U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to ____________________
Commission file number 1-14244
GLAS-AIRE INDUSTRIES GROUP LTD.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 84-1214736
------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3137 GRANDVIEW HIGHWAY, VANCOUVER, B.C. V5M 2E9
-----------------------------------------------
(Address of principal executive office)
(604) 435-8801
--------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------- -------
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at October 31, 1998
- ----------------------------- -------------------------------
Common Stock, $0.01 par value 1,593,469
<PAGE>
Glas-Aire Industries Group Ltd.
INDEX
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Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
October 31, 1998 and January 31, 1997 1
Consolidated Condensed Statement of Operations
for the three months ended October 31, 1998 and 1997,
and for the nine months ended October 31, 1998 and 1997 2
Consolidated Condensed Statement of Cash Flow
for the three months ended October 31, 1998 and 1997
and for the nine months ended October 31, 1998 and 1997 3
Notes to Consolidated Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
-ii-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
October 31, January 31,
1998 1998
(Unaudited) (Audited)
----------- ---------
Assets
Current
Cash and Equivalents $ 2,213,808 $ 1,645,953
Accounts receivable 1,125,430 1,200,451
Inventories 640,121 772,780
Prepaid Expenses 16,939 19,095
----------- -----------
3,996,298 3,638,279
Fixed assets 1,553,360 1,408,816
----------- -----------
$ 5,549,658 $ 5,047,095
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ -- $ --
Accounts Payable and accrued liabilities 617,476 460,680
Incomes taxes payable 99,621 92,464
Current portion - capital lease 45,130 --
----------- -----------
762,227 553,144
Long Term Debt
Obligation Under Capital Lease 74,852 --
Deferred Income Taxes 281,327 281,327
----------- -----------
1,118,406 834,471
----------- -----------
Shareholders' Equity
Share capital 15,875 15,875
Contributed surplus 3,462,334 3,462,334
Treasury stock (294,705) (235,163)
Retained earnings 1,409,170 1,045,962
Cumulative translation adjustment (161,422) (75,384)
----------- -----------
4,431,252 4,212,624
----------- -----------
$ 5,549,658 $ 5,047,095
=========== ===========
1
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
October 31, October 31, October 31, October 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,909,250 $ 1,899,446 $ 4,763,578 $ 4,882,063
Cost of sales 1,241,307 1,365,662 3,153,330 3,418,431
----------- ----------- ----------- -----------
Gross profit 667,943 533,784 1,610,248 1,463,632
----------- ----------- ----------- -----------
Expenses
Depreciation 47,464 44,039 138,440 119,298
Research and development 117,516 90,035 303,488 310,714
Selling and distribution 104,634 107,505 279,033 306,014
General and administrative 123,243 127,121 327,325 354,924
Provision for profit sharing 29,101 16,655 60,651 43,200
Interest (22,362) (17,494) (49,701) (59,268)
----------- ----------- ----------- -----------
399,596 367,861 1,059,236 1,074,882
----------- ----------- ----------- -----------
Income from operations 268,347 165,923 551,012 388,750
Income taxes - current 102,967 63,643 187,806 136,062
Income taxes - deferred -- -- -- --
----------- ----------- ----------- -----------
Net Income (loss) for the period $ 165,380 $ 102,280 $ 363,206 $ 252,688
----------- ----------- ----------- -----------
Net income per share of common stock $ .11 $ .07 $ .25 $ .17
Weighted average common shares
outstanding 1,458,301 1,509,021 1,458,301 1,509,021
----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended Nine Months Ended
October 31, October 31, October 31, October 31,
1998 1997 1998 1997
---- ---- ---- ----
Increase (decrease) in cash
Cash flows from:
Operating Activities
<S> <C> <C> <C> <C>
Income from operations $ 165,380 $ 102,280 $ 363,206 $ 252,688
Depreciation 47,464 44,039 138,440 119,298
Deferred income taxes (3,916) (8,174)
Net change in non-cash working capital 47,567 394,000 373,790 21,996
Cumulative translation adjustment (54,952) (19,026) (86,037) (34,840)
----------- ----------- ----------- -----------
Net cash (used in) operating activities 205,459 517,377 789,399 350,968
----------- ----------- ----------- -----------
Financing Activities
Increase in obligation under capital lease -- 161,569 --
Repayment of capital lease (15,811) -- (41,588) --
Purchase of treasury stock (46,354) -- (58,542) (88,687)
Share offering expenses -- --
Increase (decrease) in bank indebtedness (279,373) (110,100)
Common stock
----------- ----------- ----------- -----------
Net cash (used in) financing activities (62,165) (279,373) 61,439 (198,787)
----------- ----------- ----------- -----------
Investing Activities
Proceeds from sale of fixed assets 15,340
Purchase of capital assets 8,960 8,841 (282,983) (416,291)
Deferred development costs
----------- ----------- ----------- -----------
Net cash used in investing activities 8,960 8,841 (282,983) (400,951)
----------- ----------- ----------- -----------
Decrease in cash during the period 152,254 246,845 567,855 (248,770)
Cash and equivalents, beginning of period 2,061,554 1,624,317 1,645,953 2,119,932
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 2,213,808 $ 1,871,162 $ 2,213,808 $ 1,871,162
----------- ----------- ----------- -----------
Changes in non-cash working capital
Accounts receivable $ (43,993) $ 217,722 $ 75,021 $ (164,328)
Inventories (13,061) 144,316 132,659 (58,408)
Prepaid expense 18,502 10,734 2,157 126,609
Accounts payable and accrued liabilities 58,161 (32,165) 156,796 43,495
Income taxes payable 27,958 53,393 7,157 74,628
----------- ----------- ----------- -----------
$ 47,567 $ 394,000 $ 373,790 $ 21,996
=========== =========== =========== ===========
See accompanying notes
3
</TABLE>
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financing Statement
October 31, 1998
1. In the opinion of management, the accompanying unaudited, consolidated,
condensed financial statements contain all adjustments (consisting of only
those which are normal and recurring in nature) necessary to present,
fairly, the financial position of the Company as of October 31, 1998 and
the results of operations as well as cash flows for the three-month and
nine-month periods ended October 31, 1998 and 1997.
2. These financial statements include the accounts of the company and its
wholly-owned subsidiaries, Multicorp Holdings Inc., Glas-Aire Industries
Ltd., Glas-Aire Industries, Inc., and 326362 B.C. Ltd. All inter-company
transactions have been eliminated.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. For further
information, refer to the Company's consolidated financial statements for
the fiscal year ended January 31, 1998 and footnotes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended January 31,
1998, filed with the Securities and Exchange Commission.
3. Certain comparative figures from the prior year have been reclassified to
conform with the current year's presentation.
4. Inventories by component are as follows:
October 31, October 31,
1998 1997
---- ----
Raw materials $386,959 $410,018
Work-in-progress 71,875 159,458
Finished goods 158,443 97,951
Supplies 22,844 19,404
-------- --------
$640,121 $686,831
-------- --------
5. Bank Indebtedness
October 31, October 31,
1998 1997
---- ----
Revolving bank loan $ 0 $ 0
The revolving bank loan is a Cdn. $1,000,000 overdraft facility, which is
due on demand and bears interest at Canadian bank prime rates (6.5 %
January 31, 1998, 7 % October 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.
4
<PAGE>
6. Income (loss) per share is calculated by dividing the weighted average
number of shares of Common Stock outstanding each period into the income
(loss) for the period. Warrants outstanding were anti-dilutive. Treasury
stock held by the Company is not included in the number of shares
outstanding
7. On May 2, 1996, the Company issued 680,000 shares of its common stock in an
underwritten public offering. As a result, the Company had a total of
1,593,469 shares of its Common Stock issued and outstanding at October 31,
1998.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Three Months Ended October 31, 1998 vs Three Months Ended October 31, 1997
The Company's sales increased by 0.52% to $1,909,250 for the three months
ended October 31, 1998, compared to $1,899,446 for the three months ended
October 31, 1997. This increase was due primarily to (i) new sales of $65,000 or
3.4% generated by new customers, (ii) a decrease in sales of $75,000 or 3.92%
due to an interruption in the manufacture of a high volume product to
accommodate a major design change requested by the Company's largest customer,
(iii) a temporary shortage of acrylic in October because of an unforeseen
capacity problem experienced by one of Company's suppliers.
Cost of sales for the three months ended October 31, 1998, decreased by
9.11% to $1,241,307 from $1,365,662 for the three months ended October 31, 1997.
This decrease resulted from (i) a decline in materials cost of 4.12% due to
usage of raw materials remaining from the previous year, (ii) a reduction in
direct labor and overhead charges by 0.79%, (iii) a reduction in repair and
maintenance and lower freight cost of 1.75%, and (iv) a gain in foreign exchange
by 2.45%. This yielded a gross profit margin of 34.98%, an improvement from
28.1% for the three month period ended October 31, 1997.
Depreciation expense increased by 7.78% from $44,039 for the three months
ended October 31, 1997, to $47,464 for the three months ended October 31, 1998.
This increase was the result of adding new equipment into service.
Expenses for research and development increased by 30.52% from $90,035 for
the three months ended October 31, 1997, to $117,516 for the three months ended
October 31, 1998. This increase was due to (i) an increase of 11.13% in the
number of engineering personnel conducting in-house activities, (ii) an increase
of 11.49% in usage of outside contractors to accommodate an increase in research
and development activities, (iii) an increase of 7.9% in travel expenses to
Japan which were deferred from the previous quarter.
Selling and distribution expenses decreased by 2.67% from $107,505 for the
three months ended October 31, 1997 to $104,634 for the three months ended
October 31, 1998. This decrease was primarily due to (i) decreased travel and
promotional expenses related to the Company's marketing efforts (these expenses
are deferred to November 1998) and (ii) an increase in commission expenses due
to an increase in sales.
General and administrative expenses decreased by 3.05% from $127,121 for
the three months ended October 31, 1997, to $123,243 for the three months ended
October 31, 1998, as a result of an increase of 7% in consulting fees and travel
expenses related to the Company's evaluation. Excluding these expenses, the
general and administrative expenses were actually lower by 10.5% from the same
period in 1997, a result of (i) a decrease in the number of persons employed in
administration by 12.8% and (ii) additional maintenance support fees paid to the
EDI program as required by our major customers.
Provision for profit sharing increased from $16,655 for the three months
ended October 31, 1997, to $29,101 for the three months ended October 31, 1998,
as a result of the increase in profit.
6
<PAGE>
Interest income (net of interest expense) increased by 27.83% from $17,494
for the three months ended October 31, 1997, to $22,362 for the three months
ended October 31, 1998. The Company had more cash on deposit earning interest
during the period, which offset the increase of approximately $2,690 in interest
expenses from the lease cost of the CNC MILLING Machine Centre, resulting in an
overall increase in interest income.
The Company's income from operations increased 61.73% from $165,923 for the
three months ended October 31, 1997, to $268,347 for the three months ended
October 31, 1998. This increase in income resulted primarily from lower cost of
sales and savings on operating costs.
The Company accrued income taxes of $63,643 for the three months ended
October 31, 1997, to $102,967 for the three months ended October 31, 1998, as a
result of the increase in taxable income.
As a result of the foregoing, net income increased 61.69% from $102,280 for
the three months ended October 31, 1997, to $165,380 for the three months ended
October 31, 1998.
Nine Months Ended October 31, 1998 vs Nine Months Ended October 31, 1997
The Company's sales decreased by 2.43% to $4,763,578 for the nine months
ended October 31, 1998, compared to $4,882,063 for the nine months ended October
31, 1997. This decrease was due (i) primarily to a general decline in automotive
sales, particularly to non-U.S. based manufacturers during the first quarter of
1998, (ii) an interruption in the manufacture of a high volume product to
accommodate a major design change requested by the Company's largest customer
and (iii) a temporary shortage of acrylic in October because of an unforeseen
capacity problem experienced by one of Company's suppliers.
Cost of sales for the nine months ended October 31, 1998, decreased by
7.76% to $3,153,330 from $3,418,431 for the nine months ended October 31, 1997.
This improvement resulted from (i) a decrease in materials cost of 3.12% due to
usage of raw materials remaining from the previous year, (ii) a decrease in
direct labor and overhead charges of 1.17%, (iii) a decrease of 1.45% on freight
and deliveries, and (iv) a gain on foreign exchange of approximately 2.02%. The
gross profit margin increased by 3.82% to 33.8% for the nine months ended
October 31, 1998, from 29.98% for the nine month period ended October 31, 1997.
Depreciation expense increased by 16.05% from $119,298 for the nine months
ended October 31, 1997, to $138,440 for the nine months ended October 31, 1998.
This increase was the result of adding new equipment into service.
Expenses for research and development decreased by 2.33% from $310,714 for
the nine months ended October 31, 1997, to $303,488 for the nine months ended
October 31, 1998. This decrease was due to (1) the inclusion of technology fee
of $24,570 in the previous year by 7.9%, (ii) an increase of 1.74% in the
numbers of engineering personnel conducting in-house activities and (iii) an
increase of 2.83% in usage of outside contractors to accommodate an increase in
research and development activities.
Selling and distribution expenses decreased by 8.82%, from $306,014 for the
nine months ended October 31, 1997, to $279,033 for the nine months ended
October 31, 1998. This decrease was primarily due to (i) a combination of a
reduction in sales commissions of 3.32% in 1998 due to the Company's elimination
of a sales agent, which resulted in the direct involvement by the Company's
staff with one of its major customers, (ii) a decrease in warranty claims of
$12,000, or 3.92% relating to 1996 sales, and (iii) a decrease of 3.05% in
travel expenses related to the Company's marketing efforts deferred to November
1998.
7
<PAGE>
General and administrative expenses decreased by 7.78% from $354,924 for
the nine months ended October 31, 1997, to $327,325 for the nine months ended
October 31, 1998, as a result of (i) an increase of 2.8% or $10,000 in
consulting and travel expenses related to the evaluation of the Company, (ii) a
decrease in the number of persons employed in administration of 4.53% or $19,600
and (iii) a gain on foreign exchange of 4.08% and a reduction in general
administration costs of 1.97%
Provision for profit sharing increased by 40.4% from $43,200 for the nine
months ended October 31, 1997, to $60,651 for the nine months ended October 31,
1998, as a result of the increase in profit.
Interest income (net of interest expense) decreased by 16.14% from $59,268
for the nine months ended October 31, 1997, to $49,701 for the nine months ended
October 31, 1998. This decrease occurred primarily because (i) the Company had
more cash on deposit earning interest, resulting in an increase of 13.72% in
interest income, (ii) an increase of approximately 12.48% in interest expenses
from the lease cost of the CNC Milling Machine Centre, and (iii) the incurring
of interest penalties of $10,300 or 17.38% related to the PST (Provincial Sales
Tax) audit performed for the years 1992 to 1997.
The Company's income from operations increased by 41.74% from $388,750 for
the nine months ended October 31, 1997, to $551,012 for the nine months ended
October 31, 1998. This increase in income was primarily due to lower costs of
sales, savings on operating cost and gain on foreign exchange.
The Company accrued income taxes of $136,062 for the nine months ended
October 31, 1997, to $187,806 for the nine months ended October 31, 1998. This
was the result of the increase in income from higher revenue.
As a result of the foregoing, net income increased by 43.74% from $252,688
for the nine months ended October 31, 1997, to $363,206 for the nine months
ended October 31, 1998.
Financial Condition and Liquidity
Working capital was $3,234,071 at October 31, 1998 compared to $3,085,135
at January 31, 1998. For the nine months ended October 31, 1998, net cash
provided from operating activities totaled $789,399 including income from
operations of $363,206, depreciation of $138,440, a cumulative translation
adjustment of $(86,073) and a net change in non-cash working capital of
$373,790. Net cash used in financing activities was $61,439, which resulted from
an increase in obligation under capital lease of $161,569, repayment of capital
lease of $41,588 and the repurchase of treasury stock for $58,542. Net cash used
in investing activities was $282,983, primarily as a result of the purchase of
capital assets. Over the nine months ended October 31, 1998, changes in non-cash
working capital occurred as follows: (i) accounts receivable decreased by
$75,021 primarily due to increased collection efforts, (ii) inventories
decreased by $132,659 as a result of the usage of raw materials remaining from
the previous year, (iii) prepaid expenses decreased by $2,157, (iv) accounts
payable and accrued liabilities increased by $156,796 as a result of deferral of
payment until November, and (v) income taxes payable increased by $7,157 due to
higher profit. During the next three months the company anticipates making total
capital expenditures of approximately $85,000 as follows: (i) $30,000 for
machinery and equipment, (ii) $35,000 for leasehold improvements, and (iii)
$20,000 for the QS9000 (Quality Control Certification) process.
8
<PAGE>
3RD QUARTER FILING
FILING DUE DATE DECEMBER 15, 1998
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: There are no exhibits for the quarter ended October 31, 1998.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the nine
months ended October 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 12, 1998 GLAS-AIRE INDUSTRIES GROUP LTD.
-----------------
/s/ Alex Ding
--------------------------------
Alex Ding, President
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED 10/31/98
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998
<PERIOD-START> FEB-01-1998 AUG-01-1998
<PERIOD-END> OCT-31-1998 OCT-31-1998
<CASH> 2,213,808 0
<SECURITIES> 0 0
<RECEIVABLES> 1,125,430 0
<ALLOWANCES> 0 0
<INVENTORY> 640,121 0
<CURRENT-ASSETS> 3,996,298 0
<PP&E> 1,553,360 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 5,549,658 0
<CURRENT-LIABILITIES> 762,227 0
<BONDS> 0 0
0 0
0 0
<COMMON> 15,875 0
<OTHER-SE> 4,415,377 0
<TOTAL-LIABILITY-AND-EQUITY> 4,431,252 0
<SALES> 1,909,250 1,899,446
<TOTAL-REVENUES> 1,909,250 1,899,446
<CGS> 1,241,307 1,365,662
<TOTAL-COSTS> 1,241,307 1,365,662
<OTHER-EXPENSES> 422,192 385,355
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (22,362) (17,494)
<INCOME-PRETAX> 268,347 165,923
<INCOME-TAX> 102,967 63,643
<INCOME-CONTINUING> 165,380 102,280
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 165,380 102,280
<EPS-PRIMARY> .11 .07
<EPS-DILUTED> .11 .07
</TABLE>
