U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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, B.C. V5M 2E9
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(Address of principal executive office)
(604) 435-8801
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(Issuer 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 ____ No X
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at April 30, 1999
----- -----------------------------
Common Stock, $0.01 par value 1,444,417
Transitional Small Business disclosure Format Yes____ No X
<PAGE>
Glas-Aire Industries Group Ltd.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
April 30, 1999 and January 31, 1999 1
Consolidated Condensed Statement of Operations
for the three months ended April 30, 1999 and 1998 2
Consolidated Condensed Statement of Cash Flow
for the three months ended April 30, 1999 and 1998 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management 's Discussion and Analysis of
Financial Condition and Results of Operations 5-6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 6
SIGNATURES 7
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
April 30, January 31
1999 1999
(Unaudited) (Audited)
----------- ---------
Assets
Current
Cash and equivalents $ 2,642,897 $ 2,110,535
Accounts receivable 990,096 953,289
Note receivable from related party 506,806
Inventories 652,968 673,688
Prepaid expenses 27,153 33,460
----------- -----------
4,313,114 4,277,778
Fixed assets 1,651,761 1,607,557
----------- -----------
$ 5,964,875 $ 5,885,335
=========== ===========
Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities $ 598,053 $ 733,512
Incomes taxes payable 147,585 94,712
Current portion - capital lease 43,470 49,055
----------- -----------
789,108 877,279
Obligation under capital lease 66,414 68,722
Deferred Income Taxes 358,504 358,504
----------- -----------
1,214,026 1,304,505
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Shareholders' Equity
Share capital 16,033 15,935
Contributed surplus 3,475,597 3,475,695
Treasury stock (339,573) (339,573)
Retained earnings 1,648,987 1,546,730
Cumulative translation adjustment (50,195) (117,957)
----------- -----------
4,750,849 4,580,830
----------- -----------
$ 5,964,875 $ 5,885,335
=========== ===========
1
<PAGE>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Operations
(Unaudited)
Three Months Ended
--------------------------
April 30, April 30,
1999 1998
---- ----
Sales $ 1,835,787 $ 1,085,596
Cost of sales 1,243,125 740,392
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Gross Profit 592,662 345,204
----------- -----------
Expenses
Depreciation 46,807 42,951
Research and development 113,930 102,598
Selling and distribution 133,977 79,306
General and administrative 153,104 109,351
Provision for profit sharing 16,542 3,530
Interest (30,926) (24,261)
----------- -----------
433,434 313,475
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Income before income taxes 159,228 31,729
Income taxes - current 56,972 9,625
----------- -----------
Net Income for the period $ 102,256 22,104
----------- -----------
Net income per share of common stock $ 0.0708 $ .0145
=========== ===========
Weighted average common shares outstanding
(after deducting 158,872 shares of treasury stock
held by the Company) 1,444,417 1,519,405
----------- -----------
See accompanying notes.
2
<PAGE>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------------
April 30 April 30
1999 1998
---- ----
Increase (Decrease) in Cash
Cash Flows From:
Operating Activities
Net Income for the period $ 102,256 $ 22,104
Depreciation 46,807 42,951
Net change in non-cash working capital (92,365) 352,758
Cumulative translation adjustment 67,762 21,213
----------- -----------
Net cash from operating activities 124,460 439,026
----------- -----------
Financing Activities
Increase in obligation under capital lease -- 161,569
Repayment of capital lease (7,893) (8,825)
Increase (decrease) in bank indebtedness 148,416
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Net cash (used in) financing activities (7,893) 301,160
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Investing Activities
Repayment of note receivable 506,806 --
Purchase of capital assets (91,011) (247,470)
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Net cash (used in) investing activities 415,795 (247,470)
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Increase in cash during the period 532,362 492,716
Cash and equivalents, beginning of period 2,110,535 1,645,953
----------- -----------
Cash and equivalents, end of period $ 2,642,897 $ 2,138,669
=========== ===========
Changes in non-cash working capital
Accounts receivable (36,807) 407,27
Inventories 20,720 79,415
Prepaid expense 6,307 6,726
Accounts payable and accrued liabilities (135,459) (46,529)
Income taxes payable 52,874 (94,124)
----------- -----------
$ (92,365) $ 352,758
=========== ===========
3
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financial Statement
April 30, 1999
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
those which are normal and recurring in nature) necessary to present fairly
the financial position of the Company as of April 30, 1999 and the results
of operations and cash flows for the three month periods ended April 30,
1999 and 1998
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 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 Form 10K-SB 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:
April 30, April 30,
1999 1998
---- ----
Raw materials $429,496 $496,338
Work-in-progress 86,402 76,535
Finished goods 114,850 102,718
Supplies 22,220 17,774
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$652,968 $693,365
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5. Bank Indebtedness
April 30, April 30
1999 1998
---- ----
Revolving Bank loan $ -- $148,416
======== ========
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, 6.5%-April 30, 1999, 6.5%-April 30, 1998) plus 1/2%. This line of
credit is renewable annually.
The following have been provided as collateral for these loans:
(a) general assignments of accounts receivable and inventories.
(b) a Cdn. $2,000,000 demand debenture granting a first fixed charge on
certain equipment and a flowing charger over all other assets of the
Company.
(c) an unlimited guarantee by the Company and its subsidiary, Glas-Aire
Industries Ltd.
6. Net 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.
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
- --------------------------------------------------------------------------------
Information contained in the following discussion of results of operations
and financial condition of the Company contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of words such as "may," "will," "expect,"
"anticipate," "estimate," or "continue," or variations thereon or comparable
terminology. In addition, all statements other than statements of historical
facts that address activities, events or developments that the company expects,
believes or anticipates, will or may occur in the future, and other such
matters, are forward-looking statements. The following discussion should be read
in conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein. The Company's future operating results may be
affected by various trends and factors which are beyond the Company's control.
These include, among other factors, competitive conditions within the automotive
industry, fluctuations in demand for the Company's products, and other uncertain
business conditions that may affect the Company's business. The Company cautions
the reader that a number of important factors discussed herein, and in other
reports filed with the Securities and Exchange Commission, could affect the
Company's actual results and cause actual results to differ materially from
those discussed in forward-looking statements.
Changes in Results of Operations: Three months ended April 30, 1999 compared to
three months ended April 30, 1998
- --------------------------------------------------------------------------------
The Company sales increased by 69% from $1,085,596 for the three months
ended April 30, 1998, to $1,835,787 for the three months ended April 30, 1999.
This improvement in sales was the result of sales to new customers, sales of new
parts, and volume increase in sales orders from existing customers.
Gross profit margin, expressed as a percentage of sales, was 32% for the
three months ended April 30, 1999 and April 30, 1998 respectively
Depreciation expense increased by 9% from $42,951 for the three months
ended April 30, 1998, to $46,807 for the three months ended April 30, 1999. This
increase was the result of bringing new equipment into service.
Expenses for research and development increased by 11% from $102,598 for
the three months ended April 30, 1998 to $113,930 for the three months ended
April 30, 1999. This increase resulted from R&D activities relating to a number
of new projects that led to (i) an increase in usage of outside contractors to
accommodate an increase in product development activities, and (ii) an increase
in travel expenses to customers to provide extra services related to new design.
Selling and distribution expenses increased by 69%, from $79,306 for the
three months ended April 30, 1998, to $133,977 for the three months ended April
30, 1999. This increase was primarily due to (i) the increase of $30,644 in
commission expenses associated with the increase in sales, (ii) an increase of
$3,677 in advertising and promotion expenses, (iii) a decrease of $2,016 in
travel expenses related to the Company's marketing efforts which have been
deferred to May 1999, and (iv) $22,366 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 40% from $109,351 for the
three months ended April 30, 1998, to $153,104 for the three months ended April
30, 1999. This was the result of (i) an increase of $5,061 due to additional
maintenance support fees paid to the EDI program as required by our major
customers, (ii) a loss on foreign exchange of $25,912, (iii) an increase of
$14,015 in consulting and legal fees and the preparation of special reports to
investors, and (iv) a decrease in cash discount and other administration costs
of $1,235.
5
<PAGE>
The provision for profit sharing increased from $3,530 for the three months
ended April 30, 1998, to $16,542 for the three months ended April 30, 1999, as a
result of the increase in profit.
Interest income (net of interest expense) increased by 27% from $24,261 for
the three months ended April 30, 1998, to $30,926 for the three months ended
April 30, 1999. This was the net result of interest earned on cash deposits not
required for current working capital.
Liquidity and Capital Resources
- -------------------------------
Working capital at April 30, 1999, was $3,524,006 as compared to $3,400,499
at January 31, 1999. The increase reflects the positive results of operations
for the quarter. During the next six months the company anticipates making
capital expenditures of approximately $650,000. The Company will continue to
fund its operations, as well as the projected Capital expenditures, through
internally generated funds and available cash and cash equivalents.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
a) Exhibits: There are no exhibits for the three months ended April 30, 1999.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended April 30, 1999.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 13, 1999
GLAS-AIRE INDUSTRIES GROUP LTD.
/s/ Alex Y.W. Ding
-------------------------------------------
Alex Y.W. Ding
President and Chief Operating Officer
7
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<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 2,642,897
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<INVENTORY> 652,968
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<BONDS> 424,918
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<COMMON> 16,033
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<SALES> 1,835,787
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<CGS> 1,243,125
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<OTHER-EXPENSES> 433,434
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<INCOME-PRETAX> 159,228
<INCOME-TAX> 56,972
<INCOME-CONTINUING> 102,256
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