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, 2000
----------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _________ to ________
Commission file number 1-14244
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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
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Issuer's Common Stock:
---------------------
Common Stock, $0.01 par value-Issued 2,637,587 shares with 207,019 shares in
Treasury as of October 31, 2000.
<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, 2000 and January 31, 2000 1
Consolidated Condensed Statement of Operations
for the three months ended October 31, 2000 and 1999,
and nine months ended October 31, 2000 and 1999 2
Consolidated Statement of Stockholders' Equity -
October 31, 2000 3
Consolidated Condensed Statement of Cash Flow
for nine months ended October 31, 2000 and 1999 4
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
-ii-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
Glas Aire Industries Group Ltd.
Consolidated Condensed Balance Sheet
October 31, January 31,
2000 2000
(Unaudited) (Audited)
Assets
Current
Cash and equivalents $ 512,631 $ 650,018
Accounts receivable 1,826,581 1,854,442
Income taxes receivable 151,712 0
Inventories 1,208,231 824,291
Prepaid expenses 96,107 150,953
----------- -----------
3,795,262 3,479,704
Fixed assets, net 1,962,148 2,020,189
Investments in parent company 3,885,834 3,581,059
----------- -----------
$ 9,643,244 $ 9,080,952
=========== ===========
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ 61,873 $ 118,262
Accounts payable 839,052 974,437
Accrued liabilities 445,734 302,763
Incomes taxes payable 65,200 111,588
Current portion - capital lease 49,043 72,822
----------- -----------
1,460,902 1,579,872
Obligation under capital lease 90,037 123,198
Deferred income taxes 446,826 446,826
----------- -----------
1,997,765 2,149,896
Shareholders' Equity
Share capital 26,376 20,467
Contributed surplus 7,773,088 5,186,701
Retained earnings 342,929 2,087,136
Cumulative translation adjustment (157,341) (23,675)
Treasury stock (339,573) (339,573)
----------- -----------
7,645,479 6,931,056
----------- -----------
$ 9,643,244 $ 9,080,952
=========== ===========
See accompanying notes
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<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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 3,513,329 $ 2,804,751 $ 8,440,888 $ 7,018,027
Cost of sales 2,436,431 1,971,964 5,911,366 4,813,208
----------- ----------- ----------- -----------
Gross profit 1,076,898 832,787 2,529,522 2,204,819
----------- ----------- ----------- -----------
Expenses
Depreciation 70,116 60,571 204,662 170,544
Research and development 139,352 78,779 386,308 305,838
Selling and distribution 258,083 219,530 649,541 539,959
General and administrative 191,728 136,460 592,929 419,067
Provision for profit sharing 39,939 37,652 71,523 87,917
Interest, net (1,230) (8,417) (7,973) (67,846)
----------- ----------- ----------- -----------
697,988 524,575 1,896,990 1,455,479
----------- ----------- ----------- -----------
Income before income from equity
investment and income tax expense 378,910 308,212 632,532 749,340
Income from equity investment 118,396 92,524 304,775 92,524
----------- ----------- ----------- -----------
Income before income taxes 497,306 400,736 937,307 841,864
Income taxes - current 139,978 112,270 230,499 269,121
----------- ----------- ----------- -----------
Net income for the period $ 357,328 $ 288,466 $ 706,808 $ 572,743
=========== =========== =========== ===========
Earnings per share - basic and diluted $ 0.149 $ 0.135 $ 0.310 $ 0.263
=========== =========== =========== ===========
Weighted average number of shares
outstanding adjusted for 207,019
shares of treasury stock 2,400,162 2,131,227 2,276,848 2,176,060
----------- ----------- ----------- -----------
See accompanying notes
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Statement of Stockholders' Equity Third Quarter Ended October 31, 2000
Accumulated
Additional Other Total
Common Stock Paid-in Retained Treasury Comprehensive Stockholder'
Stock Amount Capital Earnings Stock Income Equity
----------------------------- --------- ----------- ---------- ----------- ---------- ----------- ------------
Balance -
<S> <C> <C> <C> <C> <C> <C> <C>
January 31, 2000 2,046,730 $ 20,467 $5,186,701 $ 2,087,136 $ (339,573) $ (23,675) $ 6,931,056
----------------------------- --------- ----------- ---------- ----------- ---------- ----------- ------------
Net income -- -- -- 706,808 -- -- 706,808
----------------------------- --------- ----------- ---------- ----------- ---------- ----------- ------------
Stock issues 31,510 315 140,963 -- -- -- 141,278
----------------------------- --------- ----------- ---------- ----------- ---------- ----------- ------------
Stock dividends 559,347 5,594 2,445,424 (2,451,018) -- -- --
----------------------------- --------- ----------- ---------- ----- ----- ---------- ----------- ------------
Foreign currency
Translation adjustment -- -- -- -- -- (133,666) (133,666)
----------------------------- --------- ----------- ---------- ----------- ---------- ----------- ------------
Balance -
October 31, 2000 2,637,587 $ 26,376 $7,773,088 $ 342,926 $ (339,573) $ (157,341) $ 7,645,479
----------------------------- --------- ----------- ---------- ----------- ---------- ----------- ------------
See accompanying notes
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Glas Aire Industries Group Ltd.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Nine Months Ended
October 31, October 31,
2000 1999
---- ----
Increase (decrease) in cash
Cash flows from:
Operating Activities
<S> <C> <C>
Net income for the period $ 706,808 $ 572,743
Depreciation 204,662 170,544
Net change in working capital (491,744) (361,268)
Stock issued for services 141,278
Income from equity investment (304,775) (92,524)
----------- -----------
Net cash from operating activities 256,229 289,495
----------- -----------
Financing Activities
Increase in obligation under capital lease 5,683
Repayment of capital lease (62,623) (43,039)
Increase (decrease) in bank indebtedness (56,389) 62,310
Common stock issued -- 1,359,340
-----------
Net cash provided by (used in) financing activities (113,329) 1,378,611
----------- -----------
Investing Activities
Repayment of note receivable -- 506,806
Purchase of fixed assets (146,621) (364,218)
Investment in parent company -- (3,327,340)
-----------
Net cash (used in) investing activities (146,621) (3,184,752)
----------- -----------
Cumulative translation adjustment (133,666) 52,039
----------- -----------
(Decrease) in cash during the period (137,387) (1,464,607)
----------- -----------
Cash and equivalents, beginning of period 650,018 2,110,535
----------- -----------
Cash and equivalents, end of period $ 512,631 $ 645,928
=========== ===========
See accompanying notes
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</TABLE>
<PAGE>
Nine Months Ended
October 31, October 31,
2000 1999
---- ----
Changes in working capital
Accounts receivable $ 27,861
($548,476)
Inventories (383,940) (178,280)
Income taxes recoverable (151,712)
Prepaid expense 54,847 (187,686)
Accounts payable (135,385) 431,333
Accrued liabilities 142,971 100,000
Income taxes payable (46,386) 21,841
--------- ---------
$(491,744) $(361,268)
========= =========
Supplemental disclosure of cash flow relating to:
Interest expense $ 26,301 $ 8,809
Income taxes $ 564,461 $ 254,863
On July 31, 1999 the Company issued 288,000 shares of its common stock in
exchange for 1,188,000 shares of common stock of Regency Affiliates, Inc. (RAI).
Regency Affiliates, Inc. currently own approximately 50% of the Company's
outstanding common stock.
On August 4, 1999, the Company acquired 2,852,375 shares of common stock of
Regency Affiliates, Inc. (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. Glas-Aire currently owns approximately 23.4% of
RAI's outstanding common stock.
See accompanying notes
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<PAGE>
Glas Aire Industries Group Ltd.
Notes to Consolidated Condensed Financing Statement
October 31, 2000
1. In the opinion of the Company, the accompanying unaudited, consolidated,
condensed financial statement contains all adjustments (consisting of only
those which are normal and recurring in nature) necessary to fairly present
the financial position of the Company as of October 31, 2000 and the
results of operations and cash flows for each of the periods ending October
31, 1999 and 2000.
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 10-KSB with the Securities
and Exchange Commission for the fiscal year ended January 31, 2000.
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, January31,
2000 2000
---- ----
Raw materials $874,438 $ 468,943
Work-in-progress 246,497 204,961
Finished goods 87,296 150,387
---------- ---------
$1,208,231 $ 824,291
---------- ---------
5. Changes to share capital during the period are as follows:
(a) On February 1, 2000, the Company issued 12,300 shares of its common
stock to the principals of an investor relations company in return for
services. Common stock and contributed surplus increased by $123 and
$69,363 respectively.
(b) On March 9, 2000, the Company issued 2,875 shares of its common stock
to an investor relations company in return for services. Common stock
and contributed surplus increased by $29 and $17,756 respectively.
(c) Pursuant to a 21% stock dividend declared March 06, 2000, 432,408
shares of common stock were issued on March 10, 2000. On March 10,
2000 the common stock was trading at $10.88 for a total fair value of
$4,704,599. Cumulative retained earnings at March 10, 2000 were
$2,160,426. The stock dividend has been accounted for, in part, by a
transfer of $2,156,102 from retained earnings to contributed surplus.
The balance has been accounted for as a distribution at par value of
the stock issued.
(d) On May 18, 2000, the Company issued 8,496 shares of its common stock
to its directors as compensation for serving as directors. Common
stock and contributed surplus increased by $85 and $29,915
respectively.
(e) On June 15, 2000, the Company issued 62,588 shares of its common stock
as a stock dividend representing 2.5% of 2,502,809 common shares
outstanding. On June 15, 2000 the common stock was trading at $4.44
for a total fair value of $277,734. Cumulative retained earnings at
June 15, 2000 were $93,517. The stock dividend has been accounted for,
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<PAGE>
in part, by a transfer of $92,891 from retained earnings to
contributed surplus. The balance has been accounted for as a
distribution at par value of the stock issued.
(f) On August 24, 2000, the Company issued 7,839 shares of its common
stock to its management employees pursuant to employment agreements.
Common stock and contributed surplus increased by $78 and $23,929
respectively.
(g) On September 13, 2000, the Company issued 64,351 shares of its common
stock as a stock dividend representing 2.5% of 2,573,236 common shares
outstanding. On September 13, 2000 the common stock was trading at
$3.06 for a total fair value of $197,075. Cumulative retained earnings
at September 13, 2000 were $275,270. The stock dividend has been
accounted for, in part, by a transfer of $196,431 from retained
earnings to contributed surplus. The balance has been accounted for as
a distribution at par value of the stock issued.
6. Summarized financial information for Regency Affiliates, Inc. for the three
months and nine months ended September 30, 2000 is as follows:
Three Months Nine Months
Sept. 30, 2000 Sept. 30,2000
-------------- -------------
Sales $4,268,915 $9,379,262
========== ==========
Loss from operations $ 89,866 $ 939,733
========== ==========
Net income $ 585,023 $1,417,624
=========== ==========
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended October 31, 2000 vs Three Months Ended October 31, 1999
The Company's sales increased by 25.3% to $3,513,329 for the three months
ended October 31, 2000, compared to $2,804,751 for the three months ended
October 31, 1999. This increase was primarily due to (i) sales to new customers,
(ii) sales of new parts to existing customers, (iii) volume increase in sales
orders from existing customers, and (iv) a special promotion from a major
customer.
Gross profit margins expressed as a percentage of sales, increased slightly
from 29.7% for the three months ended October 31, 1999, to 30.7% for the three
months ended October 31, 2000. This increase was due to (i) an increase in
direct labor and overhead cost by 2.1%, (ii) a decrease in material cost by
0.8%, (iii) a decrease of 1.1% in cash discount, and (iv) a decrease of 1.2% in
major repair maintenance.
Depreciation expense increased by 15.8% from $60,571 for the three months
ended October 31, 1999, to $70,116 for the three months ended October 31, 2000.
This increase was the result of adding new equipment into service.
Expenses for research and development increased by 76.9% from $78,779 for
the three months ended October 31, 1999, to $139,352 for the three months ended
October 31, 2000. This increase was due to (i) an increase of $62,038 or 78.7%
in the labor, research and development supplies, and the usage of outside
contractors to accommodate research and development for Matched Compression
Molding activities, (ii) an increase of $8,261 or 10.5% in the number of
engineering personnel conducting in-house activities, and (iii) a decrease of
$9,726 or 12.3% in travel expenses to customers relating to new designs.
Selling and distribution expenses increased by 17.6% from $219,530 for the
three months ended October 31, 1999, to $258,083 for the three months ended
October 31, 2000. This increase was primarily due to (i) an increase of $13,923
or 6.3% in commission expenses associated with the increase in sales, (ii) an
increase of $18,888 or 8.6% in warranty claims due to a major design change
requested by the Company's largest customer, (iii) an increase of $13,293 or
6.1% in advertising promotional expenses due to the major marketing efforts by
one of the Company's largest customers, and (iv) an increase of $5,785 or 2.6%
resulting from a new employment contract, and (v) a decrease of $13,336 or 6% in
travel and other selling and distribution costs.
General and administrative expenses increased by 40.5% from $136,460 for
the three months ended October 31, 1999, to $191,728 for the three months ended
October 31, 2000, as a result of (i) an increase of $17,893 or 13% in consulting
fees (Public Relations), (ii) an increase of $15,000 or 11% in director's fees,
(iii) an increase of $9,126 or 6.7% in rent and other administration costs due
to additional office space, (iv) an increase of $18,114 or 13.3% due to an
increase in employees for administration, (v) an increase of $5,800 or 4.3%
related to the Company's merger and acquisition expenses, and (vi) a decrease of
$10,665 or 7.8% in travel expenses.
Provision for profit sharing increased from $37,652 for the three months
ended October 31, 1999, to $39,939 for the three months ended October 31, 2000,
This increase was the result of an increase in income.
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<PAGE>
Interest income (net of interest expense) decreased by 85.4% from $8,417
for the three months ended October 31, 1999, to $1,230 for the three months
ended October 31, 2000. This was the result of (i) an increase in interest
expenses of $4,585 due to the leasing of new equipment and to a new temporary
bank loan, and (ii) an interest earnings decrease of $2,602 resulting from the
reduction in the Company's liquid assets earning interest. The Company
substantially reduced its liquid assets by investing in the common stock of
Regency Affiliates, Inc. in 1999.
The Company's income from operations increased 22.9% from $308,212 for the
three months ended October 31, 1999, to $378,910 for the three months ended
October 31, 2000. This increase in income resulted primarily from higher sales.
The Company accrued income taxes of $112,270 for the three months ended
October 31, 1999, compared to $139,978 for the three months ended October 31,
2000, reflecting the increase in taxable income.
The Company accrued $118,396 of income as a result of its investment in
Regency Affiliates, Inc. reflecting its share of Regency's net income for the
three months ended September 30, 2000.
As a result of the foregoing, net income increased 23.87% from $288,466 for
the three months ended October 31, 1999, to $357,328 for the three months ended
October 31, 2000.
Nine Months Ended October 31, 2000 vs Nine Months Ended October 31, 1999
The Company's sales increased by 20.3% to $8,440,888 for the nine months
ended October 31, 2000, compared to $7,018,027 for the nine months ended October
31, 1999. 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, (iv) additional orders from existing customers, and (v) a special
promotion done for the company by one of our major customers.
The gross profit margin expressed as a percentage of sales, decreased from
31.4% for the nine month period ended October 31, 1999, to 30% for the nine
months ended October 31, 2000. This net decrease of 1.4% was primarily due to
(i) a 10% price reduction as requested by the company's largest customer
effective April 2000, (ii) an increase in direct labor and overhead charges, and
(iii) an increase in material cost.
Depreciation expense increased by 20% from $170,544 for the nine months
ended October 31, 1999, to $204,662 for the nine months ended October 31, 2000.
This increase was the result of adding new equipment into service.
Expenses for research and development increased by 26.3% from $305,838 for
the nine months ended October 31, 1999, to $386,308 for the nine months ended
October 31, 2000. This increase was due to (i) an increase of $33,737 or 11%
primarily relating to the number of engineering personnel conducting in-house
activities, (ii) an increase of $59,015 or 19.3% in labor, research and
development supplies and the usage of outside contractors to accommodate
research and development for Marched Compression Molding activities, and (iii) a
decrease of $12,282 or 4% in travel expenses to customers to relating to new
designs.
Selling and distribution expenses increased by 20.3%, from $539,959 for the
nine months ended October 31, 1999, to $649,541 for the nine months ended
October 31, 2000. This increase was primarily due to (i) an increase of $53,257
or 9.9% in commissions expenses resulting from volume increase in sales, (ii) an
increase in warranty claims of $42,589 or 7.9% due to a major design change
requested by the Company's largest customer, (iii) a decrease of $11,241 or 2%
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in travel expenses and advertising, and (iv) an increase of $24,977 or 4.5%
resulting from a new employment contract and other operating cost.
General and administrative expenses increased by 41.5% from $419,067 for
the nine months ended October 31, 1999, to $592,929 for the nine months ended
October 31, 2000, as a result of (i) an increase of $102,914 in public relations
consulting fees, (ii) an increase of $17,856 travel and other expenses related
to the Company's Merger & Acquisition activities, (iii) an increase of $45,000
in directors' fees, (iv) an increase in employees for administration of $36,163
(v) a decrease of $12,000 due to the cancellation of a management contract, and
(vi) a decrease in administration cost of $16,071 relating to the preparation of
annual reports to all investors.
Provision for profit sharing decreased by 18.6% from $87,917 for the nine
months ended October 31, 1999, to $71,523 for the nine months ended October 31,
2000, as a result of the decrease in profit.
Interest income (net of interest expense) decreased by 88.2% from $67,846
for the nine months ended October 31, 1999, to $7,973 for the nine months ended
October 31, 2000. This decrease is due primarily to (i) an increase of $11,306
in interest expenses due to additional leasing of equipment, and (ii) a decrease
interest income of $48,566 resulting from the reduction in the Company's liquid
assets earning interest. The Company substantially reduced its liquid assets by
investing in the common stock of Regency Affiliates, Inc. in 1999.
The Company's income before income from equity investment decreased by
15.6% from $749,340 for the nine months ended October 31, 1999, to $632,532 for
the nine months ended October 31, 2000. This decrease in income was primarily
from higher operating cost.
The Company accrued $304,775 of income as a result of its investment in
Regency Affiliates, Inc. reflecting the Company's share of Regency's net income
for the nine months ended September 30, 2000.
The Company accrued income taxes of $269,121 for the nine months ended
October 31, 1999, compared to $230,499 for the nine months ended October 31,
2000. The decrease in the tax provision was the result of the decrease in
pre-tax income.
Financial Condition and Liquidity
Working capital was $2,334,360 at October 31, 2000 compared to $1,899,832
at January 31, 2000. This increase reflects the positive results of operations
for the period. During the next six months the Company anticipates making total
capital expenditures of approximately $550,000. The company will continue to
fund its operations, through internally generated funds and available cash and
cash equivalents, and fund anticipated capital expenditures through capital
leases or additional bank financing.
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 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
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<PAGE>
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.
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, 2000.
b) There were no reports filed on Form 8-K filed for the quarter ended October
31, 2000.
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<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 14, 2000 GLAS-AIRE INDUSTRIES GROUP LTD.
-----------------
By: /s/ Alex Ding
----------------------------------
Alex Ding, President
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