories business in which the Company
operates.
10
<PAGE>
Currency Fluctuation. The Company's sales are principally transacted in
United States dollars, whereas its labor, overhead and some component costs are
paid in Canadian dollars. Fluctuations in the value of the United States dollar
versus other currencies (primarily the Canadian dollar and the Japanese yen),
and fluctuations in the relative values of those currencies, may have an impact
on the Company's financial performance. The Company does not engage in hedging
activities with respect to currency fluctuations. Although, to date, the Company
has avoided significant losses from currency fluctuations, there can be no
assurance that the Company will be able to avoid such losses from currency
fluctuations in the future.
Dependence on Component and Raw Materials Suppliers. The Company purchases
raw materials, primarily acrylic, and certain component parts used in the
manufacture of its products from various suppliers. The Company does not have
long-term supply agreements with any of its suppliers. Although the Company does
not anticipate significant delays or disruption in the manufacture and delivery
of its raw materials or components, there can be no assurance that delays or
disruptions will not occur. The loss or breakdown of the Company's relationships
with its suppliers could subject the Company to delays in the delivery of its
product to customers and loss of customers. In addition, increased prices for
raw materials or component parts could have a material adverse effect on the
Company's profitability.
Manufacturing Risks. The Company's business is subject to many of the risks
inherent in the manufacturing business, including risks associated with
production equipment failure, fluctuating costs of raw materials and component
parts, shortages of raw materials, changes in governmental regulations, labor
shortages, work stoppages and other labor difficulties. Any significant
interruption of manufacturing activities could have a material adverse effect on
the Company's operations.
Product Obsolescence and 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.
Dependence on a Limited Number of Products. The Company manufactures and
sells sunroof wind deflectors, hood protectors and rear air deflectors for cars,
light trucks and vans. The Company's sales of each of these products are
dependent on the popularity of the type of vehicle or the vehicle accessory to
which the product relates. For example, a decline in popularity of sunroofs
would result in decreased sales of sunroof wind deflectors while a decline in
popularity of light trucks (which includes sport-utility vehicles as well as
pickup trucks) and mini-vans would result in decreased sales of hood protectors
and rear air deflectors. Although not anticipated in the foreseeable future,
such events could have a material adverse effect on the Company's business.
Important Factors related to Forward-Looking Statements and Associated
Risks. This Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the products and
future economic performance of the Company. The forward-looking statements
included herein are based on current expectations that involve a number of risks
and uncertainties. These forward-looking statements are based on assumptions
that the Company will continue to develop, market and ship products on a timely
basis, that competitive conditions within the automotive industry will not
change materially or adversely, that demand for the Company's products will
remain strong, that the Company will retain existing customers and key
management personnel, that the Company's forecasts will accurately anticipate
market demand and that there will be no material adverse change in the Company's
operations or business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the results
contemplated in forward-looking information will be realized. In addition, the
business and operation of the Company are subject to substantial risks which
increase the uncertainty inherent in such forward-looking statements. In light
of the significant uncertainties inherent in the forward-looking information
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
11
<PAGE>
Item 2 - Properties
- -------------------
The Company currently rents on a month-to-month basis 21,777 square feet of
factory, warehouse and office space located at 3137 Grandview Highway,
Vancouver, B.C., Canada V5M 2E9 from two unaffiliated parties. The current total
rent is CDN$9,779 per month. The Company is responsible for its share of common
area expenses and maintenance.
The Company also rents on a month-to-month basis 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.
Although these facilities are adequate for the Company's present level of
business, the configuration of the factory space limits the Company's ability to
make improvements to productivity through the use of manufacturing cells.
Management believes that a cost effective solution to permit the use of
manufacturing cells, involves building a mezzanine to raise the offices above
the factory floor, which should allow expansion of the effective factory floor
by 10%. Further space requirements would necessitate moving to a larger
premises.
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.
12
<PAGE>
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.
Quarter Ended High Bid Low Bid
------------- -------- -------
Fiscal 1998
May 1 thru July 31, 1997 $2.125 $1.625
August 1 thru October 31, 1997 $3 $2
November 1 thru January 31, 1998 $3.25 $2.50
The closing bid price of the Common Stock as of April 24, 1998, was $2.50
per share. As of January 31, 1998, the Company had approximately 30 shareholders
of record and estimates that its Common Stock was beneficially owned by in
excess of 500 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, 1997 and 1998 and for the fiscal years ended January
31, 1996, 1997 and 1998 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."
13
<PAGE>
<TABLE>
<CAPTION>
As of January 31,
--------------------------------------------
Balance Sheet Data 1997 1998
(In thousands of United States dollars, except share data)
<S> <C> <C>
Working capital $ 3,059 $ 3,086
Total assets 4,865 5,047
Long-term debt --- ---
Obligation under capital lease 0
Deferred income taxes 187 281
Shareholders' equity 4,092 4,213
Year ended January 31,
--------------------------------------------
Income Statement Data 1996 1997 1998
---- ---- ----
Sales $ 4,192 $ 4,316 $6,410
Cost of sales 2,742 3,028 4,506
--------- --------- ------
Gross profit 1,450 1,288 1,904
--------- --------- ------
Research and development 265 395 393
Selling and distribution 326 282 386
General and administrative 503 414 528
Provision for profit sharing 32 23 68
Interest 16 (61) (74)
--------- --------- ------
Total expenses 1,142 1,053 1,301
--------- --------- ------
Income before income taxes 308 235 603
Income taxes 123 126 257
--------- --------- ------
Net income $ 185 $ 110 $346
========= ========= ======
Earnings per share $ 0.20 $ 0.08 $ 0.23
========= ========= ======
Weighted average number of
shares outstanding 921,890 1,426,038 1,519,405
</TABLE>
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 $4,191,581 for the fiscal
year ended January 31, 1996, to $4,316,372 for the fiscal year ended January 31,
1997 and to $6,409,954 for the fiscal year ended January 31, 1998. The Company
had net income of $184,584 in the fiscal year ended January 31, 1996, with a
decrease to $109,800 in net income for the fiscal year ended January 31, 1997,
and an increase to $346,328 in net income for the fiscal year ended January 31,
1998. Gross profit margins decreased to 34.6% for the fiscal year ended January
31, 1996, and to 29.8% for the fiscal year ended January 31, 1997, and to 29.7%
for the fiscal year ended January 31, 1998 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 efficiency through the purchase of additional
14
<PAGE>
equipment and machinery. Further, management also intends to focus its efforts
upon improving the sales to overhead ratio and increase the Company's gross
margin by reorganization, the use of more effective tools and better utilization
of resources. 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,
-------------------------------------------
1996 1997 1998
-------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 65.4 70.2 70.3
----- ----- -----
Gross profit 34.6 29.8 29.7
----- ----- -----
Research and development 6.3 9.2 6.1
Selling and distribution 7.8 6.5 6.0
General and administrative 12.0 9.6 8.2
Provision for profit sharing 0.8 0.5 1.1
Interest 0.4 (1.4) (1.1)
----- ----- -----
Income before income taxes 7.3 5.4 9.4
Income taxes 2.9 2.9 4.0
----- ----- -----
Net income 4.4 2.5 5.4
===== ===== =====
Year Ended January 31, 1998 Compared to Year Ended January 31, 1997
Sales. The Company's sales increased by 48.5% from $4,316,372 for the year
ended January 31, 1997, to $6,409,954 for the year ended January 31, 1998. This
increase resulted primarily (1) from the addition of new customers, (2) sales of
new parts, and (3) additional orders from existing customers. Revenues from the
Company's three major customers accounted for approximately 64% of the Company's
sales during the year ended January 31, 1998.
Gross Profit. Gross profit margins, expressed as a percentage of sales,
decreased slightly from 29.8% for the year ended January 31, 1997 to 29.7%
$1,904,065 for the year ended January 31, 1998. This net decrease of 0.14% was
due primarily to (1) an increase in the value of Canadian dollar which
diminished the exchange rate benefit reflected in the gross profit margin of the
Company for the prior fiscal year, (2) an increase in depreciation due to the
placement new equipment service, and (3) an increase in direct labor and
overhead cost.
Research and Development. Expenses for research and development decreased
slightly by 0.48% from $395,099 for the year ended January 31, 1997, to $393,182
for the year ended January 31, 1998. This decrease was primarily due to
increased utilization of the Company's Engineering department for R&D
activities.
Selling and Distribution. Selling and distribution expenses increased by
37%, from $281,669 for the year ended January 31, 1997, to $386,098 for the year
ended January 31, 1998. This increase was primarily due to (1) the increase of
$19,548 travel & promotion expenses relating to the Company's marketing efforts,
(2) the increase of $72,670 commission expenses from the addition of new
customers and volume increase in sales order from existing customers, and (3) an
increase of 1996 warranty claims of $12,202.
15
<PAGE>
General and administrative. General and administrative expenses increased
by 27.4% from $414,174 for the year ended January 31, 1997, to $527,552 for the
year ended January 31, 1998, as a result of (1) increased administration cost of
$12,435 relating to the preparation of annual reports to all investors, (2)
additional consulting fees of $15,019 relating to the QS9000 (Quality Control
Certification) process and Project Teamwork Assessment, (3) an increase of
$22,800 in consulting, legal, and annual fees relating to the Company becoming a
fully reporting public company, (4) a loss of $18,415 on the sale of fixed
assets, (5) a loss on foreign exchange of $34,875, and (6) increase in cash
discount, bad debt and other administration cost of $9,834.
Provision for Profit Sharing. Provision for profit sharing increased by
191.5% from $23,498 for the year ended January 31, 1997 and to $68,504 for the
year ended January 31, 1998. This increase was a result of the higher
profitability of the Company.
Interest. Interest income (net of interest expense) increased from $61,354
for the year ended January 31, 1997, to $74,256 for the year ended January 31,
1998, 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
increased from $235,318 for the year ended January 31, 1997, to $602,985 for the
year ended January 31, 1998.
Income Taxes. The Company provided for income taxes of $256,657 for the
year ended January 31, 1998. The Company's effective tax rate in 1998 was 42.5%.
Net Income. Net income increased from $109,800 for the year ended January
31, 1997, to $346,328 for the year ended January 1998.
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.
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.
16
<PAGE>
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 decrease was a result of the 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.
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.
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. In May 1996
the Company received net proceeds from a public offering amounting to
$2,773,000.
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, 1998, the Company had not utilized any of 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 1997 for a one-year period. During the fiscal year ended January 31,
1998, the Company paid a total of $10,667 in interest. There was no amount of
total short-term borrowings outstanding at January 31, 1998, as compared to
$110,100 outstanding at January 31, 1997.
Working capital was $3,085,135 at January 31, 1998. For the year ended
January 31, 1998, net cash generated from operations was $1,227,242 including
net income of $346,328, depreciation of $159,310, deferred income taxes of
$93,829, and a net change in non-cash working capital of $610,337. Term deposits
decreased by $1,000,000 and accounts receivable increased by $462,864 primarily
due to the increase in sales at the end of January 1998. Inventories increased
by $144,357 as a result of the buildup of raw materials just prior to year end.
Prepaid expenses decreased by $139,414 and accounts payable increased by $942.
17
<PAGE>
Net cash used in financing activities amounted to $276,653 for the year
ended January 31, 1998, primarily due to decrease in bank indebtedness of
$110,100, and repurchase of shares for $166,553.
Net cash used in investing activities amounted to $365,033 for the year
ended January 31, 1998, was primarily due to the purchase of fixed assets. Net
cash used in investing activities amounted to $573,861 and $137,226 for the
years ended January 31, 1997 and 1996, respectively. Capital expenditures during
the year ended January 31, 1998 totaled $442,921 and were financed primarily by
the funds received during fiscal 1997 from the public offering. Capital
expenditures during the years ended January 31, 1997 and 1996 totaled $586,305
and $188,197, respectively.
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. During the current fiscal year, the
Company anticipates making total capital expenditures of approximately $650,000
as follows: (1) $160,000 for the leasing of a CNC Milling Machine Centre, (2)
$230,000 for a MAAC Machine, (3) $70,000 for computer aided design software and
related hardware, (4) $150,000 for leasehold improvements, and (5) $40,000 for
the QS9000 (Quality Control Certification) process.
Impact of Inflation
The Company believes that inflation has not had a material effect on its
business. Although the cost to the Company of certain raw materials used in the
manufacture of its products, primarily acrylic, has increased over the past few
years, the Company has been able to increase the prices of its products
accordingly.
Exchange Rates
The Company sells most of its products to international customers. The
Company's principal markets are the United States and Japan. The Company sells
most of its products in United States dollars, but pays for its material
components and labor principally in Canadian dollars. The Company has never
engaged in exchange rate hedging activities and management does not believe that
such activities are necessary. Management will continue to evaluate this issue
and, if management deems it necessary in the future, it may implement some
hedging techniques to minimize the Company's foreign exchange exposure.
Exchange rates between the United States and Canadian dollar for the fiscal
years ended January 31, 1998, 1997 and 1996, including the average exchange rate
for the period, are as follows:
Fiscal year ended Average Exchange Rate
January 31, Exchange Rate for Period
----------- ------------- ----------
1998 1.U.S.$:1.4556 Cdn.$ 1 U.S.$:1.3844 Cdn.$
1997 1.U.S.$:1.3470 Cdn.$ 1 U.S.$:1.3625 Cdn.$
1996 1 U.S.$:1.3734 Cdn.$ 1 U.S.$:1.3685 Cdn.$
18
<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:
Name Age Position
---- --- --------
Edward Ting 50 Chief Executive Officer and Chairman
of the Board of Directors
Alex Yie Wie Ding 38 President, Chief Operating Officer
and Treasurer and Director
Omer Esen 55 General Manager, Chief Financial Officer
Linda Kwan 52 Financial Controller
Chris G. Mendrop 46 Director
Clement Cheung 43 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
19
<PAGE>
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
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 September
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
financing. 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.
Clement Cheung has been a director of the Company since March 1998. Mr.
Cheung is an officer and director of Electron 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.
Mr. Cheung joined EPL in 1990 as an accounting and administrative manager. Prior
to joining EPL, Mr. Cheung was the controller for Econ Electronics Limited.
20
<PAGE>
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 Global
Financial Group, Inc. ("Global"), Global 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. Global has not yet designated such
person.
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.
Annual Compensation
-------------------------------------
Name
and Fiscal year Other
principal ended annual
position January 31, Salary Bonus compensation
- -------- ----------- ------ ----- ------------
Edward Ting 1998 $ 0 $ 5,140 $ 48,000(1)
Chief Executive Officer, 1997 $ 0 $ 6,801 $ 48,000(1)
Chairman of the Board, 1996 $ 0 $ 30,350 $ 48,000(1)
Alex Y.W. Ding 1998 $ 51,097 $ 5,140 0
President, Chief Operating 1997 $ 49,357 $ 6,801 0
Officer 1996 $ 45,600 $ 25,263 0
Chris G. Mendrop 1998
Director 1997 $ 0 $ 0 $ 12,000(2)
$ 0 $ 0 $ 12,000(2)
(1) Represents consulting fees paid by the Company to Mr. Ting. During the
fiscal years ended January 31, 1998, 1997 and 1996. Mr. Ting was paid a
consulting fee of $4,000 per month for ten months during the fiscal year
ended January 31, 1996, and a bonus of $30,350. During the fiscal years
ended January 31, 1997 and January 31, 1998, Mr. Ting was paid $6,801 and
$5,140 pursuant to the Company's profit sharing program described below.
(2) Represents consulting fees paid by the Company to Mr. Chris G. Mendrop
during the fiscal year ended January 31, 1998
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), $45,925(US)
and $48,363(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 $5,140(US), $5,140(US) and $3,305(US),
respectively, for the fiscal year ended January 31, 1998. 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.
21
<PAGE>
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
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, 1998, aggregated approximately $68,504
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 ,639employee 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.
22
<PAGE>
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
- -------------------------------------------------------------------------
The following table sets forth as of January 31, 1998, 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.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class(1)
- ---------------- -------------------- -------------------
Alex Ding
3137 Grandview Highway
Vancouver, B.C.,
Canada V5M 2E9 295,808(2),(5) 18.6%
397568 B.C. Ltd.
3137 Grandview Highway
Vancouver, B.C.,
Canada V5M 2E9 283,108(5) 17.8%
Edward Ting
21045 Comer Drive
Saratoga, California 95070 301,584(3),(5) 18.9%
Viola Ting
21045 Comer Drive
Saratoga, California 95070 138,729(5) 8.6%
Chris G. Mendrop
1860 Blake Street
Denver, Colorado 80202 Nil (4,(5)
Omer Esen
3137 Grandview Highway
Vancouver, B.C.
Canada V5M 2E9 247 0.0%(6)
Clement Cheung
Directors and executive officers
as a group (6 persons) 597,639(2),(3) 37.6%
- ------------------------------
(Footnotes on following page)
23
<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."
(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) On January 1, 1998, the Company repurchased and retired the 24,917 shares
owned by Chris G. Mendrop. Does not include 513,915 shares of the Company's
common stock, which are the subject of an option granted to Mr. Mendrop as
more fully described in footnote 5, and below under "Possible Change of
Control."
(5) Edward Ting, Viola Ting, and 397568 B.C. Ltd. have granted options to
acquire an aggregate of 513,915 shares of the Company's common stock to Mr.
Chris G. Mendrop, as more fully described below under "Possible Change of
Control."
(6) Represents less than 1%.
Possible Change of Control
Edward Ting, Viola Ting, and 397568 B.C. Ltd. (a Company owned and
controlled by Alex Ding) have granted Mr. Chris G. Mendrop options to acquire an
aggregate of 513,915 shares of the Company's common stock. The options expire on
June 30, 1998, unless extended until August 31, 1998, upon the satisfaction of
certain conditions by Mr. Mendrop. The options are assignable and may be
transferred, and contain provisions providing for adjustments under certain
circumstances. Mr. Mendrop has advised that he intends to raise the funds
necessary to exercise the options from private sources, and that he anticipates
that the shares will be held in a limited liability company capitalized by Mr.
Mendrop and his investors. There can be no assurance that Mr. Mendrop will
successfully fund the exercise of the options; however, if he is successful in
doing so and in exercising the options, then control of the Company will pass to
Mr. Mendrop and his investment group.
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.
24
<PAGE>
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 paid $16,000 on or by 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. CDC is also paid $1,000 per month for assisting
Company with its investor relation's program.
In March, 1998, the Company granted a bank a security interest in a
$500,000 deposit as collateral for the issuance of a standby letter of credit
(the "LC") to one of the suppliers to a wholly-owned subsidiary of Electrocon
International Inc. ("EII"). Mr. Edward Ting, the Chairman of the Board, and Mr.
Clement Cheung, a member of the Board of Directors, are officers and directors
of EII. As consideration for the Company agreeing to provide the security for
the LC, EII agreed as follows: (i) to issue the Company a warrant exercisable
for a period of five (5) years from March 25, 1998, to purchase 250,000 shares
of common stock of EII at an exercise price of $1.00 per share during the first
year, $1.10 per share during the second year, $1.20 per share during the third
year, $1.50 per share during the fourth year and $1.75 per share during the
fifth year; (ii) to pay the Company a fee in the amount of 1% of the collateral,
or $5,000, payable to the Corporation in advance for the six-month period
beginning on the date the LC is issued by the Bank, and an additional fee of 1%,
also payable in advance, for the six-month period immediately following the
initial six-month period, if the Company's collateral continues to be utilized
for the LC, with the understanding that the collateral shall be made available
by the Company to collateralize the LC for a period not to exceed one year; and
(iii) the pledge to the Company by Edward Ting of all shares of common stock of
the Company currently held by him, his wife, or under his control.
25
<PAGE>
PART IV
-------
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) Documents filed as part of this Form 10-K:
1. Financial Statements
The financial statements listed by the Registrant on the accompanying
Financial Statements (see pages F-1 through F-16) are filed as part of
this Annual Report.
2. Exhibit 10.1 Master Equipment Lease and attachments thereto.
Exhibit 10.2 Credit Facility with Hongkong Bank of Canada.
(b) Reports on Form 8-K: The Company has not filed a report on Form 8-K.
26
<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, 1998 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, 1998 /s/ Edward Ting
-------------- ----------------------------------
Edward Ting, Secretary, Chief
Executive Officer and Chairman of
the Board
Date: April 28, 1998 By: /s/ Alex Yie Wie Ding
-------------- ------------------------------
Alex Yie Wie Ding, Chief
Operating Officer, Treasurer
and Director
Date: April 28, 1998 /s/ Omer Esen
-------------- ----------------------------------
Omer Esen, Vice President of
Operations and Chief Financial
Officer
Date: April 28, 1998 /s/ Chris G. Mendrop
-------------- ----------------------------------
Chris G. Mendrop, Director
Date: April 28, 1998 /s/ Clement Cheung
-------------- ----------------------------------
Clement Cheung, Director
27
<PAGE>
Glas-Aire Industries Group Ltd.
Consolidated Financial Statements
For the year ended January 31, 1998
Contents
================================================================================
Auditors' Report F-2
Consolidated Financial Statements
Balance Sheets F-3
Statements of Income F-4
Statements of Changes in Shareholders' Equity F-5
Statements of Cash Flows F-6
Summary of Significant Accounting Policies F-9
Notes to Consolidated Financial Statements F-12
F-1
<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, 1998 and 1997 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, 1998.
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, 1998 and 1997 and the results of their operations
and cash flows for each of the years in the three year period ended January 31,
1998, in conformity with generally accepted accounting principles in the United
States.
/s/ BDO Dunwoody
- ---------------------------
Chartered Accountants
Langley, British Columbia
March 20, 1998
F-2
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Consolidated Balance Sheets
(Stated in U.S. Dollars)
January 31 1998 1997
- --------------------------------------------------------------------------------
Assets (Note 4)
Current
Cash and equivalents $ 1,645,953 $ 1,119,932
Term deposit (Note 1) -- 1,000,000
Accounts receivable, net of allowance
for doubtful accounts 1,200,451 737,587
Inventories (Note 2) 772,780 628,423
Prepaid expenses 19,095 158,509
----------------------------
3,638,279 3,644,451
Fixed assets, net (Note 3) 1,408,816 1,220,531
----------------------------
$ 5,047,095 $ 4,864,982
================================================================================
Liabilities and Shareholders' Equity
Current
Bank indebtedness (Note 4) $ -- $ 110,100
Accounts payable and accrued liabilities 460,680 459,738
Income taxes payable 92,464 15,262
----------------------------
553,144 585,100
Deferred income taxes (Note 6) 281,327 187,498
----------------------------
834,471 772,598
----------------------------
Shareholders' equity
Common stock (Note 5(a)) 15,875 16,124
Additional paid-in capital 3,462,334 3,539,951
Retained earnings 1,045,962 699,634
Treasury stock (Note 5(b)) (236,163) (147,476)
Cumulative translation adjustment (75,384) (15,849)
----------------------------
4,212,624 4,092,384
----------------------------
$ 5,047,095 $ 4,864,982
================================================================================
On behalf of the Board:
Director
- ---------------------------------------
Director
- ---------------------------------------
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================
Glas-Aire Industries Group Ltd.
Consolidated Statements of Income
(Stated in U.S. Dollars)
- -------------------------------------------------------------------------------------------
Years ended January 31,
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Sales (Note 8) $ 6,409,954 $ 4,316,372 $ 4,191,581
Cost of sales 4,505,889 3,027,968 2,741,400
-----------------------------------------------
Gross profit 1,904,065 1,288,404 1,450,181
-----------------------------------------------
Expenses
Research and development 393,182 395,099 264,856
Selling and distribution 386,098 281,669 326,490
General and administrative 527,552 414,174 503,030
Provision for profit sharing 68,504 23,498 32,516
Interest (income) expense (74,256) (61,354) 15,732
-----------------------------------------------
1,301,080 1,053,086 1,142,624
-----------------------------------------------
Income before income taxes 602,985 235,318 307,557
Income taxes (Note 6) 256,657 125,618 122,973
-----------------------------------------------
Net income for the year $ 346,328 $ 109,800 $ 184,584
===========================================================================================
Earnings per share $ 0.23 $ 0.08 $ 0.20
===========================================================================================
Weighted average number of
shares outstanding 1,519,405 1,426,038 921,890
===========================================================================================
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 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
---------------------------------------------------------------------------------------------------
Balance -
<S> <C> <C> <C> <C> <C> <C> <C>
January 31, 1995 923,813 $ 9,238 $ 911,148 $ 405,250 $ -- $ (38,255) $ 1,287,381
Net income 184,584 184,584
Shares repurchased (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 692,800 6,928 2,645,771 2,652,699
Shares repurchased (Note 5(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) (15,849) 4,092,384
Net income 346,328 346,328
Shares repurchased (Note 5(b)) (166,553) (166,553)
Shares retired (Note 5(b)) (24,917) (249) (77,617) 77,866 --
Change in cumulative
translation adjustment (59,535) (59,535)
---------------------------------------------------------------------------------------------------
Balance -
January 31, 1998 1,587,504 $ 15,875 $ 3,462,334 $ 1,045,962 $ (236,163) $ (75,384) $ 4,212,624
====================================================================================================================================
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
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------------------------
Years ended January 31,
1998 1997 1996
-----------------------------------------------
Increase (decrease) in cash
Cash flows from:
Operating activities
<S> <C> <C> <C>
Net income for the year $ 346,328 $ 109,800 $ 184,584
Depreciation 159,310 110,480 87,470
Deferred income taxes 93,829 56,927 22,246
Loss (gain) on sale of fixed assets 17,438 1,017 (3,343)
Net change in non-cash working capital 610,337 (1,162,587) (206,273)
------------------------------------------------
Net cash (used in) provided by
operating activities 1,227,242 (884,363) 84,684
------------------------------------------------
Financing activities
Repayment of obligation
under capital lease -- (97,246) (27,639)
Repayment of long-term debt -- (27,304) (67,338)
Issuance of shares -- 2,652,699 --
Repurchase of shares (166,553) (147,476) (17,010)
Deferred offering costs -- -- (159,817)
Increase (decrease) in bank
indebtedness (110,100) (145,827) 255,926
-----------------------------------------------
Net cash provided by (used in)
financing activities (276,653) 2,234,846 (15,878)
-----------------------------------------------
Investing activities
Proceeds from sale of fixed assets 77,888 12,444 50,971
Purchase of fixed assets (442,921) (586,305) (188,197)
-----------------------------------------------
Net cash used in investing activities (365,033) (573,861) (137,226)
-----------------------------------------------
Foreign currency translation adjustment (59,535) 13,203 9,203
-----------------------------------------------
Increase (decrease) in cash during the year 526,021 789,825 (59,217)
Cash and equivalents, beginning of year 1,119,932 330,107 389,324
-----------------------------------------------
Cash and equivalents, end of year $ 1,645,953 $ 1,119,932 $ 330,107
===================================================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================
Glas-Aire Industries Group Ltd.
Consolidated Statements of Cash Flows (continued)
(Stated in U.S. Dollars)
- ----------------------------------------------------------------------------------------------------
Years ended January 31,
1998 1997 1996
-----------------------------------------------
Changes in non-cash working capital
<S> <C> <C> <C>
Term deposit $ 1,000,000 $(1,000,000) $ --
Accounts receivable (462,864) (64,916) 150,106
Inventories (144,357) 61,435 (320,149)
Prepaid expenses 139,414 15,357 (13,446)
Accounts payable and accrued liabilities 942 (51,268) 47,702
Income taxes payable 77,202 (123,195) (70,486)
-----------------------------------------------
$ 610,337 $(1,162,587) $ (206,273)
===============================================
Supplemental disclosure of cash flow
relating to:
Interest expense (income) $ (75,264) $ (74,591) $ 15,732
Income taxes 69,453 194,936 173,414
====================================================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-7
</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, USA 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. The company's corporate office is located in
Vancouver, Canada.
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 - 15%
Dies and molds - 10%
Automotive - 30%
Leasehold improvements - 10%
Equipment under capital lease - 10%
F-8
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Summary of Significant Accounting Policies (continued)
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
Per Share Information In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share ("EPS").
SFAS No. 128 required dual presentation of basic EPS
and diluted EPS on the face of all income statements
issued after December 15, 1997, for all entities with
complex capital structures. Basic EPS is computed as
net income divided by the weighted average number of
shares of common stock outstanding during the period.
Diluted EPS reflects potential dilution that could
occur if securities or other contracts, which, for the
Company, consists of warrants to purchase 98,784 shares
of the Company's common stock, are exercised. These
warrants were anti-dilutive in 1998, 1997 and 1996 and
as such, dilutive EPS amounts are the same as basic EPS
for all periods presented. Treasury stock held by the
Company is not included in the number of shares
outstanding. No prior year EPS amounts have been
restated as a as a result of SFAS 128.
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.
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.
F-9
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Summary of Significant Accounting Policies
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
Foreign Currency
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 shareholders'
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, 1998 -1 U.S. $:1.4556 Cdn. $(1.3844 Cdn. $)
January 31, 1997 -1 U.S. $:1.3470 Cdn. $(1.3625 Cdn. $)
January 31, 1996 -1 U.S. $:1.3734 Cdn. $(1.3685 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.
F-10
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Summary of Significant Accounting Policies
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
New Accounting
Standards Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure",
(SFAS 129") issued by the FASB is effective for
financial statements ended after December 15, 1997. The
new standard reinstates various securities disclosure
requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. Adoption of SFAS No. 129
did not have an impact on the Company's financial
position or results of operations.
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", ("SFAS 130") issued
by the FASB is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS
130 establishes standards for reporting and displaying
of comprehensive income and its components in a full
set of general purpose financial statements. The
company does not expect adoption of SFAS 130 to have an
impact on its financial position or results of
operations and any effect will be limited to the form
and content of its disclosures.
Statements of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and
Related Information", ("SFAS 131") issued by the FASB
is effective for financial statements with fiscal years
beginning after December 15, 1997. SFAS 131 requires
that public companies report certain information about
operating segments, products, services, and
geographical areas in which they operate and their
major customers. The Company does not expect adoption
of SFAS 131 to have an impact on its financial position
or results of operations. The Company believes it may
have expanded disclosures, in the future, with respect
to certain of these items.
F-11
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Notes to Consolidated Financial Statements
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
1. Term Deposit
January 31, January 31,
1998 1997
--------------------------------
Deposit, interest at 5.6%,
matured October 6, 1997 $ -- $1,000,000
================================
- --------------------------------------------------------------------------------
2. Inventories
January 31, January 31,
1998 1997
--------------------------------
Raw materials $568,444 $443,808
Work-in-progress 65,166 111,865
Finished goods 120,217 51,477
Supplies 18,953 21,273
--------------------------------
$772,780 $628,423
================================
- --------------------------------------------------------------------------------
3. Fixed Assets
January 31, 1998 January 31, 1997
----------------------------------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Office equipment $ 110,475 $ 43,200 $ 106,827 $ 39,296
Manufacturing
equipment 1,134,426 414,376 1,087,479 368,688
Computer equipment 111,874 67,073 111,499 61,962
Dies and molds 635,756 182,278 416,838 153,567
Automotive 27,720 10,256 29,954 2,995
Leasehold
improvements 133,828 28,080 111,327 16,885
----------------------------------------------------
$2,154,079 $ 745,263 $1,863,924 $ 643,393
====================================================
Net book value $1,408,816 $1,220,531
========== ==========
F-12
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Notes to Consolidated Financial Statements
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
4. Bank Indebtedness
January 31, January 31,
1998 1997
-------------------------------
Revolving bank loan $ -- $ 110,100
===============================
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 (4.75% -
January 31, 1997; 6.5 % - January 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 floating charge over all other assets of the
Company.
(c) an unlimited guarantee by the Company and its subsidiary, Glas-Aire
Industries Ltd.
- --------------------------------------------------------------------------------
5. Share Capital
(a) Authorized
3,000,000 Common stock with a par value
of $0.01 each
1,000,000 Preferred stock with a par value
of $0.01 each
January 31, January 31,
1998 1997
------------------------
Issued
1,587,504 Common stock (1997 - 1,612,421) $ 15,875 $ 16,124
========================
F-13
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Notes to Consolidated Financial Statements
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
5. Share Capital (continued)
(a) Authorized (continued)
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 ended January 31, 1998, the Company repurchased 78,317
common stock, at share prices between $1.56 and $3.12 per share,
amounting to $166,553. In fiscal 1997, the Company repurchased 50,000
common stock 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. During the year ended January 31, 1998, the
Company retired 24,917 common stock amounting to $77,866. In fiscal
1997 the Company retired 4,192 common stock amounting to $17,010.
- --------------------------------------------------------------------------------
6. Income Taxes
The provision for income taxes in the consolidated statements of income
consists of:
January 31, January 31, January 31,
1998 1997 1996
---------------------------------------------
Current $146,655 $ 71,741 $102,928
Deferred 110,002 53,777 20,045
------------------------------------------
$256,657 $125,518 $122,973
==========================================
F-14
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Notes to Consolidated Financial Statements
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
6. Income Taxes (continued)
The effective income tax rate on earnings consists of the following:
January 31, January 31, January 31,
1998 1997 1996
% % %
------------------------------------
General combined federal and
provincial rate 45.3 45.3 45.3
Manufacturing reduction (7.0) (7.0) (7.0)
Underaccrual of prior year taxes 4.2 14.7 1.7
------------------------------------
Effective rate 42.5 53.0 40.0
====================================
The components of deferred taxes are as follows:
January 31, January 31,
1998 1997
--------------------------------------------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
Deferred tax
liabilities
Depreciation $ 734,615 $ 281,327 $ 489,551 $ 187,498
==================================================
- --------------------------------------------------------------------------------
7. Rent
The Company operates in its facilities on a month to month basis. Rent
expense was $117,072, $121,252 and $98,207 for the years ended January 31,
1998, 1997 and 1996 respectively.
F-15
<PAGE>
================================================================================
Glas-Aire Industries Group Ltd.
Notes to Consolidated Financial Statements
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------
8. Sales Information
(a) Sales figures include sales to the following countries:
January 31, January 31, January 31,
1998 1997 1996
---------------------------------------------
United States $4,915,000 $3,121,000 $3,420,000
Japan 586,000 491,000 198,000
Canada and other 908,000 704,000 574,000
(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,
1998 1997 1996
---------------------------------------------
Customer 1 $1,334,000 $ 828,000 $1,066,000
Customer 2 2,128,000 1,341,000 1,470,000
Customer 3 -- 491,000 --
- --------------------------------------------------------------------------------
9. Related Party Transactions
The Company had the following transactions with related parties:
January 31, January 31, January 31,
1998 1997 1996
--------------------------------------
Fees paid to
directors/shareholders for
ongoing consulting services $ 60,000 $ 60,000 $ 52,250
F-16
EXHIBIT 10.1
Master Hongkong Bank Leasing Lease
Equipment Division of Hongkong Bank of Canada Number 998011BC
Lease 4th Floor - 885 West Georgia Street
Vancouver, British Columbia, V6C 3EL9
Lessor Hongkong Bank of Canada
Lessee MULTICORP HOLDINGS INC.
Address 3137 GRANDVIEW HIGHWAY
VANCOUVER, ElC, V5M 3E9
1. LEASE. Lessor leases to Lessee and Lessee leases from Lessor the collateral
described in the Schedule(s) annexed hereto together with all parts,
accessories and equipment, now or hereafter attached to or forming a part
thereof and Lessee grants a security interest in all proceeds therefrom
including all types and kinds of personal property including, without
limitation, trade-ins, accounts, building materials, chattel paper,
contracts, contract rights, documents of title, rental payments, insurance
payments, fixtures, instruments, money, inventory, leases, securities,
equipment and any other goods or intangibles received as a result of the
said goods, chattels and movable property being sold, dealt with or
otherwise disposed of (the foregoing collateral and proceeds being herein
called the "Collateral"). Each schedule shall constitute a separate lease
of the collateral described therein from Lessor to Lessee on the terms,
covenants and conditions set forth herein and in each Schedule.
2. RENT.
(a) The rent described in each Schedule shall be payable, at the times
specified in such Schedule, to Lessor at 4th floor - 885 West Georgia
Street, Vancouver, British Columbia, V6C 3E9 or such other place as
Lessor may, in writing, designate. Any overdue payment of rent or any
other sum due hereunder shall bear interest from the due date to the
date of payment at the rate of the Prime Rate plus 3.0% per annum
calculated and compounded monthly.
(b) Lessee shall not be entitled to any abatement, compensation, reduction
of or act-off against any rental payments due, including, but not
limited to, abatements, compensations, reductions, counterclaims or
set-offs due or alleged to be due to Lessee from Lessor, or by reason
of any past, present, or future claims of Lessee against Lessor under
this lease or otherwise; nor shall this lease terminate, or the
respective obligations of Lessor or Lessee be otherwise affected by
reason of defect in, or damage to, or loss of possession, or loss of
use of or destruction of the Collateral from whatever cause, the
prohibition or the restriction of Lessee's use of the Collateral, the
interference with such use by any private person or entity, or for any
other cause, whether similar or dissimilar to the foregoing, any
present or future law to the contrary notwithstanding: it being the
intention of the parties hereto that the rental amounts due pursuant
to each Schedule and other amounts payable by Lessee hereunder shall
continue to be payable in all events in the manner and at the times
provided in each Schedule unless the obligation to pay the same shall
be terminated pursuant to the express provisions of this lease or any
Schedule hereto.
3. TERM. Notwithstanding the date of delivery of the Collateral specified in
each Schedule, the term of this lease shall, with respect to the Collateral
described in each Schedule, commence at the date and continue for the term
specified in such Schedule.
<PAGE>
4. USE. Lessee shall not, without prior written consent of Lessor, change the
location of the Collateral from that specified in the Schedule nor change
the use of the Collateral to any use which could in any way result in a
change of capital cost allowance class from that specified in the Schedule.
The Collateral shall be used by the Lessee for commercial, industrial,
professional or handicraft purposes only. The Lessee shall not affix the
Collateral to real or immovable property nor to any goods, chattels, or
movable property not otherwise leased hereunder without the prior written
consent of the Lessor.
5. ORDER, DELIVERY, INSTALLATION. Order, delivery and installation of the
Collateral shall be entirely at the Lessee's risk and expense and shall be
arranged by the Lessor on behalf of and as agent for the Lessee in a manner
and upon terms and conditions according to the Lessee's written
instructions and, to the extent such instructions are not provided,
according to the Lessor's sole discretion but still at the Lessee's risk
and expense. The Lessee hereby indemnifies and covenants to save harmless
the Lessor from and against all claims and liabilities howsoever arising
out of or in connection with such order, delivery and installation
including but not limited to delays in or refusal to accept delivery.
6. TITLE. The Lessor shall at all times have and retain whatever title to the
Collateral is acquired by the Lessor from the seller or manufacturer of the
Collateral. The Lessee shall have no right, title or interest in the
Collateral other than the right of possession and use in accordance wi th
the terms hereof and the right conferred by paragraph 15 hereof. The Lessee
acknowledges that the Collateral is and shall remain personal or movable
property.
7. WARRANTIES. Lessee has selected the Collateral and the seller thereof.
Lessee acknowledges that the Lessor has made no representation or warranty
with respect to the Collateral, its condition, design, durability,
operation, suitability or fitness for the use intended by the Lessee, its
freedom from liens and encumbrances, the Lessor's good title thereto, or as
to any other matter or thing whatsoever and all warranties whether express
or implied are, to the extent permitted by law, hereby excluded. Lessee
shall unconditionally and without set-off or compensation pay the rent
stipulated in each Schedule even if the Collateral does not operate as
intended by the Lessee, or at all, or as represented by the manufacturer or
the seller or the Collateral operates or fails to operate or performs in a
manner that could give rise to a fundamental breach of contract or is
unacceptable for any other reason whatsoever. Lessor shall not be liable to
the Lessee for any loss, cost, damage or expense of any kind or nature
caused directly or indirectly by the Collateral or the use, ownership or
maintenance thereof or for any loss of business or other damages whatsoever
and howsoever caused. Lessor hereby assigns to Lessee for the term hereof
only all assignable rights under any warranty given to the Lessor by the
seller or manufacturer of the Collateral, and at Lessee's expense, agrees
to co-operate reasonably with Lessee in the enforcement of any such
warranties.
8. REPAIRS. The Collateral shall be at the risk of the Lessee who shall
maintain, repair, overhaul, service and keep the Collateral in a good and
substantial manner and shall maintain the Collateral in a condition
equivalent to its condition at the commencement of this lease, fair wear
and tear only excepted and in a fully operative condition in conformity
with any recommendations for maintenance or otherwise which may from time
to time be made by any manufacturer or seller of the Collateral and in
conformity with all applicable laws, orders, rules, regulations and
directives of any government departments, boards or authorities. In the
event of loss, damage or destruction to or of the Collateral, Lessee shall
immediately give notice to the Lessor of such loss, damage or destruction
and Lessee shall at the Lessor's option forthwith repair or replace the
Collateral with similar equipment of equivalent value. All parts,
mechanisms and devices added to the Collateral whether by way of repair,
alteration, addition or improvement shall immediately become property of
Lessor and part of the collateral for all purposes hereof.
2
<PAGE>
9. INSURANCE. Lessee shall obtain, and maintain for the entire term of this
lease, at its own expense, property damage and liability insurance and
insurance against loss or damage to the Collateral including without
limitation, loss by fire, (including extended coverage) theft, collision
and such other risks of loss as are customarily covered by insurance on the
type of Collateral leased hereunder and by prudent operators of businesses
similar to that in which Lessee is engaged, in such amounts, in such form
and with such insurers as shall be satisfactory to Lessor. The amount of
insurance covering damage to or loss of the Collateral shall not be less
than the greater of the full replacement value of the Collateral or the
installments of rent then remaining unpaid hereunder. Each insurance policy
will name Lessee and Lessor as insureds, will name Lessor as loss payee
thereof, and shall contain a clause requiring the insurer to give to Lessor
at least 30 days prior written notice of any alteration in the terms of
such policy or the cancellation thereof. Lessee shall furnish to Lessor a
certificate of insurance or other evidence satisfactory to Lessor that such
insurance coverage is in effect, provided, however that Lessor shall be
under no duty either to ascertain the existence of or to examine such
insurance policy or to advise Lessee in the event such insurance coverage
shall not comply with the requirements hereof. Lessee further agrees to
give Lessor prompt notice of any damage to or loss of the Collateral or any
part thereof. Lessee will at its expense make all proofs of loss and take
all other steps necessary to recover insurance benefits, unless advised in
writing by Lessor that Lessor desires so to do, at Lessee's expense.
Proceeds of insurance will be disbursed by Lessor against satisfactory
invoices for repair or replacement of Collateral, provided this lease not
then be in default. Performance by Lessee under this paragraph will not
affect or release Lessee's obligations and liabilities herein elsewhere
provided.
10. LESSEE'S COVENANTS. The Lessee covenants with the Lessor:
(a) that the Lessor or its agents shall have the right at all reasonable
times to fully inspect the Collateral and any parts thereof, or any
documents relating thereto, to determine the condition of the
Collateral, and to further determine whether or not the Lessee is
performing according to t he covenants and conditions herein contained
or for any other purpose;
(b) to operate, use and maintain the Collateral at all times and to
maintain all records, logs and other materials in conformity with all
the applicable laws, orders, rules, regulations and directives of
governmental departments, boards or authorities, and in conformity
with any limitations or restrictions of performance or any published
instructions and specifications which may from time to time be
recommended by the manufacturers or sellers of the Collateral;
(c) not to use or operate the Collateral or permit it to be used or
operated illegally or contrary to any applicable laws, regulations,
orders, rules or directives of any power or government or agency
thereof having jurisdiction, or contrary to any terms of any insurance
policy in force in connection with the Collateral or in any way other
than in a careful and prudent manner and to indemnify and hold the
Lessor harmless from and against any and all actions, claims, demands,
prosecutions, administrative proceedings and any similar assertions or
threats in any way arising out of the custody, use, or operation of
the Collateral during the term of this lease, and to assume liability
and pay for any and all transgressions, defaults, fines, penalties or
forfeitures incurred, suffered or assessed against the Lessor or the
Lessee during the term of the lease together with all legal fees,
costs and expenses incidental to the foregoing to the complete
exoneration of the Lessor;
(d) to cause the Collateral to be operated only by competent and qualified
operators;
3
<PAGE>
(e) to keep the Collateral free and clear of all seizures, forfeitures,
liens, claims, privileges, debts, taxes, charges, pledges,
encumbrances or adverse claims of any nature whatsoever;
(f) to pay, when due, all license fees and other fees and assessments
necessary for the securing of licenses, or other similar permits for
the operation of the Collateral and, further, to pay, when due, and/or
indemnify the Lessor from all taxes, fees, assessments or other levies
now and hereafter imposed by any provincial, federal or local
government upon the Collateral, or upon the delivery, purchase,
leasing, use, ownership, operation, possession, sale or return
thereof, whether assessed to the Lessor or to the Lessee; provided
that upon payment of such fees, assessments, taxes or levies, the
Lessee will immediately deliver the receipts for such payments to the
Lessor, and that if the Lessor pays (which it may, but is not obliged
to do) any sum or sums which is an obligation of the Lessee under this
lease, then the amount of such payments shall be forthwith payable by
the Lessee to the Lessor and if not so paid shall bear interest from
the date such payment is due at the Prime Rate plus 3 % per annum
calculated and compounded monthly;
(g) to furnish at its own cost and expense all fuel, oils, lubricants and
other material necessary for the operation and maintenance of the
Collateral;
(h) to indemnify and save the Lessor harmless from and against all costs,
claims, demands, expenses, liabilities, awards, actions and causes of
action for loss or damage or injury (including death) of persons or
property or of any other nature and kind whatsoever arising from this
lease or in any way relating to the use, operation or ownership of the
Collateral during the term of this lease and whether caused by
Lessee's negligence or otherwise including without limitation, the
manufacture, selection, purchase, character, safety, condition,
delivery, refusal by the Lessee to accept delivery, possession,
operation, sale, storage or return of the Collateral; and that the
Lessor shall not be responsible to the Lessee for any loss of use of
the Collateral or any part thereof duri ng the term of the lease
whatever may be the cause of such loss of use;
(i) to place such insignia, plates or other identification on the
Collateral or any part thereof showing Lessor's title thereto as
Lessor may from time to time request at Lessee's expense and if
placed, the Lessee shall not remove, conceal or alter the same;
(j) that the Lessee will not without the prior written consent of the
Lessor, sublet or otherwise relinquish possession (except for required
or scheduled maintenance or as otherwise permitted pursuant to this
lease) of the Collateral or any part thereof, or assign any of its
rights hereunder;
(k) to execute all such further documents and do all such further acts and
things as the Lessor may reasonably require for the purpose of
registering this lease at any registries or offices of governmental
departments, boards or authorities, domestic or foreign, so as to
evidence and/or protect the interest of the Lessor in the Collateral
and this lease;
(l) not to claim or attempt to claim capital cost allowance in respect of
the Collateral;
4
<PAGE>
EXHIBIT 10.1
(m) to pay any and all reasonable costs of the Lessor (including legal
fees and disbursements on a solicitor and own client basis) in: (i)
considering and granting any waivers and consents required to be given
under this lease; and (ii) any action or consideration required by the
Lessor relati ng to any option granted herein; and (iii) any action or
consideration required in respect of any insurance claim; (iv)
inspecting the Collateral, investigating title to the Collateral,
negotiating and preparing all documentation in connection with this
lease, registering or perfecting this lease or the Lessor's interests
herein at all offices of public record and al renewals and amendments
of the same, taking, recovering and keeping possession of the
Collateral, and any other proceedings taken in connection with or to
enforce the provisions of this lease.
(n) that the Lessee will not change its name or enter into any
amalgamation agreement, merger or other corporate proceedings whereby
its name shall change without providing the Lessor with at least 30
days' prior written notice. of any such change of name;
(o) to deliver to the Lessor within 120 days after the end of each of its
fiscal years the consolidated balance sheet and income statement of
Lessee for such year.
11. RETURN OF COLLATERAL. Upon termination of this lease, the Lessee shall, at
its own expense and in a prudent manner, immediately return the Collateral
free of all liens, encumbrances and adverse claims of every nature to the
Lessor at such location as the Lessor shall designate and in the same
condition as at the commencement of this lease, fair wear and tear
excepted. Provided that the Lessor may, by notice given to the Lessee on or
prior to the termination of this lease, require the Lessee at its expense
to dispose of the Collateral upon termination in such manner as the Lessor
may reasonably request.
12. DEFAULT. The occurrence or happening of any one or more of the following
events shall constitute an event of default:
(a) the Lessee shall fail to make any rent payment or other payments
required hereunder when due and such failure shall continue unremedied
for a period of 20 days after written notice by Lessor; or
(b) the Lessee removes the Collateral from its place of location stated on
the Schedule without the Lessor's prior written consent; or
(c) the Lessee parts with possession of the Collateral; or
(d) the Lessee purports to sell, assign, transfer, sublet, pledge,
hypothecate or otherwise suffer a lien, encumbrance or other adverse
claim of any kind upon or against any interest in this lease or the
Collateral without the Lessor's prior written consent; or
(e) the Collateral is put to abnormal use likely to result in accelerated
depreciation; or the Lessee shall fail to perform or observe any
covenant, condition or agreement to be performed or observed by it
hereunder and such failure shall continue unremedied for a period of
20 days after writt en notice thereof by Lessor; or
(g) any representation or warranty made by Lessee herein or in any
document or certificate furnished Lessor in connection herewith or
pursuant hereto shall prove to be incorrect at any time in any
material respect; or
5
<PAGE>
(h) the Lessee or any Indemnifier shall become insolvent or bankrupt or
make an assignment for the benefit of creditors or consent to the
appointment of a trustee or receiver; or a trustee or a receiver shall
be appointed for Lessee or any Indemnifier or for a substantial part
of any of their property without consent and shall not be dismissed
within a period of 30 days; or bankruptcy, reorganization or
insolvency proceedings shall be instituted by or against Lessee or any
Indemnifier and if instituted shall not be dismissed within a period
of 30 days; or
(i) if the Collateral or any material part thereof is seized under legal
process, confiscated, sequestered or attached or if a distress is
levied thereon; or
(j) if Lessee or any Indemnifier is a corporation and
(i) the control or beneficial ownership thereof changes from that
which existed at the date of execution of this lease;
(ii) any special resolution is passed or other proceedings taken
regarding the wind-up of the corporation;
(iii)it ceases to carry on the business presently conducted by it; or
(k) the Lessee or any Indemnifier shall suffer the loss or suspension of
any licenses, permits, or other operating authorities required for the
present operation of its business or any part of it; or
(1) the Lessee defaults under any other agreement to which Lessee and
Lessor are parties or any Indemnifier defaults under any other
agreement to which any Indemnifier and the Lessor are parties; or
(m) if the Lessor in good faith believes and has commercially reasonable
grounds to believe itself insecure or that the prospect of payment or
performance by the Lessee hereunder is about to be impaired or that
the Collateral is or is about to be placed in jeopardy.
For greater certainty, it is understood and agreed that if any such default
shall occur in respect of any Schedule hereunder, such default shall at the
option of the Lessor be deemed to be a default under any or all other Schedules
hereunder.
13. REMEDIES ON DEFAULT. Upon the occurrence of an event of default the Lessor
may:
(a) take possession of the Collateral and for that purpose enter any
premises where the Collateral is located whether or not the Collateral
is affixed to any such premises, and sell, lease or otherwise dispose
of the Collateral by public or private means and upon such terms and
consideration a s the Lessor may in its sole discretion accept.
Without limiting the generality of the foregoing, the Lessor shall
have the right to dispose of the Collateral where the payment for such
is deferred provided that the Lessee will not be entitled to be
credited with the proceeds of any such disposition until the monies
therefor are actually received. The Lessee hereby waives any damages
or claim to damages arising from any retaking of possession under the
terms of this lease; or
(b) in the name of and as the irrevocably appointed agent and attorney for
Lessee and without terminating or being deemed to have terminated this
lease take possession of the Collateral and proceed to lease the
Collateral to any other person, firm or corporation on such terms and
conditions, f or such rental and for such period of time as Lessor may
deem fit and receive such rental and hold the same and apply the same
against any monies expressed to be payable from time to time by Lessee
hereunder; or
6
<PAGE>
(c) terminate this lease and by written notice to Lessee require Lessee to
forthwith pay to Lessor on the date specified in such notice, as a
genuine pre-estimate of liquidated damages for loss of a bargain and
not as a penalty the present worth of the aggregate of all unpaid
amounts due hereu nder as rental or otherwise to the expiration of the
term of the lease (as if the lease had not been terminated) calculated
by discounting such amounts at 5 9G per annum compounded monthly less
the net amount received by Lessor on any sale, lease or other
disposition of the Collateral after deducting all costs and expenses
including legal fees and disbursements on a solicitor and own client
basis.
No one or more of the remedies referred to herein is intended to be exclusive,
but each shall be cumulative and in addition to any other remedies referred to
herein or otherwise available to the Lessor at law or in equity, and in
particular pursuant to the Personal Property Security Act of any Province or
Territory in Canada in force or to come into force from time to time as the same
may be proclaimed in force, amended or replaced by similar legislation from time
to time. If upon any disposition of the Collateral under the provisions of this
lease or under the provisions of any other remedies so available to the Lessor
there shall be any surplus, such surplus shall be the sole and absolute property
of the Lessor.
14. WAIVER/SEVERABILITY. Any provision of this lease which is unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition without invalidating the remaining provisions
hereof and any such prohibition in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Lessee, if a
corporation, agrees that The Limitation of Civil Rights Act of the Province
of Saskatchewan, or any provision thereof, shall have no application to
this lease or any agreement or instrument renewing or extending or
collateral to this lease and the Lessee acknowledges that seizure or
repossession of the Collateral shall not by implication of law extinguish
the Lessee's indebtedness under this lease or other collateral securi ty.
15. OPTION TO PURCHASE. Provided the Lessee shall not be in default under any
obligation on its part hereunder, the Lessor hereby grants to the Lessee an
option to purchase the Lessor's interest in the Collateral herein for the
purchase price and at the time set forth in the Schedule or Schedules
attached hereto. The option granted herein shall be exercised by the Lessee
giving the Lessor written notice of its intention to exercise the option at
least 30 days prior to the time set forth in the Schedule. The time set
forth in the Schedule shall be the time for the conclusion of the sale, and
on that date the Lessee, having exercised such option, shall pay the
purchase price to the Lessor and the Lessor shall transfer its interest in
the Collateral to the Lessee whereupon this lease shall cease with respect
to such Collateral. The Lessee shall pay any and all Provincial or Federal
taxes, license or registration fees or other fees, costs or charges payable
in respect of the Collateral and in connection with any said sale and
purchase. The b',11 of sale or sale agreement from the Lessor to the Lessee
shall contain no warranties on the part of the Lessor either express or
implied except that the Lessor shall warrant that it has done no act or
created any security interest in the Collateral which would adversely
affect the title thereto.
16. INDEMNITIES SURVIVE. The indemnities provided by the Lessee to the Lessor
under this lease, and in particular those under paragraph 5 and 10 shall
survive and continue in full force and effect after termination of this
lease, in whole or in part, whether by effluxion of time or otherwise, or
the release or discharge from this lease of any Collateral, or the sale or
disposition of the Collateral or the release or discharge of the Lessee to
pay any rental payments, or as to any act, matter or thing which shall have
been done or have occurred or arisen prior to such termination, release or
discharge.
7
<PAGE>
17. ENTIRE AGREEMENT. This lease together with each schedule and any purchase
authority, purchase order, delivery and/or installation receipt and
indemnity given with this lease constitutes the entire agreement between
the parties.
18. NON CANCELABLE LEASE. This lease cannot be cancelled or terminated except
as expressly provided herein.
19. PURCHASE MONEY SECURITY INTEREST AND PROCEEDS. This lease grants to the
Lessor:
(a) a Purchase Money Security Interest in the Collateral unless this lease
shall constitute a sale and leaseback of the Collateral; and
(b) a Security Interest in Proceeds of the Collateral which are all
present and after acquired personal property, fixtures and crops,
within the meaning of the Personal Property Security Act of any
Province or Territory in Canada in force or to come into force from
time to time as the same may be proclaimed in force, amended or
replaced by similar legislation from time to time.
20. COPY OF AGREEMENT. The Lessee hereby acknowledges receiving a copy of this
lease and waives all rights to receive from the Lessor a copy of any
financing statement, financing statement (transition), financing change
statement or verification statement filed at any time in respect of this l
ease.
21. FURTHER ASSURANCES. The Lessee shall forthwith and from time to time
execute all documents and do all acts and things which in the opinion of
the Lessor are necessary or desirable to provide continuing rights and
priorities in the Collateral, to provide a security interest, a purchase
mone y security interest, and a security interest in proceeds of the
Collateral as the case may be.
22. PPSA WORDS AND EXPRESSIONS. Words and expressions used herein that have
been defined in the Personal Property Security Act of any Province or
Territory of Canada in force or to come into force from time to time as the
same may be amended or replaced by similar legislation from time to time
shall be interpreted in accordance with their respective meanings given in
any such Act unless otherwise defined herein or unless the context
otherwise requires.
23. INDEMNIFIER. When used in this lease, "Indemnifier" means any individual or
corporation which provides any guaranty or indemnity agreement of any kind
to the Lessor to secure the obligations of the Lessee to the Lessor.
24. GOVERNING INSTRUMENT. In the event of any conflict between any provision in
this lease and any provision in any Schedule hereto, the provision of such
Schedule shall prevail.
25. QUEBEC. Where this lease is governed by the laws of Quebec, this lease
shall be construed as a contract of leasing, governed by articles 1842 to
1850 of the Civil Code of Quebec, and
(a) for greater certainty, the word "lease" as used herein and in any
Schedules or forms related shall be read as "contract of leasing" or
"leasing", as the context requires;
8
<PAGE>
(b) the security interests granted in sections 1 and 19(b) hereof shall be
in the nature of a moveable hypothec for that sum disclosed as the
total in item 1 of the Schedule(s) Annexed, with interest at the rate
of 24% per annum from the date hereof.
26. MISCELLANEOUS.
(a) The parties agree that time is of the essence hereof and that no
waiver by Lessor of any default nor any compromise or extension of
payment granted by Lessor shall constitute a waiver of any other
default by the Lessee or shall be a waiver of any other right of
Lessor.
(b) This lease may be amended but only in writing signed by the parties
hereto.
(c) The captions in this lease are for convenience only and shall not
define or limit any of the terms hereof.
(d) This lease shall be binding upon and enure to the benefit of the
parties hereto, their permitted heirs, executors, administrators,
successors and assigns.
(e) No one or more of the remedies referred to in this lease shall be
exclusive, but each shall be cumulative and additional to any other
remedy or remedies referred to herein or available to the Lessor at
law or in equity.
(f) "Prime Rate" means the floating annual rate of interest established
and recorded by Hongkong Bank of Canada from time to time as a
reference rate for purposes of determining rates of interest it will
charge on loans denominated in Canadian dollars.
(g) Where there shall be more than one Lessee, they shall be jointly and
severally bound to the fulfillment of their obligations hereunder.
(h) If the context so requires, words importing number shall be deemed to
include a greater or lesser number, words importing gender shall be
deemed to include the other gender or the body corporate and words
importing the body corporate shall be deemed to include either gender.
(i) The Lessor and the Lessee confirm that they have expressly required
that this lease and all other schedules, purchase orders, notices and
documents relating thereto be drafted in English. Le Locateur et le
Locataire confirment qu'ils ont expressement exige que cette
convention et tous les annexes, bons de commande, avis et documents y
afferents soient rediges en anglais.
Executed this 3RD day of MARCH ,1998
---------------------------- -----------------------
By execution hereof, the signer hereby certifies that he has read this lease,
and that he is duly authorized to execute this lease on behalf of Lessee.
Lessee MULTICORP HOLDINGS INC. Lessor Hongkong Bank of Canada
By /s/ Alex Ding, Secretary By:
--------------------------------- ----------------------------------
Authorized Signatory
9
<PAGE>
EXHIBIT 10.1
LEASE SCHEDULE Lease Number: 998011 BC Schedule Number: 1
Hongkong Bank of Canada, as Lessor, hereby leases to MULTICORP HOLDINGS INC. as
Lessee, the Collateral hereinafter described, in consideration of the rental and
for the term hereinafter set forth, the whole pursuant to and subject to the
terms and conditions set forth in that certain Master Equipment Lease entered
into between Lessor and Lessee as of the 3rd day of March, 1998 (the "Lease").
1. Collateral
Model Serial
Quantity Make and Description Number Number Acquisition Cost
- -------- -------------------- ------ ------ ----------------
Refer to Schedule "A" attached US$145,895.00
hereto and forming a part of this
Lease Schedule.
US$145,895.00
2. Term
(a) Term (from Commencement (b) Commencement Date of (c) Termination Date
Date of Rental Payments) Rental Payments of Term
36 Months March 15, 1998 March 14, 2001
3. Rental
(a) Rental Payments in advance will be made /X/ monthly /__/ quarterly
/__/ annually at the rate shown shown below starting with a payment
due on the Commencement Date of Rental Payments shown above and
payments thereaft the same date in each month, quarter or year as the
case may be during th e term hereof.
(b) Rental Payment: US$ 4,475.00
(Based on current Provincial
Sales Tax rates,
Provincial Sales Tax, if any US$ 313.25
Goods & Services Tax US$ 313.25 (Based on the current Goods
No. R891586281 and Services Tax rate,
subject to change.)
Total Rental Payment US$ 5,101.50
(c) Number of Rental Payments 36 (Excluding Interim Rental
Payment)
(d) Interim Rent for the period from the date, inclusive, of the execution
of this Lease Schedule by the Lessee to the Commencement Date of
Rental Payment, exclusive, shall be paid in advance by the Lessee to
the Lessor in an amount equal to the number of days in the said period
multiplied by the Per Diem Rental, plus applicable Provincial Sales
Tax and Goods and Services Tax. The Per Diem Rental is US$ 150.20 per
day. For greater certainty, it is the intention of the Lessee and the
Lessor that they shall be bound by the terms and conditions of the
Lease throughout the said Interim Period. Any references to Rent in
the Lease shall include such Interim Rent.
<PAGE>
4. Option to Purchase (a) Option to Purchase Date March 15, 2001
(b) Purchase Price US$ 3,647.37
5. Place of Use
6. Contract deemed to be made in, and law of province applicable to contract
British Columbia
----------------
7. Capital Cost Allowance Class (a) Class (b) Capital Cost /__/ Declining
Number Allowance Rate Balance
N/A N/A%
/__/ Straight Line
In witness whereof the parties have executed this lease Schedule on the
respective dates set forth below and this Lease Schedule shall be deemed to have
been executed on the later of such dates. By execution hereof, the signer hereby
certifies that he has read this Lease Schedule and that he is duly authorized to
execute the same on behalf of Lessee.
Lessor: Hongkong Bank of Canada Lessee: MULTICORP HOLDINGS INC.
By: /s/ Alex Ding, Secretary
------------------------------- ----------------------------
Date: MARCH 3, 1998
<PAGE>
EXHIBIT 10.1
Hongkong Bank Leasing
Division of Hongkong Bank of Canada
4F/LSG 885 West Georgia Street,
Vancouver, British Columbia, V6C 3E,
DELIVERY AND/OR INSTALLATION RECEIPT Lease Number 998011BC
Schedule Number 1
To: Hongkong Bank of Canada ("T_e Bank")
The undersigned Lessee aclmowledges delivery and/or installation of the
collateral herein below described which is the collatera described in that
certain Lease Number 998011BC.1 in which lease the undersigned is Lessee and The
Bank is Lessor. The undersigned Lessee acknowledgejs that such collateral
(complete vnth accessories where applicable) has been inspected, is io good
condition, has beeo installed, is operating satisfactorily and in all respects
is es represented and is acceptable. The undersigned Lessee acknowledges that
such collateral is located as represented in the Lease.
Quantity Make and Description Model Number Serial Number
- -------- -------------------- ------------ -------------
Refer to Schedule "A" attached
hereto and forming part of this
Delivery and/or Installation Receipt.
By execution hereof, the signer hereby
certifies that he has read this receipt,
and that he is duly authorized to execute
this receipt on behalf of Lessee.
Date Lessee MULICORP IIOLDINGS INC.
By: /s/ Alex Ding, Secretary
--------------------------------------
<PAGE>
EXHIBIT 10.1
Hongkong Bank of Canada
PURCHASE AUTHORITY
Lease Number 99801 lBC
Schedule Number 1
The Lessee, under the Lease referred to above, hereby directs and authorizes
Hongkong Bank of Canada to purchase the Collateral described in the Schedule
annexed.
MULTICORP HOLDINGS INC.
---------------------------------
Lessee
/s/ Alex Ding
---------------------------------
By (Authorized Signature)
Lessee
SECRETARY
---------------------------------
Title
MARCH 3, 1998
---------------------------------
Date
<PAGE>
EXHIBIT 10.1
THIS IS SCHEDULE "A", TO THAT LEASE SCHEDULE NUMBER 1 ON MASTER LEASE NUMBER
998011BC BETWEEN HONGKONG BANK OF CANADA (LESSOR) AND MULTICORP HOLDINGS INC.
(LESSEE).
QTY MODEL DESCRIPTIONS
One VF-7 Haas VF-7 Vertical Machining Center, 84" x 32" x 30"
(xyz) with Geared Head
S/N 13028
One VOP-C Value Option Package "C" Includes the following:
Chip Auger System
Programmable Coolant Nozzle
1 Megabyte Program Memory
QuickCodeTM Program System
Floppy Disk Drive, 3.5"
4th Axis Drive
Rigid Tapping
<PAGE>
EXHIBIT 10.1
Hongkong Bank Leasing
Division of Hongkong Bank of Canada
INDEMNITY
Whereas:
A. Hongkong Bank of Canada (hereafter called "the Bank") has agreed to provide
certain collateral to MULTICORP HOLDINGS INC. (hereafter called the
"Lessee") pursuant to a certain Master Equipment Lease dated as of the 15
th day of MARCH 1998
B. It is contemplated that the acquisition cost of the aforesaid collateral
will not exceed $ US145,895.00 CDN;
C. It is further contemplated that as collateral is required by the Lessee it
will direct the Bank to acquire the same and upon so doing, the Bank and
the Lessee will execute, inter alia, schedules to the aforesaid Master
Equipment Lease relating to the collateral so described;
D. The aforesaid Master Equipment Lease and each schedule to such Master
Equipment Lease are hereafter collectively called the "Lease" and the
collateral referred to in the Lease is hereafter collectively called the
"Collateral";
E GLAS AIRE INDUSTRIES GROUP LTD. (hereafter called the "Indemnifier") is
associated with the Lessee and as additional security to the Bank has
agreed to indemnify the Bank on the terms and conditions hereafter set
forth.
1. Indemnity. In consideration of the Bank entering into the Lease with the
Lessee and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Indemnifier hereby agrees
to and does by these presents indemnify and save harmless the Bank from and
against any and all loss, cost, expense or damages arising out of any
failure by the Lessee to pay any rent prescribed by the aforesaid Lease, or
other moneys payable thereunder or the failure of the Lessee to perform any
of the other terms, covenants, conditions and provisions of the said Lease.
2. General Conditions of Indemnity. This Indemnity is absolute and
unconditional and the obligation of the Indemnifier shall not be released
or discharged by:
(a) Any extensions of time, indulgences, or modifications which the Bank
may extend or make with the Lessee in respect of the performance of
any of the obligations of the Lessee under any one or more provisions
of the Lease;
(b) Any waiver by or failure of the Bank to enforce any of the terms,
covenants, conditions and provisions of the Lease;
(c) Assignment of the said Lease by the Lessee or by any trustee, receiver
or liquidator;
(d) Any consent which the Bank may give to any such assignment;
(e) Any assignment or transfer or other disposition by the Bank of any of
its rights under the Lease and it is hereby agreed that the Bank may
assign) transfer or otherwise dispose of any such rights without
notice to the Indemnifier and in such event any assignee, transferee
or successor in i nterest shall have the same rights and remedies as
if originally named herein in the place of the Bank;
<PAGE>
(f) The Bank shall have the right to enforce this Indemnity regardless of
the acceptance of additional security from the Lessee and regardless
of the release or discharge of the Lessee by the Bank or by others or
by operation of any law;
(g) The discharge of the Lessee from any of its obligations thereunder by
way of applicable statutes relating to bankruptcies or insolvencies or
the like;
(h) Any inability of the Bank to enforce any terms, covenants, conditions
and provisions of the Lease against any party for whatever reason
including and without limiting the generality of the foregoing any
failure by the Bank to properly register or record the Bank's security
interest thereun der or file financing statements, notices, or other
documents as required under any applicable statutes;
(i) Any amendment, modification, or change of the Lease, whetber or not
the Indemnifter teas been notified of the same. The Indemnifier hereby
waives notice of the acceptance of this Indemnity and all notice of
non-performance, non-payment or non observance on the part of the
Lessee of the terms, covenants, conditions and provisos of the Lease.
As between the Indemnifer and the Bank and notwithstanding any rule of
law or equity to the contrary, the Collateral is and shall be deemed
for all purposes to be chalices at the time of its acquisition by the
Bank and the Indemnifier agrees that the Collateral shall not be
deemed to be affixed to any lands upon which they may be situate so as
to acquire the legal status of fixtures or in any other matter
constitute a part of such lands and the Bank's ability to enforce all
terms and conditions of this Indemnity shall not in any way be
impaired should it be determined that the Collateral was or is or
became affixed to land or that the Collateral was or is not chattels.
3. Default under Lease.
(a) In the event of a default under or repudiation of the Lease the
Indemnifier waives any right to require the Bank prior to making any
demand hereunder to:
(i) Proceed against the Lessee or pursue any rights or remedies with
respect to the Lease;
(ii) Proceed against or exhaust any security of the Lessee held by the
Bank;
(iii) Pursue any other remedy whatsoever in the power of the Bank.
(b) In the event of termination of the Lease, except by surrender accepted
by the Bank, or in the event of disclaimer of the Lease pursuant to
any statute, then at the option of the Bank the Indemnifier shall
execute a new lease of the Collateral with the Bank as lessor and the
Indemnifier as lessee for a term equal in duration to the residue of
the term of the Lease remaining unexpired at the date of such
termination or such disclaimer. Such lease shall contain like lessor's
and lessee's obligations respectively and like covenants, provisos,
agreements and conditions in all respects as are contained in the
Lease.
4. General Provisions
(a) No action or proceeding brought or instituted under this Indemnity and
no recovery in pursuance thereof shall be a bar or defense to any
further action or proceeding which may be brought under this Indemnity
by reason of any further default or defaults under the performance and
observance of the terms, covenants and provisos of the Lease and no
one or more of the remedies herein is intended to be exclusive but
each shall be cumulative and in addition to any other remedies
referred to herein or otherwise available to the Bank at law or in
equity.
<PAGE>
(b) No modification of this Indemnity shall be effective unless the same
shall be in writing and signed by the Bank and the Indemnifier.
(c) Wherever any determination of any dispute is made pursuant to the
provisions Of the Lease or any Judgment or retaining of any count is
made which is binding upon the Lessee, such determination or judgment
shall be binding also upon the Indemnifier and there shall be no
necessity that the I ndemnifier shall and the Lessee.
(d) The obligations of the Indemnifier shall not be affected by any claim
or purported claim, set-off, defense or other right which the
Indemnifier may have at any time against the Bank in any transaction,
whether related to the Lease or not.
(e) The declaration by the Bank that a default has occurred shall be
conclusive evidence of such fact.
(f) The Indemnifier shall have no right to be subrogated to any rights of
the Bank until the Bank shall have received payment in full of all
monies due it under the Lease.
(g) The Indemnifier hereby renounces all benefits of discussion and
division.
(h) The taking of any judgment on any of the covenants of the Lessee under
the Lease shall not operate as a merger of any obligations herein.
(i) Any sums payable by the Indemnifier hereunder shall be paid on demand
to the Bank at such place or places as it may from time to time
direct.
(j) Time is of the essence hereof.
(k) For the purpose of greater clarity, it is declared to be the intention
of the Indemnifier that this Indemnity shall be construed so as to
impose like obligation on the Indemnifier as if the Indemnifier has
covenanted as principal jointly and severally with the Lessee with
respect to the te rms, covenants, conditions and provisions of the
Lease.
(l) The Indemnifier, if a corporation, agrees that the Limitation of Civil
Rights Act of the Province of Saskatchewan, or any provision thereof
shall have no application to this Indemnity or any agreement or
instrument renewing or extending or collateral to this Indemnity.
5. No Representations. There are no representations, collateral agreements or
conditions with respect to this Indemnity or affecting the Indemnifier's
liability hereunder other than as contained herein.
6. Notices. The address for service of any notice pursuant to this Indemnity
shall be as follows:
To The Bank: Hongkong Bank of Canada
4th floor - 885 West Georgia Street
Vancouver, British Columbia V6C 3E9
<PAGE>
To the Indemnifier: GLAS-AIRE INDUSTRIES LTD.
and any notice, advice or report shall be in writing and may be served by
mailing the same first class registered post, postage prepaid in an
envelope properly addressed to the party to whom the notice is to be given
at its address for service above, and shall be deemed to have been received
on the third business day after the mailing thereof. Provided, however,
that any notice may be served by personal service by leaving the same at
the party's address set forth above. In the event of adual or threatened
postal strikes or disruptions of postal service notice shall be by personal
service.
7. Successors. All the terms, agreements and conditions of this Indemnity
shall extend to and be binding upon the Indemnifier, his heirs, executors,
successors and assigns and shall enure to the benefit of and may be
enforced by the Bank, its successors and assigns.
8. Interpretation. For the purposes of interpretation, words herein importing
gender shall be deemed to be the other gender or the body corporate, and
vice versa, and all legal rights and obligations hereunder shall be
determined in accordance with the laws of BRITISH COLUMBIA . Reference to
any default in the Lease shall also include repudiation. Headings are
inserted for convenience of reference only and shall not constitute part of
this Indemnity for any other purpose. In the event more than one
Indemnifier shall execute this Indemnity, their liability shall be joint
and several.
9. The Indemnifier confirms that he has expressly required that this Indemnity
and all documents relating thereto be drafted in English. La Caution
confirme avoir expressement demande que le present cautionnement et tous
les documents sty rapportant soient rediges en anglais.
IN WITNESS WHEREOF this Indemnity has been executed by the Inderanifter as of
the 3RD day of MARCH , 1998.
The Common Seal of Glas-Aire Industries Ltd
was hereunto affixed in the presence of
By /s/ Alex Ding, Secretary
-----------------------------------------
<PAGE>
EXHIBIT 10.1
Hongkong Bank Leasing
Divsion of Hongkong Bank of Canada
INDEMNITY
Whereas:
A. Hongkong Bank of Canada (hereafter called "the Bank") has agreed to provide
certain collateral to MULTICORP HOLDINGS INC. (hereafter called the
"Lessee") pursuant to a certain Master Equipment Lease dated as of the 15
th day of MARCH , 1998 ;
B. It is contemplated that the acquisition cost of the aforesaid collateral
will not exceed $ US145.895.00 CDN
C. It is further contemplated that as collateral is required by the Lessee it
will direct the Bank to acquire the same and upon so doing, the Bank and
the Lessee will execute, inter alia, schedules to the aforesaid Master
Equipment Lease relating to the collateral so described;
D. The aforesaid Master Equipment Lease and each schedule to such Master
Equipment Lease are hereafter collectively called the "Lease" and the
collateral referred to in the Lease is hereafter collectively called the
"Collateral";
E GLAS-AIRE INDUSTRIES LTD. (hereafter called the "Indemnifier") is
associated with the Lessee and as additional security to the Bank has
agreed to indemnify the Bank on the terms and conditions hereafter set
forth.
1. Indemnity. In consideration of the Bank entering into the Lease with the
Lessee and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Indemnifier hereby agrees
to and does by these presents indemnify and save harmless the Bank from and
against any and all loss, cost, expense or damages arising out of any
failure by the Lessee to pay any rent prescribed by the aforesaid Lease, or
other moneys payable thereunder or the failure of the Lessee to perform any
of the other terms, covenants, conditions and provisions of the said Lease.
2. General Conditions of Indemnity. This Indemnity is absolute and
unconditional and the obligation of the Indemnifier shall not be released
or discharged by:
(a) Any extensions of time, indulgences, or modifications which the Bank
may extend or make with the Lessee in respect of the performance of
any of the obligations of the Lessee under any one or more provisions
of the Lease;
(b) Any waiver by or failure of the Bank to enforce any of the terms,
covenants, conditions and provisions of the Lease;
(c) Assignment of the said Lease by the Lessee or by any trustee, receiver
or liquidator;
(d) Any consent which the Bank may give to any such assignment;
(e) Any assignment or transfer or other disposition by the Bank of any of
its rights under the Lease and it is hereby agreed that the Bank may
assign; transfer or otherwise dispose of any such rights without
notice to the Indemnifier and in such event any assignee, transferee
or successor in i nterest shall have the same rights and remedies as
if originally named herein in the place of the Bank;
<PAGE>
(f) The Bank shall have the right to enforce this Indemnity regardless of
the acceptance of additional security from the Lessee and regardless
of the release or discharge of the Lessee by the Bank or by others or
by operation of any law;
(g) The discharge of the Lessee from any of its obligations thereunder by
way of applicable statutes relating to bankruptcies or insolvencies or
the like;
(h) Any inability of the Bank to enforce any terms, covenants, conditions
and provisions of the Lease against any party for whatever reason
including and without limiting the generality of the foregoing any
failure by the Bank to properly register or record the Bank's security
interest thereun der or file financing statements, notices, or other
documents as required under any applicable statutes;
(i) Any amendment, modification, or change of the Lease, whether or not
the Indemnifier has been not)fied of the same. The Indemnifier hereby
waives notice of the acceptance of this Indemnity and all notice of
non-performance, non-payment or non-observance on the part of the
Lessee of the terms, covenants, conditions and provisos of the
Parties. As between the Indemnifier and the Bank and notwithstanding
any rule of law or equity to the contrary, the Collateral is and shall
be deemed for all purposes to be chattels at the time of its
acquisition by the Bank and the Indemnifier agrees that the Collateral
shall not be deemed to be affixed to any lands upon which they may be
situate so as to acquire the legal status of fixtures or in any other
matter constitute a part of such lands and the Bank's ability to
enforce all terms and conditions of this Indemnity shall not in any
way be impaired should it be determined that the Collateral was or is
or became affixed to land or that the Collateral was or is not
chattels.
3. Default under Lease.
(a) In the event of a default under or repudiation of the Lease the
Indemnifier waives any right to require the Bank prior to making any
demand hereunder to:
(i) Proceed against the Lessee or pursue any rights or remedies with
respect to the Lease;
(ii) Proceed against or exhaust any security of the Lessee held by the
Bank;
(iii) Pursue any other remedy whatsoever in the power of the Bank.
(b) In the event of termination of the Lease, except by surrender accepted
by the Bank, or in the event of disclaimer of the Lease pursuant to
any statute, than at the option of the Bank the Indemnifer shall
execute a new lease of the Collateral with the Bank as lessor and the
Indemnifier as l essee for a term equal in duration to the residue of
the term of the Lease remaining unexpired at the date of such
termination or such disclaimer. Such lease shall contain like lessor's
and lessee's obligations respectively and like covenants, provisos,
agreements and conditions in all respects as are contained in the
Lease.
4. General Provisions
(a) No action or proceeding brought or instituted under this Indemnity and
no recovery in pursuance thereof shall be a bar or defense to any
further action or proceeding which may be brought under this Indemnity
by reason of any further default or defaults under the Lease in the
performance an d observance of the terms, covenants and provisos of
the Lease and no one or more of the remedies herein is intended to be
exclusive but each shall be cumulative and in addition to any other
remedies referred to herein or otherwise available to the Bank at law
or in equity.
<PAGE>
(b) No modification of this Indemnity shall be effective unless the same
shall be in writing and signed by the Bank and the Indemnifier.
(c) Wherever any determination of any dispute is made pursuant to the
provisions of the lease or any judgment or finding of any court is
made which is binding upon the Lessee, such determination or judgment
shall be binding also upon the Indemnifier and there shall be no
necessity that the Ind emnifier shall have received notice of or been
party to any proceedings taken ~n connection with any dispute between
the Bank and the lessee.
(d) The obligations of the Indemnifier shall not be affected by any claim
or purported claim, set-off, defense or other right which the
Indemnifier may have at any time against the Bank in any transaction,
whether related to the Lease or not.
(e) The declaration by the Bank that a default has occurred shall be
conclusive evidence of such fact.
(f) The Indemnifier shall have no right to be subrogated to any rights of
the Bank until the Bank shall have received payment in full of all
monies due it under the Lease.
(g) The Indemnifier hereby renounces all benefits of discussion and
division.
(h) The taking of any judgment on any of the covenants of the Lessee under
the Lease shall not operate as a merger of any obligations herein
(i) Any sums payable by the Indemnifier hereunder shall be paid on demand
to the Bank at such place or places as it may from time to time
direct.
(j) Time is of the essence hereof.
(k) For the purpose of greater clarity, it is declared to be the intention
of the Indemnifier that this Indemnity shall be construed so as to
impose like obligation on the lndemnifier as if the Indemnifier has
covenanted as principal jointly and severally with the Lessee with
respect to the te rms, covenants, conditions and provisions of the
Lease.
(l) The Indemnifier, if a corporation, agrees that the Limitation of Civil
Rights Act of the Province of Saskatchewan, or any provision thereof,
shall have no application to this Indemnity or any agreement or
instrument renewing or extending or collateral to this Indemnity.
5. No Representations. There are no representations, collateral agreements or
conditions with respect to this Indemnity or affecting the Indemnifier's
liability hereunder other than as contained herein.
6. Notices. The address for service of any notice pursuant to this Indemnity
shall be as follows:
To The Bank: Hongkong Bank of Canada
4th floor - 885 West Georgia Street
Vancouver, British Columbia V6C 3E9
<PAGE>
To the Indemnifier: GLAS AIRE INDUSTRIES GROUP LTD.
and any notice, advice or report shall be in writing and may be served by
mailing the same first class registered post, postage prepaid in an envelope
properly addressed to the party to -whom the notice is to be given at its
address for service above, and shall be deemed to have been received on the
third business day after the mailing thereof. Provided, however, that any notice
may be served by personal service by leaving the same at the party's address set
forth above. In the event of actual or threatened postal strikes or disruptions
of postal service notice shall be by personal service.
7. Successors. All the terms, agreements and conditions of this Indemnity
shall extend to and be binding upon the Indemnifier, his heirs, executors,
successors and assigns and shall enure to the benefit of and may be
enforced by the Bank, its successors and assigns.
8. Interpretation. For the purposes of interpretation, words herein importing
gender shall be deemed to be the other gender or the body corporate, and
vice versa, and all legal rights and obligations hereunder shall be
determined in accordance with the laws of BRITISH COLUMBIA. Reference to
any default in the Lease shall also include repudiation. Headings are
inserted for convenience of reference only and shall not constitute part of
this Indemnity for any other purpose. In the event more than one
Indemnifier shall execute this Indemnity, their liability shall be joint
and several.
9. The Indemnifier confirms that he has expressly required that this Indemnity
and all documents relating thereto be drafted in English. La Caution
confirme svoir expressement demande que le present cautionnement et tous
les documents sty rapportant solent rediges en anglais.
IN WITNESS WHEREOF this Indemnity has been executed by the Indemnifier as of the
3rd day of MARCH 1998
The Common Seal of Glas-Aire Industries Group Ltd
was hereunto affixed in the presence of
By /s/ Alex Ding, Secretary
-----------------------------------------------
<PAGE>
EXHIBIT 10.1
Name of Company: Multicorp Holdings Inc.
Resolution of the directors of the Company authorizing the lease, from time to
time, from Hongkong Bank of Canada of personal, movable and/or other property.
WHEREAS it is in the interest of the Company to lease from Hongkong Bank of
Canada from time to time, personal movable and/or other property (the
"Collateral");
NOW THEREFORE BE IT RESOLVED THAT:
1. the Company is hereby authorized to lease, from time to time, Collateral
from Hongkong Bank of Canada;
2. for such purpose the Company is hereby authorized to enter into an
agreement (the "Master Equipment Lease") to be dated on or about the 3 rd day of
MARCH , 1998 between the Company and Hongkong Bank of Canada, whereby the
Company agrees on the terms and subject to the conditions therein se t forth, to
lease Collateral from time to time from Hongkong Bank of Canada;
3. the Company is hereby authorized, from time to time, to enter into
agreements (the "Lease Schedules") between the Company and Hongkong Bank of
Canada, whereby the Company agrees, on the terms and subject to the conditions
set forth therein and in the Master Equipment Lease, to lease Collat eral
described therein from Hongkong Bank of Canada, each such Lease Schedule
constituting a schedule to and incorporating by reference, the Master Equipment
Lease;
4. the draft Master Equipment Lease (a copy of which has been presented to
this meeting) is hereby approved and any one officer or director or any officer
and director acting alone is hereby authorized to execute a Master Equipment
Lease, substantially in the form of the said draft Master Equipment Lease, with
such variations as such officers may approve, such approval to be conclusively
deemed to be proved by their execution thereof, and such other documents and
instruments, including Lease Schedules, whether under the corporate seal of the
Company or otherwise, and to do all such acts and things as in their opinion may
be necessary or advisable to effect the provisions of this resolution and the
provisions of the Master Equipment Lease and any Lease Schedules;
5. the Company is hereby authorized to sell Collateral to Hongkong Bank of
Canada, and to execute any documents and instruments for such purpose, including
Bills of Sale.
I, YIE WIE DING hereby certify under the corporate seal of MULTICORP
MOLDINGS INC. (the "Company") on behalf of the Company that I am the duly
appointed Secretary of the Company and that the foregoing is a true copy of a
resolution of the directors of the Company duly passed on the 3rd day of MARCH ,
1998, which resolution is presently in full force and effect.
DATED the 3RD day of MARCH , 1998.
MULTICORP HOLDINGS INC.
/s/ Alex Ding
-------------------------------------
Secretary
<PAGE>
EXHIBIT 10.1
RESOLUTION OF THE DIRECTORS OF GLAS-AIRE INDUSTRIES GROUP LTD. (the "COMPANY")
CONSENTED TO IN WRITING AS OF THE 3RD DAY OF MARCH , 1998.
WHEREAS the Company is not presently insolvent
AND WHEREAS the Directors are of the opinion that the providing of an
Indemnity to Hongkong Bank of Canada ("HKBCL") in respect of the obligations of
Glas-Aire Industries Group Ltd. to Hongkong Bank of Canada pursuant to a certain
Master Equipment Lease is in the best interests of the Company.
RESOLVED that the Company provide to HKBCL an Indemnity on the terms
of the Indemnity Agreement attached hereto and that the
_________________________ be and is hereby authorized on behalf of the Company
to execute and deliver the said Indemnity Agreement and to execute such other
documents and do all such other acts and things as may be necessary to effect
the giving of the Indemnity.
AND BE IT FURTHER RESOLVED that the _______________________ of the
Company is hereby authorized for and in the name of the Company to execute and
deliver, under the common seal of the Company, all such other instruments and
writings and to perform and do all such other acts and things as he, in his
absolute discretion, may consider to be necessary, desirable or useful for the
purpose of giving effect to this resolution or as may be required by HKBCL for
such purpose.
The above resolutions are hereby consented to.
CERTIFICATE
I, the undersigned Officer of the Company, do hereby certify under the seal of
the Company that the foregoing is a true and correct copy of a resolution passed
and adopted by the directors of the Company in strict accordance with the
constitution of the Company and the said resolution is at this date in full
force and effect and is wholly unrevoked and unamended.
DATED at the _______________________ of VANCOUVER in the Province of British
Columbia, this 3rd day of MARCH, 1998.
GLAS-AIRE INDUSTRIES GROUP LTD.
/S/ Alex Ding, President
------------------------------------
<PAGE>
EXHIBIT 10.1
Name of Company: Multicorp Holdings Inc.
Resolution of the directors of the Company authorizing the lease, from time
to time, from Hongkong Bank of Canada of personal, movable and/or other
property.
WHEREAS it is in the interest of the Company to lease from Hongkong Bank of
Canada from time to time, personal movable and/or other property (the
"Collateral");
NOW THEREFORE BE IT RESOLVED THAT:
1. the Company is hereby authorized to lease, from time to time, Collateral
from Hongkong Bank of Canada",
2. for such purpose the Company is hereby authorized to enter into an
agreement (the "Master Equipment Lease") to be dated on or about the 3rd day of
MARCH , 1998 between the Company and Hongkong Bank of Canada, whereby the
Company agrees on the terms and subject to the conditions therein set forth, to
lease Collateral from time to time from Hongkong Bank of Canada;
3. the Company is hereby authorized, from time to time, to enter into
agreements (the "Lease Schedules") between the Company and Hongkong Bank of
Canada, whereby the Company agrees, on the terms and subject to the conditions
set forth therein and in the Master Equipment Lease, to lease Collateral
described therein from Hongkong Bank of Canada, each such Lease Schedule
constituting a schedule to and incorporating by reference, the Master Equipment
Lease;
4. the draft Master Equipment Lease (a copy of which has been presented to
this meeting) is hereby approved and any one officer or director or any officer
and director acting alone is hereby authorized to execute a Master Equipment
Lease, substantially in the form of the said draft Master Equipment Lease, with
such variations as such officers may approve, such approval to be conclusively
deemed to be proved by their execution thereof, and such other documents and
instruments, including Lease Schedules, whether under the corporate seal of the
Company or otherwise, and to do all such acts and things as in their opinion may
be necessary or advisable to effect the provisions of this resolution and the
provisions of the Master Equipment Lease and any Lease Schedules;
5. the Company is hereby authorized to sell Collateral to Hongkong Bank of
Canada, and to execute any documents and instruments for such purpose, including
Bills of Sale.
I, YIE WIE DING hereby certify under the corporate seal of MULTICORP
HOLDINGS INC. (the "Company") on behalf of the Company that I am the duly
appointed Secretary of the Company and that the foregoing is a true copy of a
resolution of the directors of the Company duly passed on the 3rd day of MARCH ,
1998, which resolution is presently in full force and effect.
DATED the 3RD day of MARCH
MULTICORP HOLDINGS INC.
/S/ Alex Ding, Secretary
--------------------------------------
<PAGE>
EXHIBIT 10.1
RESOLUTION OF THE DIRECTORS OF GLAS-AIRE INDUSTRIES LTD. (the "COMPANY")
CONSENTED TO IN WRITING AS OF THE 3RD, DAY OF MARCH , 1998.
WHEREAS the Company is not presently insolvent
AND WHEREAS the Directors are of the opinion that the providing of an
Indemnity to Hongkong Bank of Canada ("HKBCL") in respect of the obligations of
Glas-Aire Industries Ltd. to Hongkong Bank of Canada pursuant to a certain
Master Equipment Lease is in the best interests of the Company.
RESOLVED that the Company provide to HKBCL an Indemnity on the terms
of the Indemnity Agreement attached hereto and that the be and is hereby
authorized on behalf of the Company to execute and deliver the said Indemnity
Agreement and to execute such other documents and do all such other acts and
things as may be necessary to effect the giving of the Indemnity.
AND BE IT FURTHER RESOLVED that the of the Company is hereby
authorized for and in the name of the Company to execute and deliver, under the
common seal of the Company, all such other instruments and writings and to
perform and do all such other acts and things as he, in his absolute discretion,
may consider to be necessary, desirable or useful for the purpose of giving
effect to this resolution or as may be required by HKBCL for such purpose.
The above resolutions are hereby consented to.
CERTIFICATE
I, the undersigned Officer of the Company, do hereby certify under the seal of
the Company that the foregoing is a true and correct copy of a resolution passed
and adopted by the directors of the Company in strict accordance with the
constitution of the Company and the said resolution is at this date in full
force and effect and is wholly unrevoked and unamended.
DATED at the ___________________ of VANCOUVER in the Province of British
Columbia, this 3rd day of MARCH, 1998.
GLAS-AIRE INDUSTRIES LTD.
/s/ Alex Ding, Secretary
-----------------------------------
<PAGE>
EXHIBIT 10.1
Certificate of the Secretary of
MULTICORP HOLDINGS INC.
setting forth signing officers and directors
with an example of each of their respective
signatures.
NAME OFFICE HELD SIGNATURE
---- ----------- ---------
OMEN ESEN DIRECTORS /s/ Omer Esen
------------------------
YIE WIE DING DIRECTORS /s/ Yie Wie Ding
------------------------
I, YIE WIE DING , hereby certify under the corporate seal of MULTICORP HOLDINGS
INC. (the "Company") that:
a) I am the duly appointed Secretary of the Company;
b) the foregoing is a list setting forth the names of officers and directors
of the Company who are authorized to sign documents, with an example of
each of their respective signatures, in particular such officers and
directors are authorized to execute a Master Equipment Lease between the
Company and Hongkong Bank of Canada pursuant to which the Company may lease
equipment from time to time from Hongkong Bank of Canada, and to execute
Lease Schedules from time to time thereunder, and any other documents
required in connection therewith;
c) there are no restrictions in the Company's Articles or By-Laws, or any
Unanimous Shareholders Agreement, which prohibit or otherwise restrict the
Directors from creating a security interest in any property of the Company,
presently owned or subsequently acquired, to secure any obligation of the
Company;
d) the Company is a corporation duly incorporated and organized, validly
existing and in good standing under the laws of British Columbia.
DATED the 3RD day of MARCH , 1998.
MULTICORP HOLDINGS INC.
/s/ Alex Ding, Secretary
---------------------------------
<PAGE>
EXHIBIT 10.1
BUSINESS PRE-AUTHORIZED DEBIT AUTHORITY
Bank: HONGKONG BANK OF CANADA
Bank Address: 20045 LANGLEY BY-PASS
LANGLEY B.C. V3A 8R6
Full Name of Lessee: MULTICORP HOLDINGS, INC.
Lessee Address: 3138 GRANDVIEW HIGHWAY
VANCOUVER, B.C. V5M 3E9
Re: Hongkong Bank of Canada (Lessor!
You are hereby authorized to pay and debit to the account of the undersigned all
payments purporting to be drawn on our behalf payable to the above mentioned
Lessor presented to you for payment. Such payments may be in the form of
magnetic or computer-produced paper tape in which case you are authorized to
treat them as if they were signed by us.
In consideration of your acting upon this authorization, we agree that you not
be liable for any loss or damage incurred as a result of anything done or to be
done pursuant to this authorization.
If this account is transferred to another branch/bank, this authorization shall
b, directed there and shall be of the same force and effect as if it had
originally been delivered to that branch/bank. This authorization may be revoked
by the undersigned giving ten days' written notice to the branch at which the
account is being maintained at the date of such notice.
Date: MARCH 3, 1998 Per: /s/ Alex Ding, Secretary
-------------------------
Alex Yie Wie Ding
-------------------------------------
Please Print Name
Per: /s/ Omer Esen, General Manager
---------------------------------
Omer Esen
-------------------------------------
EXHIBIT 10.2
Hongkong Bank of Canada
AGREEMENT AS TO LOANS AND ADVANCES
AND SECURITY THEREFOR
To Hongkong Bank of Canada
In consideration of the acceptance of our bills of exchange, the extension of
credit, loans or advances being made and/or to be made hereafter by Hongkong
Bank of Canada (herein called the Bank ) to the undersigned (herein called 'the
Customer ) the Customer agrees with the Bank as follows:
1. All security now or at any time hereafter held by the Bank for the payment
of any debt or liability of the Customer (the said security being herein
called "the Security"), including, without limiting the generality of the
foregoing, security by way of warehouse receipt or bill of lading or under
Section 427 of the Bank Act, together with all property covered by or
comprised in the security (the said property being herein called "the
Property"), and all proceeds of the Security and of the Property, shall be
continuing collateral security for the payment of such debt or liability
and also for the payment of interest thereon which unless otherwise agreed
shall be payable on the last day of each month at a rate equal to the
Bank's Prime Rate plus o 50 percent per annum, calcul ated monthly from the
date of any advance both before and after demand and before and after
judgment, until actual payment.
2. The Customers shall keep the Property insured to its full insurable value
against loss or damage by fire, and, if requested by the Bank, against loss
or damage from any other cause, with insurers approved by the Bank, and
shall assign to the Bank the policies evidencing such insurance or a ll
claims thereunder and/or have the loss made payable to the Bank as the Bank
may require and shall deliver the policies to the Bank, and in the event of
failure so to do the Bank may but shall not be bound to effect such
insurance on the Property as it see. fit and the Customer will on demand
repay to the Bank the amount of any premiums paid by it with interest
thereon at the rate and calculate in the manner aforesaid.
3. If the Bank surrenders to the Customer the Security or the Property or any
part of either of them, the Customer shall receive the same in trust for
and on behalf of the Bank and from time to time shall deal therewith as the
Bank may direct and, at the request of the Bank, shall give to the Bank
security on the Property so surrendered, or covered by the Security so
surrendered, to the satisfaction of the Bank.
4. The proceeds of all sales by the Customer of the Property or any part
thereof, including, without limiting the generality of the foregoing, cash,
debts arising from such sales or otherwise, evidences of title,
instruments, documents and securities, which the Customer may receive or be
enti tled to receive in respect thereof, are hereby assigned to the Bank
and shall be paid or transferred to the Bank forthwith, and until so paid
or transferred shall be held by the Customer in trust for the Bank.
Execution by the Customer and acceptance by the Bank of an assignment of
book debts or any additional assignment of any such proceeds shall be
deemed to be in furtherance hereof and not an acknowledgment by the Bank of
any right or title on the part of the Customer to such book debts or pr
oceeds.
5. The Customer shall at all times duly and seasonably pay and discharge all
claims whatsoever in any way secured by or constituting a charge upon the
Property or any part thereof and particularly, but without limiting the
generality of the foregoing, all wages, salaries and other remuneratio n of
all employees employed by the Customer in connection with the business or
farm of the Customer in respect of which any property covered by the
<PAGE>
Security is held or acquired by the Customer, and shall from time to time
at the request of the Bank exhibit to the Bank evidence of such payment and
discharge and obtain and deliver to the Bank such waivers or releases as
the Bank may deem necessary to secure to the Bank the priority of its
rights in the Property.
6. The Customer shall from time to time on demand and to the satisfaction of
the Bank deliver to the Bank additional security, and in the event of
failure by the Customer so to do or to make due payment to the Bank of any
debt or liability or part thereof or to observe any provision of this
agreement, the Bank may in its discretion cease or refrain from making
loans or advances to the Customer whether under any credit extended by the
Bank or otherwise, and all debts and liabilities of the Customer to the
Bank shall at the option of the Bank be payable forthwith and without any
demand, and the Bank is hereby authorized from time to time to sell at
public or private sale or otherwise realize upon the Security or any part
thereof and all or any of the Property whenever and wherever and for such
price in money or other consideration and in such manner and upon such
terms and conditions as the Bank deems best, the whole without
advertisement or notice to the Customer or others and to deal with the
proceeds as in this agreement provided or as otherwise agreed, without
prejudice to its claim for any deficiency and free from any right of
redemption on the part of the Customer which is hereby waived and released,
the Customer expressly waiving all and every formality prescribed by the
custom or by law in relation to any such sale or other realization.
7. The Bank may from time to time without any demand forcibly break open,
enter upon or into and occupy and use, enjoy and exercise free of charge
and to the exclusion of all others, including the Customer, any and all
premises and property (real and personal, immovable and movable) and
rights, powers and privileges of or used, enjoyed or exercised by the
Customer in connection with the Property or any part hereof or in or upon
which the same may be (not being the premises of a warehouseman or carrier)
until the Property shall be fully realized upon, and may from time to time
appoint a receiver or agent to act for the Customer, for whose acts the
Customer alone shall be responsible, and the Customer shall have no power
to revoke such appointment or determine such agency. Such receiver or agent
shall have and ma) exercise all the powers, rights and discretions granted
to the Bank by this agreement and the Bank and any such receiver or agent
shall, have the right from time to time in the name of the Customer to
exercise any and all of the Customer s rights, powers and privileges of
every kind and to do all acts and things which the Customer could do if
acting, for the purpose of completing, selling, shipping or otherwise
dealing with the Property in such manner as the Bank may deem best for the
purpose of realizing upon the Property.
8. Any promissory note or bill of exchange received by the Bank together with
any securities or documents attached thereto or received therewith shall be
subject to the terms of this agreement and the Bank and holders for the
time being of any such bill or note may at any time before or after its
maturity and whether or not it has been dishonored accept payment and
deliver the securities or documents or accept partial payment from time to
time and thereupon release part of the Security or of the Property covered
by the documents or any of them.
9. The Bank may from time to time apply
(a) all payments which it receives,
(b) the proceeds of sales by the Customer of the Property or any part
thereof, and
<PAGE>
(c) the proceeds of realization of any part of the Security or of the
Property which are applicable generally to the debts and liabilities
of the Customer to the Bank,
against (or, as the Bank deems best, hold the same with all the powers,
rights and discretions conferred on it by this agreement or otherwise, as
continuing collateral security for the fulfillment of) any or all
obligations, present or future, direct or indirect, absolute or contingent,
matured or not, of the Customer to the Bank whether arising from agreement
or dealings between the Bank and the Customer or from any agreement or
dealings with any third person by which the Bank may be or become in any
manner whatsoever a creditor of the Customer or however otherwise arising
and whether the Customer be bound alone or with another or others and
whether as principal or surety, and any such application by the Bank may,
in whole or in part, be changed by the Bank from time to time as it deems
best.
The proceeds of realization of any part of the Security or of the Property
which are applicable only to part of the debts and liabilities of the
Customer to the Bank shall first be applied to such part of the debts and
liabilities, and any surplus remaining after payment of such part may from
time to time be held or applied by the Bank for the purposes set out in and
in accordance with the preceding paragraph of this Clause 9.
10. The Bank may release, compromise, settle and adjust any claim, dispute or
difference which may arise in respect of the Security or of the Property or
the proceeds of either of them and may grant extensions of time and
indulgences. The Bank may use any Clearing Houses established by The Can
adian Bankers' Association and in all dealings with the Customer's accounts
and with instruments may act pursuant to the rules and regulations under
which such Clearing Houses are operated.
11. The Customer shall from time to time execute, draw, endorse end deliver all
such instruments and documents and do all such acts and things as the Bank
may deem necessary or desirable for the purpose of perfecting the title of
the Bank to the Security or the Property or the proceeds of either of them
or of carrying into effect any or all of the provisions of this agreement
or of securing the fulfillment of all such obligations as aforesaid of the
Customer to the Bank. The Customer hereby appoints the Bank and its Vice
Presidents, Inspectors, Managers and persons for the time being acting as
managers of branches of the Bank where an account of the Customer may be
kept and any person or persons from time to time named by the Bank for the
purposes hereinafter mentioned, and any one of them acting alone, the
Attorneys and Attorney of the Customer with full power of substitution from
time to time for and in the name of the Customer to do whatsoever the said
Attorneys or Attorney may deem expedient for the purpose of carrying into
effect any or all of the provisions of this agreement, and this appointment
being made in consideration of a loan or loans, advance or advances, by the
Bank to the Customer shall be irrevocable and shall be of full force and
effect whenever and so often as any loan or advances by the Bank to the
Customer is unpaid or any such obligation as aforesaid to the Bank is
unfulfilled and notwithstanding any occurrence or event which would
otherwise terminate such agency. Every power, right and discretion vested
by law in the Bank or conferred upon it by this agreement may be exercised
on its behalf by the said officers or acting officers of the Bank or any
person or persons from time to time named by the Bank for such purpose, and
any one of them acting alone.
12. The Bank shall not be responsible for any failure to exercise or enforce or
for any delay in the exercise or enforcement of any powers, rights or
discretions of the Bank nor for any act, default or misconduct of any
agent, officer, employee or servant of the Bank and the Bank shall be acco
untable only for such moneys as it shall actually receive.
<PAGE>
13. Any notice to or demand upon the Customer shall be sufficiently given if
dispatched by post addressed to the Customer at the address of the Customer
as shown by the books kept in relation to the account of the Customer at
the branch of the Bank from which notice or demand is dispatched and shall
be deemed to have been received by the Customer the time when in the
ordinary course of post it would be expected to reach the said address.
14. The benefit of all rules of law or equity and compliance with any statutory
provisions now or hereafter in force inconsistent with any o the provisions
of this agreement are hereby waived by the Customer.
15. The provisions hereof shall be in addition to all other remedies of the
Bank existing in law and to all rights under agreements heretofore given
and no sale or delivery by the Customer of the Property or any part thereof
shall prejudice or affect the rights however arising of the Bank in o r
with respect to property so sold or delivered, and this shall be a
continuing agreement and all its provisions shall extend to all loans and
advances to the Customer by the Bank and all obligations of the Customer to
the Bank at any time outstanding and to the Security and the Property as
they may exist from time to time and all proceeds thereof; and every loan
and advance heretofore, now or hereafter made shall be deemed to have been
made upon the agreements herein contained.
16. This agreement shall be binding upon and enure to the benefit of the
Customer and the Bank and the heirs, executors and administrators or
successors and assigns, as the case may be, of each of them.
17. It is the express wish of the Parties that this agreement and any related
documents be drawn up and executed in English. II est la volonte expresse
des Parties que cette convention et tous les documents s'y rattachant
soient rediges et signes en anglais.
The Bank's Prime Rate means the floating annual rate of interest established and
recorded by the Bank from time to time as a reference rate for the purposes of
determining rates of interest it shall charge on loans denominated in Canadian
dollars and which, by executing this agreement the Customer acknowledges was
5.25 percent as at the date of execution hereof A certification of a Vice
President of the Bank shall be conclusive evidence of the Bank's Prime Rate from
time to time.
Signed and sealed at ______________________ this ______ day of _________, 19____
Where the undersigned is an Individual:
Signed, Sealed and Delivered
By _______________________________________
in the presence of:
__________________________________________
__________________________________________
Where the undersigned is a Corporation:
GLAS-AIRk INDUSTRIES LTD.
- -------------------------
By /s/ Alex Ding, President
----------------------------------------
<PAGE>
EXHIBIT 10.2
Hongkong Bank of Canada
LINE OF CREDIT BY WAY OF CURRENT
ACCOUNT OVERDRAFT AGREEMENT
Borrower's Name Branch Name
Glas-Aire Industries Ltd Langley
Borrower's Address Branch Address
3137 Grandview Highway Bank of British Columbia
Vancouver B.C. V5M 2E9 Division of Hongkong Bank of Canada
20437 Fraser Highway
Langley, B.C. V3A 5N9
Current Account Number Loan Limit* Rate of Interest on Loan* Monthly Fee*
719205-020 CAD 100,000 Prime Rate plus .50% N/A
* or such other loan limit, rate of interest on loan or monthly fee as may
hereafter be agreed upon by the Borrower as evidenced by the agreement in
writing from time to time.
In consideration of Hongkong Bank of Canada (the "Bank") providing the
above-noted account (the "Account") for the undersigned (the "Borrower"), the
Borrower agrees with the Bank as follows:
1. For the purposes hereof, the term "Loan" means the aggregate of all
amounts debited to the Account (including cheques, withdrawals, interest service
charges and fees imposed by the Bank) in excess of the aggregate at any time and
from time to time of all amounts credited to the Account.
2. The Borrower shall pay interest to the Bank on the daily closing balance
of the Loan at a floating rate equal to the Bank's Prime Rate plus the
percentage noted above. Such interest shall be calculated and payable monthly,
on the last day of each and every month, both before and after any termination
of the Account, or judgment, and until payment of the Loan in full. The "Bank's
Prime Rate" shall mean the floating annual rate of interest established and
announced by the Bank from time to time as the reference rate for purposes of
determining the rates of interest it will charge on loans denominated in
Canadian dollars in Canada. A certificate of a vice-president of the Bank shall
be conclusive evidence of the Bank's Prime rate from time to time.
3. In addition to debiting the Account with the amount of each cheque,
payment order or other item drawn on the Account, and each withdrawal, the Bank
shall also be entitled to debit the Account with the amount of all interest
(including compound interest) payable by the Borrower monthly to t he Bank
pursuant to this Agreement as well as the said monthly fee and other charges
payable by the Borrower, and the amount of any legal costs incurred by the Bank
with respect to the Borrower.
4. The Borrower shall not permit the Loan to exceed the Loan Limit nor any
margin requirement which may be imposed by the Bank. The Bank may refuse to
honour any cheque, permit any withdrawal or pay any other item if the Loan
exceeds, or would after such payment exceed, the Loan Limit on the date such
cheque, withdrawal or other item is presented to the Bank for payment; provided
that this Agreement shall continue to apply to the Loan and to the Borrower
notwithstanding any Loan in excess of the Loan Limit.
5. The Borrower shall use the Account (and incur the Loan) solely for
business purposes.
6. The Borrower shall deliver to the Bank from time to time, promptly on
request by the Bank and in form and substance satisfactory to the Bank, a demand
promissory note or other acknowledgment of debt evidencing the amount of all
indebtedness and liability then owing by the Borrower to the Bank pursuant to or
in respect of this Agreement, and in this regard the Borrower shall deliver to
<PAGE>
the Bank a supply of blank demand promissory notes which the Bank shall be
authorized, at its discretion, to complete on behalf of the Borrower from time
to time in pursuance of this clause. In the event that any such promissory note
or any other acknowledgment of debt, security or other document is requested by
the Bank, the Bank shall not be obligated to honour any cheque or permit any
withdrawal or other debit to the Account until such promissory note, other
acknowledgment of debt, security or other document is delivered to the Bank.
7. The Borrower shall comply with all present and future agreements between
the Borrower and the Bank including any operation of account agreement between
the Borrower and the Bank; provided that in the event there exists any conflict
between the provisions of such operation of account agreem ent and the
provisions hereof, the provisions hereof shall govern.
8. The Bank shall have the right at any time to demand immediate payment of
the Loan, or any part thereof, together with interest, fees, charges and costs
outstanding hereunder and the borrower shall forthwith comply with any such
demand. In addition, the Bank may at any time terminate this Agreement forthwith
upon giving notice to the Borrower, in which event all amounts payable by the
Borrower to the Bank pursuant to this Agreement shall forthwith become due and
payable and thereafter the Bank shall not be obliged to honour any cheque,
permit any withdrawal or permit the creation or increase of the Loan.
9 Upon receipt from the Bank each month of a statement of the Account
together with all Cheques or vouchers for amounts appearing therein charged to
the Account, the Borrower shall examine such statement, cheques or vouchers and
check the credit and debit entries in the statement, and, withi n thirty days
after the Bank delivers or mails such statement, cheques and vouchers to the
Borrower, the
For a Corporation:
GLAS-AIRE INDUSTRIES LTD
-----------------------------------
(Corporate Seal) By: /S/ Alex Ding
-----------------------------------
By:
-----------------------------------
For a Partnership,
Signed, Sealed and Delivered in the presence of:
Witness
----------------------------------
Name
-------------------------------------
Address
----------------------------------
(All partners should sign under seal and the signature of each partner should be
witnessed individually).
<PAGE>
EXHIBIT 10.2
Hongkong Bank of Canada
CORPORATION BANKING RESOLUTION
FOR BORROWING ACCOUNTS
Passed by the Board of Directors Glas-Aire Industries Ltd
on or as at the _____ day of November 1997
Resolved:
1. That the President
is/are authorized on behalf of the Company:
(a) to borrow money or otherwise obtain financial assistance from Hongkong
Bank of Canada (herein called the "Bank") either by way of overdraft,
discount, loan, advance, line of credit, letter of credit, acceptance
of bills of exchange issued by the Company or otherwise;
(b) to assign, transfer, convey, hypothecate, mortgage, charge, pledge or
give security in any manner upon any property of the Company, real or
personal, moveable or immovable, present or future, and upon any
rights, powers, choses in action, or other assets, present or future,
of the Company, as security for the fulfillment of any liabilities or
obligations, and for payment of any indebtedness, present or future,
of the Company now or hereafter made or incurred directly or
indirectly or otherwise, and to empower the Bank or any person or
persons to sell by public or private sale, to assign, to transfer, or
to convey from time to time any such properties; and
(c) without in any way limiting the powers herein conferred upon the
Directors, to give security or promise to give security, to execute
agreements, documents and instruments in any manner or in any form
under the Bank Act or otherwise to assign book accounts, to secure any
money borrowed or to be borrowed or any obligations or liabilities as
aforesaid or otherwise of the Company heretofore, now or hereafter
made or incurred directly or indirectly or otherwise.
2. That the persons listed above shall be authorized to execute on behalf of
the Company, under seal or otherwise, any agreements, documents and
instruments required by the Bank in connection with the above and any such
agreements, documents and instruments signed or purported to be signed in
the manner set forth in this Resolution shall be valid and binding upon the
Company.
3. That the Bank be supplied with a list of all signing officers and other
persons-who are herein named or referred to by office or position with the
Company and that the Bank is hereby authorized to rely upon such list until
it has received an amended list together with such supporting resol utions
or certificates as may be required by the Bank.
4. That the Bank be supplied with a certified copy of this Resolution and that
this Resolution shall remain in force and be binding upon the Company as
regards the Bank until the Bank has received written notification that this
Resolution has been repealed or replaced together with such suppo rting
resolutions or certificates as may be required by the Bank.
<PAGE>
EXHIBIT 10.2
Certificate
I/We hereby certify:
1. That the foregoing is a true and correct copy of a Resolution duly passed by
the Directors of Glas-Aire Industries Ltd. on or as at the _____ day of
November, 1997;
2. That the said resolution is now in full force and effect and that it does not
conflict with the provisions of the charger documents of the Company; and
3. That the following is a list of the Directors and Officers of the Company.
Directors of the CompanyOfficers of the Company
Alex Ding Alex Ding, President
Edward Ting
Linda Kwan, Controller
Witness our hand(s) at Vancouver, in the Province of British Columbia this ___
day of November, 1997.
/s/ Alex Ding, President
<PAGE>
EXHIBIT 10.2
Hongkong Bank of Canada
SECTION 427 LETTER AGREEMENT
RE: DATING OF DOCUMENTS
GLAS-AIRE INDUSTRIES LTD.
3137 GRANDVIEW HWY
VANCOUVER BC VSM 2E9
________________, 19____
Hongkong Bank of Canada
20045 Langley Bypass
Langley 8C V3A 8R6
Dear Sirs:
Re: Section 427 Bank Act Security Documents
This is your irrevocable authority to do the following acts in connection with
our Section 427 Bank Act security documents with any or all Form numbers LD
427-2, LD 427-3(A), LD 427-3(B), LD427-5 AND LD 427-9 on our behalf and as our
duly authorized agents:
1. Date them a date that is subsequent to the date of filing of the Notice of
Intention to Give Security under Section 427 of the Bank Act;
2. If taken, date the expiry date of LD 427-5 the longer of 20 years or the
loan amortization period or in the case of farm operating credits one year
after the date referred to in paragraph one;
3. Insert all other appropriate reference dates as you see fit;
4. Insert the prime rate of interest of the Bank in effect as at the date
referred to in paragraph one.
It is understood and agreed that our aforesaid Section 427 Bank Act security
documents shall not become operative and take effect until they have been dated
by Hongkong Bank of Canada as provided above and they shall be deemed to have
been delivered and given to Hongkong Bank of Canada pursuant to Section 427 of
the Bank Act as of the date designated by Hongkong Bank of Canada pursuant to
paragraph one of this letter.
GLAS-AIRE INDUSTRIES LTD.
Per: /s/ Alex Ding
-----------------------
President
Per:
-----------------------
Secretary
<PAGE>
EXHIBIT 10.2
Hongkong Bank of Canada
SECTION 427 LETTER AGREEMENT
RE: DATING OF DOCUMENTS
MULTICORP HOLDINGS INC.
3137 GRANDVIEW HWY
VANCOUVER BC V5M 2E9
__________________, 19__
Hongkong Bank of Canada
20045 Langley Bypass
Langley BC V3A 8R6
Dear Sirs:
Re: Section 427 Bank Act Security Documents
This is your irrevocable authority to do the following acts in connection with
our Section 427 Bank Act security documents with any or all Form numbers LD
427-2, LD 427-3(A), LD 427-3(B), LD427-5 AND LD 427-9 on our behalf and as our
duly authorized agents:
1. Date them a date that is subsequent to the date of filing of the Notice of
Intention to Give Security under Section 427 of the Bank Act;
2. If taken, date the expiry date of LD 427-5 the longer of 20 years or the
loan amortization period or in the case of farm operating credits one year
after the date referred to in paragraph one;
3. Insert all other appropriate reference dates as you see fit;
4. Insert the prime rate of interest of the Bank in effect as at the date
referred to in paragraph one.
It is understood and agreed that our aforesaid Section 427 Bank Act security
documents shall not become operative and take effect until they have been dated
by Hongkong Bank of Canada as provided above and they shall be deemed to have
been delivered and given to Hongkong Bank of Canada pursuant to Section 427 of
the Bank Act as of the date designated by Hongkong Bank of Canada pursuant to
paragraph one of this letter.
MULTICORP HOLDINGS INC.
Per: /s/ Alex Ding
-----------------------
President
Per:
-----------------------
Secretary
<PAGE>
EXHIBIT 10.2
Hongkong Bank of Canada
SECURITY UNDER SECTION 427 OF THE BANK ACT
For good and valuable consideration, the undersigned hereby assigns to Hongkong
Bank of Canada (herein called the "Bank") as continuing security for the payment
of all obligations arising from the acceptance of our bills of exchange, the
extension of credit, loans or advances (the "Loans and Advances") made or that
may be made by the Bank to the undersigned up to and including the _______ day
of _______________, 19_____, pursuant to the Application for Credit and Promise
to Give Security made by the undersigned to the Bank and dated the ________ day
of ________________, 19___, and any Application(s) for Credit and Promise(s) to
Give Security supplemental thereto made or that may be made by the undersigned
to the Bank or renewals of such Loans and Advances or substitutions therefor and
interest on such Loans and Advances and on any such renewals and substitutions,
all property of the kind(s) hereinafter described of which the undersigned is
now or may hereafter become the owner, to wit -
all goods wares and merchandise manufactured or produced by the undersigned
or procured for such manufacture or production including without limitation
all materials including plastic sheets rubber moulding metal strips metal
clips styrofoam bolts screws sun wind and bug deflectors skylights plastic
wrapping materials and cardboard and all goods wares and merchandise used
in or procured for the packing of such goods wares and merchandise so
manufactured or produced
and which is now or may hereafter be in the place or places hereinafter
designated, to wit - in at upon or near the lands and premises situate at
3137 Grandview Highway Vancouver British Columbia and situate at any other
place or places in Canada where the said security may be located
and any place or places in Canada and in transit thereto and therefrom, or where
the said property is comprised in whole or in part of fishing vessels, fishing
equipment and supplies or products of the sea, lakes and rivers, wherever such
property may be.
This security is given under the provisions of Section 427 of the Bank Act.
The property is now owned by the undersigned and hereby assigned is free from
any mortgage, lien or charge thereon, other than previous assignments, if any,
to the Bank, and the undersigned warrants that the property which may hereafter
be acquired by the undersigned and is hereby assigned shall be free from any
mortgage, lien or charge thereon, other than previous assignments, if any, to
the Bank.
Dated at _________________________ this _____ day of _________________, 19______
Where the undersigned is an Individual:
Signed, Sealed and Delivered By in the presence of:
______________________________________________
Where the undersigned is a Corporation:
GLAS-AIRE INDUSTRIES LTD.
Name of Corporation
By /s/ Alex Ding, President
--------------------------------
<PAGE>
EXHIBIT 10.2
Hongkong Bank of Canada
SECURITY UNDER SECTION 427 OF THE BANK ACT
For good and valuable consideration, the undersigned hereby assigns to Hongkong
Bank of Canada (herein called the "Bank") as continuing security for the payment
of all obligations arising from the acceptance of our bills of exchange, the
extension of credit, loans or advances (the "Loans and Advances") made or that
may be made by the Bank to the undersigned up to and including the _____ day of
________________, 19____, pursuant to the Application for Credit and Promise to
Give Security made by the undersigned to the Bank and dated the day of
__________________, 19___, and any Application(s) for Credit and Promise(s) to
Give Security supplemental thereto made or that may be made by the undersigned
to the Bank or renewals of such Loans and Advances or substitutions therefor and
interest on such Loans and Advances and on any such renewals and substitutions,
all property of the kind(s) hereinafter described of which the undersigned is
now or may hereafter become the owner, to wit -
all goods wares and merchandise manufactured or produced by the undersigned
or procured for such manufacture or production including without limitation
all materials including plastic sheets rubber moulding metal strips metal
clips styrofoam bolts screws sun wind and bug deflectors skylights plastic
wrapping materials and cardboard and all goods wares and merchandise used
in or procured for the packing of such goods wares and merchandise so
manufactured or produced
and which is now or may hereafter be in the place or places hereinafter
designated, to wit in at upon or near the lands and premises situate at
3137 Grandview Highway Vancouver British Columbia and situate at any other
place or places in Canada where the said security may be located
and any place or places in Canada and in transit thereto and therefrom, or where
the said property is comprised in whole or in part of fishing vessels, fishing
equipment and supplies or products of the sea, lakes and rivers, wherever such
property may be.
This security is given under the provisions of Section 427 of the Bank Act.
The property is now owned by the undersigned and hereby assigned is free from
any mortgage, lien or charge thereon, other than previous assignments, if any,
to the Bank, and the undersigned warrants that the property which may hereafter
be acquired by the undersigned and is hereby assigned shall be free from any
mortgage, lien or charge thereon, other than previous assignments, if any, to
the Bank.
Dated at _________________ this ______ day of ______________________,19____
Where the undersigned is an Individual:
Signed, Sealed and Delivered
By
------------------------------- I
in the presence of:
- ---------------------------------
Where the undersigned is a Corporation:
MULTICORP HOLDINGS INC.
Name of Corporation
By /s/ Alex Ding
-------------------------------
<PAGE>
EXHIBIT 10.2
Hongkong Bank of Canada
APPLICATION FOR CREDIT AND PROMISE TO GIVE BILLS OF LADING
WAREHOUSE RECEIPTS, OR SECURITY UNDER ALL OR ANY OF PARAGRAPHS
427(1)(a), (b), (c), (d), (g), (h), (i), 0), (k), (I), (m), (n), (o), (p) OF THE
BANK ACT
To Hongkong Bank of Canada _________________, 19_____
20045 Fraser Highway
Langley BC V3A 8R6
The Bank is hereby requested by the undersigned to extend credits, at its
discretion, whether by loan(s), advances, the acceptance of our bills of
exchange, or otherwise (the "Loans and Advances") on the security of all
property of the kind(s) hereinafter described of which the undersigned is now or
may hereafter become the owner, to wit -
all goods wares and merchandise manufactured or produced by the
undersigned or procured for such manufacture or production including
without limitation all materials including plastic sheets rubber
moulding metal strips metal clips styrofoam bolts screws sun wind and
bug deflectors skylights plastic wrapping materials and cardboard and
all goods wares and merchandise used in or procured for the packing of
such goods wares and merchandise so manufactured or produced
and/or on the security of warehouse receipts and/or bills of lading covering
such property.
And the undersigned promise(s) and agree(s) to give the Bank security for all
Loans and Advances by the Bank to the undersigned, and interest thereon,
pursuant to this application for credit and promise(s) to give security by way
of assignment under Section 427 of the Bank Act covering all the property
aforesaid which is now or may hereafter be in the place or places hereinafter
designated, to wit -
in at upon or near the lands and premises situate at 3137 Grandview
Highway Vancouver British Columbia and situate at any other place or
places in Canada where the said security may be located
and any place or places in Canada and in transit thereto and therefrom, or where
the said property is comprised in whole or in part of fishing vessels, fishing
equipment and supplies or products of the sea, lakes, rivers, wherever such
property may be, and the undersigned promise(s) and agree(s) to give the Bank
from time to time and as often as requested by the Bank warehouse receipts
and/or bills of lading covering all the property aforesaid or any pad thereof
which is now or may hereafter be covered by warehouse receipts or bills of
lading, as security for all the said Loans and Advances.
The undersigned hereby appoint(s) the person for the time being acting as
manager of the above-mentioned branch of the Bank as the attorney of the
undersigned, on behalf of the undersigned, to give from time to time to the Bank
any and all security mentioned above and to sign or endorse and deliver any and
all instruments and documents in connection therewith.
The Bank may from time to time take from the undersigned notes representing the
said Loans and Advances or any part thereof; and any notes so taken shall not
extinguish or pay the indebtedness created by such Loans and Advances but shall
represent the same only.
No security acquired by the Bank shall be merged in any subsequent security or
be taken to be substituted for any security previously acquired.
<PAGE>
It is the express wish of the Parties that this agreement and any related
documents be drawn up and executed in English. 11 est la volonte expresse des
Parties que cette convention et tous les documents s'y rattachant soient rediges
et signes en anglais.
Where the undersigned is an Individual:
Signed, Sealed and Delivered
By
-------------------------------
in the presence of:
Where the undersigned is a Corporation:
GLAS-AIRE INDUSTRIES LTD.
- -------------------------
Name of Corporation
By /s/ Alex Ding, President
-------------------------------
<PAGE>
EXHIBIT 10.2
Hongkong Bank of Canada
APPLICATION FOR CREDIT AND PROMISE TO GIVE BILLS OF LADING
WAREHOUSE RECEIPTS, OR SECURITY UNDER ALL OR ANY OF PARAGRAPHS
427(1)(a), (b), (c), (d), (g), (h), (i), (j), (k), (I), (m), (n), (o), (p) OF
THE BANK ACT
____________________, 19____
To Hongkong Bank of Canada
20045 Langley Bypass
Langley BC V3A 8R6
The Bank is hereby requested by the undersigned to extend credits, at its
discretion, whether by loan(s), advances, the acceptance of our bills of
exchange, or otherwise (the "Loans and Advances.) on the security of all
property of the kind(s) hereinafter described of which the undersigned is now or
may hereafter become the owner, to wit -
all goods wares and merchandise manufactured or produced by the
undersigned or procured for such manufacture o~ production including
without limitation all materials including plastic sheets rubber
moulding metal strips metal clips styrofoam bolts screws sun wind and
bug deflectors skylights plastic wrapping materials and cardboard and
all goods wares and merchandise used in or procured for the packing of
such goods wares and merchandise so manufactured or produced
and/or on the security of warehouse receipts and/or bills of lading covering
such property. And the undersigned promise(s) and agree(s) to give the Bank
security for all Loans and Advances by the Bank to the undersigned, and interest
thereon, pursuant to this application for credit and promise(s) to give security
by way of assignment under Section 427 of the Bank Act covering all the property
aforesaid which is now or may hereafter be in the place or places hereinafter
designated, to wit -
in at upon or near the lands and premises situate at 3137 Grandview
Highway Vancouver British Columbia and situate at any other place or
places in Canada where the said security may be located
and any place or places in Canada and in transit thereto and therefrom, or where
the said property is comprised in whole or in part of fishing vessels, fishing
equipment and supplies or products of the sea, lakes, rivers, wherever such
property may be, and the undersigned promise(s) and agree(s) to give the Bank
from time to time and as often as requested by the Bank warehouse receipts
and/or bills of lading covering all the property aforesaid or any part thereof
which is now or may hereafter be covered by warehouse receipts or bills of
lading, as security for all the said Loans and Advances.
The undersigned hereby appoint(s) the person for the time being acting as
manager of the above-mentioned branch of the Bank as the attorney of the
undersigned, on behalf of the undersigned, to give from time to time to the Bank
any and all security mentioned above and to sign or endorse and deliver any and
all instruments and documents in connection therewith.
The Bank may from time to time take from the undersigned notes representing the
said Loans and Advances or any part thereof; and any notes so taken shall not
extinguish or pay the indebtedness created by such Loans and Advances but shall
represent the same only.
<PAGE>
No security acquired by the Bank shall be merged in any subsequent security or
be taken to be substituted for any security previously acquired.
It is the express wish of the Parties that this agreement and any related
documents be drawn up and executed in English. 11 est la volonte exptesse des
Patties que cene convention et tous les documents s'y ranachant soient rediges
et signes en anglais.
Where the undersigned is an Individual:
Signed, Sealed and Delivered
By
--------------------------------
in the presence of:
Where the undersigned is a Corporation:
MULTICORP HOLDINGS INC.
Name of Corporation
By /s/ Alex Ding
---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1997
<PERIOD-START> FEB-01-1997 FEB-28-1996
<PERIOD-END> JAN-31-1998 JAN-31-1997
<CASH> 1,645,953 1,119,932
<SECURITIES> 0 0
<RECEIVABLES> 1,200,451 737,587
<ALLOWANCES> 0 0
<INVENTORY> 772,780 628,423
<CURRENT-ASSETS> 3,638,279 3,644,451
<PP&E> 2,154,079 1,863,924
<DEPRECIATION> 745,263 643,393
<TOTAL-ASSETS> 5,047,095 4,864,982
<CURRENT-LIABILITIES> 553,144 585,100
<BONDS> 281,327 187,498
0 0
0 0
<COMMON> 3,242,045 3,408,599
<OTHER-SE> 970,578 683,785
<TOTAL-LIABILITY-AND-EQUITY> 5,047,095 4,864,982
<SALES> 6,409,954 4,316,372
<TOTAL-REVENUES> 6,409,954 4,316,372
<CGS> 4,505,889 3,027,968
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,375,330 1,114,440
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (74,256) (61,354)
<INCOME-PRETAX> 602,985 235,318
<INCOME-TAX> 256,675 125,518
<INCOME-CONTINUING> 346,328 109,800
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 346,328 109,800
<EPS-PRIMARY> 0.23 0.08
<EPS-DILUTED> 0.23 0.08
</TABLE>
