U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended July 31, 1999
----------------------
[ ] 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 (IRS Employer Identification No.)
of incorporation or organization)
3137 GRANDVIEW HIGHWAY, VANCOUVER, BC V5M 2E9
---------------------------------------------
(Address of principal executive office)
(604) 435-8801
-------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at July 31, 1999
- ----------------------------- ----------------------------
Common Stock, $0.01 par value 1,891,289
<PAGE>
Glas-Aire Industries Group Ltd.
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
July 31, 1999 and January 31, 1999 3
Consolidated Condensed Statement of Operations
for the three months ended July 31, 1999 and 1998
and six months ended July 31, 1999 and 1998 4
Consolidated Condensed Statement of Cash Flows
for the three months ended July 31, 1999 and 1998
and six months ended July 31, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
July 31, January 31,
1999 1999
(Unaudited) (Audited)
----------- ---------
Assets
Current
Cash and equivalents $ 2,668,063 $ 2,110,535
Accounts receivable 1,105,088 953,289
Note receivable from related party 506,806
Inventories 801,246 673,688
Prepaid Expenses 93,438 33,460
----------- -----------
4,667,835 4,277,778
Fixed assets 1,637,937 1,607,557
Investments in related party 1,045,440
----------- -----------
$ 7,351,212 $ 5,885,335
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ -- $ --
Accounts payable and accrued liabilities 944,091 733,512
Incomes taxes payable 48,350 94,712
Current portion - capital lease 48,581 49,055
----------- -----------
1,041,022 877,279
Obligation under capital lease 38,124 68,722
Deferred income taxes 358,504 358,504
----------- -----------
1,437,650 1,304,505
----------- -----------
Shareholders' Equity
Share capital 18,913 15,935
Contributed surplus 4,518,157 3,475,695
Treasury stock (339,573) (339,573)
Retained earnings 1,831,007 1,546,730
Cumulative translation adjustment (114,942) (117,957)
----------- -----------
5,913,561 4,580,830
----------- -----------
$ 7,351,212 $ 5,885,335
=========== ===========
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $2,377489 $ 1,768,732 $ 4,213,276 $ 2,854,328
Cost of sales 1,598,119 1,171,631 2,841,244 1,912,023
----------- ----------- ----------- -----------
Gross Profit 779,370 597,101 1,372,032 942,305
----------- ----------- ----------- -----------
Expenses
Depreciation 63,166 48,025 109,973 90,976
Research and development 113,129 83,374 227,059 185,972
Selling and distribution 186,452 95,094 320,429 174,400
General and administrative 129,503 99,731 282,607 204,082
Provision for profit sharing 33,723 28,020 50,265 31,550
Interest, net (28,502) (8,078) (59,428) (27,339)
----------- ----------- ----------- -----------
497,471 346,166 930,905 659,641
----------- ----------- ----------- -----------
Income before income taxes 281,899 250,935 441,127 282,664
Income taxes - current 99,879 75,214 156,851 84,839
----------- ----------- ----------- -----------
Net Income for the period $ 182,020 $ 175,721 $ 284,276 $ 197,825
=========== =========== =========== ===========
Net income per share of common stock $ 0.126 $ 0.12 $ 0.197 $ 0.136
Weight average common shares outstanding
(after deducting 158,872 shares of treasury
stock held by the Company) 1,442,048 1,458,571 1,442,048 1,458,571
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from:
Operating Activities
Net income for the period $ 182,020 $ 175,721 $ 284,277 $ 197,825
Depreciation 63,166 48,025 109,973 90,976
Net change in non-cash working capital (82,752) (26,535) (175,119) 326,223
Cumulative translation adjustment (64,746) (52,297) 3,017 (31,084)
----------- ----------- ----------- -----------
Net cash from operating activities 97,688 144,914 222,148 583,940
----------- ----------- ----------- -----------
Financing Activities
Increase in obligation under capital lease 161,569
Repayment of capital lease (23,179) (16,952) (31,072) (25,777)
Purchase of treasury stock (12,188) (12,188)
Increase (decrease) in bank indebtedness (148,416)
Common stock 1,045,440 1,045,440
----------- ----------- ----------- -----------
Net cash (used in) financing activities 1,022,261 (177,556) 1,014,368 123,604
----------- ----------- ----------- -----------
Investing Activities
Repayment of note receivable 506,806
Purchase of capital assets (49,343) (44,473) (140,354) (291,943)
Investments in related party (1,045,440) (1,045,440)
----------- ----------- ----------- -----------
Net cash used in investing activities (1,094,783) (44,473) (678,988) (291,943)
----------- ----------- ----------- -----------
Increase (decrease) in cash during the period 25,166 (77,115) 557,528 415,601
Cash and equivalents, beginning of period 2,642,897 2,138,669 2,110,535 1,645,953
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 2,668,063 $ 2,061,554 $ 2,668,063 $ 2,061,554
=========== =========== =========== ===========
Changes in non-cash working capital
Accounts receivable $ (114,992) $ (288,256) $ (151,799) $ 119,014
Inventories (148,279) 66,305 (127,559) 145,720
Prepaid expense (66,285) (23,071) (59,978) (16,345)
Accounts payable and accrued liabilities 346,040 145,164 210,579 98,635
Income taxes payable (99,236) 73,323 (46,362) (20,801)
----------- ----------- ----------- -----------
$ (82,752) $ (26,535) $ (175,119) $ 326,223
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
5
</TABLE>
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financial Statements
July 31, 1999
1. The Company believes; the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only those
which are normal and recurring in nature) necessary to present fairly, the
financial position of the Company as of July 31, 1999 and the results of
operations and cash flows for the three and six month periods ending July
31, 1999 and 1998, respectively.
2. These financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Multicorp Holdings Inc., Glas-Aire Industries
Ltd., Glas-Aire Industries, Inc., and 326362 BC Ltd. All inter-company
transactions are eliminated.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. For further
information, refer to the Company's consolidated financial statements and
footnotes thereto included in the Company's Annual Report filed on Form
10-KSB with the Securities and Exchange Commission for the fiscal year
ended January 31, 1999.
3. Certain comparative figures from the prior year have been reclassified to
conform with the current year's presentation.
4. Inventories by component are as follows:
July 31, July 31,
1999 1998
---- ----
Raw materials $472,654 $406,868
Work-in-progress 171,693 108,892
Finished goods 136,093 91,222
Supplies 20,806 20,078
-------- --------
801,246 $627,060
-------- --------
5. Bank Indebtedness
July 31, July 31,
1999 1998
---- ----
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, 1999, 6.25% July 31, 1999, 6.5% July 31, 1998) plus 1/2%. This line of
credit is renewable annually.
The following have been provided as collateral for these loans:
(a) General assignments of accounts receivable and inventories.
(b) A Cdn. $2,000,000 demand debenture granting a first fixed charge
on certain equipment and a flowing charge over all other assets
of the Company.
(c) An unlimited guarantee by the Company and its subsidiary,
Glas-Aire Industries Ltd.
6. Income per share is calculated by dividing the weighted average number of
shares of common stock outstanding each period into the net income for the
period. Warrants outstanding were anti-dilutive. Treasury stock held by the
Company is not included in the number of shares outstanding.
7. Subsequent Event- On August 4, 1999, the company acquired 2,852,375 shares
of common stock of Regency Affiliates, Inc. ("RAI") (OTC, BB, symbol-RAFF)
for cash of $1,968,000 and 86,000 shares of the company's common stock for
an aggregate consideration of $2,281,900. Upon closing of the transaction,
the Company owns 4,040,375 shares or approximately 26.1% of the outstanding
share of RAI. RAI net income for year of 1998 was $1,794,560. For the first
six months in 1999 their net income was $920,540 as compared to $668,633
for the same period in 1998.
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-QSB that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 ("The Act") and Section 21E of the
6
<PAGE>
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. The Company
intends that such forward-looking statements be subject to the safe harbors for
such statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. Any forward-looking statements represent management's best judgment as to
what may occur in the future. However, forward-looking statements are subject to
risks, uncertainties and important factors beyond the control of the Company
that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected.
These factors include adverse economic conditions, entry of new and stronger
competitors, inadequate capital, unexpected costs, failure to successfully
penetrate the Company's markets in the United States, Canada and in other
foreign countries such as Japan. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statement or to reflect the occurrence of
anticipated or unanticipated events.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Three Months Ended July 31, 1999 vs Three Months Ended July 31, 1998
- --------------------------------------------------------------------
The Company's sales increased by 34% from $1,768,732 for the three months
ended July 31, 1998, to $2,377,489 for the three months ended July 31, 1999.
This improvement in sales was the result of sales to new customers, sales of new
parts, and volume increases in sales orders from existing customers.
Gross profit margins, expressed as a percentage of sales, decreased
slightly from 34% for the three months ended July 31, 1998 to 33% for the three
months ended July 31, 1999. This decrease was due to an increase in direct labor
and overhead cost.
Depreciation expense increased by 32% from $48,025 for the three months
ended July 31, 1998, to $63,166 for the three months ended July 31, 1999. This
increase was the result of new equipment being brought into service.
Expenses for research and development increased by 36% from $83,374 for the
three months ended July 31, 1998 to $113,129 for the three months ended July 31,
1999. This increase was primarily due to (i) an increase in the number of
engineering personnel conducting in-house activities, (ii) an increase in usage
of outside contractors to accommodate an increase in research and development
activities, and (iii) an increase in travel expenses to customers to provide
extra services related to new design.
Selling and distribution expenses increased by 96%, from $95,094 for the
three months ended July 31, 1998, to $186,452 for the three months ended July
31, 1999. This increase was due to (i) an increase of $36,710 in commission
expenses associated with the increase in sales, (ii) an increase of $13,693 in
warranty claims, (iii) an increase of $9,193 in travel expenses related to the
Company's marketing efforts, and (iv) $31,762 resulting from the initial set up
of an office in Tokyo with one full-time Japanese employee to enhance the
Company's direct marketing efforts in Japan.
General and administrative expenses increased by 30% from $99,731 for the
three months ended July 31, 1998, to $129,503 for the three months ended July
31, 1999, as a result of (i) an increase of $4,775 due to additional maintenance
support fees paid to the EDI program as required from major customers, (ii) an
increase of $11,568 due to increase in the number of persons employed in
administration, (iii) a decrease of $9,000 due to the cancellation of management
contracts, (iv) an increase of $20,470 in consulting and legal fees, and (v) an
increase of $1,959 in other administration costs.
The provision for profit sharing increased by 20% from $28,020 for the
three months ended July 31, 1998, to $33,723 for the three months ended July 31,
1999. This increase was the result of an increase in income.
Interest income (net of interest expense) increased from $8,078 for the
three months ended July 31, 1998, to $28,502 for the three months ended July 31,
1999, as a result of an increase in interest earnings of $5,930 on cash
deposits, an decrease of approximately $1,498 in interest expenses for the lease
cost of the CNC Milling Machine Centre, and interest and penalty charges of
$12,996 related to the PST (Provincial Sales Tax) audit performed for the years
1992 to 1997.
Before income taxes, the Company's income increased from $250,935 for the
three months ended July 31, 1998, to $281,899 for the three months ended July
31, 1999. This increase in income resulted primarily from higher sales.
7
<PAGE>
Six Months Ended July 31, 1999 vs Six Months Ended July 31, 1998
- ----------------------------------------------------------------
The Company's sales increased by 48% from $2,854,328 for the six months
ended July 31, 1998, to $4,213,276 for the six months ended July 31, 1999. This
increase resulted primarily (i) from the addition of new customers, (ii) sales
of new parts, and (iii) additional orders from existing customers.
The gross profit margins expressed as a percentage of sales, decreased from
33% for the six month period ended July 31, 1998 to 32% for the six months
period ended July 31, 1999, This net decrease of 1% was primarily due to an
increase in direct labor and overhead charges.
Depreciation expense increased by 21% from $90,976 for the six months ended
July 31, 1998, to $109,973 for the six months ended July 31, 1999. This increase
was the result of the addition of new equipment into service.
Expenses for research and development increased by 22% from $185,972 for
the six months ended July 31, 1998 to $227,059 for the six months ended July 31,
1999. This increase was due to (i) an increase in the number of engineering
personnel conducting in-house activities, (ii) an increase in usage of outside
contractors to accommodate an increase in research and development activities,
and (iii) an increase in travel expenses to customers to provide extra services
related to new design.
Selling and distribution expenses increased by 84%, from $174,400 for the
six months ended July 31, 1998, to $320,429 for the six months ended July 31,
1999. This increase was primarily due to (i) an increase of $64,416 in
commissions expenses from volume increases in sales, (ii) an increase in
warranty claims of $21,843, (iii) increase of $5,642 in travel expenses related
to the Company's marketing study of the aftermarket and the promotion of new
products, and (iv) $54,128 resulting from the initial set up of an office in
Tokyo with one full-time Japanese employee to enhance the Company's direct
marketing efforts in Japan.
General and administrative expenses increased by 38% from $204,082 for the
six months ended July 31, 1998, to $282,607 for the six months ended July 31,
1999 as a result of (i) an increase in the number of persons employed in
administration of $24,868, (ii) a loss on foreign exchange of $9,646, (iii) an
increase of $9,836 due to additional maintenance support fees paid to the EDI
program as required from major customers, (iv) an increase of $36,692 in
consulting and legal fees, (v) a decrease of $9,000 due to the cancellation of
management contracts, and (vi) an increase of $6,483 due to other administration
costs.
The provision for profit sharing increased 59% from $31,550 for the six
months ended July 31, 1998, to $50,265 for the six months ended July 31, 1999,
as a result of an increase in profit.
Interest income (net of interest expense) increased from $27,339 for the
six months ended July 31, 1998, to $59,428 for the six months ended July 31,
1999, as a result of an increase in interest earnings of $17,595 on cash
deposits, an decrease of approximately $1,498 in interest expenses for the lease
cost of the CNC Milling Machine Centre, and interest and penalty charges of
$12,996 related to the PST (Provincial Sales Tax) audit performed for the years
1992 to 1997.
Before income taxes, the Company's income increased 56% from $282,664 for
the six months ended July 31, 1998, to $441,127 for the six months ended July
31, 1999. This increase in income was primarily from higher sales.
Financial Condition and Liquidity
Working capital was $3,626,813 at July 31, 1999 compared to $3,400,499 at
January 31, 1999. The increase reflects the positive results of operations for
the period. During the next six months the Company anticipates making total
capital expenditures of approximately $630,000 as follows:(i) $150,000 for the
purchase of a CNC Machine, (ii) $300,000 for a MAAC Machine, (iii) $70,000
computer-aided design software and related hardware, (iv) $80,000 for leasehold
improvements, and (v) $30,000 for the QS9000 (Quality Control Certification)
process.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
a) Exhibits: There are no exhibits for the six months ended July 31, 1999.
b) Reports on Form 8-K: The Company filed an amendment to a report on Form 8-K
on May 7, 1999. The amendment related to the Form 8-K filed by the Company
on April 30, 1999, which disclosed a "Change in Control" of the Company.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 12, 1999
- ------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
/s/ Alex Y. W. Ding
-------------------
Alex Y. W. Ding
President and Chief Operating Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1999 JAN-31-1998
<PERIOD-START> FEB-01-1999 MAY-01-1998
<PERIOD-END> JUL-31-1999 JUL-31-1998
<CASH> 2,668,063 0
<SECURITIES> 0 0
<RECEIVABLES> 1,105,088 0
<ALLOWANCES> 0 0
<INVENTORY> 801,246 0
<CURRENT-ASSETS> 4,667,835 0
<PP&E> 0 0
<DEPRECIATION> 109,973 0
<TOTAL-ASSETS> 7,351,212 0
<CURRENT-LIABILITIES> 1,041,022 0
<BONDS> 0 0
0 0
0 0
<COMMON> 18,913 0
<OTHER-SE> 4,531,302 0
<TOTAL-LIABILITY-AND-EQUITY> 7,351,212 0
<SALES> 4,213,276 2,377,489
<TOTAL-REVENUES> 4,213,276 2,377,489
<CGS> 2,841,244 1,598,119
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 930,905 497,471
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (59,428) (28,502)
<INCOME-PRETAX> 441,127 281,899
<INCOME-TAX> 156,851 99,879
<INCOME-CONTINUING> 284,276 182,020
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 284,276 182,020
<EPS-BASIC> .13 .12
<EPS-DILUTED> .13 .12
</TABLE>
