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, 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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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'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
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Issuer's Common Stock:
- ----------------------
Common Stock, $0.01 par value-Issued 1,977,289 shares with 158,872 shares in
Treasury as of October 31, 1999.
<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 -
October 31, 1999 and January 31, 1999 1
Consolidated Condensed Statement of Operations
for the three months ended October 31, 1999 and 1998,
and for the nine months ended October 31, 1999 and 1998 2
Consolidated Condensed Statement of Cash Flow for
the three months ended October 31, 1999 and 1998
and for the nine months ended October 31, 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 6-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
ii
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
October 31, January 31,
1999 1999
(Unaudited) (Audited)
----------- ---------
Assets
Current
Cash and equivalents $ 645,928 $ 2,110,535
Accounts receivable 1,501,765 953,289
Note receivable 506,806
Inventories 851,968 673,688
Prepaid expenses 221,147 33,460
----------- -----------
3,220,808 4,277,778
Fixed assets 1,801,231 1,607,557
Investments in related party 3,419,864
----------- -----------
$ 8,441,903 $ 5,885,335
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ 62,310 $ --
Accounts payable and accrued liabilities 1,264,845 733,512
Incomes taxes payable 125,556 94,712
Current portion - capital lease 45,305 49,055
----------- -----------
1,498,016 877,279
Obligation under capital lease 29,433 68,722
Deferred income taxes 358,504 358,504
----------- -----------
1,885,953 1,304,505
----------- -----------
Shareholders' Equity
Share capital 19,773 15,935
Contributed surplus 4,831,197 3,475,695
Treasury stock (339,573) (339,573)
Retained earnings 2,110,476 1,546,730
Cumulative translation adjustment (65,923) (117,957)
----------- -----------
6,555,950 4,580,830
----------- -----------
$ 8,441,903 $ 5,885,335
----------- -----------
See accompanying notes.
<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,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 2,804,751 $ 1,909,250 $ 7,018,027 $ 4,763,578
Cost of sales 1,971,964 1,241,307 4,813,208 3,153,330
----------- ----------- ----------- -----------
Gross profit 832,787 667,943 2,204,819 1,610,248
----------- ----------- ----------- -----------
Expenses
Depreciation 60,571 47,464 170,544 138,440
Research and development 78,779 117,516 305,838 303,488
Selling and distribution 219,530 104,634 539,959 279,033
General and administrative 136,460 123,243 419,067 327,325
Provision for profit sharing 37,652 29,101 87,917 60,651
Interest (8,417) (22,362) (67,846) (49,701)
----------- ----------- ----------- -----------
524,575 399,596 1,455,479 1,059,236
----------- ----------- ----------- -----------
Income from operations 308,212 268,347 749,340 551,012
Equity earnings 92,524 92,524
Income taxes - current 112,270 102,967 269,121 187,806
----------- ----------- ----------- -----------
Net Income for the period $ 288,466 $ 165,380 $ 572,743 $ 363,206
----------- ----------- ----------- -----------
Net income per share of common stock $ 0.184 $ 0.113 $ 0.365 $ 0.249
Weighted average common shares
outstanding (after deducting 158,872 shares
of treasury stock held by the Company) 1,567,272 1,458,301 1,567,272 1,458,301
----------- ----------- ----------- -----------
See accompanying notes
-2-
<PAGE>
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,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Increase (decrease) in cash
Cash flows from:
Operating Activities
Net income $ 288,466 $ 165,380 $ 572,743 $ 363,206
Depreciation 60,571 47,464 170,544 138,440
Net change in non-cash working capital (186,149) 47,567 (361,268) 373,790
Cumulative translation adjustment 49,022 (54,952) 52,039 (86,037)
Undistributed equity earnings (92,524) (92,524)
----------- ----------- ----------- -----------
Net cash from operating activities 119,386 205,459 341,534 789,399
Financing Activities
Increase in obligation under capital lease 161,569
Repayment of capital lease (11,967) (15,811) (43,039) (41,588)
Purchase of treasury stock (46,354) (58,542)
Increase in bank indebtedness 62,310 62,310
Common stock 313,900 1,359,340
----------- ----------- ----------- -----------
Net cash (used in) financing activities 364,243 (62,165) 1,378,611 61,439
----------- ----------- ----------- -----------
Investing Activities
Repayment of note receivable 506,806
Purchase of capital assets (223,864) 8,960 (364,218) (282,983)
Investments in related party (2,281,900) (3,327,340)
----------- ----------- ----------- -----------
Net cash (used in) investing activities (2,505,764) 8,960 (3,184,752) (282,983)
----------- ----------- ----------- -----------
Increase (decrease) in cash during the period (2,022,135) 152,254 (1,464,607) 567,855
Cash and equivalents, beginning of period 2,668,063 2,061,554 2,110,535 1,645,953
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 645,928 $ 2,213,808 $ 645,928 $ 2,213,808
----------- ----------- ----------- -----------
Changes in non-cash working capital
Accounts receivable $ (396,677) $ (43,993) $ (548,476) $ 75,021
Inventories (50,724) (13,061) (178,280) 132,659
Prepaid expense (127,708) 18,502 (187,686) 2,157
Accounts payable and accrued liabilities 320,754 58,161 531,333 156,796
Income taxes payable 68,206 27,958 21,841 7,157
----------- ----------- ----------- -----------
$ (186,149) $ 47,567 $ (361,268) $ 373,790
=========== =========== =========== ===========
See accompanying notes
-3-
</TABLE>
<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financing Statement
October 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 October 31, 1999 and the results of
operations as well as cash flows for the three and nine-month periods ended
October 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 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 and
footnotes thereto included in the Company's Annual Report 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:
October 31, October 31,
1999 1998
--------- ----------
Raw materials $ 493,342 $ 386,959
Work-in-progress 161,916 71,875
Finished goods 175,962 158,443
Supplies 20,748 22,844
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$ 851,968 $ 640,121
--------- ----------
5. Bank Indebtedness October 31, October 31,
1999 1998
--------- ----------
Revolving bank loan $ 62,310 $ 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% October 31, 1999, 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.
6. Income per share is calculated by dividing the weighted average number of
shares of common stock outstanding each period into the 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>
7. On August 4, 1999, the Company acquired 2,852,375 shares of common stock of
Regency Affiliates, Inc. ("RAI") (OTC, Bulletin Board, 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
shares of RAI. RAI net income for year of 1998 was $1,794,560. For the
first nine months in 1999 their net income was $1,410,645, (including RAI's
respective share of Glas-Aire earnings from May 1, 1999) as compared to
$1,198,677 for the same period in 1998.
8. The Company, using the equity method of accounting for its investment in
RAI recorded 26.1% ($92,524) of its share of RAI earnings (net of Glas-Aire
earnings reported by RAI) for the period ended October 31, 1999.
-5-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Three Months Ended October 31, 1999 vs Three Months Ended October 31, 1998
The Company's sales increased by 47% to $2,804,751 for the three months
ended October 31, 1999, compared to $1,909,250 for the three months ended
October 31, 1998. This increase was primarily due to (i) new sales of $234,000
or 26% generated by new customers, and (ii) sales of new parts and volume
increase in sales orders from existing customers.
Gross profit margins expressed as a percentage of sales, decreased slightly
from 35% for the three months ended October 31, 1998 to 30% for the three months
ended October 31, 1999. This decrease was due to (i) an increase in material
cost by 3%, and (ii) an increase in direct labor and overhead cost by 2%.
Depreciation expense increased by 28% from $47,467 for the three months
ended October 31, 1998, to $60,571 for the three months ended October 31, 1999.
This increase was the result of adding new equipment into service.
Expenses for research and development decreased by 33% from $117,516 for
the three months ended October 31, 1998 to $78,779 for the three months ended
October 31, 1999. This decrease was due to (i) the decrease of $56,785 or 48% in
the usage of outside contractors to accommodate an increase in research and
development activities, (ii) an increase of $35,897 or 31% in the number of
engineering personnel conducting in-house activities, and (iii) an increase of
$17,849 or 16% in travel expenses to customers to provide extra services related
to new design.
Selling and distribution expenses increased by 110% from $104,634 for the
three months ended October 31, 1998 to $219,530 for the three months ended
October 31, 1999. This increase was primarily due to (i) an increase of $40,772
or 39% in commission and warranty expenses resulting from the increase in sales,
(ii) an increase of $39,910 or 38% in travel and promotional expenses related to
the Company's marketing efforts, and (iii) an increase of $34,214 or 33%
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 11% from $123,243 for the three
months ended October 31, 1998, to $136,460 for the three months ended October
31, 1999, as a result of (i) an increase of $7,500 in consulting fees (Public
Relations), (ii) an increase of $4,143 travel expenses related to the Company's
M & A (Merger & Acquisition), (iii) an increase of $11,474 due to increase in
the number of persons employed in administration, (iv) a decrease of $12,000 due
to cancellation of management contracts, and (v) an increase of $2,100 due to
additional maintenance support fees paid to the EDI program as required by our
major customers.
Provision for profit sharing increased from $29,101 for the three months
ended October 31, 1998, to $37,652 for the three months ended October 31, 1999,
This increase was the result of an increase in income.
Interest income (net of interest expense) decreased by 62% from $22,362 for
the three months ended October 31, 1998, to $8,417 for the three months ended
October 31, 1999. This was the result of (i) the decrease in interest earnings
of $15,633 from term deposits during the period which resulted from cash being
invested in RAI, and (ii) an increase in interest expenses of $1,688 due to a
new temporary loan from a bank.
-6-
<PAGE>
The Company's income from operations increased 15% from $268,347 for the
three months ended October 31, 1998, to $308,212 for the three months ended
October 31, 1999. This increase in income resulted primarily from higher sales.
The Company accrued income taxes of $102,967 for the three months ended
October 31, 1998, compared to $112,270 for the three months ended October 31,
1999, reflecting the increase in taxable income.
As a result of the foregoing, net income increased 74% from $165,380 for
the three months ended October 31, 1998, to $288,466 for the three months ended
October 31, 1999.
Nine Months Ended October 31, 1999 vs Nine Months Ended October 31, 1998
The Company's sales increased by 47% to $7,018,027 for the nine months
ended October 31, 1999, compared to $4,763,578 for the nine months ended October
31, 1998. This increase was primarily due to (i) a general increase in
automotive sales, (ii) the addition of new customers, (iii) the sales of new
parts, and (iv) additional orders from existing customers.
The gross profit margin expressed as a percentage of sales, decreased from
34% for the nine month period ended October 31, 1998 to 31% for the nine months
ended October 31, 1999. This net decrease of 3% was primarily due to (i) an
increase in material cost of 2% and (ii) an increase of 1% in direct labor and
overhead charges.
Depreciation expense increased by 23% from $138,440 for the nine months
ended October 31, 1998, to $170,544 for the nine months ended October 31, 1999.
This increase was the result of adding new equipment into service.
Expenses for research and development increased by 1% from $303,488 for the
nine months ended October 31, 1998 to $305,838 for the nine months ended October
31, 1999. This increase was due to (i) an increase of $49,775 or 17% primarily
relating to the number of engineering personnel conducting in-house activities,
(ii) a decrease of $57,028 or 19% in usage of outside contractors to accommodate
in research and development activities and (iii) an increase of $9,603 or 3% in
travel expenses to customers to provide extra services related to new design.
Selling and distribution expenses increased by 94%, from $279,033 for the
nine months ended October 31, 1998, to $539,959 for the nine months ended
October 31, 1999. This increase was primarily due to (i) an increase of $123,182
or 44% in commissions expenses resulting from volume increase in sales, (ii) an
increase in warranty claims of $47,002 or 17%, (iii) an increase of $24,076 or
9% in travel expenses and advertising promotion related to the Company's
marketing efforts, and (iv) $66,666 or 24% 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 28% from $327,325 for the
nine months ended October 31, 1998, to $419,067 for the nine months ended
October 31, 1999, as a result of (i) an increase of $9,500 in consulting fee
(Public Relations), (ii) an increase of $10,620 travel expenses related to the
Company's M & A (Merger & Acquisition) activities, (iii) an increase of $16,050
in consulting and legal fees due to the reorganization and change of control of
the Company, (iv) an increase in the number of persons employed in
administration that resulted in increased expenses of $29,628, (v) a loss in
foreign exchange of $14,097, (vi) an increase in administration cost of $17,189
relating to the preparation of annual reports to all investors, (vii) an
increase of $10,170 due to additional maintenance support fees paid to the EDI
program as required by the company's major customers, (viii) a decrease of
$18,000 due to the cancellation of management contract, and (ix) an increase of
2,488 due to other miscellaneous administration costs.
-7-
<PAGE>
Provision for profit sharing increased by 45% from $60,651 for the nine
months ended October 31, 1998, to $87,917 for the nine months ended October 31,
1999, as a result of the increase in profit.
Interest income (net of interest expense) increased by 37% from $49,701 for
the nine months ended October 31, 1998, to $67,846 for the nine months ended
October 31, 1999. This increase occurred primarily because (i) the Company had
more cash on deposit earning interest, resulting in an increase of $32,089 in
interest income on the first six months, (ii) an increase of approximately $948
in interest expenses from the lease cost of the CNC Milling Machine Centre, and
(iii) the incurring of interest penalties of $12,996 related to the PST
(Provincial Sales Tax) audit performed for the years 1992 to 1997.
The Company's income from operations increased by 36% from $551,012 for the
nine months ended October 31, 1998, to $749,340 for the nine months ended
October 31, 1999. This increase in income was primarily from higher sales.
The Company accrued income taxes of $187,806 for the nine months ended
October 31, 1998, compared to $269,121 for the nine months ended October 31,
1999. The increase in the tax provision was the result of the increase in
pre-tax income.
As a result of the foregoing, net income increased by 58% from $363,206 for
the nine months ended October 31, 1998, to $572,743 for the nine months ended
October 31, 1999. This increase in income was primarily from (i) higher sales,
and (ii) recording $92,524 of equity earnings related to the Company's
investment in RAI.
Financial Condition and Liquidity
Working capital was $1,722,792 at October 31, 1999 compared to $3,400,499
at January 31, 1999. This decrease was the direct result of investments in a
related party (RAI). During the next three months the Company anticipates making
total capital expenditures of approximately $380,000 for the following: (i)
$250,000 for the purchase of two CNC Machines and other equipment, (ii) $60,000
for leasehold improvements, (iii) $50,000 for computer-aided design software and
related hardware, and (iv) $20,000 for the QS9000 (Quality Control
Certification) process
PART II OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security Holders.
a) Annual Meeting held on November 4, 1999.
b) The following directors were elected at the Annual Meeting and
comprise all of the directors of the Company
William Ponsoldt, Sr.
Alex Yie Wing Ding
Chris G. Mendrop
Marc Baldinger
Todd M. Garrett
Craig Grossman
-8-
<PAGE>
c) Each of the proposals submitted to the shareholders at the annual
meeting was approved. The following table sets forth the matters voted
upon at the meeting and the results of the voting.
For Against Abstaining
i) Election of Directors:
William R. Ponsoldt, Sr. 1,163,226 9,132 17,000
Alex Y. W. Ding 1,176,084 11,274 2,000
Chris G. Mendrop 1,180,226 9,132 0
Marc Baldinger 1,161,994 9,132 18,232
Todd M. Garrett 1,178,994 9,132 1,232
Craig Grossman 1,178,994 9,932 1,232
ii) Approve directors' compensation 1,117,391 54,667 17,300
iii) Ratify rescission of cash
dividend previously declared
by Board of Directors 1,123,656 61,128 4,574
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: There are no exhibits for the quarter ended October 31, 1999.
b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended October 31, 1999. However, during the nine months ended
October 31, 1999, 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: December 15 1999 GLAS-AIRE INDUSTRIES GROUP LTD.
----------------
/s/ Alex Ding
-------------------------------
Alex Ding, President
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-QSB for the quarter ended October 31, 1999 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-31-2000 JAN-31-2000
<PERIOD-END> OCT-31-1999 OCT-31-1999
<CASH> 645,928 0
<SECURITIES> 0 0
<RECEIVABLES> 1,501,765 0
<ALLOWANCES> 0 0
<INVENTORY> 851,968 0
<CURRENT-ASSETS> 3,220,808 0
<PP&E> 1,801,231 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 8,441,903 0
<CURRENT-LIABILITIES> 1,498,016 0
<BONDS> 387,937 0
0 0
0 0
<COMMON> 4,850,970 0
<OTHER-SE> 1,704,980 0
<TOTAL-LIABILITY-AND-EQUITY> 8,441,903 0
<SALES> 7,018,027 2,804,751
<TOTAL-REVENUES> 7,018,027 2,804,751
<CGS> 4,813,208 1,971,964
<TOTAL-COSTS> 539,959 219,530
<OTHER-EXPENSES> 915,520 305,045
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 749,340 308,212
<INCOME-TAX> 269,121 112,270
<INCOME-CONTINUING> 572,743 288,466
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 572,743 288,466
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>